Inflation: Transitory or Enduring?

06.30.21 | Westfield’s Take on the Path Forward and How to Play It

Executive Summary:

  • The dramatic change in market inflation expectations over the past year resulted from a remarkable confluence of events. Although some supply disruptions are likely to subside over time, we expect underlying price pressure to continue building and last long enough to become self-fulfilling.
  • Recently the Fed has acknowledged inflation exceeding their initial expectations. We expect this to be the first step in an evolving policy change which will result in earlier tapering and rate hikes than embedded prices suggest.
  • Counter-trend trade opportunities may arise, but the best way to play this change is through increased exposure to high-quality cyclicals with a preference for those with pricing power who can drive pricing to offset cost increases and grow earnings/expand margins.

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