Investors scared: Wells Fargo says inflation is almost at its peak
The high prices continue to cause unrest among consumers and investors alike. Experts are on the lookout for signs of when inflation could weaken again. Wells Fargo is now seeing signs that inflation is nearing its peak.
• Prices continue to rise
• Wells Fargo foresees the peak of inflation
• Demand for cyclical values
Sharply rising prices have been burdening the economy since the beginning of the corona pandemic. Various factors such as delivery bottlenecks, material shortages and the extremely expansive monetary policy of the central banks to cushion the economic slowdown caused by the Corona crisis are responsible. Even if experts initially assumed that the high prices would only last for a short time, inflation has risen continuously in recent months. As the Bundesbank recently announced, inflation rates in Germany of just under 6 percent by the end of the year are quite conceivable.
The high prices, however, besides the strong increase in the number of new infections, are putting a strain on the still recovering economy, so that the recovery is stalling more and more. No wonder, then, that consumers and economists alike are looking for signs of when inflation might fall again.
Commodity prices are already falling
According to the US bank Wells Fargo, one of these signs is the price of raw materials for finished goods. These have recently declined again, which could indicate that the prices for the finished products themselves will soon fall again, as Wells Fargo strategist Scott Wren revealed in a telephone interview with MarketWatch. As examples, Wren cites the prices of “wood, copper and soybeans”, which have now turned out to be “significantly lower” at the beginning of this year.
In a report by the strategist, which he wrote together with his colleague Paul Christopher, it is therefore assumed that commodity prices may have peaked in the meantime. Typically, prices show how consumer inflation is likely to develop twelve months in advance. For this reason, Wren believes that “consumer inflation should slow somewhat by the middle of the year and significantly by the end of 2022”. Specifically, Wells Fargo estimates that inflation is likely to hover around 4 percent next year. In October the rate was 6.2 percent in the United States compared to the same month last year.
The supplier situation is improving
In addition to the falling raw material prices, according to Wren and Christopher, the easing supplier situation would also speak in favor of falling inflation: “Factories in Asia are opening again and some transport costs are reaching their peak,” wrote the two experts. Nevertheless, the rate of inflation could rise a little before it then embarks on the downward trend in the next year. For this reason, investors should consider the continued rise in inflation rates when designing their portfolios. Wells Fargo itself is betting on cyclical sectors such as industry, raw materials and finance. On the other hand, the bank withdrew money from the energy sector. Wren explained this with the already very strong run of the energy sector. The strategy described assumes that the economy is likely to pick up, which is why the finance house advises against relying on long-term investments with fixed interest rates. However, this also applies to short-term fixed-income assets, since it must be factored in that the US Federal Reserve is reacting to rising inflation.
After US President Joe Biden recently reckoned current Fed chairman Jerome Powell for rate hikes in the US.
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