Billionaire investor and financial markets historian Ray Dalio is sending a dire warning on the outlook for inflation.
“Oh, I’m like an eight, an eight to 10 or something like that,” the Bridgewater Associates Founder and Co-chief investment officer said in an interview for Yahoo Finance Presents when asked how concerned he was about inflation on a scale of 1 to 10.
Dalio is dead right to have that high level of angst on all things inflation.
The Consumer Price Index (CPI) rose by 7.9% in February, marking the fastest pace of annual inflation in 40 years amid a push higher in rent, food and used car prices. Meanwhile, the Personal Consumption Expenditures index (PCE) rose 6.4% in February, accelerating from a 6.1% increase in January.
It represented the fastest rate of inflation since 1982.
The number of S&P 500 companies citing “inflation” on earnings calls has hit its highest level in 10 years, says FactSet.
Meanwhile, oil prices have come off their highs of around $140 a barrel seen at the start of the Russia-Ukraine war, but remain uncomfortably high above $100. Gas prices continue to be above $4 a gallon nationwide for regular unleaded, which is beginning to weigh on consumer confidence and retail store visits.
As prices have climbed throughout the economy, the Federal Reserve has begun to hike interest rates to cool things down. The pace of rate hikes may be quicker than most market participants expect, as seen in the harsh reaction to stock prices Tuesday amid hawkish commentary from influential Fed Governor Lael Brainard.
“Currently, inflation is much too high and is subject to upside risks,” Brainard said at a conference Tuesday. “The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”
As for Bridgewater’s Dalio — whose new post on YouTube titled “Principles for Dealing with the Changing World Order” is nearing an impressive 10 million views (perhaps underscoring the concerns many folks have about the global economy and inflation at this juncture) — he thinks we could be entering a period of stagflation given the volatile backdrop.
“I think that most likely what we’re going to have is a period of stagflation. And then you have to understand how to build a portfolio that’s balanced for that kind of an environment,” Dalio said.
Stagflation can be defined as a period of slow economic growth, increased joblessness and rising inflation.
Added Dalio, “we are beginning a paradigm shift.”