Inflation is Not Bad for Shareholders

THE WEEK: Investors may be confused by the contradictory economic data this week, says Rodney Hobson, but the good news is that employment has risen yet again

Rodney Hobson 18 July, 2014 | 11:12AM

No wonder economists can’t agree on anything. Economic data tends to be contradictory, and so it was this week.

First we had inflation figures that, at 1.9%, were higher than expected, although the figure is still, just, below the 2% target. Inflation over the past few years has had a nasty habit of coming out higher than expected but we seemed to have put that behind us when the rate finally dropped below 2%.  Now the phenomenon is back to taunt those who talk about deflation at the least opportunity.

Inflation in itself is not bad for shareholders. On the contrary, it makes sense to stick with an investment that keeps pace with or beats inflation. What is worrying is that inflation continues to squeeze incomes quite severely, which means consumers have less cash to fuel the economy. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC276.95 GBX3.92
Imperial Brands PLC1,467.00 GBX1.24
Severn Trent PLC2,292.00 GBX-2.76

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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