Charting our Focus

We Believe Investors Should Remain Positioned for Higher Inflation

 

Left Chart: Source: Bloomberg monthly survey of economists as of 8/31/21. Economists forecasted both 2021 and 2022 year-end inflation rates each month. Core PCE = Personal Consumption Expenditures less food and energy. Headline CPI = Consumer Price Index all items. 

Right Chart: Bureau of Labor Statistics except Commodities (source: IMF). Figures show change from 3/31/21-8/31/21. Not seasonally adjusted.

 

Inflation Highest Since 1991*: Will the Fed Characterize Inflation as Transitory or Sustained?

  • Market forecasts higher than FOMC (Federal Open Market Committee): Key drivers of inflation include wages, housing, commodity prices, and both retail and producer prices. Looking at the Core PCE forecast chart as of August 31, 2021, economists expect Core PCE inflation to be 2.5% by year-end 2022, above the Fed’s median projection of 2.3% (not shown).
  • Short- and intermediate-term inflation may remain high. In the short term inflation may be driven by the bounceback in consumer demand, coupled with excess fiscal stimulus, supply bottlenecks, labor shortages, and higher energy prices and shelter costs. Among these factors, rising wages and shelter costs, as well as the recovery of the service sector may drive more sustained inflation.
  • The FOMC’s Average Inflation Targeting policy could see extended overshoot of 2% target inflation. We expect the Fed to remain committed to easy monetary policy in 2021. They may begin to taper their asset purchases in 2022 or slightly earlier, and only in 2023, may move to increase the Fed Funds rate. 
  • Investors may seek out inflation hedges. Given potentially higher inflation, investors may consider investing in shorter duration assets or in investments that hold relative short duration positions compared to their benchmarks. Additionally, floating rate assets, TIPS exposures, and more broadly, overweights to credit and underweights to Treasuries may help hedge inflation risk or benefit from a steepening yield curve environment.

 

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*Source: Bloomberg. US Personal Consumption Expenditure Core Price Index 12/31/90 – 8/31/21.

Opportunities to Explore

Your clients can benefit from these and other insights through our solutions, which include:

Pioneer Strategic Income Fund is a multi-sector bond fund that invests across a broad range of global fixed income sectors.  The flexibility to invest across a broad range of fixed income asset classes, including non-investment grade, non-US and floating rate sectors, increases the opportunity set. 

Pioneer Bond Fund is a  multi-sector core fixed income fund that invests in a wide range of US dollar-denominated fixed income sectors.  The Pioneer Bond Fund pursues an active, value-driven investment approach, while seeking to add value primarily through asset allocation and security selection.

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 Pioneer Multi-Asset Income Fund uses an active/flexible approach to balance asset allocation as risk/reward scenarios change.

1Diversification does not assure a profit or protect against loss. 

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Terms and Indices

Consumer Price Index (CPI) – Consumer Prices (CPI) are a measure of prices paid by consumer for a market basset of consumer goods and services.

Duration – Measures the degree to which a bond's price will fluctuate in response to changes in comparable interest rates; therefore, a relative shorter duration position compared to the broader market can potentially aid relative returns if interest rates rise.

Yield Curve – A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of August 31, 2021. 

The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product.

Investing in mutual funds involves significant risks. For complete information on the specific risks associated with each fund, please see the appropriate fund’s prospectus or fact sheet, available on our literature page.

Individuals are encouraged to seek advice from their financial, legal, tax and other appropriate professionals before making any investment or financial decisions or purchasing any financial, securities or investment-related product or service, including any product or service described in these materials. Amundi US does not provide investment advice or investment recommendations.

Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our  literature section.

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