Inflation is on a rampage, with consumer prices soaring 7.9% in the 12 months through February, a 40-year high.
The March numbers come out Tuesday, and economists surveyed by Bloomberg have a median forecast of 8.4% for the 12 months through March, another 40-year peak.
They don’t see that rate lasting, but they still forecast an average of 5.7% for the fourth quarter.
That’s about three times higher than the rate in years preceding the Covid pandemic, Bloomberg reports.
The Federal Reserve has a target of 2% for inflation, though it uses the personal consumption expenditures price index, rather than the consumer price index.
The PCE price index jumped 6.4% in the 12 months through February.
Climbing commodity prices account for some of the inflation, particularly as the Russia-Ukraine has kept plenty of commodities away from the market.
The S&P GSCI commodity price index has jumped 25% year to date.
Commodity prices have potential for substantial further gains from here, according to J.P Morgan strategists.
“In the current juncture where the need for inflation hedges is more elevated, it is conceivable to see longer-term commodity allocations eventually rising above 1% of total financial assets globally, surpassing the previous highs seen during 2008 or 2011,” the strategists wrote in a commentary.
The Upside for Commodity Prices
And what does that mean for commodity prices? Such a development “would imply another 30% to 40% upside for commodities from here,” the strategists said.
Meanwhile, rising commodity prices figure into Deutsche Bank’s forecast for recession.
“Two shocks in recent months, the war in Ukraine and the build-up of momentum in elevated U.S. and European inflation, have caused us to revise down our forecast for global growth significantly,” Deutsche Bank economists wrote in a commentary.
“We are now projecting a recession in the U.S. and a growth recession in the euro area within the next two years.”
The Russia-Ukraine conflict plays a major role in the equation, they said. “The war, which has transitioned into a stalemate that is unlikely to be resolved any time soon, has disrupted activity on a number of fronts,” the economists note.
“These include upheavals in markets for energy, food grains, and key materials that have in turn further disrupted global supply chains.”
‘Inflation Fighter’ Funds
Meanwhile, investment research firm Morningstar put together a list of “inflation-fighter” mutual funds and exchange-traded funds.
Three of the funds that earned Morningstar’s top ranking of gold are:
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP).
This fund focuses on Treasury Inflation-Protected Securities (TIPS). It’s a “great TIPS fund because of its low fee and sensibly constructed portfolio,” Morningstar analyst Neal Kosciulek wrote in a commentary.
T. Rowe Price Floating Rate (PRFRX).
This mutual fund focuses on loans with interest rates that float, so now is a time when their yields should rise.
“T. Rowe Price Floating Rate stands out versus peers,” Morningstar analyst Paul Olmsted wrote in a commentary.
Parnassus Core Equity Investor (PRBLX).
This mutual fund has an environmental/social/governance (ESG) focus. It excludes companies with a significant exposure to alcohol, tobacco, weapons, fossil fuels and nuclear power. It seeks companies with ethical practices.
