Inflation is getting a bad rap as it runs rampant around the world. There is no denying that incredibly high inflation for extended periods of time is far from desirable. This leads to the importance of widening our gaze and analysing inflation over a longer time period. I see this as imperative as many people are making long-term decisions on short-term information. While we don’t know what lies ahead, we can view trends of the past and start to build out a potential future. 

The following chart shows the annual inflation rates from 1960 to now: 

Source: https://www.macrotrends.net/countries/AUS/australia/inflation-rate-cpi 

Here we can see the period of significant inflation through the mid to late 70’s, which caused record high interest rates. We can also see that for the past couple of decades it has, for the most part, sat within an ideal band of around 2% to 3%. In fact, from 2015 to 2020 inflation was actually below the target band and didn’t exceed 2% throughout that period.  

The main takeaway from the chart is that periods of high inflation don’t last forever. We are seeing high-quality businesses and companies around the world being sold off at incredibly low prices due to investor sentiment dropping, while some of these companies are in fact growing and meeting their expected earnings figures. Owning companies and growth assets is all about long-term reward, so there will no doubt be a myriad of opportunities ahead to buy into different markets at very attractive prices – as long as you have the time to ride out the coming years of volatility.  

The hard part is also the reason why the volatility exists – the inflationary pressures we are experiencing are not straight forward. Whether it be the War in Ukraine, global supply chain issues or the price of fuel, it is hard to know exactly what is driving inflation proportionately, and how long each impact will remain in play.  

There has never been a more important time to develop a deliberate investment strategy that ensures your investments are taking advantage of market movements, because there is sure to be many of them!