COMMENT As recently as January, central bankers around the world were indicating that inflationary pressures were transitory. They now have a difficult job ahead of them: reining in record inflation when the tools at their disposal are ill-equipped to deal with supply-side pressures.
Rising energy costs have been supercharged by events in Ukraine. Supply chain disruption, particularly around Chinese shutdowns and post Covid-19 workforce shortages have compounded these pressures. All of this is outside Bank of England governor Andrew Bailey’s job description.
Because central banks cannot control supply-side inflation, they are seeking to over-control the demand side through aggressive tightening. This comes with the usual risk that too much intervention could further damage the economy.
More people are asking me whether property is an inflation hedge. The answer is yes – to an extent. What is heavily inflation-proof is the income that comes from a well-constructed property portfolio. This is why the vast majority of our income is linked to national inflation, meaning the vagaries of central bank decisions are reasonably neutral for us.
The difficulty for markets is that this is not a traditional inflation cycle. It is being influenced hugely by geopolitics, which markets often struggle to interpret and correctly price. The stock market tends to get overly exuberant and overly miserable. But I believe much of the bad news is already priced in, and any glimpse of a solution to the problems in Ukraine would be taken very positively.
Marcus Phayre-Mudge is a fund manager at TR Property
