In turn, in year-on-year terms, the rise in prices in the United States economy reached 8.5%, a level not seen in that country since 1981.
What factors explain this rise in prices in the US economy?
The reason why the United States is with such a high level of inflation, It is largely explained by the accommodative policies that the Central Bank of that country adopted during the pandemic.
However, when things began to improve, even having already surpassed pre-health crisis levels of economic activity, Fed Chairman Jerome Powell decided to wait too long before raising interest rates again and ending the asset purchase program His argument was that the inflation that brought about the economic rebound was basically a transitory phenomenon and that over time it was going to approach the target levels of 2%.
However, despite the Fed’s encouraging forecasts, things did not go as planned and the appearance of other factors, such as the strong rise in fuel prices worldwide, ended up driving inflation even higher.
In addition to all this, as if that were not enough, the start of a war between Russia and Ukraine caused an even more pronounced spike in the price of oil, which shot up to almost 140 dollars per barrel, its highest level since 2008. This This last unforeseen event has generated several problems for the Fed, in relation to what will be the best way to act, to try to curb inflation, but at the same time, not scare the financial markets.
The Fed warned that it will take a more aggressive stance
After the recent spike in prices in the economy, The Federal Reserve finally decided to raise the rate at the last meeting in March and also hinted that, from now on, the entity will apply a more aggressive policy regarding rate hikes.
As revealed by the minutes, the Board of Directors emphasized that the US economy continues in a strong recovery process, with a rigid labor market, but with inflation levels well above the 2% target and with concern about the effects of the war in Ukraine.
These concerns focused mainly on the effects that the armed conflict is having on logistics chains and commodity prices, adding even more pressure on inflation.
In response to this, The Board of Directors agreed that in the future it will be necessary to carry out more aggressive increases in the interest rate, setting as a floor, increases of 50 basic points, for the next meeting, which will take place in May.
On the other hand, also in May, Federal Reserve officials agreed to start reducing the entity’s balance sheet.
To carry it out, the members of the Board of Directors saw as a possible strategy the monthly sale of some 35 billion dollars in mortgages and some 60 billion in Treasury bonds.
Taking all these factors into account, between higher inflation and a Fed that will become more aggressive, it is more than understandable why the main US stock market indices, so far, are having a 2022 with negative returns.
What should you invest in?
From IOL invested online We believe it is likely that major companies in the consumer staples sector, i.e. those engaged in food, beverage and tobacco retail, and household and personal products companies, could benefit from a inflationary scenario. Additionally, they are defensive sectors that would be less affected by an economic slowdown.
This is why it would be a good idea to be positioned in CEDEARs of companies that meet these characteristics. Among them, it is worth highlighting the following: Procter & Gamble (PG), Coca-Cola (CO), Pepsico (PEP) Y Wal-Mart (WMT).
On the other hand, for those interested in a fixed income alternative or downsizing equity participation, it might be a good idea to have exposure to some Negotiable Obligations (ON).
While there are traditional fixed income investments that used to at least match inflation in dollars, today none of them work as hedges. Either because they have a return below inflation or because they present a high risk
thinking of a moderate risk profileIt is suggested incorporate debt of the companies Celulosa, IRSA Y Pampa Energy with an estimated annual return of 10.2% in dollars.
This portfolio has a weighted average maturity of 1.4 years, and an important part of the capital would be recovered before the change of government in 2023, which allows reducing the risk. In this way, it manages to provide a return above US inflation with a limited risk.
Head of Research at IOL investonline
Source: Ambito
