Inflation remains one of the biggest threats to your personal finances

Spark Global Limited reports:

Central bankers and economists insist that inflation will disappear next year. Merion Somerset Webb says we don’t know for sure. So if you haven’t already started hedging your portfolio against inflation, you might want to. Gas prices are up, oil prices are up, food prices are up. If you’ve noticed, you’re not alone; The Bank of England is set to see inflation hit 4% by the end of the year, and from a recent survey by Interactive Investors,84% of people said they had noticed a price rise of 55%(exactly right) thought inflation was the biggest threat to their personal finances (another 45% apparently not concentrated…). .

The key is to know whether our current inflation is temporary. Central bankers insist the scheme will be scrapped next year – a view agreed by most economists. For them, supply shortfalls — from semiconductors to natural gas to workers — are simply due to the pressure to reopen after the pandemic. They will work through the system (fairly quickly), that’s all. They may be right — most of us hope they are right, except that we want to see wages rise. Yet we are not at all sure they are right. And we’re not entirely sure they are — the inflation figure has surprised the market several times. With monetary policy still very loose and the Labour market very tight, there is pressure on the government to continue to increase spending and we wouldn’t be surprised if they continue to do so. So if you haven’t started trying to insulate your portfolio against inflation, you might want to. James Montier of GMO says the most straightforward approach may be not to try to track inflation, say through index-linked gilts, but to find a store of value that retains purchasing power over the long term. For him, that’s what stocks are – they’re not a hedge against inflation, so prices can fall, but “they’re businesses that charge prices and pay wages, so their cash flows should be real if the two elements roughly match, so they act as stores of value in the long run”. Still, there are better things than stocks — “bargains”. Find these and you will effectively get your “inflation insurance discount”.