Central banks will struggle to control inflation, says Robeco
Despite most central banks targeting inflation of 2%, Dutch investment manager Robeco does not believe they will reach this goal, estimating inflation will hover at 3% in the long term.
From a historical perspective, no country has managed to keep inflation at 2%, Robeco said.
It added that inflation might rise in the aftermath of banking crises triggered by the current eurozone crisis.
The group also noted inflation in emerging markets is higher than in developed markets, and globalisation will no longer be able to substitute for this.
“Looking forward, we suppose that inflation will be around 3%, in the middle of central banks’ targets and empirical reality as measured by the median inflation over the period 1900 to 2011,” the group said.
In this environment Robeco said it expected high quality government bonds to produce a real return of 1.25% per year from 2012-2016. High yield bonds by contrast should return 4.25%, it said.
Robeco’s long-term expected returns for developed market equities is 8%, for emerging markets 8.5% and for frontier markets 8.75%.
It expects real estate to provide returns of 2.4% over equities whereas real estate and hedge funds will slightly under perform equities by 0.1% and 0.9% respectively, it said.