The writer is head of the BlackRock Investment Institute and former deputy governor of the Bank of CanadaBuy the dip when stocks go down. Find shelter in government bonds when growth worries mount or recession hits. Such staple strategies served investors well for decades. But they’re not working now.

The steady growth and inflation we saw in the 40 years before the pandemic — a period known as the Great Moderation — is over. We are instead in a world shaped by production constraints, making it difficult for economies to operate at the current level without stoking inflation. That leaves central banks with a sharper trade-off. They can raise rates enough to stabilise inflation at their 2 per cent target soon — but that will be bad for growth, for equities and, with public debt at record highs, for government finances. Alternatively, markets still need to adjust to persistently higher inflation — that will be bad for bonds. There is no perfect outcome.

And that’s not about to change. Three long-term trends are set to maintain production constraints and sustain inflationary pressures. First, ageing populations are reducing labour supply, and the resulting production hit is just starting to materialise in many major economies. Second, the rewiring of globalisation and the need to build more resilient supply chains means greater production cost. Third, the transition to a lower-carbon world is causing energy supply and demand mismatches, also increasing production cost.