Inflation set to return, cash at risk

Inflation is coming back. Despite recent rate cuts from major central banks to combat multi-decade highs, inflationary forces are set to build momentum again, driven by political and economic shifts.

This is the warning from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organisations, as he considers Donald Trump’s return to the US presidency, Labour’s power shift in the UK, and ongoing tensions in the Middle East keeping oil prices high.

“Inflation isn’t a hypothetical threat; it’s an imminent reality,” he warns. “The erosion of cash’s purchasing power is a near certainty in this environment. Those with unprotected cash holdings are set to lose real value, and investors need to take action now to defend their wealth.”

Trump’s return to power in the US signals a likely surge in inflationary pressure.

“His economic agenda includes substantial spending on infrastructure and other projects, which could inject considerable capital into the economy, driving up demand and, in turn, prices. Additionally, Trump’s focus on ‘America First’ policies is likely to lead to the reintroduction or escalation of tariffs on imports, particularly from China from Day One, which has a direct inflationary impact by raising the prices of imported goods for US consumers,” notes the deVere CEO.

In the UK, Labour’s victory brings with it a mandate for increased public spending, especially in sectors like housing, green energy, and public services.

Nigel Green continues: “While this could stimulate growth, it also poses a risk of further inflation, especially if wages rise and spending increases without corresponding productivity gains. The Bank of England, which has already seen signs of inflation creeping back in the housing and services sectors, may need to reconsider its strategy if inflationary pressures rise further.”

Meanwhile, global energy markets are on edge.

“With Middle Eastern wars and geopolitical tensions potentially affecting supply chains. Should this scenario play out, it would send ripples across economies worldwide, raising transportation, manufacturing, and utility costs, and driving up prices for consumers.”

The combination of these inflationary factors paints a stark picture for those holding cash. Cash, while often perceived as safe, offers no protection against inflation, which gradually erodes its real value.

“For investors who maintain large cash reserves, the rising cost of goods and services will lead to a steady decline in purchasing power, effectively reducing their wealth in real terms,” explains Nigel Green.

“Cash is not the safe haven people often believe it to be in an inflationary environment. In this landscape, holding cash is like holding sand that slips through your fingers. Without investing in inflation-resistant assets, cash is a certain way to lose value.”

To counteract inflation’s corrosive effects, deVere Group is advising clients to pivot into assets that have a track record of performing well in inflationary periods.

Equities, particularly in sectors such as energy, infrastructure, and green tech, are poised to benefit from Trump’s and Labour’s spending agendas.

For example, infrastructure and energy companies are likely to see increased demand in the US, while renewable energy projects and green tech could experience growth in the UK under Labour’s policy shifts.

Inflation-linked bonds, real estate, and commodities are also valuable assets for countering inflation. He says: “Investors who pivot towards these asset classes can not only protect but also potentially grow their wealth.”

The deVere CEO says: “Sitting on cash in an inflationary environment is a losing game. Now is the time to embrace assets that offer a hedge against rising prices. Investors who wait to respond to inflationary signals risk being left behind.”

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