The latest Quarterly Inflation Report from the Bank of England showed that inflation is rising rapidly and the Bank expects it will overshoot its target of 2%. We explore which assets gave inflation protection in the past.

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HOW TO: Hedge Against Inflation

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Inflation is a critical economic factor that has the potential to negatively impact the value of assets. When inflation rises, the cost of living increases, and investments become less valuable. However, certain assets tend to perform better during periods of high inflation. This article will discuss the types of assets that perform best in high inflation situations.

One of the most effective ways to protect against inflation is to own real estate. Real estate investments typically appreciate in value over time, even during periods of high inflation. Rental prices also tend to rise as the cost of living increases, which can increase cash flow for real estate investors. Real estate is also a tangible asset that can help diversify investments and provide a sense of security.

Another asset that performs well in times of high inflation is gold. Gold is often considered a safe haven asset and can act as a hedge against inflation as its value tends to increase during times of economic uncertainty. Gold is a highly liquid asset that can be sold quickly, making it an attractive asset for investors during times of economic instability.

Commodities such as oil, natural gas, and agricultural products can perform well in high inflation times. These types of assets offer value through their scarcity and demand, which can lead to an increase in prices as inflation rises. However, it’s important to keep in mind that commodity prices can also be affected by other factors such as supply and demand, geopolitical tensions, and environmental disasters.

Investing in equities can be another way to hedge against inflation. Although stock prices may drop during times of high inflation, some companies can pass on price increases to consumers through higher prices. Additionally, some stocks, such as those in the healthcare and utility sectors, may outperform during inflationary periods as their services and products remain in demand.

Finally, investing in real assets such as infrastructure, energy, and commodities can perform well in high inflationary environments. Investing in companies involved in production and distribution of essential goods and services can provide natural protection against inflation.

In conclusion, there are several asset classes that can perform well during periods of high inflation. Real estate, gold, commodities, equities, and real assets can all be effective at hedging against inflationary impacts. However, it’s important to remember that each asset carries its own risk and investors should consider diversifying their portfolio to mitigate potential risks.