That bar of chocolate you bought? It used to weigh 100 grams and now it’s 90 grams, but the price is unchanged. That bag of crisps? It’s several potato slices lighter and has been rebranded. This is shrinkflation, and while it’s not new, it’s back with a vengeance and will be with us for some time, I believe.
One widely reported example was when Toblerone widened the gaps between the ridges of its distinctive chocolate bar and then reversed the decision in the face of consumer complaints. Shrinkflation is a function of inflation and falling margins for consumer goods manufacturers and is an insidious and ongoing process.
My view is that the Federal Reserve (Fed) and Bank of England won’t be able to do much to tame inflation without unsettling financial markets and the vast debt levels in the global economy. Despite the tightrope that policymakers are walking, the market has priced in as many as three interest rate rises for the Fed next year. Such a move would risk putting the brakes on a global economy that is already slowing, and it would raise the cost of financing all that debt. We have seen this before, when the Fed became too hawkish in 2018 and made a policy error, and we feel they may do so again.
Economic and political conditions today highlight to me the importance of owning an asset that holds its purchasing power for goods and services. Governments have been spending and printing vast amounts of cash to support the recovery from the pandemic and the Global Financial Crisis before that. Central bank balance sheets have swelled, with significant implications for the future purchasing power and productivity in the real economy.
Ideal for gold
Gold is sometimes called a hedge against inflation, but it’s really a hedge against this more meaningful term for the public — loss of purchasing power. Gold can help to protect a portfolio against the effects of inflation. I see the current environment as ideal for owning gold due to structural problems with central bank policies as well as ongoing and worsening supply problems. Holding some gold, or an actively managed gold and silver fund, may be beneficial to offset these growing risks.
The gold price typically moves inversely to “real’’ interest rates – or the interest available from a bond/cash after accounting for inflation. Real interest rates in the US have been negative for some time, meaning that many US Treasury bondholders face losses after inflation, and I don’t see that changing anytime soon given the difficulties facing central bankers in balancing rate hikes with rising inflationary pressures.
Gold is original and sound money, and it’s a traditional hedge used by central banks to protect against inflation and risk in markets. The Fed, the European Central Bank and others have large holdings of the yellow metal in their reserves as they understand that gold rather than US Dollars is the true risk-free form of money. The central banks know, and I agree, that gold is a much truer store of value than dollars, pounds, euros — and chocolate.
Read more about outlook 2022
Asia Pacific for income & growth – but be selective
Why 2022 could be a good year for Chinese equities
CoCos remain an oasis in the yield desert
Tightening into a slowdown: central banks risk policy mistake
A post-pandemic world would mark a new era
The value of active minds: independent thinking
Get in touch
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. For definitions please see the glossary at jupiteram.com. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Company examples are for illustrative purposes only and not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK. 28337