inflation could have some very bad surprises in store for us, here’s why

inflation could have some very bad surprises in store for us, here’s why
inflation could have some very bad surprises in store for us, here’s why

Beyond the recent drop in the European stock market, against a backdrop of resurgence of political risk, the stock market has signed a massive bullish rally since the major low point last October, both on Wall Street and for the CAC 40. “A strong upward trend which can be explained by good news on the front of inflationwhich resulted in hopes of key rate cuts from the Fed, the American central bank», explains the private bank Neuflize OBC (ABN Amro group).

However, we must not bury inflation too quickly. And this for many reasons. At the global level, the prices of raw materials “are on the rise again, particularly metal prices», argues Neuflize OBC. Furthermore, in Europe and the United States, wage tensions remain high. In the euro zone, in the first quarter of 2024, wage growth (more than 5%) “even spoke to peaks (over 15 years old, Editor’s note)», observes Mirabaud Banque. And while the political crisis in France is worrying, beware of a possible further depreciation of the euro, which would result in imported inflation in France and the other member countries of the Monetary Union!

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In the short term, inflation could remain quite moderate…

In the United States, where the trajectory of inflation is decisive for the path of Wall Street but also for that of the CAC 40, the rate of increase in consumer prices has stabilized at more than 3% (compared to a 2% objective desired by the Fed), observes Neuflize OBC, which still expects inflation to decline by the end of 2024. Indeed, “while inflation was artificially driven by massive budgetary support (Joe Biden boosted the economy at the cost of increased public deficits) and monetary support (significant support from the Fed following the Covid-19 shock), excess demand tends to reduce, while supply bottlenecks disappear», argues Neuflize OBC.

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…but in the medium term, inflation risks being unpleasantly high

Over the medium term, however, the bank warns of a high risk of a stronger and more volatile inflation regime than that experienced in recent decades. And this, due to different factors: “the cyclical and structural constraints weighing on the supply of raw materials, the slowdown in globalization (a globalization which had long contributed to reducing inflation, by putting pressure on the prices of many goods, Editor’s note), the cost of the transition energy»… Employees could also continue to defend the level of their remuneration, which tends to be inflationary.

For his part, Christopher Dembik, investment strategy advisor at Pictet Asset Management and columnist for Capital, observes a surge in the price of international maritime transport (around +40% in May) and the prices of raw materials (agricultural commodities, but also industrial or precious metals). The Orange juice “almost becomes a luxury product», against a backdrop of falling harvests in Florida and Brazil (the two main centers of production), he indicates in Agefi. The price of butter is at its highest since last November. And Europe is struggling to supply itself with energy, another worrying signal, according to the expert, who expects higher natural gas prices amid heightened geopolitical tensions. Under these conditions, the summer could well be more complicated, according to Christopher Dembik.

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The high risk of structurally higher inflation could cause the CAC 40 to stumble

Not only for the purchasing power of households, but also for companies listed on the stock exchange, the Fed and the ECB, he judges. Enough to fear possible new shocks for the stock market. Recently, Momentum, Capital’s premium investment letter on the Stock Exchange, correctly anticipated the plunge in the CAC 40 and its stock selection tends to resist better than the French market. Discover our numerous analyses, as well as our scenarios on the CAC 40 and stocks in Momentum. To register, simply click on the link above in this article. Also discover my book Chartist figures of technical analysisto invest wisely in stocks, cryptocurrencies and other financial investments.

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