Sunday, April 3, 2011

With inflation increasing globally, will market volatility persist?

In recent months high inflation rates have affected some global economies, while others are monitoring elevated inflation trends. This past week, Bill Simon, CEO of Wal-Mart U.S. said inflation is "going to be serious," and “we're seeing cost increases starting to come through at a pretty rapid rate." His comments join those of other CEOs who have voiced concerns about inflation because of increased oil and commodity prices. Additionally, when the Institute for Supply Management reported that the March US purchasing managers index (PMI) was 61.2 (a reading above 50 represents expansion), its chairman Norbert Ore warned, “there is significant concern with regard to commodity prices. Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins.”

MY TAKE: Factors driving inflation include: 1) increased global demand for goods and services by developing countries, 2) increased oil prices resulting from conflicts in the Middle East and North Africa, 3) shortages of various agricultural commodities and 4) the effects of the U.S. Federal Reserve’s quantitative easing monetary policy. If inflation continues to increase, investors will have to consider the potential for both lower profit margins and lower demand in their investment decisions.

No comments:

Post a Comment