Still Early Innings for Inflation

Early warnings about inflation have become a reality, with many investors facing the largest bout of inflation they have ever experienced. We explore how they can adjust their portfolios.

In January 2021, when inflation was 1.4%, we started to warn that big money supply policies would lead to a surge in demand and increase the risks of inflation. Our warnings of high inflation became louder and louder through the summer of 2021, as signs of inflation became more and more apparent. Yet, most dismissed these concerns as extreme, while the U.S. Federal Reserve (Fed) dismissed any inflationary pressures as transitory. Here we are now, with inflation running at 7.9%.

We are now warning that inflation may accelerate even further, based on the events in Ukraine, establishing an elevated and prolonged “new normal” inflation environment. This new normal rate of inflation may be significantly higher than the 1.8% average inflation rate realized over the past decade. As we have suggested, inflation has a tendency to snowball. Roll a snowball down a hill. It starts small, but gets bigger and more destructive, quickly. Once that happens, it becomes very hard to control.

This white paper takes a closer look at what the data indicates about the outlook for inflation and what investors can do to protect their portfolios. Topics include:

• Impact of Fed policy on inflation.
• Factors driving up inflation, including a potential wage-price spiral, supply constraints and housing costs.
• Economic consequences of the Russia-Ukraine crisis.
• Assets that historically benefit from inflationary cycles.
• How to allocate for inflation protection.

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