SOURCE – Riccardo Barbieri, head of BAS-ML International Economics, Global Rates and Currencies Research

RATIONALE
Investors needn’t worry that runaway inflation will stall economic recovery any time soon, according to Riccardo Barbieri, head of Banc of America Securities-Merrill Lynch International Economics, Global Rates and Currencies Research. The greater short-term risk, he notes, is a prolonged period of low growth and deflation, especially in developed countries. And that risk is even greater in Europe, thanks largely to the approach of its central banks and to the relatively small fiscal-stimulus plans it has enacted.

“It is difficult to generate inflation in a competitive world economy that is seeing rising unemployment,” explains Barbieri, who adds that current rising commodities prices cannot by themselves create sustained high inflation. While current global policies could generate inflation in the long-term, the near-term outlook of Banc of America Securities-Merrill Lynch Research economists is for very low inflation. One sign supporting that view, says Barbieri, is the healthy corporate bond market in the U.S., Europe and Asia.

Still, Barbieri and his colleagues remain bearish on bonds over the medium term, believing that the markets need to price in greater future inflation risks as well as the rise in government debt.

Andrew D. Kahng, CRPC®
Financial Advisor
Merrill Lynch Global Private Client
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