Market & Topical Perspectives

Inflation: Keeping it Real

Inflation: Keeping it Real

While the Delta variant of Covid-19 is a new cause for concern, the mostly reopened US economy has enabled large swaths of the country to enjoy more normal seasonal activities this summer—and caused inflation metrics to spike to levels not seen in decades.

Key Takeaways

  • Key-Takeaway

    Multiyear highs in a number of US inflation metrics as the economy reopens has some observers fretting over the possibility of a more durable shift higher in prices and what that may mean for equity portfolios.

  • Key-Takeaway

    Though price levels in the US were quite volatile for much of the 20th century, inflation has remained subdued since the mid-1980s thanks in part to the Fed’s success in keeping expectations anchored.

  • Key-Takeaway

    Looking forward, we believe the Fed will be marginally successful in generating inflation consistently at or slightly above its 2% target, in keeping with its recently adopted average inflation-targeting policy framework. A structural shift to meaningfully higher prices is less likely, but not inconceivable if the Fed-financed stimulus tap remains open indefinitely.

  • Key-Takeaway

    Rather than trying to discern among the range of inflation scenarios possible in the years ahead, First Eagle’s Global Value team focuses on building all-weather portfolios composed of businesses we expect to be resilient across economic regimes.