How Investors Can Position for Higher for Longer Inflation

Jenna Dagenhart: VanEck recently released a paper with the title, Still Early Innings for Inflation. Joining us now with more is Portfolio Manager and Head of Multi-Asset Solutions, David Schassler. So, David, why do you believe that the inflation risks remain to the upside when we're already experiencing the highest inflation in four decades?

David Schassler: Yeah, so we do believe that inflation risk remains to the upside, so let's be more specific about that. We had a decade of abnormally low inflation leading up to the recent period. We had, on average, 1.8% inflation. Now people are assuming that we're going to automatically fall back down to the levels that we had recently without realizing, over the very long term, the average rate of inflation is actually above 3%. What we do believe is that inflation may actually accelerate further from here. So, it's at 8.5%.

David Schassler: We wouldn't be surprised if we actually touched double digits, but more importantly than that, more importantly is that inflation is likely to remain elevated for an extended period of time. And that's the key part. Because I think, if people are having this conversation a decade from now, they're going to look back and say, "Wow, we really had materially higher inflation in the next decade ahead than what we had in the previous." And that's the most important thing. Not whether inflation’s at 8.5% or 9.5%, but that inflation's likely to stick around for an extended period of time. And that's the most important takeaway.

Jenna Dagenhart: Could you elaborate a little bit more about why you think inflation will be higher for longer?

David Schassler: There are so many reasons why we think inflation's going to be higher for longer. I'll give you a few reasons why, though. The first, wages are rising. Wages are rising rapidly to try to keep up with the pace of inflation. We think that this is leading us to the early stages of a wage price spiral. So that would be number one. Number two, energy transition. We already have tight commodity markets. This is making them tighter. The Russia and Ukraine situation makes a bad situation a lot worse. So, when you put all these factors together, you do end up with the inflationary forces heavily outweighing the deflationary forces. And that's a backdrop for a sustained period of high inflation over an extended period of time.

Jenna Dagenhart: What are investors supposed to do about it? What are some of the best assets to own during periods of high inflation?

David Schassler: During periods of high inflation, traditionally, real assets prosper while traditional assets suffer. So traditional assets typically suffer because most companies, most investments are not good at dealing with inflation. Now, real assets, alternatively, actually historically, and then currently make a lot more money during periods of high inflation. So, let's be a bit more specific on that as well. So commodity prices respond immediately to supply and demand imbalances, which is why we've seen commodities massively outpace other investments. Now we're at the point where we're starting to think about, "Well, what's going to outperform next?" Now we have to think about gold, natural resource equities, the other segments that typically perform later in the inflation cycle.

Jenna Dagenhart: Finally, David, what types of investment solutions does VanEck offer to combat inflation?

David Schassler: VanEck has a very long history in resource investing, and those are the key assets that you want to invest in during a period of high inflation. More specifically, we have both active and passive solutions across more broad-based resource solutions, as well as more specific. Now you want to consider more specific solutions if you really want to target it or express views. So, gold bullion, gold equities, broad-based natural resource equities. So, we really have a lot of innovative solutions across the entire suite.

Jenna Dagenhart: Well, David, always great to have you. Thanks for joining us.

David Schassler: I enjoyed it. Thank you so much.

Jenna Dagenhart: And thank you to everyone watching. Once again, I was joined by VanEck Portfolio Manager and Head of Multi-Asset Solutions, David Schassler. And if you want to read the full report on inflation and hear more from VanEck's experts, you can visit vaneck.com/subscribe. I'm Jenna Dagenhart with Asset TV.

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