Understanding accumulated inflation since 2020

Governments and central banks injected unprecedented liquidity (over $5 trillion in the U.S. alone). The later pivot to aggressive tightening, including $2 trillion of Fed balance sheet reduction, reversed that liquidity and repriced duration, risk assets, and funding markets.

For asset managers, this cycle has meant:

• Higher real yields reshaping fixed-income allocations
• Greater emphasis on duration hedging
• Wider credit spreads early, now narrowing as soft-landing sentiment builds
• A transition from beta-driven returns to alpha-dependent performance

QT ending in December 2025 will again shift the liquidity backdrop, with implications for asset pricing, curve dynamics, and cross-asset correlations.

United States (~25% cumulative inflation)
Strong labor markets and resilient consumption have supported equity multiples, but real wage erosion between 2021–2023 left households cautious.

Implications:

• Margin pressures for earnings models tied to labor-intensive sectors
• Sticky services inflation shaping rate expectations and curve steepness
• Continued rotation toward quality, profitability, and cash flow

Canada (~18% cumulative inflation)
Housing-driven inflation and a weaker CAD create:

• Opportunities in exporters and USD-hedged strategies
• Headwinds in rate-sensitive sectors and domestic consumer discretionary

Europe (~23% cumulative inflation)
Energy sensitivity has widened cross-country dispersion, benefiting:

• Select industrials and luxury exporters
• Active managers using country-level allocation
• Global macro strategies exploiting divergent inflation trajectories

China (~3% cumulative inflation)
China’s disinflation introduces:

• A counter-cyclical exposure for global portfolios
• Opportunities in select oversold consumer and technology segments
• Risks from weak domestic demand and property overhang

AI and automation could structurally lower unit labor costs over time, creating disinflationary supply-side effects.

But the transition may also:

• Increase productivity dispersion across firms
• Elevate capex cycles
• Create new sources of pricing power

For asset managers, AI is not only a theme — it is a structural macro driver with implications across equity long/short, factor allocation, credit modelling, and alternatives.

Shift from cyclical inflation fear to structural inflation mapping

Cumulative inflation matters more for long-term real returns, retirement income projections, TDF glide paths, and ALM calculations than month-to-month CPI prints.

Expect higher nominal volatility across asset classes

Persistent supply-side friction and geopolitical risk suggest a macro regime where:

• Real yields remain structurally elevated
• Term premium rebuilds
• Cross-asset correlations remain unstable

More opportunity for active management

High dispersion across regions, sectors, and factors is widening alpha opportunities.

Alternatives remain a critical ballast

Infrastructure, real assets, private credit, and inflation-linked cash flows benefit from environments where nominal prices remain structurally elevated.

Communication with clients is now part of the mandate

Educating investors about accumulated inflation — not just “inflation prints” — helps explain why portfolios “feel” different even as CPI comes down.

Inflation is no longer a temporary shock; it is a macroeconomic regime shift.

It's legacy will shape:

• Global asset pricing firms
• Real return expectations
• Strategic allocation frameworks

Opportunities are expanding, but so is dispersion. Asset managers who understand the drivers of accumulated inflation and adjust allocations proactively will be best positioned to deliver consistent, risk-adjusted returns in a world where inflation, growth, and policy are more intertwined than at any point in the last 40 years.