Inflation is here to stay: it’s time to protect your portfolio
Last April, when coronavirus was tearing around the globe and most Western economies were tightly shut down, we argued in MoneyWeek that central-bank and government policies designed to tackle the crisis were likely to result in inflation. What with rampant unemployment, a huge (if short) recession, and oil prices turning negative, you could have been forgiven for being sceptical.
Yet here we are, a year and a bit later, and prices everywhere are indeed picking up. Notably, inflation in the US is at multi-decade highs regardless of the precise inflation index you use to measure it (in June, consumer prices were up by 5.4% year-on-year), while oil – which you literally couldn’t give away in April last year – is back around the $70-a-barrel mark.
Yet no one seems too concerned by this turn of events. The world’s central banks keep telling investors that price rises are just “transitory” and that they will pass once the initial supply shocks are over. Investors appear to believe them. “Reflation” trades (such as buying “value” stocks and commodities) did well for much of 2020 and early 2021, but in recent months they’ve given way to the same old growth plays that dominated prior to Covid-19, while bond markets have rallied since late March.
