Inflation "Mother" of All Risks: Bank

Analysts from Deutsche Bank assert that rising inflation is the single biggest risk to investors now.

Traditional measures of inflation in the U.S. have steadily risen in recent months, after anemic price pressure for the near decade since the end of the global financial crisis. At a time when the Federal Reserve is hiking interest rates and the economy is broadly enjoying a recovery, uncertainty surrounding the re-emergence of substantial inflation has once again captured the market's attention.

Factors why include a weak U.S. dollar (the dollar index has wallowed around the 90 mark for much of 2018, after a stunning free fall in 2017), an immense fiscal expansion in the last decade pushing the economy toward overheating, a tight labor market, and recent (albeit modest) price pressure in the wake of trade war possibilities and tariff talk.

The expectation for higher inflation is not out of line with consensus opinion. Indeed, higher inflation is the consensus view of those sampled by Bank of America's (NYSE: BAC) latest monthly global fund manager survey, as net 82% of respondents earlier this month expect the core consumer price index to rise over the next year. Notably, this is just under the post-crisis high of 86%, recorded last month.

Earlier this month, inflation numbers came in hotter than anticipated to the United States, signaling inflation pressures could be mounting. The U.S. Labor Department reported its Consumer Price Index rose 2.4% year on year, its fastest annual pace in 12 months. When removing food and energy, however, so-called core prices ticked higher by 2.1% year on year; still, this is the measure's largest annual rise since February 2017.

In another print that was above expectations earlier this month, the personal consumption expenditures (PCE) price index — regarded as the Fed's preferred measure of inflation — rose 1.6% in February after four straight months of coming in at 1.5%.