The Challenge to Investors

Higher Levels of Inflation Expected Ahead

 

Challenge Overview

In this video, Inigo Fraser-Jenkins discusses why a higher level of inflation is one of the challenges identified in The Book 2025 Edition.

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      Far-reaching mega-forces are at work that could combine to push price levels up and cause structural inflation rates to settle at a higher level over the long run, though inflation won’t be unbounded.

      For one thing, a long era of globalization has peaked and is starting to reverse. This raising of the drawbridge is fragmenting supply chains and jobs markets.

      Also, an aging global population is reducing the stock of working-age people, shrinking the available labor supply and in the process increasing the power of workers to bargain for higher wages. A slower-than-expected energy transition in efforts to slow climate change could also bring about more frequent and severe weather shocks, making price levels more volatile.

      There’s also the risk that growing government debt burdens put pressure on politicians as debt payments take up a larger share of public spending. Politically, the least painful solution could be for policymakers to allow inflation rates to run higher than they otherwise would—a way to reduce the inflation-adjusted value of the debt they owe. These forces could mean that investors must account for a greater drag on purchasing power.

      Current analysis does not guarantee future results.
      Through December 15, 2024
      Source: LSEG Data & Analytics, University of Michigan and AB

      What Is The Book?

      The Book is an annual collection of thought-provoking strategic research and thought leadership from AB’s Institutional Solutions team. With a long history of taking on asset owners’ most pressing issues, the team zeroes in on themes and trends that will shape the macro, market and investment-industry landscape over the medium to long term. The team have been publishing Books on the strategic outlook for a decade.
       


      Webcast Replay: Exploring The Book 2025 Edition

      Recorded Tuesday 24 June

      Hear Inigo Fraser Jenkins and Alla Harmsworth as they discuss the five challenges identified in the latest edition of The Book, and the responses they are seeing for investors.

      Explore Other Challenges from The Book

      Debt Brudens

      The government debt burden across G7 economies has returned to its lofty heights at the end of WWII, mainly to keep consumers happy.

      The cost of servicing that debt is growing, and letting inflation run hotter might be the easiest political way out of the problem.

      Artificial Intelligence

      It’s hoped that AI will unleash a wave of productivity to counter lower economic growth. But it also brings big questions, including what the future of democracy holds and the meaning of money. These types of risks don’t tend to show up in return forecasts.

      Climate Change

      The energy transition seems to be going more slowly than initially hoped. As it stands, it may not meet the current expectations for achieving net-zero emissions by 2050. This creates additional uncertainties for investors.

      Geopolitics

      Markets struggle to price the risks from geopolitics, adding another layer of uncertainty to investment plans. With geopolitical dynamics shifting, investors must take a broader view of potential future scenarios.