Urban Land Institute conference: US fuelling global inflation

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Inflation has returned to the global landscape, and US monetary policy is quietly encouraging it, top economist Pippa Malmgren has told delegates at a real estate conference in Paris.

Malmgren, president and founder of Principalis Asset Management in the UK, said: “We’ve just had a quite historic series of devaluations in emerging markets.”

The Argentine peso was now down about 40%, and other countries were also affected by the trend including India and Brazil, she said at the annual conference of the Urban Land Institute (ULI).

“This is important because it’s a symptom of a phenomenon in the world economy, and that is the return of inflation in the landscape,” she said.

Malmgren has been special assistant to the US president for economic policy and a member of the president’s working group on financial markets.

Although the US Federal Reserve was on the one hand tightening monetary policy by tapering its quantitative easing policy, it is now also starting to allow higher rates of inflation, she said.

“Obviously, for the property world, (tapering) has huge implications,” she said. “If the liquidity goes away, what does it mean for prices?”

But while the US central bank had indeed announced the beginning of this policy, its members had also “very quietly” signalled greater tolerance on inflation, Malmgren said.

At the end of December, Fed officials changed their unemployment target to 5.5% from 6.5%, and indicated that 2.5% was a better target for inflation that the informal 2% target the Fed had used until then, she said.

Another official had subsequently said that, because inflation had been below the target for so long, it could now afford to be above it.

“Which basically means the US is saying we’re not going to have an inflation target,” she said. “It tells you we’re going to take all of the risks with inflation, and none of the risks with deflation.”

The Fed had also stopped sterilising its market interventions, she said, adding that this meant they were also beginning to stimulate inflation slightly.

“This is a very important thing,” she said.

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