Inflation will continue to rise, warns Nutmeg

The chief investment officer of the leading robo-advisor platform Nutmeg thinks inflation will tick up to 2.5 per cent next year. 

Investors should consider greater exposure to growth assets in the face of a rising inflationary environment, according to Nutmeg’s chief investment officer Shaun Port.

The rate of inflation rose to 1 per cent in September, the highest rate in more than two years, official data released today show.

The Consumer Prices Index rose 1.0 per cent in the year to September, with core inflation at 1.5 per cent, somewhat beating expectations and continuing the gradual rise from when inflation troughed in mid-2015 with the dampening effect of last year’s fall in oil prices well and truly over, Port said.

“Nutmeg believes CPI inflation in the UK will rise to around 1.7 per cent in 2016 and again to 2.5 per cent by the end of next year. Currency depreciation and a gentle rise in both commodity prices and wages will deliver this.”

“This should be no surprise to anyone; central banks all around the world are intent on delivering higher inflation and the Bank of England has more reason than any to succeed. So much so that Mark Carney has taken every recent opportunity to stress he is willing to countenance inflation above the 2 per cent target within their forecast window.”

This is bad news for workers not receiving inflation-adjusted wage rises, he adds, and bad for investments earning only fixed returns, or indeed no return at all if their assets are in cash deposits.

“Consumers should benefit from moderate wage growth as the weakening pound and impending Brexit will stem the flood of cheap labour from the EU area. So real wages should be stable, implying at least that household consumption won’t be a source of weakness in the economy.”

“Food prices will be at the sharp end of inflation so - as ever - the economic impact will fall unevenly across the income spectrum.”

He says the action by central banks as well as general government policy around the world is encouraging investors to move into growth-assets.

“These are riskier, yes, but more likely to deliver inflation beating returns in the medium term. Nutmeg continues to believe a well-balanced global portfolio with exposure to growth assets will benefit from the policy-push for higher inflation.”