Recent developments in the global economy, including rising labor costs and a shift away from globalization, suggest that higher inflation volatility could become the norm going forward, analysts say.
Investors can prepare for this by buying inflation-adjusted bonds, increasing their cash holdings and increasing their share of commodities, many of which have risen in price due to supply and demand imbalances.
Indeed, energy costs and fossil fuel prices have risen sharply in 2022 as international sanctions against Russia have destabilized supply chains. Electricity prices have repeatedly hit record highs in several European markets, including the UK, France, Germany and Italy. Electricity prices in Germany have soared this year to the equivalent of $1,000 a barrel of oil, according to Bloomberg. Coal prices also hit new all-time highs.