Inflation and the Supply Chain

Top Picks on Inflation and the Global Supply Chain

As analysts and commentators debate the geopolitical and investment implications of Russia’s invasion of Ukraine, many are questioning what it might mean for central bank policy where most developed markets are expected to normalise rates to fight rising inflation. Supply chain constraints are ongoing, and may be exacerbated by a sanctions-hit Russia.

Our selection of papers provides context for the inflation debate, with a particular focus on the supply chain. MFS have an interesting take on supply chain issues, advancing that it is a market distortion largely caused by central bank balance sheet expansion. PGIM Fixed Income meanwhile have an in-depth piece on supply chain strain in manufacturing. Nuveen presents an interesting study of the relationship between muni yields and inflation, and don’t forget stagflation – there is an Amundi paper for those concerned about a rerun of the 1970s experience.

Shifting Balance Sheet Landscape Creates Opportunity (MFS, 2022)

MFS argues that whilst the coronavirus pandemic may have triggered issues such as those seen in the supply chain, the root cause lies in price distortions caused by central bank balance sheet expansion and the resultant artificially low interest rates.

A World Shaped by Supply (BlackRock, 2022)

For compliance reasons, this paper is only accessible in the United States and Canada

This paper suggests that the rules of the game have changed now that inflation is driven by supply constraints rather than excess demand, and given that monetary policy can only target either inflation or growth, more volatility lies ahead.

Strategies to Protect Portfolios from Inflation Risk (Amundi, Feb 2022)

For compliance reasons, this paper is NOT accessible in the United States

Amundi outlines four primary components behind rising inflation, making a distinction between short-, medium-, and long-term considerations. They also discuss central bank and market responses, before considering potential portfolio defences.

Are we watching the return of 1970s-style stagflation? (Wellington Management)

There are increasing fears that we are headed not just for an inflationary environment, but a stagflationary one. It is therefore important to understand indicators from previous episodes of stagflation, and what that could mean for today’s investors.

Municipal Yields and Inflation: Investors take a long view (Nuveen, 2022)

In this study on the connection between municipal bond interest rates and inflation over time, Nuveen finds that municipal yields tend to show a lagged reaction to inflation. They identify several other patterns, concluding with how this relates to today’s market.

Supply Chain Strain in Manufacturing (PGIM Fixed Income, Feb 2022)

In this paper PGIM Fixed Income takes a deep dive into supply chain issues in the manufacturing sector. They consider the source of such issues and, by using statistical analysis, to what extent they can be explained by supply or demand factors.

Have We Reached the Pivot Point? (Franklin Templeton Investments, Feb 2022)

For compliance reasons, this paper is only accessible in the EMEA region

Experts from Franklin Templeton offer their opinions on inflation, including central bank responses, and whether it is likely to become muted or increase throughout the year. They highlight some key topics investors need to factor into their thoughts.

Real Assets: An alternative way to hedge inflation (Aviva Investors, Feb 2022)

For compliance reasons, this paper is only accessible in certain geographies

As investors seek ways to protect their investment returns against heightened inflation, Aviva Investors suggests alternatives to normal inflation hedging. They present the risk-reward range as it relates to specific categories of real assets.

Podcast: Managing risk in global supply chains (VoxEU, 2022)

The coronavirus pandemic showed how important, and perhaps fragile, supply chains are. The speakers in this podcast talk about the risks inherent in a global supply chain built on outsourcing and a just-in-time approach, and how the system could be strengthened.

Inflation Concerns and Portfolio Resilience (New York Life Investments, 2022)

This paper contains advice for investors on how to position their portfolio given current economic conditions. With inflation-resilience in mind, there are recommendations on strategies in fixed income, equity, real estate, and infrastructure.

Supply Chain: Opportunities for industrial and logistics real estate (CBRE)

One result of supply chain stress has been companies seeking protection against the just-in-time approach – by diversifying the source of their inputs, and increasing their inventory storage space. Both trends are creating new industrial markets.