Managers failed to read retail splurge’s inflationary warning

Oxford street shoppersAlthough the rise in UK inflation took fund managers by surprise this week, some of them should have seen it coming…

Yesterday the Office of National Statistics showed that consumer price index (CPI) inflation rose to 0.1% year-on-year in July, defying a consensus for no change.

One theory is that lower energy and food prices spurred greater spending.

“The latest inflation figures show that lower food and energy prices inflation are masking early signs of an increase in domestic inflation. This is being supported by rising wage growth and greater purchasing power for households offered by falling food and energy prices,” says Azad Zangana, senior European economist at Schroders.

He adds that although the rate of inflation remains very low, the latest figures did “surprise to the upside as the consensus was for no change”.

Schroders is among a few large UK asset managers that would have little excuse to miss the inflation signs. Along with Aberdeen Asset Management, M&G and other major UK asset managers, Schroders has been investing more in retail warehouses at a time of sustained UK retail sales, according to recent industry data.

Real estate investment funds led both sales and acquisitions of retail warehouses in the second quarter of 2015 as transactions jumped 33% over the same period last year, said DTZ recently.

Retail sales as measured by the Office of National Statistics have seen their longest sustained period of growth since 2008 this year, DTZ noted.

Zangana says the latest inflation figures – which show a 1.2% CPI rise when energy and food are stripped out – show signs of a healthy economy that is enjoying the dividends from lower global commodity prices.

Zangana adds that the Bank of England is unlikely to hike rates before CPI inflation returns to at least 1%, “which may not happen before the second quarter of 2016".

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