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March 14, 2022

Inflation is shaping up to be the key wealth management issue of 2022

By GlobalData Financial

A number of factors, not least the war in Ukraine, are pushing inflation measures up across the world in 2022. Wealth managers need to ensure their communications and strategies take into account an era of prolonged elevated inflation.

Already at the start of 2022, rising inflation due to pandemic-related supply chain issues was a major news story and a key theme in GlobalData’s 2022: Trends to Watch in Wealth Management report. The war in Ukraine has only exacerbated inflationary pressures amid disruption to key commodities markets such as oil, gas, and a range of agricultural goods.

None of this has been good for the investment or financial markets and the accumulation of wealth. With a forecast compound annual growth rate of 6.0% between the end of 2021 and 2026, HNW wealth growth is set to be lowest in Europe. The effect of Russia’s invasion of Ukraine is global in nature, but will have a more prolonged effect on European countries, especially those more exposed via trade relations. Numerous countries from Asia Pacific to South America have also been revising down GDP forecasts. The net effect is a downward revision of global real GDP growth from 4.4% to 4.0% in 2022, even as inflation has been revised from 4.6% to 5.7%, as outlined in our Ukraine Conflict: Executive Briefing – March 4, 2022.

Wealth managers the world over need to ensure their strategies and clients’ portfolios are reviewed with this in mind – particularly as the inflationary boost is expected to be long lasting. This could involve changing the bond mix to prioritize inflation-indexed bonds, shifting towards more commodities, or even simply upping the equity portion of the portfolio. Moreover, any measures to inflation-proof portfolios need to be communicated clearly to clients.

Times of crisis are make or break periods for wealth managers, with typically higher churn in the client book when banks get it wrong. Even though the industry weathered the pandemic admirably, a company’s communication strategy is only as effective as the last moment of truth. The war in Ukraine (with its huge disruption to commodities’ markets) and rising inflation mean another moment of truth is upon us.

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