The lead investor in the world”™s largest hedge fund is forecasting the new bump-up inflation will not turn into a new normal.
The consumer price index spiked last month in a 5% year-over-year increase, its highest uptick in 13 years. In an interview with the Financial Times, Bob Prince, the co-chief investment officer at Westport”™s Bridgewater Associates, echoed the sentiments of Federal Reserve officials who said the recent rise in inflation is transitory and will not lead to the “Great Inflation” environment that marred the 1970s economy.
While admitting “you are going to get some inflation,” Prince said it would be “moderate” and would recede as deflationary forces drive down recent price increases.
“There”™s not nearly as much potential for a big inflation cycle from private sector credit and spending,” he said. “The government is having to push pretty darn hard with fiscal stimulation to get things going and in addition when you look at inflation, low inflation is a global phenomenon. It”™s not a U.S. phenomenon.”
Prince said that history would not repeat itself, noting the fiscal policies of a half-century ago are not being repeated today.
“If you go back to the 1970s,”‰you didn”™t have the printing of money back then but you had credit growth,” he continued. “You had very strong collective bargaining (and) labor unions. “You had deregulation of the commodities markets,”‰so you had a spike in commodities, spike in oil prices. You had a lot of things there that don”™t exist today.”
Prince observed that despite the recent price increases, there was “a lot of latent spending still built up in the system” that is showing no signs of abating. But he warned that sustained wage gains by the workforce could precede a “self-reinforcing cycle” of inflation that would become difficult to contain.
“We haven”™t crossed that point yet,” he said. “It”™s still a reasonable possibility.”
