First Quarter 2015
Our Global Macro Strategy Team's Inflation View
Summary of Our Inflation Views
- Continued Containment in Near Term: U.S. inflation, as measured by the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) price deflator, was mostly muted in 2014. We expect it to remain largely contained (1.5–3.0%) during the next 12 months.
- Longer-Term Monetary-Driven Inflation Risks: We believe higher inflation (a CPI change exceeding 3.0% over a 12-month period) will likely occur within the coming three- to five-year time frame. We think it will most likely result from the unprecedented monetary and fiscal policies enacted since 2008. Monetary policies in general, particularly in the developed world, remain aggressive and stimulative.
- Longer-Term Fiscal Budget Deficit Risks: Fiscal budget deficits in the U.S. and across the developed world remain high. Governments have responded to this challenge with attempts at currency devaluation and monetization of debt, both of which are potentially inflationary.
- Concerned About Complacency: We remain concerned about complacency. Potential monetary-driven and/or budget deficit-induced inflation are still long-term threats. We believe strongly that some level of inflation protection be incorporated in investor portfolios.
Changes Since Last Quarter
- Further "Global Divergence": We saw a multi-faceted divergence between the U.S. and the rest of the world that included relative economic growth, monetary policies, and currency values. While the U.S. reported an annualized economic growth rate of 5.0% for the third quarter of 2014, Japan reported two consecutive quarters of negative growth and the eurozone was barely positive. The U.S. dollar rallied against its counterparts as the Fed ended QE3 and hinted at possible higher rates in 2015, while other central banks were continuing or expanding their monetary easing policies.
- Declining Commodity Prices and Lower Inflation Expectations: The broad global economy shared two key conditions: 1) declining commodity prices (related to weakened economic conditions and reduced demand), and 2) lower inflation expectations. Oil prices and inflation expectations plunged to levels not seen since the Great Recession.
- Changes to Expectations: For the next 12 months, we see Higher Inflation expectations (above 3.0%) as a 17% possibility (vs.19% last quarter), Contained Inflation expectations as 60% (vs. 64%), and Lower Inflation expectations (below 1.5%) as 23% (vs. 17%).
- Changes to Directional Trend Arrows: There were three new downward arrows: 1) Global Producer Prices, 2) University of Michigan 12-Month Inflation Expectations, and 3) 5-Year Breakeven Inflation Rate, 5 Years Forward.
Designing Better Outcomes: Inflation Solutions
American Century Investments offers a broad suite of inflation solutions designed to help preserve purchasing power. Our diverse set of six strategies can help offset various sources of inflation and can be easily integrated into existing investment portfolios.
Low Interest Rate Risk Stocks/Bonds/Cash Alternative Ease of Use
Provides Inflation Hedging Through:
Provides Inflation Hedging, Plus:
Inflation Hedge for:
Short Duration Inflation Protection Bond Fund
Short-duration bonds, primarily inflation-indexed
Inflation-Adjusted Bond Fund
Investment-grade, inflation-indexed bonds
100% investment-grade portfolio
Real Estate Fund
Exposure to rising rental costs
Global Real Estate Fund
Exposure to rising global rental costs
Strategic Inflation Opportunities Fund
Comprehensive, multi-strategy solution
Global Gold Fund
Gold company stocks
Low correlation to traditional asset classes
Low Interest Rate Risk
Ease of Use
Global Gold Fund, Real Estate Fund, Global Real Estate Fund:
The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments fund. This information is for educational purposes only and is not intended as investment advice.
For detailed descriptions of indices or investing terms referenced above, refer to our glossary.