High Inflation is Likely Here to Stay

Is the current high inflationary period ending?

Oftentimes we're asked ‘Did we miss it? Did we miss the opportunity to allocate to inflation fighting assets, real assets?’ Our answer to that is no. Historically speaking, if you look at other countries, specifically G-10 countries and you say, how long has high inflation lasted for?

[Chart 1] We did a study going back to 1960s and what it shows is that on average It takes around 18 years for inflation to fall back down to 2% once it breaches 5%.

We're not saying that high inflation is going to take 18 years to fall back. That's what we're saying, what we are saying is that it's very unlikely for high inflation to fall back down to 2% anytime soon.

How should investors allocate in these environments?

High inflation doesn't come in a straight line. More specifically, it pops up then it comes back down, then it pops up, then it comes back down. We saw that in the 1940s, we saw that again in the 1970s. The important part here is that high inflation on average stayed materially above 2% for an extended period of time.

[Chart 2] You saw in the 1940s again, you saw in the 1970s, big periods of inflation pockets of deflation, investors are laser focused trying to figure out when's inflation going to fall.

The most important part to realize is that high inflation is likely here to stay for an extended period of time? And the most important thing that investors can do is have a strategic asset allocation to inflation fighting assets.

They should have a strategic allocation to real assets which are the time-tested proven inflation hedge.

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