In our investment research Inflation: Hell or High Water, we have updated the knowledge about inflation that we published in our previous investment analysis Inflation: On the Rise in June 2021. Based on our own proprietary research, investment approach and strategy, we have modified and updated alternative scenarios for the future development of inflation in 2022.
Analysis highlights:
- Are we approaching a decade of global transformation? Debt-to-GDP ratios reached historic highs in most developed countries as interest rates hit zero. The ability of central banks to influence the economy through monetary policy, as well as the ability of governments to stimulate it through fiscal policy, is more limited and we are slowly but surely approaching the limit – the inflection point in the long-term debt cycle.
- If the Fed keeps rates at low levels or they do not raise them quite aggressively, inflation will destroy the economy, real wages, and it will cause depreciation of savings and asset values. Increased inflation of 8-15% will cause uncertainty, higher volatility and will be very difficult to get under control without negative, downright devastating consequences.
- We looked back at the S&P 500’s returns from 1928-2019 and found out how the stock market fared under different inflation scenarios. We incorporated several alternatives into our models and evaluated the impact of inflation on asset value, price of money and liquidity.
