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JP Morgan on the "sticky" inflation situation

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(Kitco News) - In its latest research note, U.S. investment bank JP Morgan have said the inflation situation is somewhat "sticky". The report said "The widespread rollout of vaccinations has unleashed powerful pent-up demand in the U.S. economy, sending prices higher across a variety of sectors. Although inflation is now tracking well above the Fed’s 2% target, we agree with the Fed that much of this surge is likely transitory."

The bank also noted, "However, there are aspects of the current inflationary surge that may persist and keep inflation elevated in the medium-term, particularly higher wage pressures, rising inflation expectations and the potential for faster increases in owners’ equivalent rent."
Looking forward the JP Morgan also said "As we look to 2022 and beyond, we believe a shift from secular headwinds to secular tailwinds could result in modestly higher inflation in the long term. Consequently, we may be entering a “new-old” normal where inflation runs persistently between 2-3%."

Dr. David Kelly and Stephanie Aliaga then noted, "Higher trend inflation and a normalization of monetary policy should result in higher interest rates, which may leave us with a different set of winners and losers than in the prior expansion. As valuations become more important, the rotation from mega-cap stocks to the rest of the market should continue, along with the rotation from growth to value and from domestic to international stocks."

At the end of the paper, there was a clear reasoned argument for a hedge to the inflationary pressure that might be to come. The team noted that some alternative assets in the commodities space may perform well and be a diversified form of income for investors. There was no mention of gold or any other precious metal in the report but over the years the yellow metal has been an inflation hedge. It just seems in this cycle rates are moving higher with the precious metal and there is some spread across the safe-haven asset classes.

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