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Are investors facing a new era of inflation?

Inflation has been so low now that many people consider this the norm. But go back to the 1970’s and 1980’s and inflation often ran into double figures, having a major impact on economies and people’s finances.

Since those days, globalisation, innovation and technological advances and increases in productivity and austerity following the global financial crisis have all contributed in pushing inflation so low that many a policy maker’s main concern has been the prospect of deflation.

However, the Covid pandemic has brought about major global, economic and societal changes that are likely to be with us beyond an initial recovery period and there are chances that some of these may impact on the likelihood of inflation being a part of our lives again, and certainly a consideration to factor into investment plans.

A changing landscape

The impacts of the pandemic coupled with trends that were already in place could lead to higher prices for the following reasons:

The end of globalisation?

The pandemic has shown up the risk of relying on imports of key goods (such as PPE, vaccines, essential food).  If countries look to implement local production of such essentials, this could lead to less competition and higher prices.

Fiscal expansion

Governments have pumped vast sums of money (financed by borrowing) to prop up their economies during this time and this seems set to continue.

Less mobility of labour

While travel will hopefully resume, a wave of populism has swept over many countries whose populations have baulked at continuing to allow cheap foreign labour flood their market, pushing down wages. If labour becomes less mobile, this may lead to rising wages and subsequently to rising prices and inflation

Money printing

Many major economies have resorted to quantitative easing during the pandemic to help boost demand in their economies.  In the long term, increasing the supply of money (the amount of money chasing the same amount of goods) will lead to an increase in prices.

A surge in spending

The pandemic has led to a huge increase in the amount of savings held by the general population.  People still in work have had little to spend their money on and have seen their bank balances swell.  As things open up we may see a surge in spending driven by pent up demand which could lead to higher prices.

Rise in commodity prices

When the financial crisis hit and demand fell across economies, investment was significantly cut back (and in most cases stopped) in the industrial metals sector.  As demand for industrial metals is now starting to surge (due to their involvement in electrical cars, technology and the green revolution) we are potentially now at the beginning of the next commodity super cycle – it takes a long time for investment to lead to an increase in supply.

What does all this mean for investors?

There are no certainties in life but we can see enough factors that could break us out of the low inflation environment people are now used to.  Central banks are highly likely to tolerate higher inflation and not react with lower rates as they target high levels of employment.  Likewise, governments will be happier to see a pick up in inflation as the easiest way to deflate away the large levels of debt they are running up.

In a high inflation, low interest rate environment, the value of cash savings rapidly falls in value in real terms.  If £1,000 in savings can buy £1,000 of goods today, and we assume that in 5 years’ time those same goods cost £1,300 with price inflation, the saver has seen their relative wealth decrease.  It is therefore wise to adapt investment strategies to mitigate against the short to medium term devaluation of cash.

How to protect your wealth from inflation

If you do not need your savings for an immediate purchase then one way to protect them against inflation is to buy or invest in an investment linked to a real asset.  That way when asset prices rise, the value of your investment, unlike cash, will rise with it.

There are many different asset classes you can consider.  Equities, commodities (such as gold), funds that track asset prices, infrastructure funds or property to name just a few.

At Assetz Exchange, all of our property investments stand to benefit if property prices rise.  Not only that, but many have income that are linked (upwards only) to the consumer price index.

Investing in property with Assetz Exchange

Assetz Exchange makes property investment simpler, quicker and more accessible by enabling users to invest in slices of property alongside others, and share the returns. Our innovative structure enables us to source institutional-grade investments for individual investors.  Assetz Exchange enables investors to:

  • Create their own customised UK residential property portfolio
  • Enjoy inflation linked net yields of between 5.5% and 7.2% on full repair and maintenance leases
  • Benefit from stable tenants through multi-year leases
  • Receive monthly income and capital growth
  • Help supply much needed supported housing to the charity sector

For further information and to register on the Exchange click here

Your capital is at risk and is not covered by the Financial Services Compensation Scheme (FSCS).


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