Stagflation alert: 77% of investment fund managers see an economic storm of slowing growth and high inflation taking hold over the next year

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Top economists and money managers worldwide are warning that rising consumer prices and falling economic growth are combining to form a deadly recipe for the global economy—stagflation.

Some 77% of investment fund managers say they see “below-trend growth and above-trend inflation,” a.k.a stagflation, as the most likely outcome for the global economy over the next year, according to a May survey from Bank of America Global Research. That’s the highest percentage seen since August 2008.

Still, despite these gloomy predictions about stagflation, most of the fund managers surveyed believe that we are past the worst spike in inflation.

Of the 331 panelists with $986 billion in assets under management who participated in the Bank of America’s survey, 68% said they believe the global Consumer Price Index (CPI) will fall over the next year. That’s the highest percentage of managers predicting a drop in inflation since December of 2008, and it represents a 28 percentage point jump from April’s figure.

The belief that inflation is receding is prevalent among a number of major banks across Wall Street. UBS analysts said inflation hit its peak in March when CPI came in at a four-decade high 8.5% annual rate, arguing goods inflation would move down “sharply” as consumers shift their spending to services and used car prices begin to fall.

Goldman Sachs agrees. The investment bank’s chief economist Jan Hatzius said in a May 9 note to clients that he was revising his inflation forecasts down for the first time since consumer prices began to surge in early 2021.

“We are now more confident that both headline and core inflation have peaked in year-on-year terms,” Hatzius wrote.

But you can’t have stagflation without inflation.

Inflation may fall from its recent four-decade highs, but the survey simply shows that these managers believe it will go down from the 8.5% annual rate seen in March, not that it will recede entirely. And before investors celebrate the good news of inflation’s retreat, it’s important to note that Wall Street’s expectations for global economic growth aren’t looking good.

Falling inflation, falling growth, falling profits?

Some 72% of fund managers expect a weaker global economy in the next 12 months, according to Bank of America’s survey. That’s the most pessimistic fund managers have been about global economic prospects since 1995.

And in April, the International Monetary Fund (IMF) cut its global growth forecast for the second time this year to just 3.6%, citing “seismic waves” from the war in Ukraine and COVID-19 lockdowns in China.

"The war adds to the series of supply shocks that have struck the global economy in recent years. Like seismic waves, its effects will propagate far and wide—through commodity markets, trade, and financial linkages," Chief Economist Pierre-Olivier Gourinchas said in an April 19 news briefing discussing the IMF’s latest World Economic Outlook.

While corporations were able to take advantage of rising consumer prices in 2021, posting their largest profit increase in decades, 66% of fund managers expect that profits will fall over the next year as economic growth wavers, the most since October 2008.

On Tuesday, markets may have received their first sign of what’s to come after Walmart posted a less-than-stellar earnings report that led to the worst two-day sell-off for the retail giant since 1987.

Then, Target followed suit on Wednesday, posting a 52% decline in profits, which CEO Brian Cornell said was caused mainly by supply chain issues as well as higher compensation and fuel costs.

"While we anticipated a post-stimulus slowdown...we didn't anticipate the magnitude of that shift," Cornell said during the company’s earnings call.

This story was originally featured on Fortune.com