Inflation is not something that policy makers notice these days, even though it is quietly cantering along, growing and consistently beating the predictions month on month. The lack of policy attention, coupled with the genie in a bottle nature of inflation can mean that there may be some good profits on spread bets and contracts for difference.
It’s easy to understand why. After all the people who are running the country are petrified of long unemployment lines and not so worried about inflation, which no one is really complaining about yet. Quantitative Easing (QE) is likely to continue this by expanding the money supply, something with obvious inflationary implications.
Firstly there’s the long side. Inflation favours commodities. For example the sugar market is looking very active at the moment, but there are a range of markets where there will be continued demand, limited supply and an increasing supply of money. Wheat and cotton are starting to make a few headlines, for example, but there are a whole range of agricultural, or soft, commodities which are going to see the increase in money supply.
Another area is precious metal. While gold gets all the attention, it tends to have an end to the world quality about it as many of the investors are buying it to hedge against the collapse of civilization, or something. However other metals are purer inflation plays, such as silver or platinum.
Then there is the short side. Government bonds have done very well in the last couple of years due to a flight for safety. However government bonds mostly pay on a fixed basis, so inflation is likely to undercut government debt even in safe countries such as the US, Germany and the UK. At some time investors will work this out.