Inflation doom and gloom – but you can take action

January 19, 2010 12:38 pm by Alice Ross

Doom and gloom this morning from a lot of commentators as it emerged that CPI inflation rose 1 per cent between November and December last year to hit 2.9 per cent, while RPI rose by 2.4 per cent over 2009.

This has knock-on effects for investors, homeowners and savers. Justin Modray at Candidmoney says this means nearly all savers saw the purchasing power of their savings fall last year as a result.

Property Portfolio Rescue reckons interest rates will have to rise earlier than previously forecast, with homeowners “living in fear” of a mortgage interest ‘time bomb’ which is now more likely to go off.

But there are things investors can do.

In times of inflation, the advice is usually to buy ‘real’ assets – like commodities and property. Equities in general also benefit from inflation.

Savers can protect themselves from inflation by buying index-linked gilts, or index-linked products from National Savings & Investments that rise in line with inflation.

Pensioners can buy inflation-linked annuities where pension income also rises in line with inflation, though this means the initial payout will be lower.

With some predicting inflation will be even higher next month, possibly even overshooting government targets, it might make sense to protect yourself now.

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Lucy Warwick-Ching is the FT’s new Money Online Editor and has been a UK Companies reporter covering tobacco, pubs and leisure companies as well as the deputy editor on House and Home.

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Josephine Cumbo has written about all aspects of personal finance but currently specialises in insurance. She also covered company news for FT.com. Prior to working at the FT she was a news reporter for the ABC.

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