As published in the Manchester Law Society Messenger (Nov 2022) and can be viewed The Messenger November 2022 (legalrss.co.uk)
Should I worry about inflation?
No doubt you’ll have noticed the rise in costs as you fill up your car or do your weekly shop and although some costs have fallen we continue to see inflation at its highest levels in 40 years. But what does this mean for investments – should you sell everything (probably not), or pile all your cash in to markets to take advantage of the sell-off in share prices (also probably not).
Inflation started to rise at the end of 2021. Central banks around the world began to plan interest rate rises to bring inflation under control fairly quickly – at least that was the plan. It soon became clear that higher inflation was going to stick around for a while, but what has caused this surge in CPI?
Covid-19 vaccinations enabled economies to re-open and we saw a recovery in sectors that had been impacted by the pandemic. Monetary policy in developed markets remained accommodative, fuelling the pace of recovery and leading to supply shocks across global industries. An already steep rise in energy and raw material prices raised concerns about inflation and the prospect of central banks raising interest rates from historic lows. This was compounded by the Russian invasion of Ukraine in February 2022 which sent oil and gas prices soaring further. Supply chain issues driven by sanctions on Russia, war zones in Ukraine and a zero Covid policy in China have all contributed to inflationary pressures. This perfect storm of events in the first half of 2022 led to high levels of price volatility in investment markets.
Investment markets hate uncertainty, and we have had uncertainty by the bucket load this year. This is nothing new and throughout history there have been events that have caused market crashes. Importantly, these are always followed by a recovery, and this time should be no different. The question is how long the recovery will take. This will depend on many factors, and it is of course impossible to know what is around the corner. With this in mind, I have set out some key things to remember when investing:
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