So where does inflation go from here? Closer to home, the Bank of England’s 2% target looks unlikely to be met, though neither should we really expect the headline rate to breach double figures.
Still, investors should act now to ensure portfolios defend against rising inflation. But what are the best options?
In the ‘70s and ‘80s, investors might have chosen to buy gold or large-cap equities if they were worried about inflation, but today investors have more choice.
Bambos Hambi, head of fund of funds at Standard Life Investments, believes the main inflationary threat in the UK comes through weaker sterling, triggered by Brexit negotiations potentially becoming more difficult than expected.
Still, baring this week’s blip following Theresa May’s announcement of a snap election, a weaker sterling has ultimately benefited the FTSE 100, and Hambi still sees equities as the go-to asset class in an inflationary environment.
He also points to the benefits of commercial property for extra income, and inflation-linked bonds for added diversification.
“Currently, politics are dominating prices, and we are currently overweight US, European, emerging markets and Japanese equity markets,” he says.
“The US economy is growing however we are cognisant that valuations in the US seem overly stretched due to heightened expectations of fiscal loosening. In Europe, equity prices are still on relatively low valuations as the threat of a Le Pen victory keeps them anchored.”
