Larry Fink, CEO of Blackrock, thinks investors are underestimating the potential effects of a spike in inflation.

At a virtual event hosted by Deutsche Bank AG on Wednesday, Fink said, “Most people haven’t had a forty-plus year career, and they’ve only seen declining inflation over the last 30-plus years. So this is going to be a pretty big shock.”

As the cost of goods like lumber and steel have risen this year, concerns about inflation have drifted into the markets. However Fink feels investors today do not have enough hands-on experience with inflation to really understand the implications going forward.

Fink went on to say central banks may need to adjust their policies more if higher prices begin impacting the economy. The Fed has indicated it will tolerate inflation above its 2% target, to make up for the period where it was below that level, but it has committed to try and keep rates lower in the near term.

Joe Biden has proposed additional measures to stimulate the economy in the short term, including a $1.7 million infrastructure plan. Fink has noted such stimulus would seem discordant as the Fed sought to tighten monetary policy to combat rising prices, saying, “That would be pretty odd, raising interest rates at the same time we do this giant fiscal stimulus.”

Fink also noted there may be additional price increases if we force companies to expend money to adapt to climate change going forward.

“If our solution is entirely just to get a green world, we’re going to have much higher inflation, because we do not have the technology to do all this, yet. That’s going to be a big policy issue going forward too: Are we going to be willing to accept more inflation if inflation is to accelerate our green footprint?”

Photo of Larry Fink courtesy of Wikipedia