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- Inflation is on a rollercoaster path downwards, BlackRock's chief investment strategist warned.
- Despite a recent decline, the asset manager thinks prices could rebound in 2025 before continuing lower in the longer term.
- Investors can blame lingering price pressures in the economy, including hot wages and geopolitical conflict.
Inflation could get worse over the next year before it gets better, according to BlackRock's chief investment strategist Wei Li.
The world's largest asset manager has repeatedly warned that inflation will be on a rollercoaster ride, rather than fall in a straight line. Prices could see a resurgence as soon as 2025 before continuing their downward trend, Li warned, as some of the pressures dragging inflation lower are about to fade out of the picture.
"Even as we go down, I think it's going to be a bit of a volatile ride," Li said, speaking to Bloomberg Television on Thursday.
Inflation cooled to 3.1% in January, in part due to the declining prices of goods. Prices for durables fell over 1% year-per-year in the latest inflation report. That alone could help the overall inflation rate to drop back to the Fed's 2% price target later this year, Li said.
"But after goods deflation runs its course, we cannot extrapolate that indefinitely, because that's in part due to pandemic mismatch unwinding," she warned, referring to transitory inflation pressures from the pandemic. "Then some of the structural forces, like persistent wage pressure, could push inflation higher."
Wages and hourly earnings jumped 4.5% in January, the largest increase in pay seen since March 2022. That could easily fuel prices to tread higher, economists have warned, given that wages and prices can perpetuate one another in what's known as a wage-price spiral.
Geopolitical conflict could also push prices higher, Li added. Her view echoes warnings of other prominent Wall Street commentators, who have said that growing tension between US and China, as well as conflict in the Middle East, could end up rocking the US economy.
"We believe that ultimately means inflation will go through a bit of a roller coaster pattern going down, before even [a] rebound next year," she added, pointing to recent hotter-than-expected inflation data.
Market commentators have warned inflation could be "stuck" around 3% given lingering price pressures. Prices risk soaring higher if the Fed interprets the recent decline in inflation as a green light to cut interest rates too early, "The Big Short" investor Steve Eisman recently warned.
While the Fed has aggressively hiked interest rates to control inflation, the economy still looks hot on the surface: GDP grew 3.2% over the fourth quarter, per the Commerce Department's latest estimate. Meanwhile, core inflation grew 3.9% year-per-year in January, hotter than what economists expected.