QUESTION OF THE WEEK

What are your inflation expectations?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and insights.

    U.S. inflation has been on the rise, against a backdrop of the Federal Reserve’s new inflation-targeting framework, an expansionary U.S. fiscal agenda, a looming economic restart and global supply chain shortages.

    Where do you see U.S. Core PCE inflation (excluding food & energy prices) at the end of 2022?

              Poll results: Where do you see U.S. Core PCE inflation (excluding food and energy prices) at the end of 2022?

              Source: Blackrock Investment Institute, with data from SurveyMonkey. Note: Data does not include results from BlackRock social media polls.

              Poll results

              Just over forty percent of poll respondents to this week’s question see U.S. core PCE between 2.0-2.5% by the end of 2022, while 35% see it above 2.5% as a dovish Fed, large fiscal spending and supply side disruptions boost inflation. Another twenty-four percent of votes saw inflation below the Fed’s 2% target.

              Results from the week's polling on the inflation outlook show that the BlackRock investment platform is clearly in the higher-inflation camp – 80% see U.S. core PCE at 2.0-2.5% or even higher. That marked a dramatic shift from six months earlier, when roughly half saw inflation still below the Fed’s target by the end of 2022.  

              The Fed’s reaction function

              Understanding the Fed's reaction function is critical to the BlackRock Multi-Asset Strategies & Solutions team. It will be important to see how the Fed thinks about supply chain disruptions and whether it continues to see these as transitory, the team believes. The Systematic Fixed Income team saw forecasting inflation over the next few years as particularly hard, as shown by the large dispersion in consensus estimates. It's also important not to ignore the shifting influence of longer-term structural trends, such as demographics and future spending patterns across different age cohorts. 

               The BlackRock Investment Institute (BII) sees U.S.CPI inflation averaging just under 3% between 2025-2030 and believes this is still underpriced by markets. First, BII expects higher production costs as the pandemic accelerates the rewiring of global supply chains. Second, major central banks are evolving their policy frameworks and explicitly intend to let inflation overshoot their targets. Third, BII sees that higher debt levels will make it harder for central banks to lean against inflation – and make the decision to start tightening more politicized. 

              Quotation start

              It is very difficult to predict near-term inflation dynamics, especially given the nature of the activity restart.

              Quotation end
              Jean Boivin Head of BlackRock Investment Institute

              BII believes supply constraints and surging demand will likely keep the short-run path more volatile. Inflation pricing has already moved a lot – one reason BII closed its tactical overweight on inflation-linked bonds in its Global Outlook update.

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