Fidelity’s Maike Currie comment- Inflation

Commenting on today’s inflation figures, Maike Currie, investment director for Personal Investing at Fidelity International, said:

“Mark Carney may be breathing a sigh of relief as the latest CPI figures reveal that inflation for December eased back to 3% meaning the Bank of England governor won’t need to pull out his pen to write another explanatory letter to the Chancellor.  The key driver behind inflation dipping was a fall in transport costs, particularly airline fares. While air fares rose in December, as is typically the case, itaccounted for a smaller slice of the CPI basket of goods and services in 2017, therefore the impact to the headline rate of inflation was smaller in 2017 than in 2016, making a downward contribution. This was partially offset by rising prices for motor fuel, which increased between November and December 2017, having fallen a year ago.

“While price pressures may have eased slightly, this will be cold comfort to cash-strapped consumers who are still suffering a pay cut in real terms as inflation continues to outpace wage growth (including bonus) at around 2.5%. Inflation remains well above the Bank of England’s 2% target and British households are likely to continue to find their finances under pressure if wage growth doesn’t pick up and interest rates remain at 0.5%.

“Persistently high inflation also holds implications for our savings and investments as inflation erodes the spending power of future interest and dividend payments and eats away at the worth of your original capital. Investors and consumers will therefore need to not only review their spending and savings habits as they wait for that elusive pay rise, but also revisit their portfolios while they wait for inflation pressures to ease.

“Physical assets such as gold, agriculture and property are all good protectors against the wealth-eroding effects of inflation. You can invest in gold via a fund which invests in the shares of gold mining companies, such as the Investec Global Gold Fund. Alternatively, for those looking to make their savings work harder one option is equity income funds which invest in company shares that pay investors regular dividends that can be reinvested or paid out.  The Fidelity Global Dividend Fund is a solid option for someone looking for an equity income fund that benefits from a global approach. Manager Dan Roberts scours the globe for attractive income streams but never compromises on quality given his razor sharp focus on preserving client capital.”