inflation and index linking

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  • Tue, Apr 13, 2010 - 04:39pm



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    inflation and index linking

Chris makes a strong point that it is not possible to survive the ravages of inflation without investing in risky/speculative assets. But if preservation of the purchasing power of your capital is all that is required then is this not what index-linked gilts and savings products are designed to achieve and have achieved since they were introduced? Certainly here in the UK when I’ve done a rough calculation of historical index-linked returns over 40 years then purchasing power seems to have been at least maintained.

Note – I realise there are arguments concerning the accuracy of inflation numbers and the fact they do not take into account asset prices – e.g. stocks and property. But this seems entirely reasonable given that such assets are either influenced by speculation and/or are linked to economic growth as well as inflation.

If you want to track and share in the economic growth of an economy then you are looking at more than preservation of purchasing power and need instead to consider assets. But that’s a different argument than keeping up with inflation alone.

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