10 min 26 October 2023 Arthur Cuzin and François Freyssinier

Inflación: ¡No cantemos victoria demasiado rápido!

The rebound in commodity prices opens the possibility of a sharp rebound in inflation by the end of 2023 if Core inflation does not fall faster.

Key Points : 

  • Our scenario forecasts that core inflation1 is expected to remain between 3% and 4% for the next two years . In the shorter term, commodity prices may lead to a rebound in inflation by the end of the year.
  • Positive real interest rates and market inflation expectations of around 2.5% over 2 years years1 reinforce in our view the attractiveness of inflation linked bonds in allocations
  • Our G Fund Global Inflation Short Duration offers global exposure to short maturity inflation linked bonds with active manageme nt investment process
  • As of 30/09/2023, the fund (IC share) has a net outperformance of +0.68% compared to its index since the beginning of the year2.


The rebound in commodity prices opens the possibility of a sharp rebound in inflation by the end of 2023 if Core inflation does not fall faster.

Since 2020, at Groupama AM, we have been promoting a 3 stage reflation scenario. Firstly , a double supply shock in 2020/2021, materialised by the sharp rise in raw materials prices due to Covid crisis and the war in Ukraine.
Subsequently, we experienced profit driven inflation with the increase in corporate margins in a context where fiscal policies, which were very expansionary, helped to support demand. Finally, the third stage will be wage inflation . We believe that the massive investment plans deployed in the United States (Inflation Reduction Act, investments in infrastructure and semiconductors) and in Europe (Green Deal and industry) will support growth and employment, resulting in wage inflation close to 4% for the next 2 years years 3. All these inflationary factors ha ve trig gered wage/price
loops in developed economies in a period of strong transitions (energy, demographic and reindustrialization).

Our scenario thus puts us on a path of core inflation that is sustainably higher than the central bankers’ target of 2%.
Our in flation expectations in the United States and Europe for 2024 stand at 4%, far from market expectations. This new inflation regime will also be more sensitive in the event of new exogenous shocks to energy and food prices.


Groupama Asset Management and consensus (Bloomberg) growth and inflation forecasts

Prévisions de croissance et d'inflation de Groupama Asset Management et du consensus (Bloomberg)

Source : Groupama Asset Management, Bloomberg, 10/10/2023


Thus, we have observed a rebound in the price of some energy related products since July. The Brent contract, which was trading around $75 at the end of June, is now worth $89 894 after a high at $97 in T he recent tensions in the Middle East represent a new catalyst justifying a possible surge in c ommodities . In our view, an escalation scenario involving sanctions with Iran would have a strong impact on oil market which is already boosted by OPEC’s decision to cut production at the beginning of the summer. Natural gas is also back to its highest lev el in 6 months (TTF1M at $50 4 ).
If the market maintains these levels , we believe this would automatically trigger a rebound in inflation in developed countries.


Price evolution (in $) of Natural Gas (1 month contract) and oil (Brent) from 13/04/2023 to 13 /10/2023

Evolution du prix (en $) du Gaz Naturel (contrat 1 mois) et du pétrole (Brent) du 13/04/2023 au 13/10/2023

Source : Groupama AM, Bloomberg, 13/10/2023.


In our view, the current market environment reinforces the attractiveness of inflation-linked bonds

We believe that the two components of Inflation linked bonds are of interest today and strengthen the attractiveness of the asset class: their real interest yield, which remunerates the bondholder, and the future inflation.

Firstly, on real interest rates, the monetary tightening cycle initiated by central banks in 2022 will have resulted in a rise in their levels around the world. Indeed, as shown i n the graph below, the US 10 year real interest yield is now at 2.35% while its German equivalent is at 0.50%.

Evolution of the German (light green) and US (dark green) 10
year real yield since 31/07/2019

Evolution du taux réel 10 ans allemand (vert clair) et américain (vert foncé) depuis le 31/07/2019

Source : Groupama AM, Bloomberg, 12/10/2023.


For an investor being able to invest in, inflation linked bonds with a positive real interest rate is the guarantee, at maturity of the bond and without default, to receive the future realized inflation in addition to a premium linked to the issuer , thus offering a natural protection against the loss of purchasing power.
Regarding market inflation expectations, they are close to central bankers’ targets, below 2.5% up to 5 years in Europe and the United States (as of 06/10/2023). At these levels, these expectations seem to minimize several risks both to Core inflation and to more dynamic components such as energy.


Breakeven inflation rates of 1 to 10 years in the Eurozone and the United States. to 06/10/2023

Courbe des attentes d'inflation

Source : Groupama AM, Bloomberg, 06/10/2023.


The characteristics of our fund seek to respond to the market environment.

2023 has seen high volatility on interest rates with market having difficulties in anticipating the end of this episode of monetary normalization. Given that our macroeconomic scenario leads us to believe that the equilibrium interest rate will remain higher than in the previous decade, the middle and long parts of the curves still seem too unpredic table to us. We therefore prefer to minimize duration risk by focusing on the shorter parts of the yield curve.
We therefore favour inflation linked bonds with short maturities. This asset class is a useful diversification tool in an uncertain environment regarding inflation dynamics. For example, in the 2020/2021 episode, an index of inflation linked bonds with maturities of 1 5 years offered a strong diversification versus its nominal equivalent (see chart).


Total return of the Bloomberg World Govt inflation linked bonds 1 5 year euro hedged index (green) and the Bloomberg Global G5 1 5 year euro hedged nominal index (orange)

Performance totale de l'indice Bloomberg World Govt inflation-linked bonds 1-5 ans couvert en euro (vert foncé) et de l'indice nominal Bloomberg Global G5 1-5 year couvert en euro (vert clair)

Source : Groupama AM, Bloomberg. Past performances are not reliable indicators of future results.


Our G FUND Global Inflation Short Duration fund seems to be a relevant solution in the current context to take advantage of attractive real interest rates and upside risks to inflation. The fund’s strategy offers global exposure to short maturity inflation linked bonds coup led with active management with the aim of outperforming the benchmark over the recommended investment period of 3 years. Since 31 December 2021, the active management of the portfolio has made it possible to distinguish from the benchmark index with an o utperformance of +1.46% (performance of the I C share class: 1.65% versus 3.10% for its benchmark) and +0.68% since the beginning of the year (1.12% for the IC share class versus 0.44% for the index).


Performance of the fund versus its benchmark

Performances du fonds versus son indice de référence

Source : Groupama Asset Management, 30/09/2023

Performances cumulées nettes en %

Source : Groupama Asset Management, 30/09/2023

Past performances are not reliable indicators of future results .

To learn more about the fund:


Main risks: capital loss risk, interest rate risk, credit risk, counter party risk, derivative investment risk, sustainability risk. Please refer to the prospectus for complete risks



[1] Source: Bloomberg, 16/10/2023

[2] Past performances are not reliable indicators of future results. See the return table at the end of the publication.

[3] Sources : Groupama Asset Management’s convictions

[4] Source: Bloomberg, as at 16/10/2023


Document written on 16/10/2023


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