So I prefer facts to forecasts
One of which is that
US Producer Price Index (PPI) was 9.5% in April, a level last seen in June 1981 apart from 3 “transitory” months mid-2008
So spare a thought for the currently working, developed market economists, few of whom are likely to have worked during inflationary times
but now have to make the most important call of their careers
Because the investment world is really badly positioned for any inflation
Most are in US Growth & Quality funds or S&P500 Passives (mostly Growth) where historic performance has been an easy sell
But could count for nothing in this new inflationary paradigm
Unless it is “transitory”
Except that the risks to this view are :
– The announced wage increases are likely to be “sticky downwards” not “transitory”
– ESG is inflationary as discussed in a previous post
– Offshoring, a deflationary force for years, is now in reverse as the world has awoken to the vulnerabilities of Taiwan producing all our semi-chips & China manufacturing all our PPE
– A weaker USD makes imports more expensive
The chart below showing PPI & S&P500 PE multiples suggesting asymmetric risk
– inflation falls – no upside
– inflation stays high – mega downside
Source: Bloomberg
