How to tackle rising inflation and falling stockmarkets
Inflation is rising around the world. Even though inflation is widely expected to return to around 3.5% next year, it is still wreaking havoc. Merryn Somerset-Webb explains what to do about it.
Last week I hosted an Adam Smith-themed panel show at Edinburgh’s Fringe to which I invited many of MoneyWeek’s favourite economists, strategists and financial historians. Some of you came (thank you!) and will know that while it was a lot of fun (I include clever comedians in the line-up, just in case we all start to take ourselves too seriously) it was also a little depressing. Almost all our trusted sources reckon that equities have a nasty collapse ahead of them (they recommended we hold cash as a least bad option). They also were almost as one on inflation being both transitory and structural – the point being that even if Covid-induced money printing works its way through the system and even if energy prices stop rising, deglobalisation and the ongoing shift in power from capital to labour will mean that any return to the days of 2%-3% annual inflation is decades away. That means rising interest rates and probable recession. Miseries.
Will our experts get it right? Our experts might be wrong. Most of the numbers out this week appear to back up the inflation case. Italy’s inflation rate has reached 8.4% (a 37-year high), Poland’s prices are rising by 16% and in the UK the price of clothing (having reliably fallen for years) is up 7% in the last year. But things turn on a sixpence in our new age of uncertainty – and the consensus view is that inflation will be back to 3.5%-ish by next year.
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We look at some of things you might do to mitigate the problem of rising prices (and falling markets) in the magazine this week. And on energy bills, we have done our best on this but it is, I am afraid, testament to how little anyone has to offer here that our columnist’s advice includes stocking up on large candles as they can “generate a surprising amount of heat.” Oh dear. Slightly more encouraging are the investment pages. That aside, there’s a reason that – according to research from Royal London – over 30% of over 55s are “changing their retirement plans”. The best way to keep your income up in a world in which power is shifting to labour is (unwelcome a thought as it might be) to stay in the labour market. The advice my panellists gave our worried (and mostly recently retired) audience? Get a job.
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