I have no doubt that as we keep pushing more and more money into the system to keep the ship afloat that it may prove to be inflationary, but how much and when? We already saw the hawks point towards rising oil and gold prices as evidence but then those commodities have come back from their highs – perhaps there is a degree of speculation at play, or the fundamentals changed as prices rose, it is easy to suppose, difficult to factually nail down.

The idea that inflation is always and everywhere a monetary phenomena is a famous Milton Friedman quote, but there is a difference at play now versus the way things worked in the past in terms of how the timing might work.

When money was ‘real’ (backed by precious metals), debasement had a very immediate effect, and once it became apparent people would take money out of circulation and have it re-minted elsewhere; that is why ‘sterling silver’ has that name, because British sterling was considered to be of a high quality, the silver coin lent it’s name to silver quality in general.

The other thing that was common historically is a constrained supply, in a globalized world we don’t have the same supply constraint as existed in the past, with limited examples we can ramp up production of almost anything at any given time, there is also a large latent supply of labour so it isn’t easy to see where a quick wave of inflation would come from – suffice to say when it does we’ll probably all get a surprise.

I was hawkish on inflation far too early, making it a bad call, and now I remain to be convinced – which means I’m probably wrong again! For that reason thinking that you are at a particular ‘inflation risk‘ as some advisors are warning is perhaps not fully accurate.

It may well be a case that you can do better than deposit in risk assets, but then you are trading out of a potential inflation risk for a factually higher asset risk. With KBC still paying over 4% on one year money there is a compelling reason to sit tight for now.

Our friends at Goldcore (and we are admirers of theirs) point towards a Rabo-Direct rate of 2.15% which after DIRT yields 1.5%  and in turn if inflation is 1.7% it turns negative. That is true, but it depends on what is going up in price, and it is also using one of the worst returns on the market as a benchmark.

Diversification is key, it always was, but of itself we would need to see a more compelling argument to leave a safe 4%.