Inflation is now investors’ biggest concern in 2022
The debate as to whether inflation is ‘transitory’ or not is now not in play and investors should be reviewing their investments.
Last week the Bank of England hiked interest rates for the first time in over three years in a bid to tackle mounting inflation, with the Monetary Policy Committee voting 8-1 in favour of the increase to 0.25%.
This followed on from the U.S. Federal Reserve lining up for faster rate hikes sooner than forecast as inflation soars. The central bank now predicts three increases in 2022.
In addition, factory-gate prices in China grew at the quickest pace in 26 years and consumer-price inflation has surpassed expectations.
Over this year, the debate has been focused on whether soaring inflation is ‘transitory,’ but this is now over. Predominantly because the fallout from the pandemic has also not been ‘transitory’. Ongoing supply problems, new Covid variants and global differences in managing them have resulted in price hikes.
Moreover, as inflation now becomes investors’ biggest issue, the debate next year will concentrate on how to manage it to mitigate risks and make the most of opportunities.
The real opportunities are out there, but this is set to become more difficult over the next few months as we move towards a new era of interest rate normality, and we’ll likely see a steady flow of rate hikes from most major central banks in 2022.
As I said last month, this is the hardest time to be an investor and the worst time not to be. As such, investors should remain in the market, but review their portfolios to make sure they are sufficiently diversified across asset class, sectors, regions and currencies. This will help to ensure they are best placed for any outcome in the current investment landscape.
With inflation set to be the number one investment headwind facing us next year, now’s the time to review portfolios.