Inflation seems like a distant memory these days. You have to go back to at least 2007 to find a time when the Reserve Bank of Australia (RBA) and other central banks around the world were even remotely concerned about rising inflation. In fact, since 2008 the biggest concern the RBA has had is keeping inflation up, not down.
But anyone old enough to remember the 17% interest rates of the late 1980s would tell you that inflation is a nasty thing to deal with. And that goes for investing too.
If you aren’t entirely across the concept of inflation, it refers to a scenario where a currency is devaluing at a historically rapid rate, which results in rising prices of all goods and services in an economy,
Now I’m not saying that a high-inflation environment is imminent. We may not even see inflation being a concern for another decade. But as Ray Dalio recently said, all paradigms come to an end, followed by another paradigm that offers different challenges.
So I think it’s well-worth planning ahead and looking at what investments cope well in a high-inflation environment.
What should you invest in during high inflation?
The most inflation-immune goods and services are those that are needs and not wants. So companies that provide these products and services are the best companies to own during times of high inflation. Some examples that come to mind are Woolworths Group Ltd (ASX: WOW), Brickworks Limited (ASX: BKW) and Coles Group Ltd (ASX: COL).
Banks like Commonwealth Bank of Australia (ASX: CBA) also cope quite well in periods of high inflation – their services are essential to an economy as well and banks are able to keep on top of inflation quite easily with interest rate changes.
Finally, materials are another sector that I would want to be in if inflation rears its ugly head. Commodities are of course essential to any kind of economic growth and commodity prices will usually match inflation rates easily. I would especially be attracted to gold miners like Newcrest Mining Limited (ASX: NCM) as gold is often used as an inflation hedge.
There you have it, some ideas about where to invest if inflation starts to gather steam sometime down the road. Hopefully, we don’t have to worry about this happening for some time, but you never know what comes next in this era of ultra-low rates and quantitative easing.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.