Inflation Remains Subdued

October 19, 2015

Inflation Remains Subdued Photo

I had the opportunity to spend most of the past week with Penn Mutual's field leadership in Chicago. The meeting was upbeat, as our leaders continue to grow their agencies and regions. The need for high-quality life insurance products and financial advice remains robust.

One of the top questions I was asked during the week was, "Will interest rates remain low for a prolonged period of time?" The short answer is that I believe interest rates will remain low. The primary reason is that significant global deflationary pressures exist due to demographic, global overcapacity, productivity and consumption trends. The pressures are significant and will not quickly abate. This doesn't mean that interest rates won't rise periodically and post negative price performance, but I do expect over the next several years that increases in yields will present a buying opportunity.

The highlight of the past week's economic data was the release of the U.S. Consumer Price Index (CPI), which showed that inflationary pressures in the U.S. remain low. The September report showed that CPI for the month was 0.0% and that CPI excluding food and energy (core) was 0.2%. This put core CPI at 1.9% for the year. The weakness in inflation continues to be widespread, with only housing showing inflationary pressure.

This doesn't mean that the Federal Reserve (Fed) shouldn't increase interest rates off the zero level. The Fed has kept interest rates at a very low level for the last six years, and a more normalized policy should lead to more equilibrium in the economy and reduce global imbalances, which is good for markets in the intermediate term. Expect the Fed to normalize rates very slowly once they begin to act.

Tags: Monday Morning O'Malley | Inflation | Federal Reserve | Interest Rate

< Go to Monday Morning O'Malley

This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client.  Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results.  All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.

High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.

All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.

Subscribe to Our Publications