Briefing Note
What does heightened inflation mean for the LGPS?
04 May 2023
Overview
Cast your mind back to the 1980s – the decade that brought the first personal computer, Chicken McNuggets and Channel Four. It’s also the last time that UK inflation exceeded 10%.
For years, it looked like Western policymakers had inflation in check. Since 1997, the Bank of England has operated independently of the Treasury, with responsibility for keeping inflation low and stable. Although inflation has breached the Bank’s 2% target on several occasions, it never reached double digits. That changed in October 2022, when UK CPI hit the heady heights of 11%.
Key messages in this briefing note include:
- Sustained, high inflation is a challenge for the LGPS. There have been some major changes in global economics that may keep inflation higher for longer.
- In order for LGPS investment strategies to earn a rate of return above inflation over the long term in today’s market, some creativity is required.
- There are opportunities to gain greater protection, whilst maintaining returns, by investing in the underlying drivers of longer-term inflation.
If you have any questions on anything covered, please get in touch.
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