'The Window of Vulnerability on Growth is Not Open,' Says ECRI's Lakshman Achuthan

Lakshman Achuthan, Co-Founder & COO at ECRI, explains the cyclical developments that have led to a global inflation cycle upturn.

Does war still matter to investors? It’s been only eight days since the US president posted: “A whole civilization will die tonight.” Equities keep barreling ahead. The S&P 500 touched another record on hopes for a potential peace deal in the Middle East. The Canadian stocks benchmark has gone up every day in April but one.

At the spring meetings of the International Monetary Fund and World Bank, the feeling among policymakers is that investors are being too complacent. IMF Managing Director Kristalina Georgieva was asked whether markets should be more wary. “I would argue, yes, because what we see in supply chain disruptions is already quite significant,” she said.

Those supply-chain snarls are real but haven’t been fully felt yet by consumers, farmers and manufacturers. It takes a little while for these problems to show up in higher prices, and time to fix them, too. Rebecca Patterson, a JPMorgan and Bridgewater Associates veteran, said few investors realize the impact of the current energy shock will probably look something like the effects of the Covid pandemic — a “rolling contagion.”

As economic bigwigs were meeting in Washington, macro strategist Katherine Krantz of BMO Capital Markets was talking to clients and bank employees. There’s a lot of economic stimulus out there, she said, buoying economic growth (and corporate earnings). That’s good for stock prices, obviously.

But what’s one risk investors are underestimating? “We would put inflation as that risk,” Krantz replied. “People just aren’t talking about it.” It’s not only about the current energy shock, she reminded her audience. The Trump administration is still pursuing a radically restrictive immigration policy, at a time when boomers are exiting the workforce in large numbers. That will also take its toll. “We already have a situation where labor markets are potentially inflationary,” she said.

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