World Economy Has Entered Stagflation, Fidelity Says

World Economy Has Entered Stagflation, Fidelity Says

By Darren Boey and Catherine Yang

June 24 (Bloomberg) — The global economy has entered stagflation as surging consumer prices coincide with slowing economic expansion, Fidelity International Ltd. said.

Fidelity’s Navigator Fund is favoring investments in commodities, government bonds and cash over equities, Trevor Greetham, London-based asset allocation director at Fidelity, said in an interview with Bloomberg Television in Hong Kong.

Economic growth worldwide has slowed as central banks increased borrowing costs to curb inflation brought about by surging food and fuel prices. Expansion has also suffered from mounting credit-market losses at the world’s biggest financial institutions, which now stand at almost $400 billion.

“What’s happening here is the after-effects of monetary tightening,” Greetham said. “If you want to speculate, this stagflation could last a while because of inflation targeting by central banks in the developed economies.”

U.S. consumer prices rose 0.6 percent in May, more than some economists forecast, according to government figures released on June 13. China increased its key rate six times in 2007 to help curb inflation that this year climbed to the fastest in more than a decade.

Federal Reserve policy makers have a 90 percent chance of leaving the U.S. benchmark rate unchanged at a policy meeting this week, Fed fund futures show. There is a 58 percent chance of a rate increase at the central bank’s September policy meeting, the futures indicate.

Greetham’s one-year-old Navigator fund held $13 million of assets at the end of May, according to data compiled by Bloomberg. Greetham also helps manage the $2.8 billion Fidelity Global Fund.

~ by formulacaijing on June 25, 2008.