Investors warn older populations keep rates up

AGEING demographics and rising protectionism will keep inflation high for years, fund managers have warned.

Money managers are bracing for a world with structurally higher inflation, marking a permanent departure from the years of ultra-low rates after the financial crisis.

This will have profound implications for governments that have increased their debt levels in the wake of the pandemic and the energy crisis, they said.

Frédéric Leroux, a fund manager at French asset management firm Carmignac, said it was already clear ageing populations had pushed up inflation in rich countries. Mr Leroux said: “Demographics has been very disinflationary for 30 to 40 years. Now it is turning inflationary and that is an important message.”

As the number of older people relative to those of working-age rises this will worsen labour shortages and push up wages, Mr Leroux warned.

Greyer workforces are also more vulnerable to shocks, he added, highlighting the drop off in labour force participation in the UK and US after the pandemic amid a rise in early retirement.

It comes as traders over the past week have again pushed back rate cut expectations on both sides of the Atlantic after it emerged that US inflation rose by more than expected in March.

Mr Leroux said: “When you look at the US economy today you see no reason why rates should be lowered.”

In the UK, debt levels are at their highest since the 1960s. Markets were pricing in as many as six rate cuts in the UK at the start of the year. They are now expecting two.