Second Quarter 2015
Our Global Macro Strategy Team's Inflation View
Summary of Our Inflation Views
- Continued Contained Inflation in Near Term: U.S. inflation, as measured by the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE), remains muted. 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, and resulting improvements in economic growth. 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, particularly outside the U.S., 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
- More Global Divergence; Possible Delayed U.S. Interest Rate Normalization: The European Central Bank (ECB) embarked on a massive bond-buying program, driving down some European sovereign bond yields to record-low, negative levels. Low European interest rates helped make the U.S. dollar and Treasuries more attractive. Meanwhile, the Fed continued to prepare for interest rate normalization (higher rates), switching from forward guidance (language triggers) to data dependency (data triggers), but also tempering rate hike expectations by lowering its economic forecast numbers.
- Divergence, U.S. Normalization Expectations Translated to Market Volatility: The U.S. dollar and Treasuries continued to rally, commodity (including oil) prices continued to decline, and there were intermittent bouts of risk-on versus risk-off trading in other markets as investors responded to changing earnings, inflation, monetary policy, and economic growth expectations. Renewed concerns about Greece and Middle East geopolitical turmoil helped create a recipe for market volatility, which we expect to continue through the remainder of the year.
- Changes to Expectations: For the next 12 months, we see Higher Inflation expectations (above 3.0%) as a 15% possibility (vs.17% last quarter), Contained Inflation expectations as 64% (vs. 60%), and Lower Inflation expectations (below 1.5%) as 21% (vs. 23%).
- Changes to Directional Trend Arrows: None.
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
Strategic Inflation Opportunities Fund:
Inflation-Adjusted Bond Fund, Short Duration Inflation Protection Bond Fund:
Global Gold Fund, Real Estate Fund, Global Real Estate Fund:
Global Gold 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.