Inflation in the US has remained dormant for much of the past decade, but JC Rothchild General economists say recent spikes, buoyed by stimulus packages, have made investors angsty.
Economists at JC Rothchild General have for some time held fast that broad macroeconomic trends, spanning an aging population, a decline in birth-rates and the advent of both automation and digitization, would anchor price inflation for decades to come. However, recent inflationary pressures have spurred growing anxiety amongst investors, causing them to transfer to bond-based exchange-traded funds and other passive tracking products that offer greater stability against currency depreciation as they are hedged against rising inflation.
Spanning the start of 2021 to August 5th, net inflows into bond-based ETFs came to $27 billion worldwide, in stark contrast to a total of $16.3 billion for the entirety of 2020 and economists at JC Rothchild General have noted that the renewed focus on inflation this year is at complete odds with that of the past decade. In addition, assets exposed to floating rate funds as well as products of shorter maturity and thus less sensitive to inflation, have become increasingly popular.
Despite the recent influx to inflation hedges, the net impact is still negligible relative to flows to bond ETFs, which provide very little protection against inflation. Economists at JC Rothchild General negate the persistent nature of recent inflationary spikes, relying on historic experience which shows that corporations are more likely to forfeit margins to a degree and depend on automation to floor costs, as opposed to completely transferring price increases onto the consumer.
It is important to bear in mind that inflation is simply a by-product of economic growth and, despite massive monetary stimulus that has triggered spikes not seen in decades, this inflation is still likely to be temporary,” said Mr. Akifumi Endo, Chief Finance Officer at JC Rothchild General.