Wealth Management: Podcast - The hidden tax – inflation

Increasingly, we are beginning to see more and more debate over the inflation outlook, and how this might be due to change. In this podcast, Helen Watson explores this issue with Kevin Gardiner, Dean Lush and Mark Wallace, to assess what inflation really means, how it can present a problem and what we can do to protect against a possible surge.

Exploring the complex definition of inflation, Kevin Gardiner, Global Investment Strategist, delves into the connection between demand and supply within the economy, and how sustained inflation is actually a relatively modern phenomenon, peaking in the 1970s. Now, giving rise for inflationary worries, the economic suppression seen during the pandemic has hit both supply and demand, leaving us to suspect that demand will recover before supply. Inflation, while not inevitable, is a particular risk we need to be aware of.

Meanwhile, thinking about the impact inflationary pressure might have on our clients’ wealth, Dean Lush, Executive Vice Chairman, emphasises the meaningful effect of erosion which even low levels of inflation can have on wealth over the long-term. At the same time, he questions if this expectation for a rise in inflation is actually a self-fulfilling prophecy, and illustrates the importance of our expectations.

Turning to the impact of inflation on asset prices, Mark Wallace, Portfolio Manager and Equity Analyst, questions how well equities actually hedge against inflation. With the real prospect of increased taxation, combined with a threat of higher inflation, achieving real returns could become increasingly difficult. Nevertheless, while in aggregate equity markets didn’t perform well in the inflationary peak during the 1970s, plenty of businesses did perform extremely well. In times of higher inflation, it’s therefore important to be more selective, investing in companies with strong pricing power which don’t need a lot of capital to operate, while providing diversification to protect portfolios.

Finally, Kevin reminds us that Chinese labour, and continued gains in technology, both have the ability to keep inflation at bay, providing more optimism for the future.

This podcast is produced by Rothschild & Co for information purposes only.  This podcast does not constitute a personal recommendation or an offer or invitation to buy or sell securities or any other banking or investment product. Nothing in this podcast constitutes advice of any sort and no responsibility is accepted in relation to the content accuracy or any reliance on the information provided.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.  Past performance should not be taken as a guide to future performance.  This content should only be used or reproduced with the express written permission of Rothschild & Co.