Like me, many readers were probably still at school when inflation last rampaged across the land to devastating effect, undermining the value of both wages and savings as the cost of basic foodstuffs such as milk and bread soared.

Between December 1971 and summer 1974, the annual rate of inflation rose from 6pc to more than 25pc, spawning institutions like the Pay Board, which would later establish the Price Commission under the Counter-Inflation Act of 1973 (yes, seriously).

A couple of years earlier, the 1971 Industrial Relations Act was introduced in a forlorn attempt to curtail the power wielded by trade unions. Yet it remained a period of serious industrial unrest, a backdrop against which Sheikh Yamani emerged, the smiling face of OPEC. Oil prices rose more than 300pc in 1973 alone, which almost brought the West to its knees.

Nowadays, it’s difficult for us to imagine prices rising at more than 2pc a month because we’ve grown used to years of negligible inflation and equally low interest rates. While the latter has clobbered savers, the absence of any serious inflation means our savings have remained broadly intact, safe from inflation’s notoriously corrosive effects.

According to the International Monetary Fund (IMF), the possible inflationary impact of pandemic-inspired stimulus measures enacted by governments around the world will, for the time being at least, remain benign. The IMF sees “no obvious pattern of an upward move in inflation in the next year”.

Norwich Evening News: Between December 1971 and summer 1974, the annual rate of inflation rose from 6pc to more than 25pc, affecting everyday items such as milk and breadBetween December 1971 and summer 1974, the annual rate of inflation rose from 6pc to more than 25pc, affecting everyday items such as milk and bread (Image: Getty Images)

Not everyone thinks along similar lines.

In The Great Demographic Reversal, published earlier this week, Charles Goodhart and Manoj Pradhan argue that the principal factors which have kept inflation largely at bay for more than three decades are undergoing a natural reversal which will eventually result in inflation’s corrosive scarring having a significant impact upon savings and investment portfolios.

Shifting demographics are at the heart of their argument. Between 1991 and 2018, the effective labour supply in the world’s most advanced economies more than doubled, prolonging a period of sustained deflation.

Leading the way was China, which encouraged a huge population shift, almost exclusively of younger workers, from agrarian-based roles to plentiful jobs in the country’s rapidly expanding cities. Following Deng Xiaoping’s embracement of “Socialism with Chinese characteristics” in 1992, more than 370 million people moved to China’s burgeoning urban areas over the following quarter-century, boosting unparalleled domestic growth and acting as a significant deflationary influence upon the rest of the world.

A few years prior to China’s emergence as the world’s main driver of economic growth, the Berlin Wall fell in November 1989. This eventually resulted in an equally dramatic deflationary impact as Eastern Europe, home to more than 200 million people of working age, was reintegrated into the world’s trading system.

These two important factors were preceded by two additional and similarly deflationary elements: the absorption of Western ‘baby boomers’ into the workforce from around 1970 onwards and a simultaneous (and significant) increase in the number of women going to work. By 2010, many millions of people had begun to retire, effectively reversing a thirty-year deflationary impact.

According to Goodhart and Pradhan, from now on an ageing global population can be expected to contribute to a noticeable rise in inflation and interest rates, generating a slew of problems for an over-indebted world economy.

A future problem for world leaders? Not so, say the authors – who liken the (hopefully) forthcoming end of lockdown as akin to the end of a war. “As in the aftermath of many wars,” they write, “[there] will be a surge in inflation, quite likely more than 5pc or even in the order of 10pc in 2021.”

In place of a new Counter-Inflation Act, the government would be better advised to promote and support economic growth. However, this is easier said than done as the globe’s ageing population, once the central pillar of deflation and low interest rates, grows older. Investors must, therefore, consider the impact inflation could have upon their portfolios.

Granted, there are traditional inflationary hedges including gold, commodities, real estate, plus shares in consumer goods and utility companies, but are they all suitable?

The clever thing for investors to do as inflation creeps higher is to establish where not to invest, perhaps by talking with a finance professional – a conversation that could pay handsome dividends.


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  • £33 million – The golf season’s first major of the year, the Masters, takes place at Augusta, Georgia this week. It promises to be the most lucrative ever for bookies. An estimated £33 million has been staked on the outcome by British-based punters.