Inflation has hit its highest level in two years, rising to 1.2 per cent in November from 0.9 per cent in October. And with the fall in sterling making imports more expensive, coupled with a rise in the oil price, inflation is expected to rise further in 2017.
- Inflation hedge
- Good performance
- Experienced manager
- Ability to short
- Derivatives may increase risk
- Commodities rally may reverse
However, some of the assets investors traditionally use to hedge against inflation are looking expensive. "Inflation-linked bonds have responded and priced in much of the inflation expectations," explains Adrian Lowcock, investment director at Architas. "Many companies in the equity income space offer inflation protection with the ability to raise prices, however the sector attracted a lot of money from investors looking for income as bond yields fell, driving up valuations in certain areas."