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Inflation shocks could be the new normal in the US, JPMorgan Private Bank says.

Researchers said they believed the economy is headed for a new era of stickier price growth.

Stocks and bonds will be challenged if inflation remains sticky, they said.

A roller coaster ride of high inflation might be the new normal, JPMorgan says, and it could end up being a quiet killer of wealth.

Researchers at JPMorgan Private Bank said they believe the economy could be headed for a new inflationary era that could pose a "silent risk to wealth." The see a period of consumer price growth running above the Federal Reserve's 2% target, with "rolling" inflation shocks the norm.

The report flagged the risk that the situation could escalate into a repeat of the 1970s inflation crisis. That decade, the US experienced two inflationary episodes, with consumer prices peaking at around 14% in 1980.

That outcome looks unlikely, though, researchers said of the bear case. They pointed to "very little evidence" in the job market that wages are rising in conjunction with prices, which was a key catalyst of the 70s inflation crisis.

"As another one-off economic shock unfolds in the post-COVID era, we continue to believe inflation's floor is higher than it was before the pandemic and that the correlation between stocks and bonds could now be structurally higher. Rolling shocks may be the new reality," the bank said of the new era.

Inflation has become the top issue in markets since the start of the Iran war, which sent oil prices soaring to their highest level in years and sparked the biggest disruption to the oil market on record.

The US economy has already been hit with a handful of inflationary shocks in recent years. JPMorgan pointed to the surge in consumer prices stemming from the pandemic, as well as inflationary pressures stemming from the Russia-Ukraine war.

Inflation already appeared "sticky" prior to the war with Iran, the bank said, referring to how annual inflation growth has been hovering above 3%.

Consumer price growth was 3.3% annually in March, largely due to a sharp increase in energy prices. Investors will be looking closely at the April inflation report on Tuesday, which will give a clearer picture of how the spike in oil prices has spread through the economy.

"An unsettling lesson from the 1970s, and a risk today, is that price shocks can become quickly normalized when they occur in rapid succession," the bank added.

Hotter, stickier inflation is a risk for investors. The classic 60/40 stocks and bonds portfolio could struggle as hot inflation endures, they added.

The bank highlighted a corner of the market where investors could hedge against inflation: commodity-linked assets, particularly in equities, infrastructure, and real estate.

Commodities tend to deliver "strong" gains in periods when inflation is accelerating, researchers said.

Other forecasters on Wall Street have warned of the risk that inflation stays on a volatile trajectory in the coming years.

Last year, Charles Schwab said it saw inflation rising in "rolling" pockets as the economy digested the impact of President Donald Trump's tariffs.

In 2024, BlackRock also warned of a coming inflation rollercoaster, with price growth rebounding at various points before continuing a downward trend.

Read the original article on Business Insider