2022 has been a strange year for many: in large part due to the financial uncertainty created by inflation. In the UK it rose to a 40-year high of 9% in April 2022, up from 7% in March, but the UK is not alone in facing this growing problem.
To gain insight into the impact of inflation around the world, we heard from various fintech industry experts who analyzed how it has affected each region and what can be done to make it more bearable.
The Continental group, an insurance intermediary and financial services provider in the GCC region, hosted a webinar entitled “Can Inflation Be Tamed? Learn from the Experts’, where financial professionals have demystified inflation and its current and potential impact on businesses, economic sectors and livelihoods.
Joseph GrahamCFA, Managing Director and Investment Strategist, Mister dept; Atul Penkarsenior portfolio manager, Aditya Birla Sun Life AMC; and Neelam Verma, Vice President and Head of Investments, That Continental group; was the keynote speaker the webinar
When the webinar took place, listeners took part in a poll that found they were in complete agreement that rising inflation would affect their cost of living by at least 10 percent, with over two-thirds saying they still view stock markets positively , indicating ongoing uncertainties. 41 percent of respondents named inflation as the biggest threat to the global economy this year, followed by rising crude oil prices (30 percent) and widespread uncertainty (30 percent). In addition, about 38 percent of respondents indicated that inflation will affect their cost of living by more than 20 percent.
“In GCC, oil production has indeed resulted in excess liquidity and there are positive signs in local markets.
However, because these are importing economies — especially food imports — inflation is
inevitable. And since they’re pegged to the US dollar, they’re essentially importing inflation. To the
For investors, the solution hinges on a strategic allocation, preferably in consumer staples, healthcare,
Technology, finance and energy,” said Neelam Verma.
Verma’s belief was echoed in the audience poll, with 68 percent of respondents saying yes
Confidence in the stock/equity markets. Conversely, the fixed income space found support from 21 percent
the queried. Joseph Graham deconstructed the fixed income market and said: “Especially fixed income
Core portfolios harbor high interest rate risks. In other words, inflation and the associated interest rate
Rate hikes are counterproductive for fixed income instruments. So they should be placed strategically
the portfolio. Then there’s credit risk, which is where things get murkier for companies.”
No one wants to find themselves in an uncomfortable situation financially. towards the end of 2021, TransUnion‘s Consumer Pulse study found that just 48 percent of respondents said they were optimistic about their outlook in the fourth quarter, a number that’s down from the 61 percent in the second quarter. With four percent more people saying they are in a worse financial position now than they were at the start of the year. That sentiment has continued in 2022, with TransUnion revealing that the number of people doing regular credit checks has increased by almost a third (30 percent) since the pandemic began. While not entirely at fault, a major reason for this lack of optimism and fear about creditworthiness can be traced to the rising cost of living and inflation.
To explain this further, Satrajit “Satty” Saha, CEO of TransUnion in the UK, said: “Our study shows how deeply consumers are feeling the impact of the cost of living crisis. Six in ten say rising costs will make it harder for them to improve their financial situation in the coming year, with food and energy bills being the biggest concerns. Financial service providers need to take note of this and ensure they are supporting consumers appropriately, and to do that they need actionable, data-driven insights.”
Emma WallHead of Investment Analysis and Research Hargreaves Lansdown examined why else inflation is continuing to rise: “Rising inflation, political uncertainty and growing fears of a global recession have hit investor confidence hard this month. Central banks around the world are raising interest rates to curb inflation – but with so much beyond the policy committee’s control, the immediate outlook remains bleak. The war in Ukraine continues to dominate prices, markets and the economic outlook.
“Russia and Ukraine signed an agreement that would allow grain exports from Ukrainian ports, which immediately caused wheat prices to fall to levels last seen before the invasion. However, President Putin ordered attacks on one of the ports, sending wheat prices up again – and signaling to the world that the war – and the political and price uncertainty that it brings – is far from over.
“Global investors responded by selling off equity funds and instead looked to lower-risk assets. The most bought funds on the HL platform this month included both money market funds and multi-asset funds invested to preserve capital, such as Troy Trojan and the Personal Assets Investment Trust.”
Sophie Lund-Yates, senior equities analyst at Hargreaves Lansdown, pointed out that sentiment could be changing, saying: “The FTSE 100 closed up 1.6 per cent on a five-day basis last week, signaling a glimmer of optimism as UK companies prepare to launch a Flood of results to release the market this week. The UK’s big banks are on board and under particular scrutiny, not just because the UK market is so sector-centric, but because the financial giants can shed light on changing consumer attitudes. Creditworthiness will be of particular importance as the pressure on the cost of living continues and paying the monthly bills is still a lot harder for many than it was just a few months ago. Mortgage loan data will also be a useful clue when trying to gauge the next move in the housing market – this will of course be a much bigger question for domestic institutions like Lloyds and NatWest.”
However, she went on to say, “As things stand HL investor trust opinion poll, trust in Great Britain, economic growth fell by 15 percent compared to the previous month. This is indicative of the numerous issues surrounding the UK’s next economic moves, with additional political unrest doing little to calm nerves. Top of mind is natural inflation and the different ways of dealing with it. An overzealous hand could shake Britain’s productivity further, but a soft approach could see inflation go your own way longer. Coupled with broader recession fears, it is discouraging but not at all surprising to hear that people are struggling to see a clear path forward.”
Corresponding trade economicsthe annual rate of inflation in the USA accelerated to 9.1 percent in June 2022, the highest since November 1981, from 8.6 percent in May and above market forecasts of 8.8 percent. Energy prices rose 41.6 percent, the most since April 1980, driven by gasoline (59.9 percent, the largest increase since March 1980), heating oil (98.5 percent), Electricity (13.7 percent, largest increase since April 2006) and natural gas (38.4 percent, largest increase since October 2005)
Sophie Lund-Yates, senior equities analyst at Hargreaves Lansdown, noted, “Brent crude futures are down to around $102 a barrel, the fourth straight decline. Fears of a global economic slowdown and the impact on energy demand are behind the decline, with these fears outweighing previously prevailing worries about supply shortages. That US Federal Reserve is expected to bring another 75 basis point rate hike, which has heightened fears that the economy may be being heat sucked too quickly. than to bring the fight inflation If it is his turn again, the oil price will remain highly sensitive.”
The US has not been deterred from using services that could affect its creditworthiness. At a time when good credit is critical to being approved for other services, users of technologies like Buy Now Pay Later (BNPL) in the US are confident they can make their multiple payments on time. However, this approach to the rising cost of living has not been shared globally since RFI Global found that more than a third of French respondents (37 percent) do not feel comfortable making regularly scheduled payments, compared to just 9 percent of Americans.
Although different regions appear to have dealt with inflation somewhat differently, some similarities can be noted; namely the use of fintech apps, whether they are payment apps or advisory/management apps. As prices continue to rise, fintech will play a big role in alleviating the burden of inflation.