zombie inflation - down but not dead

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What do we mean by "Zombie Inflation"?
“Zombie” inflation means it is down but not dead.  Inflation is past its peak and settling at or above the 2% target which is now a “floor,” not a “cap”.  Wage growth pressure, trade friction and energy market volatility means that inflation is down but not dead.
Inflation is past the peak but has not gone away
Inflation has moderated from its peaks, but we believe it remains a very real risk. The 2% inflation target increasingly functions as a floor rather than a ceiling. Wage growth, energy volatility and geopolitical tensions could drive renewed inflationary pressures.
Looking at rolling inflation for historic performance hurdles
We look at rolling 5 year inflation (UK CPI) as smoothed measure to set hurdle rates for portfolios for past performance evaluation.  The rolling 5 year data has not peaked yet (see chart) - it will take time for the inflation shock to wash out.
Looking at breakeven inflation rates for expected return hurdles
We look at 5 year breakeven inflation rates (UK BEIR) to set hurdle for target returns for UK investors.  The long-term average for 5 year BEIRs is approximately 3%.  In this respect forward-looking inflation expectations are also down from their peak >4%, but still high at 3.6%.
How can advisers build in inflation resilience to portfolios
To address this risk, portfolios should incorporate inflation-resilient asset classes, such as a tilt to yield within equities, and moderate exposure to liquid real assets, as well as short- to medium-term inflation-linked bonds.
How can advisers find out more about investing in inflationary times?
To find out more see all our Insights on inflation investing
https://www.elstonsolutions.co.uk/insights/category/inflation