Private Equity in a Higher Inflation, Rising Interest Rate Environment

In February, the U.S. Labor Department announced that the Consumer-Price Index (“CPI”) increased 7.5% year-over-year in January 2022, the highest level in nearly 40 years. This increase (which topped 6% year-over-year for the fourth straight month) is representative of a global trend of higher inflation driven by ultra-expansionary monetary policies implemented to counter the COVID-19 pandemic, supply chain disruption, and geopolitical issues driving higher energy prices. The U.S. Federal Reserve has indicated that several interest rate hikes are expected in both 2022 and 2023 with the aim of combatting rising consumer prices. The European Central Bank (“ECB”) is likely not far behind, expecting rate hikes to start in 2023, which poses the following question: how should we expect higher inflation and rising rates to impact private equity?
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