Big Money Managers Push Back Against Positive CPI

Inflation is slowing across the globe. Several of the wealthiest money managers, nevertheless, believe it’s too soon to abandon protection against rising consumer costs.

The market may be too optimistic about the pace of price growth, according to BlackRock Inc, Pacific Investment Management Co, and AllianceBernstein Holding LP. For the sixth month in a row, investors withdrew money from inflation-linked government debt exchange-traded funds. The total net outflow reached $10.8 billion over six years.

Supply bottlenecks have loosened, and commodity costs have decreased, but they are not predicting that inflation will not slow. They are worried about the speed and scale of the deceleration traders’ calculations.

Tough lessons catalyze careful approach

BlackRock says that investors should still be wary of inflation-linked bonds. The US Treasury’s Inflation-Protected Securities, or TIPs, have increased AllianceBernstein’s exposure. To protect against the risk of greater-than-expected price growth, Pimco also purchased US index-linked bonds.

In the risks of underestimating inflation in 2022, investors were brutally disciplined. As central banks raced to raise rates and get ahead of spiraling prices after years of loose policy, global stocks lost $18 trillion in value. Meanwhile,  the US government bonds had their worst year on record.

Investors get cautious that this might be a structural change

Of course, some of the market indicators for an inflation deceleration have passed away. However, BlackRock‘s estimates are still far off the mark. Over time, the aging population shrinks workforce-wise, geopolitical fragmentation is of no help to economic efficiency, and nations finally move to a low-carbon industrial model. It’s no surprise the world’s biggest asset manager sees average growth of around 3.5% over the next five years.

Further examination of worldwide inflation figures suggests caution for big money managers. In January, European core inflation remained at a new 5.2%. The jobless rate dropped to an all-time low of 6.6%. This has caused ECB policymakers to worry about a wage-price spiral. Meanwhile, US bets on a more hawkish Fed are increasing following a surprisingly good employment report. It showed unemployment dropping to 3.4%, which is the lowest since 1969.