We don’t expect a 2022-style inflation shock, but we recognise that 2026 is no longer a normal inflation environment. In this regime, bonds may be less reliable as an equity hedge and portfolio construction needs broader inflation protection: selective risk assets, carry over duration, real and private assets, commodities and gold.
With the last major inflation shock in 2022, H1 2026 has provided another example of renewed inflationary pressure, this time driven by an energy supply shock stemming from the conflict in Iran. These episodes confirm our long-term view that inflation is becoming more structural and less linear, driven by geopolitical fragmentation, stronger commodity demand linked to the green transition, AI and infrastructure and repeated supply-side disruptions. While 2022 was an extreme event, with inflation fuelled by a powerful mix of pandemic-era stimulus, supply chain bottlenecks and energy prices, 2026 is not an extreme inflation shock, but it still marks a meaningful shift compared to our original assumption of a normal inflationary backdrop.
Our proprietary model, Inflation Phazer, now points to an inflationary regime, with US CPI above 3% as the most likely backdrop for the remainder of the year. A return to a normal regime phase is more likely from Q2 2027 as the spike in energy prices fades. This does not mean a repeat of the 2022 shock, but it signals that inflation is likely to remain high and persistent enough to shape central bank reaction functions, market behaviour and portfolio diversification.
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