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You're listening to Strictly Business
Podcast with Lindsay Williams.

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Inflation has been on a wild ride in the
last three years or so, shooting higher as

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the war in Europe took hold,

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falling back as rising interest rates
exerted their influence and now seemingly

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stabilising at lower levels.

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But is it?

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Inflation is proving stubborn and
inflation is the enemy, of course, of both

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investors and consumers alike.

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With me is John Stockford, head of
multi-asset income at 91.

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in London. It's coming off a low base.

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This latest tick-up is coming off a low
base, John, but it's causing a little bit

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of concern, I think.

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Well, I think there are a number of things
going on.

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So clearly, we've been in an environment
where inflation was very high, has come

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down a long way,

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and there's this concept of the last mile,
how easy is it to get inflation back to

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target?

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There are clearly lots of moving parts.

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So Generally, I think service sector
inflation looks like it's still slowing,

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but we were being helped by goods price
deflation.

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So, you know, food, energy and other
things.

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And that's started to pick up a bit.

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And then at the background of all of this,

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we've got the threat of tariffs from the
US and some inevitable inflationary

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consequences

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if those get implemented, at least in the
short term.

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So the question then is.

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Does that lead to a one-off jump in prices
or does it start to feed through into

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longer term inflation

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and expectations?

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It's not really our job to talk about
whether inflation is going to go to 5% or

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whatever level.

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And you said if in that sentence when you
were speaking about tariffs and I suppose

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the UK as well.

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After this morning's energy price rise
announcement, inflation will continue to

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be a little bit stubborn in the UK,

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I think.

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But just in case it does go up,

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how does one sort of ameliorate the effect
of rising inflation in a portfolio or

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strategy?

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Are there certain asset classes that you
immediately go to when inflation starts to

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threaten to rise?

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Well, it's always been something of a
tricky proposition.

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So as we saw in 2022,

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when sort of inflation was elevated post
the pandemic,

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that actually pretty much everything went.

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down.

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And even if you'd bought inflation linked
bonds,

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they actually got hurt not by the rise in
inflation,

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but the rise in their yield adjusted for
inflation.

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And they only sort of helped you a little
bit.

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So, you know, it's not it's generally
people have struggled since the 70s to

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properly hedge inflation risk.

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Inevitably, people look at hard assets, so
things like gold, and then, you know,

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commodity.

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uh and resources more generally and where
they can equities where companies are able

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to pass on those

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prices to consumers so yeah i mean it's it
it's not straightforward i think it partly

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is about

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reducing risk potentially rather

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than just trying to and trying to mitigate
the the impact rather than you know using

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it as a way to try and

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uh potentially make money but we're not
quite at that point yet i think it is

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though a fear in the back of

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investors and markets' minds that, you
know, if inflation bottoms and picks up

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from here,

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that it'll actually start to be a more
pernicious longer-term problem for central

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banks and for

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consumers to deal with.

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At what point does the multi-asset income
team at 91 start to say, okay, we've got

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to take some action here?

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Well, I think at the moment it's noise to
some extent.

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I think you need to also think about what
what the other impacts are and how

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widespread it is.

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So there are definitely economies where
inflation is still coming down.

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So, for example,

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we like bonds in New Zealand where you've
got inflation basically at target but

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against the

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backdrop of an economy that's coming out
of recession.

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And so there it's not about whether the
Reserve Bank will raise rates to respond

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to inflation

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or it's more about will they cut rates
more than expected.

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because the economy has been so weakened
and there's lots of spare capacity,

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unemployment's too high and so on.

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And then in somewhere like the US, what's
going to be the biggest effect?

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Is it going to be that tariffs push up
inflation or is it going to be tariffs

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plus all of the other

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things that Elon Musk and others are doing
is actually going to hit growth?

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And at the moment, it looks as though the
bond market's sort of betting on both.

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It's beginning to worry a little bit about
inflation in the near term, but it's

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starting to worry a little bit more,
actually, whether

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Trump's initial policy impact could be
quite negative for growth.

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So there it's about potentially being a
bit more defensively positioned.

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So I think it's, you know, we're looking
around the world for where can we find

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reliable income that's reasonably safe
that we can take.

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exposure to.

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And as I said, I think you have to be a
little bit more picky, a little bit more

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choosy.

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I think last year was easier.

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Everything was rallying.

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This year, I think it's more of a
challenge.

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What about the equity asset class?

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Are there certain stocks or certain
classes of stock that are not inflation

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proof,

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but do better in an inflationary
environment?

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Well, I think yes, to some extent.

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And it's also the other thing we haven't
really talked about is fiscal policy

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generally.

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you know, governments are trying to think
about how they prioritize spending, but

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generally are, you know,

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struggling to balance their books.

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And so focusing on areas where, you know,
they're more likely to spend, you know, so

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for example,

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defense stocks in Europe and so on have
been doing pretty well recently, because

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Europe's going to have to step up and,

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you know, take more of the responsibility
of defending its borders, because the US

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is going to do less.

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So there are those kinds of effects.

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But then also, I think, yes, where you've
got value helps.

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So there are definitely stocks.

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So consumer staples have been out of favor
for a long time.

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Everyone's been focused on, you know, the
sort of tech,

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the Magnificent Seven and the sort of
growth and momentum stocks in the US.

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I think potentially more defensive stocks,
particularly if they have.

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strong franchises where they can actually
absorb prices and to some extent pass them

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on to consumers i think

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they they look you know relatively well
placed and and it might be an environment

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where more defensive

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sectors start to do a bit better um

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yeah so i i think you've got to you've got
to look around and do the work rather than

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um just sort of pick

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uh broad broad themes or just you know be
long long everything well let's just hope

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this is all

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speculation on our part, John, and
inflation comes back down again and

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stabilises close to central banks'

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target rates.

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John, thank you so much for your analysis.

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John Stockford is head of multi-asset
income at 91 in London.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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with StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
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author.

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beings, these views are always subject to

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change, revision,

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