(Bloomberg) — Cathie Wood on Tuesday said she erred in her prediction inflation would unravel as the prices of goods and services in the US soared to 40-year highs.
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“We were wrong on one thing, and that was inflation being as sustained as it has been,” Wood, founder and chief executive officer of Ark Investment Management, told CNBC. “Supply chain — I can’t believe it’s taken more than two years, and Russia’s invasion of Ukraine, of course we couldn’t have seen that. So inflation has been a bigger problem. But I think that it has set us up for deflation.”
Inflation in May surged to its highest since 1987, a sign that price pressures are becoming entrenched in the economy. Shelter, food and gas were the largest contributors. Russia’s ongoing war in Ukraine as well as supply-chain bottlenecks exacerbated by the Covid-19 pandemic both contributed to higher prices for food and energy. Wood cited the supply-chain issues that both Walmart Inc. and Target Corp. have faced, saying that it portends many others could be in similar situations.
“The consumer is railing against these price increases,” Wood said. “Many people think, ‘oh, the heavy spenders will keep this thing going.’ Consumer sentiment in the highest-income groups is lower than in the lowest-income groups, and the latter group is being tormented by food and energy prices, which are really a regressive tax increase.”
Earlier this month, Wood said massive inventories held by US companies suggest that inflation will soften. Major companies in the US, including Target, amassed stockpiles last year amid soaring consumer demand.
Wood joins Treasury Secretary Janet Yellen in admitting incorrect inflation projections. Yellen in May told CNN she was “wrong about the path inflation would take.”
Inflation and the start of Federal Reserve rate hikes have put Ark’s innovation-themed funds under pressure. The flagship Ark Innovation ETF (ticker ARKK) has fallen about 53% this year. Still, the star stock-picker maintains she is doubling down on her strategy.
“The most important thing we need to do is stick to our knitting. The worst thing that could happen is style drift,” Wood said. “When people invest in Ark, they know they’re getting truly disruptive transformative innovation. That’s what we offer, and we don’t pretend to offer anything else.”
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