SINGAPORE (Sept 24): Investors should not get complacent about inflation: We may not see an early return to historic levels, but conditions are ripe for an unexpected rise. To fight the erosion of their purchasing power, investors should consider real assets — such as commodities and real estate — as well as equities and inflation-linked bonds.

Investors once knew to fear inflation, but it has not been much of a factor for almost four decades — neither in the global economy nor in many investors’ strategies. This has led to a degree of happy complacency for consumers, who do not like inflation because it means higher prices, and for investors, who have not felt the pressure to strive for higher real returns. 

At the same time, central banks generally seek to maintain a certain level of inflation to keep their economies growing; recently, 2% a year has been their target rate. Yet in the post-financial-crisis era, central bankers have essentially printed money through policies of low rates and quantitative easing, and inflation has barely budged.

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