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Juli 31, 2021

Inflation Outlook – One Year Later

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Juli 31, 2021

Inflation Outlook – One Year Later


Global Multi-Asset Viewpoint

Inflation Outlook – One Year Later

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Juli 31, 2021

 
 

In May of 2020 we argued that the pandemic and the public health and economic policy responses to it would likely prove inflationary.1 Among the reasons we highlighted then, the one that has been playing out most notably recently is the supply shortfall relative to a stimulus-boosted surge in demand. Eventually the “bottlenecks” that currently plague the global economy will be resolved as production catches up to consumption and inventories are rebuilt, and inflation will likely moderate from the currently-elevated pace. In this note we consider whether the underlying trend still points to elevated inflation. Our conclusion is that the unusually tight labor market, housing boom, and a surge in commodity prices have the potential to maintain inflation at a higher rate. Many longer-term factors also remain supportive, especially the recently adopted more aggressive decarbonization targets in the U.S. and many economies. We also consider the main risks such as a slowing China and the peak in U.S. policy stimulus this year.

 
 

1 MSIM Global Multi-Asset Team, “Stars Aligned for Higher Inflation,” Global Multi Asset Viewpoint, May 2020

Forecasts / estimates are based on current conditions, subject to change, and may not necessarily come to pass. The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment. Past performance is no guarantee of future results.

 
cyril.moulle-berteaux
Head of Global Multi-Asset Team
Global Multi-Asset Team
 
 
 
 

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In addition to the Portfolio's fees and expenses, the Portfolio generally would bear its share of the investment company's fees and expenses. Subsidiary and tax risk the Portfolio may seek to gain exposure to the commodity markets through investments in the Subsidiary or commodity index-linked structured notes. The Subsidiary is not registered under the 1940 Act and is not subject to all the investor protections of the 1940 Act. Historically, the Internal Revenue Service ("IRS") has issued private letter rulings in which the IRS specifically concluded that income and gains from investments in commodity index-linked structured notes or a wholly-owned foreign subsidiary that invests in commodity-linked instruments are "qualifying income" for purposes of compliance with Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Portfolio has not received such a private letter ruling, and is not able to rely on private letter rulings issued to other taxpayers. If the Portfolio failed to qualify as a regulated investment company, it would be subject to federal and state income tax on all of its taxable income at regular corporate tax rates with no deduction for any distributions paid to shareholders, which would significantly adversely affect the returns to, and could cause substantial losses for, Portfolio shareholders. Cryptocurrency (notably, Bitcoin) operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. It is not backed by any government. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. Cryptocurrency may experience very high volatility. LIBOR Discontinuance or Unavailability Risk. The regulatory authority that oversees financial services firms and financial markets in the U.K. has announced that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions for purposes of determining the LIBOR rate. As a result, it is possible that commencing in 2022, LIBOR may no longer be available or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain derivatives and other instruments or investments comprising some of the Fund’s portfolio. Portfolio Turnover. Consistent with its investment policies, the Fund will purchase and sell securities without regard to the effect on portfolio turnover. Higher portfolio turnover will cause the Fund to incur additional transaction costs.

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