Spot on note from Albert Edwards at Societe General:
Surveys suggest that inflation fears have become investors’ number one concern. But why look at it that way? We could equally say it is investors’ own bullishness on the strength of this economic cycle that is driving prices sharply higher in the most cyclically exposed equity sectors and industrial commodities.
Bloomberg’s John Authers recently pointed out in his excellent daily note (link) that there is a ‘reflexivity’ to investors’ belief in rising inflation. For when they pile into commodities as an investment vehicle to benefit from rising inflation, they create substantial upstream cost pressures – as has been highlighted by PMI corporate surveys. Beyond the cascading effect of upstream commodity price pressures, headline CPIs are also quickly impacted as food and energy prices rip higher.
