Jupiter’s John Chatfeild-Roberts believes inflation is higher than the level being recorded and investors should be wary of the threat it poses in the longer term.
The firm’s chief investment officer is the latest in a string of high profile investors to warn on the dangers of inflation, following the likes of Pimco's Bill Gross, who last week told his clients to invest only in short duration bonds because 'inflationary dragons' would soon breathe fire.
Jupiter's Chatfeild-Roberts (pictured) said although inflation can be positive for governments because it reduces the real value of public debt, it ultimately eats away at living standards for those whose income is not inflation protected.
Citing the Keynesian phrase ‘euthanasia of the rentier’, Chatfeild-Roberts warned savers should ‘be under no illusions’ as the long-term effect of inflation on their finances.
‘In my view, the consumer price index under-records the actual inflation experienced by many groups of people, particularly those in retirement,’ he explained.
‘Having exposure to investments that offer some protection against higher prices looks like a sensible precaution.’
He explained large multi-national businesses with strong balance sheets are not as cheap as they were but are still resilient amid the low level of global growth.
Their ability to grow dividends through the economic cycle also makes them an attractive option for those seeking long-term income and inflation protection, he added.
Europe still a key issue
Elsewhere, Chatfeild-Roberts said the bond and equity market rally since the European Central Bank (ECB)’s actions to protect the eurozone from collapse could be sustained, assuming the ECB continues to support weaker economies and the US recovery continues.
‘However in reality, not much has changed from a year ago and markets are still facing several long term challenges,’ he went on to caution.
‘The key issue remains Europe. The single currency will only work if Germany is prepared to pay for it – for a very long time.
‘But we don’t underestimate the desire of European politicians to keep the “European project” intact, at almost any price.’
Despite the effort of central banks helping to boost market sentiment, Chatfeild-Roberts highlights problems remain with their ‘solutions.’
‘Low interest rates are leaving savers (who outnumber borrowers eight to one) making a loss after inflation on cash deposits, and weak companies which should have gone to the wall are dramatically slowing the normal sharp economic recovery that follows a recession,’ he said.
‘Furthermore, while printing money through quantitative easing may support financial markets in the short term, it is potentially storing up an inflation problem for the future.’
Nonetheless, the head of Jupiter’s Independent funds team said the euro has recovered from its lows and with the support of the ECB, he has increased exposure to quality companies in the region, at the margin.
‘We also continue to favour the US, with our focus once again on larger multi-nationals,’ he added.