How central bank policies hurt savers and investors

Since 2011, the constant descent into deflation has benefitted assets that have interest rate exposure or directly benefit from falling inflation. This includes such assets as government bonds, credit securities, shares in industrial companies, property, and infrastructure. Assets that benefit from rising inflation include inflation-linked bonds, shares in resources companies, cash, and commodities. The chart below highlights how much these two asset groupings diverged after the GFC, even though the rate of fall in inflation didn’t increase. Central bank policy, therefore, clearly had an effect on the performance of each of these classes, and it highlights the problem for those seeking income in a world where official interest rates are negative, and a large amount of the potential capital gain in these asset classes has already been extracted. In this month’s newsletter, I look at what affect central bankers’ policies have had on the average person’s savings and investments. (VIEW LINK)