Energy Prices Drive Inflation Higher

This year’s sharp spike in energy prices is reflected in the performance of the Indexed Global Energy and Metals Fund, a small fund operated by Zurich. The energy/metals split is roughly 50/50, with the largest exposures going to oil products (27.5%), natural gas (11.2%), gold (18.5%) and copper (8.0%).

The fund size is only €16m and invests in a passive ETF managed by BNP Paribas. On a 10-year view, the fund has shown next to zero annualised growth, but through 2021 the fund value has appreciated by 33.5%, pre-charges.

Higher energy prices are one of the main factors driving inflation higher around the world. The transience of this trend, or otherwise, is exercising investment experts everywhere. The ‘house view’ at Aviva Investors is that there won’t be a lift-off in US interest rates until late 2022 or early 2023, with the

ECB likely to be at least a year or more after that.

Aviva cautions that the Fed, ECB and Bank of England have recently expressed concern over persistent supply constraints and the potential for isolated increases in goods price inflation to become more wide-spread, feeding into wages and price-setting more broadly. In that case, notes Aviva, interest rates could rise sooner and more quickly than anticipated.