IS HIGH INFLATION HERE TO STAY?

Food prices are rising and the average energy bill has hit an all-time high, but, asks Pascal Paepen, is inflation a bad thing for our economy? And more importantly, is there anything we can do to protect our savings against even higher levels of inflation?

ECONOMICS

ABOUT A YEAR AGO MERVYN KING, GOVERNOR OF THE BANK OF ENGLAND, was asked to testify in parliament as inflation in Britain had reached three per cent, well ahead of the Bank’s long-term target for a moderate inflation of only two per cent. At the time the central banker explained that circumstances were exceptional and inflation should soon drop again. King was right, but it now looks as though he will have to prepare yet another testimony as inflation is on the rise again. The situation is not much better elsewhere, and in Europe prices have risen more than three per cent a year, while inflation in the US is at the highest level in 17 years, and even in Japan, a country that has long been struggling with deflation, consumers are confronted with the highest inflation in more than a decade.

Central bankers have a simple remedy to beat unhealthy levels of inflation – they increase short-term interest rates. That old trick, however, is not a realistic option today. With consumer confidence and spending weak as a result of the credit crisis, the general belief is that spending should be stimulated rather than limited. This means no rate hikes but cuts, as we have seen lately in the US and the UK. But could these measures lead to even higher inflation? Not necessarily. Usually, an economy in recession or flirting with recession will lead to a lower global demand for consumer goods. As consumers spend less, stocks in warehouses may pile up and cause prices to fall rather than rise.

Not everyone is persuaded that a recession would automatically lead to lower prices. Alan Greenspan, the former chairman of the Board of Governors of the US Federal Reserve, has warned that inflation will be high in the years to come. He describes the relatively low inflation we have known for the past 20 years as “exceptional”, and foresees an era of high inflation and high interest rates.

If Greenspan is right, then we should look at ways to limit the negative effect inflation may have on our savings. Investing in traditional bonds may not be wise as fixed income products lose value in times of high inflation. Instead, we should diversify in inflation-linked bonds as its coupon payments increase as long as inflation does the same. Governments and other investment grade issuers have frequently issued such bonds and still do, offering a good variety of coupons and maturities.

Alternatively, if you are looking for higher returns you could invest in shares of companies managing large plantations, those in the mining industry and/or agriculture-related industries that should benefit from higher prices for commodities. Investing in commodities and related industries, however, is not a suitable strategy for everyone. Volatility tends to be extremely high in those industries and the price of (agri)commodities often fluctuates on elements we cannot predict, such as weather conditions and the geo-political situation. Moreover, as prices for oil, wheat, corn and palm oil have reached record levels already, one may wonder whether the biggest price increases are already behind us.

PASCAL PAEPEN IS AN INVESTMENT BANKER FOR KBC FP IN THE CITY AND IS THE FINANCIAL CORRESPONDENT FOR BELGIAN RADIO1

BRAND YOURSELF

How do other people see you? Personal branding expert Louise Mowbray can help you achieve the image you’re after.

PERSONAL DEVELOPMENT

WE LIVE IN A BRANDED WORLD. EVERYTHING WE DO, FROM THE coffee we drink to the cars we drive, is hugely influenced by the power of brands, but all too often people fail to apply the rules of branding to their personal and professional lives. Yet personal branding is spreading fast through the professional world, and though the phrase may be unfamiliar to many people, the reality of personal branding is certainly not.

We’re constantly branding each other by way of introduction, in describing one another or by expressing opinions about one another. We all have a brand, whether it’s positive, negative or neutral, and all of this is going on whether we are managing the process or not. Personal branding is by no means a new phenomenon, nor is it an option.

A major corporation would never sit back and allow its brand to build up incidentally over time without any direction or professional input, and nor should the people who seek to live and work at the highest levels. The current interest in personal branding stems from the realisation during the past 10 years that not only are we responsible for our brand, we also have the ability to develop and manage it to engineer our own success.

The majority of people approaching us for personal branding tend to have one of two aims – they either want to gain a competitive advantage, or they want to manage change. Great personal brands serve us well – they position us as the person to go to in our area of expertise, they raise our visibility and income and set us apart from the competition. Ultimately, they attract what we want, and repel the rest.

Personal branding and personal image are subtly different, and we offer services for both depending on what the individual wants to achieve. Personal brands need to be deeply compelling to our audience, they must be authentic, consistent and known. The coaching that we offer is structured accordingly, and clients initially commit to a three-month programme, after which time we agree on a way forward.

Personal image forms an important part of our personal brand, and first impressions really are lasting impressions. We form opinions about others in a matter of seconds and then spend the rest of our time justifying our decisions to ourselves. A positive, appropriate image instantly puts our audience at ease, while a negative, inappropriate image creates barriers to success that are hard to shift. Our image consultations take all this into consideration, usually lasting for an hour and a half and including style analysis, colour analysis and grooming, followed by one and a half to three hours of personal shopping, depending on the brief. By taking such a carefully structured approach to the task, we are able to achieve excellent results and clients tend to shop with us a couple of times a year to update their wardrobe, or will call us to style a specific event. Many claim to have enjoyed shopping for the first time ever!

LOUISE MOWBRAY RUNS THE IMAGE AND PERSONAL BRANDING CONSULTANCY MOWBRAY BY DESIGN.

www.MOWBRAYBYDESIGN.COM

SOMETHING IN THE AIR

WI-FI

WI-FI HOTSPOT PROVIDER FREE-HOTSPOT.COM ANNOUNCED EARLIER this year that it had expanded its network of free Wi-Fi locations by an incredible 400 per cent in 2007, evidence of the current surge in mobile working across Europe. But with more businesses finding more ways to provide wireless internet, how long will it be until we can all jump online for free from practically any location in any major city?

“I would say by 2010 in most places in the EU, and certainly in most parts of a downtown area,” says Joe Brunoli, vice president of business development for free-hotspot.com. “For example, Belgium is punching above its weight as far as free Wi-Fi is concerned – we currently have about 300 hotspots in Belgium, including all of the McDonald’s restaurants in the country. The company was very avant-garde about doing that because it saw it as a great way of getting new types of clientele into McDonald’s who might not have gone in there otherwise. Then a couple of months later McDonald’s UK announced it was going to do it too.”

Fast food restaurants haven’t traditionally been associated with Wi-Fi, but according to Brunoli it’s the unlikely locations that have taken to free Wi-Fi most easily. Hotels, airports and other early adopters of Wi-Fi have long assumed that the best way of providing wireless internet is to charge for it, and as free Wi-Fi has emerged, these traditional providers have proven resistant to the change.

“Way back when Wi-Fi was new hotels saw it as a way of making some money, and it’s taken them a long time to change their minds about that. But now they’re waking up to the fact that they can’t charge somebody £20 or €30 or whatever a day for Wi-Fi access in a hotel room.”

Indeed, says Brunoli, the way that we think about Wi-Fi today means that free wireless is the only practical way to go. “The more people have Wi-Fi, the less willing they are to pay for it. There was a time when it was only businessmen with laptops who used Wi-Fi and it was expensive, but now 99 per cent of laptops come with Centrino or something like that, and people increasingly see Wi-Fi as just another standard amenity that should be there with no barriers to use.”