BOND holders will be rich and property speculators will be bankrupt in a new era of zero inflation, a gathering of Dublin investors heard last night.
Mr Roger Bootle, chief economist of the HSBC Group, told investment specialists that the period of high inflation from the start of the 1970s until now is "an historical aberration". He said the world economy was on the brink of "the zero era", where prices will remain steady, or even fall, for decades.
Mr Bootle, who wrote a book called The Death of Inflation, said that, on average, prices in Britain did not change between 1795 and 1932. A similar analysis for the United States showed almost zero average inflation between 1800 and 1940.
Pointing to the history of long term interest rates, Mr Bootle said that until the 1960s, British long bond rates never rose above 6 per cent.
He warned investors that the financial market seemed to believe that deflation had become impossible: "But they're wrong. Look at history - there have been lots of periods of deflation, in Britain, in the US, and elsewhere. Recently, Japan has experienced deflation, and if I had to bet which Western economy would be next, I would say Germany.
Bond holders could make large profits, but some companies, and their shareholders, could be in trouble: "Firms will be forced to cut prices, profits will fall, and companies with a certain amount of fixed interest debt will suffer."
Questioned about how confident he was in his own predictions, Mr Bootle said that there was always a risk of an environmental or military disaster, such as war in the Middle Fast that sparked an oil crisis.
