Inflation - where to next?

Supply chain bottlenecks the main cause

Inflation was undoubtedly the main story of 2021 as surging energy prices and supply chain bottlenecks saw consumer prices rise at their fastest pace for nearly 40 years.

While some of these cost pressures are expected to ease in 2022, we do not think investors should be complacent and assume that inflation will automatically fall back to earlier levels. We believe there are a number of second and third order effects which need to considered, under which high inflation in 2021 could feed into higher inflation in 2022 and beyond.  There are a number of mechanisms by which this could happen. In the UK, the classic example is through the ‘triple lock' pension, whereby state pensions get uplifted by the higher of 2.5%, average wages or the consumer prices ind...