These are delicate questions for policymakers, central bankers and investors at a time of great economic uncertainty.
Will inflation become persistently high, with continually rising inflation expectations and spiraling wage growth, as it did in the 1970s? Will it be accompanied by stagnant growth in a ‘stagflation’ trap?
The puzzle of a tight U.S. labor market
June's U.S. Job Opening and Labor Turnover Survey showed that 4.3 million people voluntarily quit their jobs and the number of job openings per unemployed person is hovering around record highs.
The upshot? Tight labor markets are putting upward pressure on wage inflation, which has historically been associated with a substantial risk of recession over the next one to two years. Consequently, the more embedded wage inflation becomes, the greater the pressure on the Fed to continue raising rates to slow the economy and extinguish wage pressures.
A puzzle in several advanced economies and especially the U.S. lies at the heart of the inflation debate – unfulfilled job vacancies have increased significantly, even though employment has yet to recover fully from the pandemic.
As the European Central Bank (ECB) moves towards tightening monetary policy, though, there are echoes of the 2010 sovereign debt crisis.
In the extreme scenario that Russia’s gas flows to the EU stop completely, there is little to stop inflation moving still higher in 2022 and 2023.
After the ECB confirmed plans in June to withdraw its large-scale bond-buying program and start interest rate rises to curb inflation, Italy’s borrowing costs surged.
41.9%
Showing the pressure from oil and gas, eurozone energy prices increased 41.9% between January 2021 and June 2022, according to Eurostat.
In 2022, 10-year Treasury bond rates have risen from under 2% to over 3%.
At $2.8 trillion in 2021, the deficit was the second largest in history – just short of 2020’s $3.1 trillion – due to the economic disruptions of COVID-19.
Economists are nervously eyeing inflation data for signs that it might be peaking. Even though there are few signs of inflation slowing, there’s a chance it could ebb in part on its own accord. Most recently, U.S. consumer price inflation reached 9.1% in June, its highest level since 1981.
That’s a hike that would result in the federal deficit overshooting the Congressional Budget Office projection of a $1.15 trillion annual deficit and rising to $1.22 trillion, according to a recent analysis.
Falling tax receipts in a recession would make matters worse.
There is a limit to how far the Fed can raise rates, without making funding the federal deficit too costly.
Inflation and funding the federal deficit
Asia not feeling the pressure
In Asia, there’s less dependence on fast-inflating foodstuffs such as maize and wheat.
In contrast, rice prices have been more stable. Further, supply-chain bottlenecks are not as severe as they are in the West. And, the more gradual reopening of economies has dampened the surge in demand.
Energy and Food Shocks, Supply-Chain Bottlenecks, and Surging Wages
Inflation's Uncertain Path
OUTFRONT SERIES
PRESENT
Yearly Comparison of Q2 Jun ‘21, Q3 Sept ‘21, Q4 Dec ‘21, Q1 March ‘22, Q2 Jun '22
Gross domestic product
(Monthly Comparison of Jan–Jun 2022)
Inflationary indicators around the world
From stagflation to immaculate disinflation?
Source: U.S. Bureau of Labor Statistics
U.S. Job Openings and Labor Turnover Survey
U.S. Job Hires
U.S. Job Openings Total
U.S. Job Quits
Number in Millions
12
11
10
9
8
7
6
5
4
3
2
May '22
Apr '22
Mar '22
Feb '22
Jan '22
Dec '21
Nov '21
Oct '21
Sep '21
Aug '21
Jul '21
Jun '21
May '21
Apr '21
Mar '21
Feb '21
Jan '21
0
1
U.S. Consumer Price Index (Urban) vs Personal Consumption Index
Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis
Personal Consumption Expenditures
Consumer Price Index (Urban)
Price Index YoY (%)
10
9
8
7
6
5
4
3
2
Jun '22
May '22
Apr '22
Mar '22
Feb '22
Jan '22
Dec '21
Nov '21
Oct '21
Sep '21
Aug '21
Jul '21
Jun '21
May '21
Apr '21
Mar '21
Feb '21
Jan '21
0
1
The core Personal Consumption Expenditures (PCE) Index is the U.S. Federal Reserve’s preferred measure of inflation, as it measures the price of consumer goods and services, stripping out volatile items such as energy and food. Like the Consumer Price Index, core PCE has been rising although not at the same pace. What’s more, it has started to level off recently suggesting that the Fed may be starting to get the demand slowdown it wants.
Services
Non-energy industrial goods
Energy
Food, alcohol & tobacco
Source: Eurostat
40%
30%
20%
10%
0
Harmonised Index of Consumer Prices (HICP)
(Percent increase of prices Jan 21 - May 22)
Energy drives European inflation
Pandemic
Projected
Source: U.S. Congressional Budget Office report July 2022
Percentage of Gross Domestic Product
Global Financial Crisis
World War II
Great Depression
World War I
225
200
175
150
125
100
75
50
25
0
U.S. Federal Debt Held by the Public, 1900 to 2051
2023
2022
5%
4%
3%
3.1%
3.7%
2.5% Actual
Source: Asia Development Bank
2%
1%
0
2021
Developing Asia’s inflation forecast
In Japan, after years of deflation, there’s currently almost no pass-through of inflation in the economy. Even though Japan is exposed to the same rises in commodity prices as other countries, inflation is barely rising for now. The psychology is different after years of falling prices: companies fear a backlash if they raise prices, while workers – beaten down by decades of stagnant pay – dare not demand higher wages.
That said, the yen’s plunge to a 20-year low against the dollar is pushing up food and energy prices, creating anxiety that this could yet lead to Japan’s first inflation problem in many decades. This divergence between Asia and elsewhere is playing out in the currency markets.
Source: Statistics Bureau of Japan
JAPAN’S CONSUMER PRICE INDEX JUNE 2022 (YEAR ON YEAR)
Principal, G10 Lead Economist, PGIM Fixed Income
Ellen Gaske
How might inflation cure itself? If pricing power dissipates and companies can’t pass on their higher costs because of cash-strapped consumers, then what happens to inflation going forward? ”
That’s led to EU inflation touching record highs, exceeding economists’ expectations.
Turning to Europe, Russia’s invasion of Ukraine has sent energy and commodity prices spiraling.
Eurozone inflation soared to 8.5% in the year to May, up from 7.4% in April. Pull out food and energy, and eurozone inflation drops by 4 percentage points. Yet inflation is clearly spreading from food and energy to the rest of the economy, as core inflation has risen above expectations from 3.5 to 3.8%.
The EU is taking a hit from the war in Ukraine in the form of commodity price pressures, due to its proximity and reliance on imported fossil fuels, especially from Russia.
Russia and Ukraine’s commodity squeeze
Euroflation revives euro fears and Brexit debate
Inflation in Asia is expected to rise, but there’s far less pressure on prices. With relatively low food inflation, less severe supply disruptions, and a faltering recovery in some countries, the Asian Development Bank forecasts developing Asia’s regional inflation will rise to 3.7% in 2022 (from 2.5% in 2021), before dipping to 3.1% in 2023.
Countries/economies included:
Afghanistan, Armenia, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, People’s Republic of Fiji, Hong Kong, China, India, Indonesia, Japan, Kazakhstan, Kiribati, Korea, Republic of Kyrgyz, Republic of Lao, People’s Democratic Republic of Malaysia, Pakistan, Papua New Guinea, Philippines, Russian Federation, Singapore, Sri Lanka, Taiwan, Tajikistan, Thailand, Timor-Leste, Tonga, Türkiye, Turkmenistan, Uzbekistan, Vanuatu, Viet Nam
Source: Asia Development Bank
Asia’s Regional Inflation forecast 2023
Principal, G10 Lead Economist, PGIM Fixed Income
Ellen Gaske
I am focusing on a new risk emerging, which is divergence. Not all central banks have pivoted hawkish. Inflation is not everywhere. China and Japan are trying to stimulate their economies and we are seeing divergence play out in exchange rates.”
Total U.S. Public Debt
Turning to the UK, the consumer prices index touched a 40-year high of 9.4% in June. Brexit is charged by economists with exacerbating inflation by lessening the flexibility of the labor market and reducing productivity.
Until Russia’s war ends, Europe’s inflation is likely to remain high and the pressures on the eurozone and Brexit Britain could persist.
Source: UK Office of National Statistics
UK INFLATION RATE JUNE 2022 (YEAR ON YEAR)
+
Developing Economies
Developed Economies
Y/Y Change (%)
GDP
Rate (%)
2050
2040
2030
2020
2010
2000
1990
1980
1940
1930
1900
1910
1920
1970
1960
1950
Learn More
–4
–2
0
2
24
22
20
18
10
8
6
4
** The Australian Bureau of Statistics releases CPI on a quarterly basis.
* Base rates used: U.S.: federal funds rate; Australia: cash target rate; Canada: policy interest rate; China: one year loan prime rate; France, Germany, and Italy: ECB deposit rate; India: repo rate; Japan: short term interest rate; UK: bank rate
Developing Economies
Developed Economies
Australia **
France
Italy
Germany
Japan
India
China
UK
USA
Canada
The Pursuit of Outperformance
Conclusion
As central banks tighten monetary policy to curb inflation, the outlook for asset prices rides on their success in doing so. Currently, the IMF (and many other forecasters) anticipates inflation will subside in 2023. And yet the IMF cautions that its forecast is subject to high uncertainty, “the risks to the outlook are overwhelmingly tilted to the downside.”
What’s clear is that the path of inflation is the key issue for investors. With inflation at high levels, staying in cash is not an attractive option. Yet if you assume that inflation might remain high in the medium term, where can you invest to protect the value of your capital? Commodities and TIPs might seem the best idea.
Indeed, the range of possible inflation outcomes, including the possibility that it will subside once more, make the case for a well-diversified portfolio.
Natural Resource
REIT
Real Estate Debt
Real Estate Opportunistic
Real Estate Value-Add
Real Estate Core
Asset
Growth Sensitivity
Inflation Sensitivity
Accessibility
Specific Risk
Infrastructure Brownfield
Energy Equity
Infrastructure Greenfield
Timberland
MLP
Farmland Annual Crops
Farmland Permanent Crops
TIPS
Commodity
Gold
Currency
Real assets ranked by growth and inflation sensitivity
Source: PGIM
High
Mid
Low
Today, while inflation remains a hotly debated topic, the tail risk of unanchored inflation expectations has clearly increased with unprecedented money supply growth and fiscal stimulus.
However, many real assets have positive inflation exposures. Therefore, the selection and allocation to real assets would differ depending on an investor’s specific investment criteria.”
Dr. Harsh PARIKH
Principal, Institutional Advisory & Solutions, PGIM
While real assets, commodities and gold seem the natural places to weather the inflationary storm, much depends on the nature of the storm and your objectives as an investor.
Even if inflation takes hold, there’s a range of different ways it can do so. These vary from periods of growth mixed with inflation, through to ‘stagflation’ – the toxic cocktail of stagnant growth and high inflation.
What the chart below shows is how different asset classes have differing sensitivities to inflation. Broadly speaking, it shows that not all perform in the same way – for example, commodity prices have a high sensitivity to both growth and inflation, yet TIPS are highly sensitive to inflation but not to growth.
considerations
for investing in real assets
4
Get the sensitivities right
The sensitivities of real assets to macroeconomic and financial market variables vary considerably.
1
Relationships of real assets to macroeconomic and financial market variables vary depending on the investment horizon.
Know your investment horizon
2
Estimated relationships like correlations and betas vary, and the uncertainty increases with the horizon. This should be accounted for when constructing real assets portfolios.
Incorporate estimation uncertainty
3
Estimated relationships differ depending on economic environments like stagflation (high inflation, low growth) or overheating (high inflation, high growth). A stagflation-focused portfolio may look very different from an overheating-focused portfolio.
Reflect your economic environment outlook
4
There are no easy answers or sure bets for assets. Only intelligent, active management can navigate these uncharted waters.
Asset classes for an inflationary, uncertain world
Source: Refinitiv, Datastream, LSEG, U.S. Department of the Treasury
0
200
400
600
800
1000
1980
1982
1974
1972
1970
1976
1978
Price Index
MSCI WORLD U$
Gold Bullion LBM $/t oz
MSCI R/ESTATE U$
S&P GSCI Commodity
1970s asset prices revisited
(Total Returns)
Source: St Louis Fed
U.S. Long-Term Government Bond Yields
0
4
8
12
16
1980
1982
1974
1972
1970
1976
1978
.
Yield (%) — 10-year Constant Maturities
* Source: Chartered Financial Analyst Institute
Echoes of history
While most of today’s professional investors have only known low inflation environments (the median age of financial professionals worldwide is 41)*, the Great Inflation of 1965-1982 had much in common with today.
During that period, the Fed and other central banks lost control of the money supply – a situation that was amplified by the Yom Kippur War of 1973-1974 and the Iranian Revolution of 1978-1979, both of which propelled oil prices higher.
In 1964, when the period began, U.S. inflation was 1% and unemployment was 5%. By the summer of 1980, inflation was near 14.5% and unemployment was over 7.5%. While economists are not generally forecasting anything like the magnitude of inflation and recessions of that period, nonetheless it’s instructive to see how it affected asset prices.
As the data in the chart above shows, global equities moved sideways for much of the 1970s. Equity REITs had an erratic performance. Commodities recorded the best performance – if volatile.
Canada
UK
Australia
USA
China
India
Japan
Germany
Italy
France
Source: fiscaldata.treasury.gov (As of July 2022)
50%
Mid
Low
High
Inflation has surged because of wage pressures, soaring commodity prices and pandemic-induced supply-demand imbalances. War in Ukraine is amplifying these forces, notably through turbocharging the prices of energy, metals and food.
Conditioned by the long recent history of low inflation, disinflation and even fears of deflation, economists have been wrong footed. With many belonging to a generation that has never seen inflation, they’re scrambling to keep up, lifting their forecasts for 2022 continually.
IMF - Advanced Economies
Inflation Forecast July 2022
IMF- Emerging and Developing Economies
Inflation Forecast July 2022
After four decades of low inflation, prices are rising swiftly in the U.S. and Europe, forcing interest rates up and threatening to undermine economic growth.
Even this was an advance on the IMF's forecasts of 5.7% and 8.7%, respectively, as recently as April.
Inflation has been rising across many advanced and emerging economies since 2021. Anxious to prevent price rise spirals becoming embedded, central bankers led by the U.S. Federal Reserve are hiking rates with some urgency to slow growth, potentially impacting the labor market. Inflation may also affect the interest payments on U.S. federal debt. While the brunt of Europe’s inflation is still in the cost of energy, in Asia inflation is rising more slowly – for now.
+
6
.
6
%
+
9
.
5
7
%
Source: World Economic Outlook Update. Gloomy and More Uncertain. July 2022
Eurozone Inflation
0
1
2
3
4
5
6
7
8
9
Jun ‘21
Jul ‘21
Aug ‘21
Mar ‘21
Feb ‘21
Jan ‘21
Apr ‘21
May ‘21
Sep ‘21
Oct ‘21
Nov ‘21
Dec ‘21
Jan ‘22
Feb ‘22
Mar ‘22
Apr ‘22
May ‘22
Jun ‘22
Source: European Central Bank
Eurozone Inflation (%)
Jun '22
41
9
.
%
Robert Tipp
Managing Director, Chief Investment Strategist, and Head of Global Bonds for PGIM Fixed Income
The overarching trends of aging demographics, high debt burdens, and other factors that conspired for decades to push equilibrium interest rates down are more likely hibernating than reversing. And when they make their comeback after the reopening enthusiasm and supply-chain problems have passed, inflation will likely be back at — or perhaps even below — targets once again.”
The case for active management is even stronger considering inflation's uncertain path and the range of possible outcomes -- from high inflation to disinflation.
Why Central Bankers Love "Core" Inflation
Learn More
In the arcane world of measuring inflation, central bankers judge “core” inflation the best way to take the temperature of price rises in an economy.
By this they mean a measure of inflation that strips out energy and food, which are the most volatile elements. The U.S. Federal Reserve, ECB and Bank of England, for example, all pay particular attention to the rate of growth of the core personal consumption expenditure deflator, which excludes food and energy prices.
Why? Because central banks are concerned with the underlying rate of inflation going forward. Concentrating on core inflation can stop them from responding too strongly to transitory movements in inflation.
To give a sense of the effect of withholding Russian and Ukrainian commodities, it’s useful to understand how much they supply. In energy markets, Russia supplied 14% of global crude and condensate in 2021, as well as 8% of global liquid natural gas. It’s also a major supplier of metals, responsible for 45% of global output of uranium in 2020 and 43% of palladium.
As for food, Russia and Ukraine together export 30% of the world’s cereals and 67% of sunflower oil. This partially displaced supply will prove increasingly difficult to replace.
Sources:
IEA (International Energy Agency)
https://www.iea.org/data-and-statistics/charts/share-of-global-production-and-rank-for-selected-minerals-and-metals-in-russia-2020
https://www.un.org/press/en/2022/sc14894.doc.htm
CONCLUSION
Investing & Inflation
INFLATION THEN
INFLATION NOW
INTRO
Source: Reuters
Source: Reuters Plus collated research from central banks, official national statistics offices and Refinitiv Eikon
3
4
5
6
7
8
1
–1
2
0
Base Rate
Core CPI
ON
OFF
ON
OFF
3
4
5
6
7
8
9
10
11
1
–1
2
0
Base Rate
Headline CPI
ON
OFF
ON
OFF
20
25
35
15
5
10
0
–1
Base Rate
PPI
ON
OFF
ON
OFF
Core Consumer Price Index vs. Base Rate*
Headline Consumer Price Index vs. Base Rate*
Producer Price Index vs. Base Rate*
6.7%
USA
Q2 Jun '21
2.3%
USA
Q3 Sept '21
6.9%
USA
Q4 Dec '21
1.5%
USA
Q1 March '22
-0.9%
USA
Q2 Jun '22
10.4%
Germany
Q2 Jun '21
2.9%
Germany
Q3 Sept '21
1.8%
Germany
Q4 Dec '21
3.8%
Germany
Q1 March '22
1.4%
Germany
Q2 Jun '22
1.9%
Japan
Q2 Jun '21
-3.6%
Japan
Q3 Sept '21
4.6%
Japan
Q4 Dec '21
-0.5%
Japan
Q1 March '22
2.5%
Japan
Q2 Jun '22
24.5%
UK
Q2 Jun '21
6.9%
UK
Q3 Sept '21
6.6%
UK
Q4 Dec '21
8.7%
UK
Q1 March '22
1.2%
UK
Q2 Jun '22
19.2%
France
Q2 Jun '21
3%
France
Q3 Sept '21
4.9%
France
Q4 Dec '21
4.5%
France
Q1 March '22
4.2%
France
Q2 Jun '22
17.3%
Italy
Q2 Jun '21
3.9%
Italy
Q3 Sept '21
6.2%
Italy
Q4 Dec '21
6.2%
Italy
Q1 March '22
4.6%
Italy
Q2 Jun '22
17.3%
Canada
Q2 Jun '21
3.9%
Canada
Q3 Sept '21
6.2%
Canada
Q4 Dec '21
6.2%
Canada
Q1 March '22
3.1%
Canada
Q2 Jun '22
9.6%
Australia
Q2 Jun '21
3.9%
Australia
Q3 Sept '21
4.2%
Australia
Q4 Dec '21
3.3%
Australia
Q1 March '22
3.3%
Australia
Q2 Jun '22
7.9%
China
Q2 Jun '21
4%
China
Q4 Dec '21
4.9%
China
Q3 Sept '21
4.8%
China
Q1 March '22
0.4%
China
Q2 Jun '22
20.1%
India
Q2 Jun '21
8.4%
India
Q3 Sept '21
5.4%
India
Q4 Dec '21
4.1%
India
Q1 March '22
4.1%
India
Q2 Jun '22
7.5%
U.S.A
Jan '22
7.9%
U.S.A
Feb '22
8.5%
U.S.A
Mar '22
8.3%
U.S.A
Apr '22
8.6%
U.S.A
May '22
9.1%
U.S.A
Jun '22
4.9%
Germany
Jan '22
5.1%
Germany
Feb '22
7.3%
Germany
Mar '22
7.4%
Germany
Apr '22
7.9%
Germany
May '22
7.6%
Germany
Jun '22
0.5%
Japan
Jan '22
0.9%
Japan
Feb '22
1.2%
Japan
Mar '22
2.5%
Japan
Apr '22
2.5%
Japan
May '22
2.4%
Japan
Jun '22
5.5%
UK
Jan '22
6.2%
UK
Feb '22
7%
UK
Mar '22
9%
UK
Apr '22
9.1%
UK
May '22
9.4%
UK
Jun '22
2.9%
France
Jan '22
3.6%
France
Feb '22
4.5%
France
Mar '22
4.8%
France
Apr '22
5.2%
France
May '22
5.8%
France
Jun '22
4.8%
Italy
Jan '22
5.7%
Italy
Feb '22
6.5%
Italy
Mar '22
6%
Italy
Apr '22
6.9%
Italy
May '22
8%
Italy
Jun '22
5.1%
Canada
Jan '22
5.7%
Canada
Feb '22
6.7%
Canada
Mar '22
6.8%
Canada
Apr '22
7.7%
Canada
May '22
8.1%
Canada
Jun '22
?.?%
Australia
Jan '22
?.?%
Australia
Feb '22
5.1%
Australia
Mar '22
?.?%
Australia
Apr '22
?.?%
Australia
May '22
6.1%
Australia
Jun '22
0.9%
China
Jan '22
0.9%
China
Feb '22
1.5%
China
Mar '22
2.1%
China
Apr '22
2.1%
China
May '22
2.5%
China
Jun '22
6.0%
India
Jan '22
6.0%
India
Feb '22
6.9%
India
Mar '22
7.7%
India
Apr '22
7.0%
India
May '22
7.0%
India
Jun '22
10.1%
U.S.A
Jan '22
10.4%
U.S.A
Feb '22
11.5%
U.S.A
Mar '22
10.9%
U.S.A
Apr '22
10.8%
U.S.A
May '22
11.3%
U.S.A
Jun '22
25%
Germany
Jan '22
25.9%
Germany
Feb '22
30.9%
Germany
Mar '22
33.5%
Germany
Apr '22
33.6%
Germany
May '22
32.7%
Germany
Jun '22
9%
Japan
Jan '22
9.4%
Japan
Feb '22
9.3%
Japan
Mar '22
9.8%
Japan
Apr '22
9.1%
Japan
May '22
9.2%
Japan
Jun '22
10%
UK
Jan '22
10.2%
UK
Feb '22
11.9%
UK
Mar '22
14%
UK
Apr '22
15.7%
UK
May '22
16.5%
UK
Jun '22
20.3%
France
Jan '22
20.2%
France
Feb '22
24.4%
France
Mar '22
25%
France
Apr '22
24.9%
France
May '22
25%
France
Jun '22
32.9%
Italy
Jan '22
32.8%
Italy
Feb '22
36.9%
Italy
Mar '22
35.3%
Italy
Apr '22
34.6%
Italy
May '22
34.1%
Italy
Jun '22
16.9%
Canada
Jan '22
16.4%
Canada
Feb '22
18.5%
Canada
Mar '22
16.4%
Canada
Apr '22
15%
Canada
May '22
14.3%
Canada
Jun '22
3.7%
Australia
Mar '22
5.6%
Australia
Jun '22
9.1%
China
Jan '22
8.8%
China
Feb '22
8.3%
China
Mar '22
8%
China
Apr '22
6.4%
China
May '22
6.1%
China
Jun '22
13.6%
India
Jan '22
13.4%
India
Feb '22
14.6%
India
Mar '22
15.1%
India
Apr '22
15.8%
India
May '22
15.2%
India
Jun '22
6.0%
U.S.A
Jan '22
6.4%
U.S.A
Feb '22
6.5%
U.S.A
Mar '22
6.2%
U.S.A
Apr '22
6.0%
U.S.A
May '22
5.9%
U.S.A
Jun '22
2.9%
Germany
Jan '22
3.0%
Germany
Feb '22
3.4%
Germany
Mar '22
3.8%
Germany
Apr '22
3.8%
Germany
May '22
3.2%
Germany
Jun '22
0.2%
Japan
Jan '22
0.6%
Japan
Feb '22
0.8%
Japan
Mar '22
2.1%
Japan
Apr '22
2.1%
Japan
May '22
2.2%
Japan
Jun '22
4.4%
UK
Jan '22
5.2%
UK
Feb '22
5.7%
UK
Mar '22
6.2%
UK
Apr '22
5.9%
UK
May '22
5.8%
UK
Jun '22
1.6%
France
Jan '22
2.5%
France
Feb '22
2.5%
France
Mar '22
3.2%
France
Apr '22
3.7%
France
May '22
3.7%
France
Jun '22
1.3%
Italy
Jan '22
1.5%
Italy
Feb '22
1.7%
Italy
Mar '22
2.4%
Italy
Apr '22
3.3%
Italy
May '22
3.8%
Italy
Jun '22
4.3%
Canada
Jan '22
4.7%
Canada
Feb '22
5.5%
Canada
Mar '22
5.8%
Canada
Apr '22
6.3%
Canada
May '22
6.5%
Canada
Jun '22
3.7%
Australia
Mar '22
4.9%
Australia
Jun '22
1.0%
China
Jan '22
1.0%
China
Feb '22
0.9%
China
Mar '22
0.7%
China
Apr '22
0.9%
China
May '22
1.0%
China
Jun '22
6.0%
India
Jan '22
5.9%
India
Feb '22
6.3%
India
Mar '22
6.9%
India
Apr '22
6.1%
India
May '22
6.1%
India
Jun '22
0.25%
U.S.A
Feb '22
0.5%
U.S.A
Mar '22
0.5%
U.S.A
Apr '22
1%
U.S.A
May '22
1.75%
U.S.A
Jun '22
0.25%
U.S.A
Jan '22
-0.5%
Germany
Jan '22
-0.5%
Germany
Feb '22
-0.5%
Germany
Mar '22
-0.5%
Germany
Apr '22
-0.5%
Germany
May '22
-0.5%
Germany
Jun '22
-0.1%
Japan
Jan '22
-0.1%
Japan
Feb '22
-0.1%
Japan
Mar '22
-0.1%
Japan
Apr '22
-0.1%
Japan
May '22
0.1%
Japan
Jun '22
0.25%
UK
Jan '22
0.5%
UK
Feb '22
0.75%
UK
Mar '22
0.75%
UK
Apr '22
1%
UK
May '22
1.25%
UK
Jun '22
-0.5%
Italy
Jan '22
-0.5%
Italy
Feb '22
-0.5%
Italy
Mar '22
-0.5%
Italy
Apr '22
-0.5%
Italy
May '22
-0.5%
Italy
Jun '22
-0.5%
France
Jan '22
-0.5%
France
Feb '22
-0.5%
France
Mar '22
-0.5%
France
Apr '22
-0.5%
France
May '22
-0.5%
France
Jun '22
0.25%
Canada
Feb '22
0.5%
Canada
Mar '22
2.5%
Canada
Jun '22
0.25%
Canada
Jan '22
1.0%
Canada
Apr '22
1.0%
Canada
May '22
0.1%
Australia
Jan '22
0.1%
Australia
Feb '22
0.1%
Australia
Mar '22
0.1%
Australia
Apr '22
0.35%
Australia
May '22
0.85%
Australia
Jun '22
3.7%
China
Jan '22
3.7%
China
Feb '22
3.7%
China
Mar '22
3.7%
China
Apr '22
3.7%
China
May '22
3.7%
China
Jun '22
4%
India
Jan '22
4%
India
Feb '22
4%
India
Mar '22
4.4%
India
Apr '22
4.4%
India
May '22
4.9%
India
Jun '22
0.25%
U.S.A
Feb '22
0.5%
U.S.A
Mar '22
0.5%
U.S.A
Apr '22
1%
U.S.A
May '22
1.75%
U.S.A
Jun '22
0.25%
U.S.A
Jan '22
-0.5%
Germany
Jan '22
-0.5%
Germany
Feb '22
-0.5%
Germany
Mar '22
-0.5%
Germany
Apr '22
-0.5%
Germany
May '22
-0.5%
Germany
Jun '22
-0.1%
Japan
Jan '22
-0.1%
Japan
Feb '22
-0.1%
Japan
Mar '22
-0.1%
Japan
Apr '22
-0.1%
Japan
May '22
0.1%
Japan
Jun '22
0.25%
UK
Jan '22
0.5%
UK
Feb '22
0.75%
UK
Mar '22
0.75%
UK
Apr '22
1%
UK
May '22
1.25%
UK
Jun '22
-0.5%
Italy
Jan '22
-0.5%
Italy
Feb '22
-0.5%
Italy
Mar '22
-0.5%
Italy
Apr '22
-0.5%
Italy
May '22
-0.5%
Italy
Jun '22
-0.5%
France
Jan '22
-0.5%
France
Feb '22
-0.5%
France
Mar '22
-0.5%
France
Apr '22
-0.5%
France
May '22
-0.5%
France
Jun '22
0.25%
Canada
Feb '22
0.5%
Canada
Mar '22
2.5%
Canada
Jun '22
0.25%
Canada
Jan '22
1.0%
Canada
Apr '22
1.0%
Canada
May '22
0.1%
Australia
Jan '22
0.1%
Australia
Feb '22
0.1%
Australia
Mar '22
0.1%
Australia
Apr '22
0.35%
Australia
May '22
0.85%
Australia
Jun '22
3.7%
China
Jan '22
3.7%
China
Feb '22
3.7%
China
Mar '22
3.7%
China
Apr '22
3.7%
China
May '22
3.7%
China
Jun '22
4%
India
Jan '22
4%
India
Feb '22
4%
India
Mar '22
4.4%
India
Apr '22
4.4%
India
May '22
4.9%
India
Jun '22
0.25%
U.S.A
Feb '22
0.5%
U.S.A
Mar '22
0.5%
U.S.A
Apr '22
1%
U.S.A
May '22
1.75%
U.S.A
Jun '22
0.25%
U.S.A
Jan '22
-0.5%
Germany
Jan '22
-0.5%
Germany
Feb '22
-0.5%
Germany
Mar '22
-0.5%
Germany
Apr '22
-0.5%
Germany
May '22
-0.5%
Germany
Jun '22
-0.1%
Japan
Jan '22
-0.1%
Japan
Feb '22
-0.1%
Japan
Mar '22
-0.1%
Japan
Apr '22
-0.1%
Japan
May '22
0.1%
Japan
Jun '22
0.25%
UK
Jan '22
0.5%
UK
Feb '22
0.75%
UK
Mar '22
0.75%
UK
Apr '22
1%
UK
May '22
1.25%
UK
Jun '22
-0.5%
Italy
Jan '22
-0.5%
Italy
Feb '22
-0.5%
Italy
Mar '22
-0.5%
Italy
Apr '22
-0.5%
Italy
May '22
-0.5%
Italy
Jun '22
-0.5%
France
Jan '22
-0.5%
France
Feb '22
-0.5%
France
Mar '22
-0.5%
France
Apr '22
-0.5%
France
May '22
-0.5%
France
Jun '22
0.25%
Canada
Feb '22
0.5%
Canada
Mar '22
0.25%
Canada
Jan '22
1.0%
Canada
Apr '22
1.0%
Canada
May '22
2.5%
Canada
Jun '22
0.1%
Australia
Jan '22
0.1%
Australia
Feb '22
0.1%
Australia
Mar '22
0.1%
Australia
Apr '22
0.35%
Australia
May '22
0.85%
Australia
Jun '22
3.7%
China
Jan '22
3.7%
China
Feb '22
3.7%
China
Mar '22
3.7%
China
Apr '22
3.7%
China
May '22
3.7%
China
Jun '22
4%
India
Jan '22
4%
India
Feb '22
4%
India
Mar '22
4.4%
India
Apr '22
4.4%
India
May '22
4.9%
India
Jun '22
Learn More
Russia invades Ukraine
CONCLUSION
Investing & Inflation
INFLATION THEN
INFLATION NOW
INTRO
CONCLUSION
Investing & Inflation
INFLATION THEN
INFLATION NOW
INTRO
CONCLUSION
Investing & Inflation
INFLATION THEN
INFLATION NOW
INTRO
CONCLUSION
Investing & Inflation
INFLATION THEN
INFLATION NOW
INTRO
Source: PGIM
Natural Resource
REIT
Real Estate Debt
Real Estate Opportunistic
Real Estate Value-Add
Real Estate Core
Asset
Growth Sensitivity
Inflation Sensitivity
Accessibility
Specific Risk
Infrastructure Brownfield
Energy Equity
Infrastructure Greenfield
Timberland
MLP
Farmland Annual Crops
Farmland Permanent Crops
TIPS
Commodity
Gold
Currency
High
Mid
Low
4
Considerations
for investing in real assets
There are no easy answers or sure bets for assets. Only intelligent, active management can navigate these uncharted waters.
Get the sensitivities right
The sensitivities of real assets to macroeconomic and financial market variables vary considerably.
1
Relationships of real assets to macroeconomic and financial market variables vary depending on the investment horizon.
Know your investment horizon
2
Estimated relationships like correlations and betas vary, and the uncertainty increases with the horizon. This should be accounted for when constructing real assets portfolios.
Incorporate estimation uncertainty
3
Estimated relationships differ depending on economic environments like stagflation (high inflation, low growth) or overheating (high inflation, high growth). A stagflation-focused portfolio may look very different from an overheating-focused portfolio.
Reflect your economic environment outlook
4
Dr. Harsh Parik
Principal, Institutional Advisory & Solutions, PGIM
Today, while inflation remains a hotly debated topic, the tail risk of unanchored inflation expectations has clearly increased with unprecedented money supply growth and fiscal stimulus.
However, many real assets have positive inflation exposures. Therefore, the selection and allocation to real assets would differ depending on an investor’s specific investment criteria.
Asset classes for an inflationary, uncertain world
3
While real assets, commodities and gold seem the natural places to weather the inflationary storm, much depends on the nature of the storm and your objectives as an investor.
Even if inflation takes hold, there’s a range of different ways it can do so. These vary from periods of growth mixed with inflation, through to ‘stagflation’ – the toxic cocktail of stagnant growth and high inflation.
What the chart below shows is how different asset classes have differing sensitivities to inflation. Broadly speaking, it shows that not all perform in the same way – for example, commodity prices have a high sensitivity to both growth and inflation, yet TIPS are highly sensitive to inflation but not to growth.
Real assets ranked by growth and inflation sensitivity
Robert Tipp
Managing Director, Chief Investment Strategist, and Head of Global Bonds for PGIM Fixed Income
The overarching trends of aging demographics, high debt burdens, and other factors that conspired for decades to push equilibrium interest rates down are more likely hibernating than reversing. And when they make their comeback after the reopening enthusiasm and supply-chain problems have passed, inflation will likely be back at — or perhaps even below — targets once again.”
The case for active management is even stronger considering inflation's uncertain path and the range of possible outcomes -- from high inflation to disinflation.
As central banks tighten monetary policy to curb inflation, the outlook for asset prices rides on their success in doing so. Currently, the IMF (and many other forecasters) anticipates inflation will subside in 2023. And yet the IMF cautions that its forecast is subject to high uncertainty, “the risks to the outlook are overwhelmingly tilted to the downside.”
What’s clear is that the path of inflation is the key issue for investors. With inflation at high levels, staying in cash is not an option. Yet if you assume that inflation might remain high in the medium term, where can you invest to protect the value of your capital? Commodities and TIPs might seem the best idea.
Indeed, the range of possible inflation outcomes, including the possibility that it will subside once more, make the case for a well-diversified portfolio.
Learn More
Conclusion
4
The Pursuit of Outperformance
1980
1982
1974
1972
1970
1976
1978
Price Index
0
200
400
600
800
1,000
Source: Refinitiv, Datastream, LSEG, US Department of Treasury
While most of today’s professional investors have only known low inflation environments (the median age of financial professionals worldwide is 41)*, the Great Inflation of 1965-1982 had much in common with today.
During that period, the Fed and other central banks lost control of the money supply – a situation that was amplified by the Yom Kippur War of 1973-1974 and the Iranian Revolution of 1978-1979, both of which propelled oil prices higher.
In 1964, when the period began, U.S. inflation was 1% and unemployment was 5%. By the summer of 1980, inflation was near 14.5% and unemployment was over 7.5%. While economists are not generally forecasting anything like the magnitude of inflation and recessions of that period, nonetheless it’s instructive to see how it affected asset prices.
As the data in the chart above shows, global equities moved sideways for much of the 1970s. Equity REITs had an erratic performance. Commodities recorded the best performance – if volatile.
Echoes of history
2
* Source: Chartered Financial Analyst Institute
(Total Returns)
MSCI R/ESTATE U$
S&P GSCI Commodity
MSCI WORLD U$
Gold Bullion LBM $/t oz DELAY
1970s asset prices revisited
1980
1982
1974
1972
1970
1976
1978
Yield (%) — 10-year Constant Maturities
0
4
8
12
16
Source: Organization for Economic Co-operation and Development
U.S. Long-Term Government Bond Yields
0
1%
2%
3%
5%
4%
2021
2022
2023
Source: Asia Development Bank
Developing Asia’s inflation forecast
2.5% Actual
3.7%
3.1%
Russia and Ukraine’s commodity squeeze.
Learn More
Source: European Central Bank
Source: Eurostat
Eurozone Inflation
Energy drives European inflation
Ellen Gaske
Principal, G10 Lead Economist,
PGIM Fixed Income
41.9%
Inflation and funding the federal deficit
Source: fiscaldata.treasury.gov (As of July 2022)
Total U.S. Public Debt
Economists are nervously eyeing inflation data for signs that it might be peaking. Even though there are few signs of inflation slowing, there’s a chance it could ebb in part on its own accord. Most recently, U.S. consumer price inflation reached 9.1% in June, its highest level since 1981.
That’s a hike that would result in the federal deficit overshooting the Congressional Budget Office projection of a $1.15 trillion annual deficit and rising to $1.22 trillion, according to a recent analysis.
Falling tax receipts in a recession would make matters worse.
There is a limit to how far the Fed can raise rates, without making funding the federal deficit too costly.
At $2.8 trillion in 2021, the deficit was the second largest in history – just short of 2020’s $3.1 trillion – due to the economic disruptions of COVID-19.
In 2022, 10-year Treasury bond rates have risen from under 2% to over 3%.
U.S. Federal Debt Held by the Public, 1900 to 2051
Source: U.S. Congressional Budget Office report, July 2022
How might inflation cure itself? If pricing power dissipates and companies can’t pass on their higher costs because of cash-strapped consumers, then what happens to inflation going forward? ”
Showing the pressure from oil and gas, eurozone energy prices increased 39.2% between January 2021 and June 2022, according to Eurostat.
In the extreme scenario that Russia’s gas flows to the EU stop completely, there is little to stop inflation moving still higher in 2022 and 2023.
As the European Central Bank (ECB) moves towards tightening monetary policy, though, there are echoes of the 2010 sovereign debt crisis.
After the ECB confirmed plans in June to withdraw its large-scale bond-buying program and start interest rate rises to curb inflation, Italy’s borrowing costs surged.
Euroflation revives euro fears and Brexit debate
The EU is taking a hit from the war in Ukraine in the form of commodity price pressures, due to its proximity and reliance on imported fossil fuels, especially from Russia.
Turning to Europe, Russia’s invasion of Ukraine has sent energy and commodity prices spiraling.
Eurozone inflation soared to 8.5% in the year to May, up from 7.4% in April. Pull out food and energy, and eurozone inflation drops by 4 percentage points. Yet inflation is clearly spreading from food and energy to the rest of the economy, as core inflation has risen above expectations from 3.5 to 3.8%.
That’s led to EU inflation touching record highs, exceeding economists’ expectations.
A puzzle in several advanced economies and especially the U.S. lies at the heart of the inflation debate – unfulfilled job vacancies have increased significantly, even though employment has yet to recover fully from the pandemic.
June's U.S. Job Opening and Labor Turnover Survey showed that 4.3 million people voluntarily quit their jobs and the number of job openings per unemployed person is hovering around record highs.
The puzzle of a tight U.S. labor market
The upshot? Tight labor markets are putting upward pressure on wage inflation, which has historically been associated with a substantial risk of recession over the next one to two years. Consequently, the more embedded wage inflation becomes, the greater the pressure on the Fed to continue raising rates to slow the economy and extinguish wage pressures.
Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis
U.S. Job Openings and Labor Turnover Survey
U.S. Consumer Price index (Urban) vs Personal Consumption Index
U.S. Consumer Price Index
Personal Consumption Expenditure
The core Personal Consumption Expenditures (PCE) Index is the U.S. Federal Reserve’s preferred measure of inflation, as it measures the price of consumer goods and services, stripping out volatile items such as energy and food. Like the Consumer Price Index, core PCE has been rising although not at the same pace. What’s more, it has started to level off recently suggesting that the Fed may be starting to get the demand slowdown it wants.
WHY CENTRAL BANKERS LOVE "CORE" INFLATION
Learn More
Source: UK Office of National Statistics
(Percent increase of prices Jan 21 - May 22)
+9.4%
UK INFLATION RATE JUNE 2022 (YEAR ON YEAR)
Source: Statistics Bureau of Japan
+2.4%
JAPAN’S CONSUMER PRICE INDEX JUNE 2022 (YEAR ON YEAR)
In Japan, after years of deflation, there’s currently almost no pass-through of inflation in the economy. Even though Japan is exposed to the same rises in commodity prices as other countries, inflation is barely rising for now. The psychology is different after years of falling prices: companies fear a backlash if they raise prices, while workers – beaten down by decades of stagnant pay – dare not demand higher wages.
That said, the yen’s plunge to a 20-year low against the dollar is pushing up food and energy prices, creating anxiety that this could yet lead to Japan’s first inflation problem in many decades. This divergence between Asia and elsewhere is playing out in the currency markets.
In Asia, there’s less dependence on fast-inflating foodstuffs such as maize and wheat.
In contrast, rice prices have been more stable. Further, supply-chain bottlenecks are not as severe as they are in the West. And, the more gradual reopening of economies has dampened the surge in demand.
Asia not feeling the pressure
Inflation in Asia is expected to rise, but there’s far less pressure on prices. With relatively low food inflation, less severe supply disruptions, and a faltering recovery in some countries, the Asian Development Bank forecasts developing Asia’s regional inflation will rise to 3.7% in 2022 (from 2.5% in 2021), before dipping to 3.1% in 2023.
Source: Asia Development Bank
Countries/economies included:
Afghanistan, Armenia, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, People’s Republic of Fiji, Hong Kong, China, India, Indonesia, Japan, Kazakhstan, Kiribati, Korea, Republic of Kyrgyz, Republic of Lao, People’s Democratic Republic of Malaysia, Pakistan, Papua New Guinea, Philippines, Russian Federation, Singapore, Sri Lanka, Taiwan, Tajikistan, Thailand, Timor-Leste, Tonga, Türkiye, Turkmenistan, Uzbekistan, Vanuatu, Viet Nam
+3.1%
Asia’s Regional Inflation forecast 2023
Ellen Gaske
Principal, G10 Lead Economist,
PGIM Fixed Income
I am focusing on a new risk emerging, which is divergence. Not all central banks have pivoted hawkish. Inflation is not everywhere. China and Japan are trying to stimulate their economies and we are seeing divergence play out in exchange rates.”
Turning to the UK, the consumer prices index touched a 40-year high of 9.4% in June. Brexit is charged by economists with exacerbating inflation by lessening the flexibility of the labor market and reducing productivity.
Until Russia’s war ends, Europe’s inflation is likely to remain high and the pressures on the eurozone and Brexit Britain could persist.
Gross domestic products
Will inflation become persistently high, with continually rising inflation expectations and spiraling wage growth, as it did in the 1970s? Will it be accompanied by stagnant growth in a ‘stagflation’ trap?
These are delicate questions for policymakers, central bankers and investors at a time of great economic uncertainty.
Inflationary indicators around the world
(Monthly Comparison of Jan–Jun 2022)
From stagflation to immaculate disinflation
1
OUTFRONT SERIES
Inflation’s Uncertain Path
Energy and Food Shocks, Supply-Chain Bottlenecks, and Surging Wages
+
PRESENT
Inflation has surged because of wage pressures, soaring commodity prices and pandemic-induced supply-demand imbalances. War in Ukraine is amplifying these forces, notably through turbocharging the prices of energy, metals and food.
Conditioned by the long recent history of low inflation, disinflation and even fears of deflation, economists have been wrong footed. With many belonging to a generation that has never seen inflation, they’re scrambling to keep up, lifting their forecasts for 2022 continually.
+6.6%
IMF - Advanced Economies
Inflation Forecast July 2022
+9.5%
IMF - Developing Economies
Inflation Forecast July 2022
After four decades of low inflation, prices are rising swiftly in the U.S. and Europe, forcing interest rates up and threatening to undermine economic growth.
Source: Reuters
Even this was an advance on the IMF's forecasts of 5.7% and 8.7% respectively as recently as April.
Inflation has been rising across many advanced and emerging economies since 2021. Anxious to prevent price rise spirals becoming embedded, central bankers led by the U.S. Federal Reserve are hiking rates with some urgency to slow growth, potentially impacting the labor market. Inflation may also affect the interest payments on U.S. federal debt. While the brunt of Europe’s inflation is still in the cost of energy, in Asia inflation is rising more slowly – for now.
Source: World Economic Outlook Update. Gloomy and More Uncertain. July 2022
USA
China
Japan
Germany
India
UK
Italy
France
Canada
Australia ***
Developed Economies
Developing Economies
Developed Economies
** Australia reported Core CPI quarterly data in Dec. ’21 and Mar. ’22
* Base rates used: U.S.: federal funds rate; Australia: cash target rate; Canada: policy interest rate; China: one year loan prime rate; France, Germany, and Italy: ECB deposit rate; India: lending rate REPO Eikon INREPO=ECI,; Japan: short term interest rate; UK: bank rate
Rate (%)
Rate (%)
Rate (%)
–1
0
1
2
3
4
5
6
7
8
9
–1
0
1
2
3
4
5
6
7
8
9
–1
0
1
2
3
4
5
6
7
8
9
–1
0
5
10
15
20
25
35
–1
0
5
10
15
20
25
35
–1
0
5
10
15
20
25
35
Source: U.S. Bureau of Labor Statistics
Number in Millions
U.S. Job Openings Total
U.S. Job Hires
U.S. Job Quits
Jan '21
Feb '21
Mar '21
Apr '21
May '21
Jun '21
Jul '21
Aug '21
Sep '21
Oct '21
Nov '21
Dec '21
Jan '22
Feb '22
Mar '22
Apr '22
May '22
Jun '22
0
1
2
3
4
5
6
7
8
9
10
11
12
0
1
2
3
4
5
6
7
8
9
10
11
12
Percentage of Gross Domestic Product
2050
1950
1960
1970
1940
1980
1990
2000
1920
1910
1900
1930
2010
2020
2030
2040
0
25
50
75
100
125
150
175
200
225
World War II
Global Financial Crisis
World War I
Great Depression
Projected
Pandemic
Jun ‘21
Jul ‘21
Aug ‘21
Sep ‘21
Oct ‘21
Nov ‘21
Dec ‘21
May ‘22
Jun‘22
Mar ‘21
Feb ‘21
Jan ‘21
Apr ‘21
May ‘21
Jan ‘22
Feb ‘22
Mar ‘22
Apr ‘22
Eurozone Inflation (%)
0
1
2
3
4
5
6
7
8
9
Russia invades Ukraine
Price Index YoY (%)
Jan '21
Feb '21
Mar '21
Apr '21
May '21
Jun '21
Jul '21
Aug '21
Sep '21
Oct '21
Nov '21
Dec '21
Jan '22
Feb '22
Mar '22
Apr '22
May '22
Jun '22
1
0
2
3
4
5
6
7
8
9
10
0
10%
20%
30%
40%
50%
Harmonised Index of Consumer Prices (HICP)
Food, alcohol & tobacco
Energy
Non-energy industrial goods
Services
Developed Economies
Developing Economies
Canada
Italy
France
UK
Australia **
China
India
USA
Germany
Japan
Y/Y Change (%)
GDP
18
20
22
24
4
6
–4
–2
8
10
0
2
18
20
22
24
4
6
–4
–2
8
10
0
2
Y/Y Change (%)
Q2 Jun ’21 Q3 Sep ’21
Q4 Dec ’21
Q1 Mar ’22
Q2 Jun ’22
Source: Reuters Plus collated research from official national statistics offices and Refinitiv Eikon
Source: U.S. Bureau of Labor Statistics
Source: Reuters Plus collated research from central banks,
official national statistics offices and Refinitiv Eikon
In the arcane world of measuring inflation, central bankers judge “core” inflation the best way to take the temperature of price rises in an economy.
By this they mean a measure of inflation that strips out energy and food, which are the most volatile elements. The U.S. Federal Reserve, ECB and Bank of England, for example, all pay particular attention to the rate of growth of the core personal consumption expenditure deflator, which excludes food and energy prices.
Why? Because central banks are concerned with the underlying rate of inflation going forward. Concentrating on core inflation can stop them from responding too strongly to transitory movements in inflation.
Sources:
IEA (International Energy Agency)
https://www.iea.org/data-and-statistics/charts/share-of-global-production-and-rank-for-selected-minerals-and-metals-in-russia-2020
https://www.un.org/press/en/2022/sc14894.doc.htm
To give a sense of the effect of withholding Russian and Ukrainian commodities, it’s useful to understand how much they supply. In energy markets, Russia supplied 14% of global crude and condensate in 2021, as well as 8% of global liquid natural gas. It’s also a major supplier of metals, responsible for 45% of global output of uranium in 2020 and 43% of palladium.
As for food, Russia and Ukraine together export 30% of the world’s cereals and 67% of sunflower oil. This partially displaced supply will prove increasingly difficult to replace.
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