QUESTION OF THE WEEK

How will inflation and growth look in 2022?

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 our insights.  

    Recent supply-driven price spikes, including in oil and gas, are challenging the activity restart, are awakening fears of sustained inflation.

    How do you see the interplay between inflation and growth in 2022?

    • Reflation: higher inflation and growth (40%)
    • Stagflation: higher inflation and lower growth (40%)
    • Goldilocks: lower inflation and higher growth (5%)­
    • Slowdown: lower inflation and growth (14%)­

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

      Poll results

      Poll responses saw split views on the 2022 inflation and growth outlook. Reflation and stagflation tied at 40% each.  And few voted for goldilocks (5%) or the slowdown scenario (14%).

      More than half of BlackRock portfolio managers expect a reflation scenario (high inflation + high growth) into 2022, especially in the U.S. Most others (41%) agree on inflation being higher, but they don’t see growth following suit.

      High growth, high inflation

      BlackRock’s Systematic Fixed Income team expects high growth and high inflation in 2022: the U.S. consumer is in good shape, the country is a net exporter of energy and has easy access to cheap gas – and though fiscal support is waning, monetary policy support remains accommodative. 

      One portfolio manager highlighted six major transitions happening concurrently: the economic restart, the stimulus impulse, the Fed’s inflation targeting, a post-Covid world, the journey to net zero and China's shift to socialism from capitalism. This makes it difficult to predict the macroeconomic outlook: it will be more fruitful to focus on picking out the winners and losers across sectors, they said.

      Others pointed out that we're at the start of an enormous reallocation of capital – driven by technological disruption, decarbonization/ESG and the inflationary environment.

      Not sold on reflation

      On the BlackRock Multi-Asset Strategies team, some thought humility is warranted when forecasting inflation: with a fiscal drag ahead and supply chain issues likely to be largely resolved by the end of the year, perhaps too many have dismissed the possibility of a downside surprise in inflation next year. 

      In Fixed Income, some saw a looming increase in labor force participation ahead that will help tame inflationary pressures. If only half of the 7.5 million who just lost their supplemental unemployment benefits return to work, that will recover almost all the Covid losses. In the Active Equities Group the thought was that the pandemic will cause many to reassess their lives in ways we're not expecting. This could result in people within financial services and beyond leaving the workforce permanently.

      1970s stagflation? It’s the opposite

      1970s-style stagflation is an unlikely outcome to the BlackRock Investment Institute (BII). Why? Economic activity is increasing briskly today, and we still have room to run as supply comes back online.

      In the 1970s, by contrast, the economy was running above its long-term potential, so growth had to stagnate. The current surge in inflation is primarily driven by the powerful restart of economic activity after pandemic-induced shutdowns. Higher energy prices are due to stronger growth and demand while supply capacity comes back online, the opposite of the 1970s.

      Read more in the weekly commentary.

      Stay ahead of markets with the latest insights from the BlackRock Investment Institute.

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