Inflation is a political football. The readers of this paper will know what the 1970s were like. Indeed many will have been shopkeepers and felt inflation on their prices. But they will also know the benefits to house prices and for many it was the social mobility ladder. It is the capitalist, the person with money who wins. Put another way – the rich always win. Inflation, or the control of it, was so political that in 1997 Labour gave up control of setting interest rates. They knew they couldn’t be trusted in the eyes of many with the economy.
Who Makes Money in High Inflation Periods?
Inflation has been steadily growing since April 2020. In October, the Consumer Price Index jumped 6.2%. This figure represented the highest year-over-year jump since 1990. It's safe to say we're in a period of high inflation, so which stocks tend to do well in these times?
How Long Will Inflation Last?
In the UK, Bank of England Governor Andrew Bailey has suggested that inflation risks were "two-sided". He believes that the tight labour market will push up wage demands and that monetary policy will be ineffectual at solving another the inflation driver, supply.
Across the pond, inflation is higher than in other developed countries like Australia, Canada, and Great Britain. For some, this is the result of giant COVID relief packages. However, President Biden has made some hotly debated claims that his Build Back Better program will drive down inflation. As he might, because historically, inflation has been a considerable problem for many presidents.
Right now, it looks likely that inflation will continue well into 2020. So, what investments should you hold to do well in this climate?
Inflation-Protected Safe Havens
When inflation rises, investment returns take a hit. With the consumer price index at around 6.2%, even well-performing dividends lose their purchasing power.
Cash and bonds can become a liability during inflation, but property investments can benefit from rising consumer incomes. Still, the housing market can stall if inflation gets too high. On the other hand, equities can be the safest bet — provided you choose the right sectors.
Which Sectors Are Best Placed During High-Inflation?
Energy Sector
Since 1973, the energy sector has beaten inflation 70% of the time. The pattern has continued this time around, with oil and fuel prices shooting up dramatically. In 2021, S&P 500 Energy stocks have risen more than 53%. Over the same period, the S&P 500 has returned a little less than half of those returns (25%).
Equity REITs
Real estate investment trusts (REITs) are another equity that can beat inflation. Real estate investment can provide a good hedge against investment because it benefits from the attendant property price and rental cost increases.
Financials
Financials present an attractive hedge against inflation. Tech stock performance has been solid over the last decade because they promise excellent future earnings. However, high inflation makes these future earnings look far less appealing. Financials, on the other hand, tend to concentrate their cash flows in the short term.
Inflation is a political football. The readers of this paper will know what the 1970s were like. Indeed many will have been shopkeepers and felt inflation on their prices. But they will also know the benefits to house prices and for many it was the social mobility ladder. It is the capitalist, the person with money who wins. Put another way – the rich always win. Inflation, or the control of it, was so political that in 1997 Labour gave up control of setting interest rates. They knew they couldn’t be trusted in the eyes of many with the economy.Who Makes Money in High Inflation Periods?Inflation has been steadily growing since April 2020. In October, the Consumer Price Index jumped 6.2%. This figure represented the highest year-over-year jump since 1990. It's safe to say we're in a period of high inflation, so which stocks tend to do well in these times?How Long Will Inflation Last?In the UK, Bank of England Governor Andrew Bailey has suggested that inflation risks were "two-sided". He believes that the tight labour market will push up wage demands and that monetary policy will be ineffectual at solving another the inflation driver, supply.Across the pond, inflation is higher than in other developed countries like Australia, Canada, and Great Britain. For some, this is the result of giant COVID relief packages. However, President Biden has made some hotly debated claims that his Build Back Better program will drive down inflation. As he might, because historically, inflation has been a considerable problem for many presidents.Right now, it looks likely that inflation will continue well into 2020. So, what investments should you hold to do well in this climate?Inflation-Protected Safe HavensWhen inflation rises, investment returns take a hit. With the consumer price index at around 6.2%, even well-performing dividends lose their purchasing power.Cash and bonds can become a liability during inflation, but property investments can benefit from rising consumer incomes. Still, the housing market can stall if inflation gets too high. On the other hand, equities can be the safest bet — provided you choose the right sectors.Which Sectors Are Best Placed During High-Inflation?Energy SectorSince 1973, the energy sector has beaten inflation 70% of the time. The pattern has continued this time around, with oil and fuel prices shooting up dramatically. In 2021, S&P 500 Energy stocks have risen more than 53%. Over the same period, the S&P 500 has returned a little less than half of those returns (25%).Equity REITsReal estate investment trusts (REITs) are another equity that can beat inflation. Real estate investment can provide a good hedge against investment because it benefits from the attendant property price and rental cost increases.FinancialsFinancials present an attractive hedge against inflation. Tech stock performance has been solid over the last decade because they promise excellent future earnings. However, high inflation makes these future earnings look far less appealing. Financials, on the other hand, tend to concentrate their cash flows in the short term.
