The importance of inflation protection | Insight Investment

“Many market participants still appear anchored to the low-inflation era. We think they are underestimating structural change.”

Has the world moved to structurally higher inflation?

Inflation has fallen from its post-pandemic peaks, but the underlying story may have dramatically changed. In this paper, we argue that disinflation has stalled and that markets may be underestimating a structural shift to a more inflationary world. A combination of policy choices, geopolitical change, demographics and deglobalisation is reshaping the inflation outlook, with important implications for portfolios.

The inflation outlook has changed and portfolios need to adapt

While many investors still expect a return to the low-inflation environment of the past decade, we believe the evidence increasingly points the other way. Inflation is settling above central bank targets, expectations look less well anchored, and policymakers are still showing a bias towards easing even in the face of persistent price pressures.

More importantly, the global backdrop is evolving. We identify seven structural forces, from policy activism and rising geopolitical tensions to ageing populations and the reversal of globalisation, that could keep inflation higher and more volatile than many expect.

If inflation proves structurally higher, it could reshape return expectations, increase dispersion across markets, and reinforce the need to actively manage inflation risk.

Read the full paper to understand why we believe inflation protection may become a core component of future portfolio construction.