2022 has been a strange year for many: in large part due to the financial uncertainty that has come about due to inflation. In the UK, it has leapt to a 40-year high of nine per cent in April 2022, up from seven per cent in March, but the UK is not alone in dealing with this rising issue.
To get a glimpse of the impact of inflation across the world, we heard from various experts in the fintech industry, analysing how it has impacted each region and what can be done to help make it more bearable.
The Continental Group, an insurance intermediary and financial services provider in the GCC region, hosted a webinar titled ‘Can inflation be tamed? Learn from the experts’, where finance specialists demystified inflation and its current and potential impact on businesses, economic sectors, and livelihoods.
Joseph Graham, CFA, managing director and investment strategist, Lord Abbett; Atul Penkar, senior portfolio manager, Aditya Birla Sunlife AMC; and Neelam Verma, vice president and head of investments, The Continental Group; were the key speakers at the webinar.
As the webinar took place, the audience took part in a survey, which found they wholly agreed that rising inflation would impact their cost of living by at least 10 per cent, with over two-thirds saying they still view equity markets favourably, denoting the continued uncertainties. 41 per cent of respondents cited inflation as the biggest threat to the global economy this year, followed by rising crude oil prices (30 per cent) and widespread uncertainties (30 per cent). Furthermore, about 38 per cent of respondents said inflation will impact their cost of living by more than 20 per cent.
“In GCC, oil production has indeed led to cash surplus, and there are positive signs in local markets.
However, because these are importing economies — particularly food imports — inflation is
inescapable. And being pegged to the US dollar, they are essentially importing inflation. For
investors, the solution hinges on strategic allocation, preferably in consumer staples, healthcare,
tech, financials and energy,” said Neelam Verma.
Verma’s belief was substantiated in the audience poll, with 68 per cent of respondents affirming their
confidence in equity/stock markets. Conversely, the fixed income space found support from 21 per cent of
the polled. Deconstructing the fixed income market, Joseph Graham said: “Fixed income, especially
core portfolios, carry high-rate risks. So, inflation and the naturally accompanying interest rate
hikes run counterproductive to fixed income instruments. So, they should be strategically placed in
the portfolio. Then there is the credit risk, where it gets murkier for companies.”
No one wants to be in an uncomfortable situation financially. Towards the end of 2021, TransUnion‘s Consumer Pulse study found only 48 per cent of respondents said that their outlook was one of optimism in Q4, a figure that has dropped from the 61 per cent recorded in Q2. With four per cent more people saying they were now in a worse financial position than they had been earlier on in the year. This sentiment has continued throughout 2022, as TransUnion revealed that the number of people regularly checking their credit score increased by nearly a third (30 per cent) since the pandemic began. Though not entirely at fault, a large reason for this lack of optimism and fear surrounding credit scores can be pinned on the rising cost of living and inflation.
Explaining this further, Satrajit “Satty” Saha, CEO at TransUnion in the UK, said: “Our research shows how keenly consumers are feeling the impact of the cost of living crisis. Six in 10 say rising costs will make it harder for them to improve their financial position in the coming year, with food and energy bills being the areas of greatest concern. Finance providers must take note and ensure they are supporting consumers appropriately, and to do that they need actionable, data-led insights.”
Emma Wall, head of investment analysis and research at Hargreaves Lansdown looked at why else inflation continues to rise, “Rising inflation, political uncertainty and growing concerns about a global recession has hit investor confidence hard this month. Across the globe, central banks are raising interest rates in a bid to stem inflation – but with so much out of 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 a deal which would allow grain to be exported from Ukrainian ports which immediately saw wheat prices fall to levels last seen pre-invasion. However, President Putin ordered attacks on the one of the ports, causing wheat prices to rise again – and signalling to the world that the war – and associated political and price uncertainty – is far from over.
“Global investors responded by selling out of equity funds, instead looking to lower-risk assets. Amongst the most bought funds on the HL platform this month have been both money market funds, and multi-asset funds invested for capital preservation, such as Troy Trojan, and the Personal Assets investment trust.”
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, pointed out attitudes might be changing saying, “The FTSE 100 ended last week 1.6 per cent higher on a five-day basis, marking a spark of optimism as UK companies prepare to release a deluge of results to the market this week. The UK’s major banks are in the line-up and are going to be under particular scrutiny, not only because the UK market is so heavily weighted towards the sector, but because the financial giants can shed light on the changing attitudes of consumers. Credit levels will be of particular importance, as the cost-of-living squeeze continues and paying monthly bills is still much more difficult for many than it was a few short months ago. Mortgage lending data will also be a helpful bellwether in trying to assess the housing market’s next move – this will of course be a much bigger question for domestic-facing institutions like Lloyds and NatWest.”
However, she continued by saying, “According to the latest HL Investor Confidence Survey, confidence in UK economic growth has fallen 15 per cent compared to last month. This is indicative of the multiple issues surrounding the UK’s next economic steps, with added political turmoil doing little to quell nerves. Top of mind is of course inflation and the diverging ways in which this can be dealt with. An over-zealous hand could see UK productivity falter further, but a soft approach could see inflation get its own way for longer. Together with broader recessionary fears being kicked up, it’s disheartening, but by no means surprising, to hear people are struggling to see a clear road ahead.”
According to Trading Economics, the annual inflation rate in the US accelerated to 9.1 per cent in June of 2022, the highest since November of 1981, from 8.6 per cent in May and above market forecasts of 8.8 per cent. Energy prices rose 41.6 per cent, the most since April 1980, boosted by gasoline (59.9 per cent, the largest increase since March 1980), fuel oil (98.5 per cent), electricity (13.7 per cent, the largest increase since April 2006), and natural gas (38.4 per cent, the largest increase since October 2005)
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown noted, “Brent crude futures have fallen to around $102 per barrel, the fourth consecutive decline. Fears of a global economic slowdown and the repercussions for energy demand are behind the slide, with these anxieties outweighing previously prevalent concerns over supply constraints. The US Federal Reserve is expected to deliver another 75 basis point rate hike, which has accelerated concerns that perhaps too much heat will be taken out the economy, too quickly. As the battle to bring inflation back in line continues, the oil price will remain highly sensitive.”
The US has not been deterred from using services that could impact their credit. At a time when having a good credit score is crucial in order to be approved for other services, users of technologies such as Buy Now Pay Later (BNPL) in the US have been confident they can make their multiple payments on time. This way of dealing with the rising cost of living has not been shared worldwide however, as RFI Global found more than a third of French respondents (37 per cent) don’t trust themselves to make regularly scheduled payments compared to only nine per cent of Americans.
Though the different regions appear to have dealt with inflation slightly differently, there are some similarities that can be drawn out; namely, the use of fintech apps, whether they be payment apps or advice/management apps. As prices continue to rise, fintech will have a huge part to play in helping ease the inflation burden.