Abbey Road Investment Views, May. 2022
Inflation – Wages are key
• Economic growth is slowing
• A recession is not inevitable but the risks are rising
• Inflation is peaking: Wages will be key
• Markets are reacting to a riskier outlook
• The 60-40 portfolio assessed (see Focus)
• The US dollar is rampant (see page 3)
The major central banks (except Japan) have been sounding more and more hawkish. They are embarrassed that they let inflation get to 7% in the UK, 7.4% in the Euro zone and 8.5% in the US. These are headline rates and core inflation (ex-food and energy) is a bit lower but it is still too high for comfort.
Inflation is likely peaking now and should come down over the summer. Indeed headline inflation in the US could come down sharply if energy prices reverse, which depends a lot on the Ukraine situation, and if car prices come down, which depends partly on the extent to which China’s zero COVID policy upsets supply chains. But what will matter most is wages.
Download the full Investment Views of the month below.