Despite large-scale government stimulation packages, inflation in the United States has remained largely in check because it exports the liquidity in the system to China, according to fixed income manager Loomis Sayles.
"Where is our inflation? We simply export our inflation to the Chinese," Loomis Sayles vice president and portfolio manager David Rolley said yesterday at a Russell Investments presentation.
"As long as they peg their currency [to the US dollar], they have to take it.
"Some people have said that what we are seeing in terms of the conflict between the Chinese and the Americans is the end of a currency understanding.
"In this struggle to either inflate China, or deflate America, I would say the Americans are winning."
However, Rolley said that came at a cost.
"Everybody else who is China associated sees a very similar picture," he said.
Latin American countries especially have seen similar high increases in inflation as China.
"That is the export of American liquidity and the impact of that liquidity on foreign money growth, foreign loan growth and foreign demand," Rolley said.
Australia has remained relatively unaffected by this effect, partly because the Reserve Bank of Australia has given priority to managing inflation over stabilising the Australian dollar.
Rolley said he expected more central banks around the world would follow this example.
"I think you will see foreign central banks leaning towards inflation fighting and become a little bit more indifferent to what happens to their currency. That is another way of saying their policies will become more Australian," he said.
