Inflation Eases but still Outpaces Wage Growth: Fidelity’s Maike Currie Comments

Maike Currie, investment director for Personal Investing at Fidelity International, said: “Today’s inflation numbers show CPI inflation rising from 0.5% in June 2016 to 2.6% a year later – that’s more than a five-fold increase in only a year. While inflation has eased back from May’s reading of 2.9%, thanks largely to a fall in the oil price driving down the cost of fuel, this will be cold comfort for Britain’s cash strapped consumers – inflation is still well above the Bank of England’s 2% target rate and outpacing our earnings.  

“Last week’s wage growth figures show regular pay growing at just 2.0% for the three months to May, confirming that our pay packets aren’t keeping up with rising prices despite the UK’s unemployment rate reaching its lowest level since 1975. This is tightening the squeeze on UK households, which is bad news for an economy that relies on confident consumers spending on goods and services. Retail sales figures out on Thursday will provide a telling health check on just how spending is fairing given the mounting pressure on British households.

“Inflation also has implications for our savings and investments as it erodes the spending power of future interest and dividend payments and eats away at the worth of your original capital. Inflation never looks like a problem until suddenly it is – the rapid rise in inflation in the last year is testament to this. 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.  The BlackRock Global Property Securities Equity Tracker Fund invests in retail, industrial, office and residential property in addition to hotels and real estate service companies. If you want to buy a slice of physical assets that could rise with inflation while still having some exposure to the stock and bond markets consider a multi asset fund which can blend equites, bonds with assets such as commercial property and commodities to cover most bases.”