Inflation dynamics drive monetary policy and financial market trends and play a key role in portfolio construction. Therefore, the ex-ante identification of a possible shift in the inflationary regime is needed to fine tune multi-asset portfolios.
This is crucial in this post-Covid-19 recovery phase, as inflation is making a great come-back and investors are starting to question the sustainability of current market levels amid more persistent inflation. After decades of disinflationary trends, when interest rates stayed subdued due to central banks’ financial repression, globalisation, stagnant wages and China’s role in exporting deflation, the Covid-19 crisis has brought back inflation risks under the radar as the prevailing inflation regime shifts.
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