Fund managers warned to prepare for the return of inflation in 2017


The year 2017 will be characterised by a return of inflation bringing with it a serious challenge for both the financial markets and economies globally, according to Pippa Malmgren, an American policy analyst, speaking at the Cayman Alternative Investment Summit (CAIS), which is taking place in the Cayman Islands this week.

In a speech called 'Stop missing the biggest events on the landscape: open your eyes to the non-quantifiable', Malmgren, who in 2016 predicted both the UK’s vote to leave the EU and Donald Trump becoming US president, argued that economies across the globe are about to undergo significant changes, potentially partly driven by inflation.

"Inflation will return in 2017. It has been building in the system for some time and I am astonished anyone sees this as a surprise," Malmgren said. "Inflation will be an important issue in 2017 and many people in the financial markets will not know how to react. They have no memory of inflation – they think it is simple but it is not."

Malmgren explained that inflation will, in part, be triggered by a global debt burden that is not so great it cannot be paid down. Faced with the less attractive options of default or more austerity, many governments will see inflation as the lesser evil, she argued.

As more pressure is placed on society, however, this will also give further rise to political turbulence. "Governments cannot tax their way out of this; debt is bearing down on the very fabric of society and people are starting to say 'if the ends don’t meet, why are these people are in charge?'"

Malmgren advised the audience to open their eyes to the common sense they can perceive around them – as opposed to relying on mathematical models or algorithms. "People know inflation is there – they say it every time they buy a beer or eat at a restaurant. Open your eyes and take a more holistic view," she said.

She added that while inflation would mean economic pain and further political turbulence, good things could also flow from such a place including innovation and further growth.

She also warned that the issue would become a divisive one, especially in Europe, where certain countries including Germany and the Netherlands would not want to "pull the trigger" on inflation whereas many other countries would.

Malmgren also served as special assistant for economic policy to the President of the United States on the National Economic Council and is a former member of the US President's Working Group on Financial Markets. She is the founder of the DRPM Group and co-founder of H Robotics.

Now in its fourth year, CAIS is a not-for-profit event hosted by Dart which uses its experts and expertise to benefit philanthropic efforts both in Cayman and internationally. Its keynote speakers this year included Arnold Schwarzenegger, the former Governor of California, Captains Mark & Scott Kelly, former NASA Astronauts & retired US Navy Captains; and retired DEA Agents Stephen Murphy & Javier Pena, responsible for apprehending the infamous drug lord Pablo Escobar.

CAIS 2017, Cayman Islands, Inflation, Pippa Malmgren

Cayman Funds