Analysts are warning that investors may be underestimating the persistence of inflation, with fresh signs pointing to rising costs across households and businesses.
In a note this week, Bank of America Securities compared the current climate to the early 1970s, when markets overlooked brewing price pressures until they erupted into stagflation. Despite central banks’ success in moderating headline inflation, underlying drivers—wage growth, strong consumer spending, and persistent supply-side bottlenecks—are re-emerging.
Hidden pressures building
One factor receiving increased attention is the rise in homeowners’ insurance costs across the United States, reflecting higher climate-related risks and reinsurance premiums. These costs, while often overlooked in headline inflation figures, are squeezing household budgets and contributing to broader cost-of-living concerns.
On the corporate side, earnings from European chemical producers this week showed better-than-expected resilience, but the muted market reaction underscores a shift in sentiment. Investors appear more focused on inflation’s potential drag on margins than on positive quarterly results. Analysts caution that such reactions may reflect growing unease about inflation’s next phase.
Implications for policy and investment
Should inflation persist above targets, central banks may be forced to keep interest rates higher for longer, dampening growth prospects. For markets, this risks a re-pricing of assets that had assumed a smoother disinflationary path. Equity valuations, particularly in growth sectors, could come under renewed pressure.
Defensive positioning is once again under discussion among institutional investors. Real assets, commodities, and inflation-linked bonds are cited as potential hedges, while energy and real estate equities may attract renewed inflows.
The road ahead
Upcoming inflation data will be critical in determining whether the current warnings materialise into policy shifts. If consumer price indices edge higher in September and October, central bank rhetoric could harden. Investors are watching for signs that households, despite higher costs, continue to spend at levels that keep inflationary pressures alive.
REFH – Newshub, 23 August 2025
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