Global outlook 2022

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Living with inflation – We expect inflation to be persistent and settle above pre-Covid levels. Central banks should kick off policy rate hikes but remain more tolerant of price pressures, keeping real interest rates historically low and supportive of risk assets. Implication: We prefer equities over fixed income and remain overweight inflation-linked bonds. Cutting through confusion – A unique mix of events – the restart, new virus strains, supplydriven inflation and new central bank frameworks – could cause markets and policymakers to misread inflation. We keep the big picture in mind but acknowledge risks – to the upside and downside – around our core view. Implication: We trim some risk amid an unusually wide range of economic outcomes. Navigating net zero – Climate change is part of the inflation story. We believe a smooth transition is the least inflationary outcome, yet even this still amounts to a supply shock playing out over decades. Implication: We favor developed market (DM) equities over emerging markets (EM).