Credit Suisse offers tips in taking on the old monster of inflation

Since rising inflation is unavoidable over the long term, investors should gradually adjust their portfolios accordingly, says Stefan Keitel, Global CIO at Credit Suisse

Enormous injections of liquidity by the central banks in response to the euro zone crisis have awoken old fears of inflation in Germany.

Experts and private investors are asking themselves: Does excessive liquidity inevitably result in prolonged inflation? Should the threat of inflation be countered on the investment strategy level? When is the right time to make adjustments?

Concerns about inflation turned out to be premature. Banks have restricted their lending; the rate of consumer saving has continued to rise; companies are not at full capacity, and there is little room for them to pass on costs to consumers.

Particularly in the peripheral regions of the euro zone, moreover, deflation is of greater concern, and ways are being sought to avoid a spiral of deflation and ultimately depression. Thus the central banks will continue to inject liquidity to stimulate the markets.

This, however, coupled with a normalization of the overall situation, will eventually lead to a serious increase in inflation, and not only in the emerging markets.

It is almost impossible to predict the degree to which inflationary surges will occur, and when this will happen. It is therefore wise, in our view, for investors to undertake a gradual adjustment of their portfolios now, given the likelihood of inflation over the long term.

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