Let’s be clear. High inflation is here to stay for the rest of the year, at the very least. Forecasts have pointed in that direction already. But I reckon that uncomfortable rises in prices could continue even beyond this time. And one reason for this is ‘greenflation’.
The problem of ‘greenflation’
This phenomenon is essentially the cost of turning towards clean energy sources in the way it is happening at present. On the supply side, concerns about climate change have led to underinvestment in fossil fuels and metal. This in turn has increased their prices. But demand is on the rise too. Not only is it post-lockdown demand, but green technologies themselves that are pushing up demand for industrial metals too.
At some point, I imagine balance will be struck. It could, however, take a while. As an investor, I then need to plan for a potentially prolonged period of high inflation to ensure both capital gains and a passive income.
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Commodity stocks are an inflation hedge
First, I think FTSE 100 commodity stocks look quite attractive right now. Oil producers as well as metal miners belong to this category. Interestingly enough, even though their numbers have been quite good in the recent past, their share prices remain relatively moderate, indicating the potential for a rise in the near future. Typically they pay good dividends as well. And they have a natural hedge against inflation, because their end products’ prices are quite likely rising faster than cost pressures. Though, inevitably, prolonged inflation will impact their demand too.
The ongoing house price boom
Next, I also like real estate stocks. The continued house price boom has driven up their forecasts, which in turn mean that their share prices could rise too. I know this sounds counter-intuitive at a time when inflation is eating into consumer spending. And house prices might just relax over the rest of the year. At the same time, there is no indication so far that a crash is coming. In any case, I think these are financially healthy stocks that can reap capital gains over the long term.
FTSE 100 defensives are good to hold in a slowdown
I like to buy defensive stocks at this time. Inflation is so problematic right now that it could result in a very real economic slowdown if not an outright recession. My best hedge against this possibility is FTSE 100 stocks in sectors like healthcare. These stocks do not just provide a relatively safe crash landing in the event of a stock market plunge, their demand falls to a relatively limited degree during slowdowns. And some of these make for good growth stocks as well, even if they almost never offer spectacular growth.
Clean energy stocks are good long-term buys
Lastly, the no-brainer stocks for me to buy are those with at least a toe dipped into the clean energy waters. This has some overlap with metal miners, but also includes utilities and engineering and technology related companies. Their costs might be on the rise right now, but they can come out ahead over the long term.
