The assets that can stand up to inflation

Inflation is starting to return to Britain and investors need to position their portfolios to ensure it does not eat into their returns. The consumer prices index measure of inflation stood at 1pc in September, before falling back slightly to 0.9pc in October. While this was below the 1.1pc predicted by economists, it is still far above rates we have seen recently.

The effect of the fall in the pound following the EU referendum will continue to be seen in inflation figures, driving the rate up. The Bank of England has predicted that inflation will hit 2.7pc next year.

However, it is less clear how various investments will react.

The table below, from TD Direct Investing, the fund shop, highlights how well different assets have done historically at beating inflation, with some wild variations.

The table looks over the past 20 years, or a shorter period if full data was not available, and details the number of years in which each asset beat inflation.

Returns on cash are usually expected to be hit by inflation.

Many savings accounts pay cripplingly little interest as a result of the historically low Bank Rate in recent years.

This means the real spending power of cash will gradually be eaten away by inflation (see Page 2).

However, the chart shows that in 70pc of the past 20 years, cash has managed to beat inflation. Property

With prices expected to rise by about 3pc a year, some investments could be at risk. By Laura Suter

is the leader, as over the past 20 years it has failed to beat the CPI only four times. This means it has outperformed inflation 80pc of the time.

UK index-linked bonds are another clear winner, which makes sense as the interest rate on these bonds increases in line with inflation.

However, Michelle McGrade of TD Direct warned that the UK index-linked market “has performed strongly of late and may start to look expensive if interest rates rise”.

UK government bonds managed to deliver higher returns than inflation 75pc of the time, although inflation has been low and bonds normally suffer in inflationary times.

Infrastructure and commodities have performed less well, beating inflation only 53pc and 55pc of the time respectively.

However, Ms McGrade said investors should ensure they stuck to the basic principle of having a wellbalanced, diversified portfolio that included some investments that did not cope well with inflation.

The Bank of England has predicted that inflation will hit 2.7pc next year