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Inflation fears behind global stock price falls

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12/05/2021
Stock prices took a tumble across the world on Tuesday, off the back of fears around US inflation.

The FTSE 100, the UK’s blue chip index, finished the day down by 2.47% for example. This followed reaching 7,164 on Monday, its highest level since the start of the pandemic having rebounded strongly over the last couple of months.

The Dow Jones meanwhile fell by 473 points ‒ a fall of around 1.3% ‒ which represented its bigger drop since February, while the Europe-wide Stoxx 600 index dropped 2%, its worst performance since late December.

Why are inflation worries rising?

In the US, much as in the UK, there is the belief that households are sat on significant savings as a result of the pandemic. With so many of our usual outlets closed, from cinemas and restaurants to pubs and clubs, plenty of people have been able to save cash over the last year.

But as things start to unlock, shoppers are heading out and spending that cash freely. In the US inflation hit 2.6% in the 12 months to March, and the forecasts are that this is only likely to jump further as a result of the latest economic relief measures unveiled by President Joe Biden.

The worry is that if inflation continues to rise, then central banks will have to act by hiking interest rates, which may in turn dent stock markets.

While the focus has been on the US, it’s a situation faced by central banks across the world, with the US effectively acting as an indicator for the rest of the globe.

Falling prices present an opportunity

Nigel Green, chief executive of investment firm deVere Group, said that it was to be expected that there would be a jump in prices, and supply shortages for certain goods, as economies re-open and pent-up demand is unlocked, inevitably pushing inflation higher.

And he argued that while tech shares were bearing the brunt of the subsequent stock sell-off, they actually present an opportunity for smart investors.

Green said: “With our daily lives becoming ever more digitalised – and at a staggering pace – tech will remain one of the mega-trends for investors for the foreseeable future. Savvy investors will be drawn to the massive growth that tech offers and this sell-off will be used as a buying opportunity.  Nobody seriously believes the future isn’t online.”

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