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Fitch: European Investors See Pick-Up in Inflation Risk
December 15, 2016 / 10:05 AM / a year ago

Fitch: European Investors See Pick-Up in Inflation Risk

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: European Senior Fixed-Income Investor Survey 4Q16 here LONDON, December 15 (Fitch) European bond investors see inflation as a bigger risk than deflation for the first time in more than five years, according to Fitch Ratings' latest senior fixed-income investor survey. Our 4Q16 survey found that the percentage of investors who see inflation as a high risk over the next year, while still clearly in the minority, had more than trebled to 22% from 7% in our 2Q16 survey. The percentage that see deflation as a high risk dropped sharply to 21% from 37%. The last time inflation risks were seen as outweighing deflation was in 3Q11. Survey respondents also expressed rising concerns about the impact on credit markets of the eventual normalisation of monetary policy. Withdrawal of quantitative easing was ranked as a high risk by 52% - more than double the 24% who said so in our last survey and the sharpest rise in risk assessment. Fitch expects headline inflation to pick up across the board in early 2017 as the year-on-year growth rate of oil prices surges, but in the eurozone it is still likely to remain well below the ECB's target of close to, but below 2% over our 2018 forecast horizon. The ECB's recent extension of its asset purchase programme demonstrates its commitment to its inflation target, while statements that tapering was not discussed and that asset purchases could be increased if necessary underline how far away the central bank is from beginning to consider an outright exit from asset purchases. <iframe src="// d" title="Investor Survey Inflation Risk" width="550" height="669" scrolling="no" frameborder="0"> We expect a more significant pick-up in inflation in the US and UK. US labour market conditions have tightened and we expect fiscal policy to be eased following Donald Trump's victory in the presidential election. This will drive a shift to fiscal reflation in the near term and increases our confidence that the normalisation of US monetary policy will progress faster over the next year following Wednesday's interest rate rise. In the UK, we expect the impact of the Brexit vote on sterling to push up prices next year and lead to inflation of nearly 3% by end-2017. In the medium term, increased barriers to trade and migration could push up prices. Financial markets' increased focus on inflation has been expressed through rising US bond yields and market-implied eurozone inflation expectations at their highest since the ECB launched quantitative easing early last year. The surge in populism and anti-establishment sentiment was also reflected in our investor survey, as geopolitics was ranked as a high risk for European credit markets by the greatest share of investors polled. This extends an almost unbeaten run as the top risk since mid-2014. Investors also expressed doubt about the economic impact of the ECB's corporate bond-buying programme, with 58% of respondents saying it will only create a temporary boost to issuance or repricing. <a href=" ex.html">Click here for the full interactive report, "European Senior Fixed-Income Investor Survey 4Q16", which represents the views of managers of an estimated EUR6.4trn of fixed-income assets. <a href="">Global Economic Outlook - November 2016 Contact: Monica Insoll Managing Director Credit Market Research +44 20 3530 1060 Fitch Ratings Limited 30 North Colonnade London E14 5GN Brian Coulton Managing Director Chief Economist +44 20 3530 1140 Simon Kennedy Senior Analyst Fitch Wire +44 20 3530 1387 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. 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