"Preparing for higher inflation
Rising inflation in the medium term is core to our investment views, but we believe this will have very different effects than in the past.
The “new nominal” is not simply about our expectation for a higher inflation regime in the next five years. It means stronger growth in the near term, and eventually higher inflation - without the typical rise in nominal bond yields. As a result, we see very different market implications than in the past. Previous episodes of rising inflation were costly for investors, leading to higher interest rates that pressured valuations across many asset classes via rising discount rates. Yet the policy revolution means any rise in inflation from today’s levels will likely be better for risk assets than in past episodes.
3 forces at play
Rising production costs - Production costs could rise on the rewiring of global supply chains and rising bargaining power of domestic workers as industries are re- or near-shored.
New frameworks - Central banks are fundamentally changing their policy frameworks with the intent of running inflation above their targets.
Political pressures - The monetary-fiscal policy revolution - a necessary response to the Covid-19 shock - risks greater political constraints on the ability of central banks to lean against inflation."
(2021 Global Outlook - A New Investment Order dated 12/07/2020 by BlackRock Investment Institute via https://www.blackrock.com/us/financial-professionals/insights/blackrock-investment-institute/outlook)
Full article can be found here: https://www.blackrock.com/us/financial-professionals/insights/blackrock-investment-institute/outlook#a-new-inflation-regime