Three things you must do today to beat inflation

Troubled households have been hit by price increases not seen in 40 years, it was revealed today after the consumer price index rose 9 percent in the 12 months to April.

To combat rising inflation, the central bank raised interest rates from 0.75 percent to 1 percent earlier this month. That probably won’t be enough to bring prices down, however, and a number of other price increases are widely expected this year.

Telegraph Money answers all your questions here.

1) Change where you invest

Bondholders could suffer the most. Investors sell bonds — which pay a fixed yield, or “coupon,” — when inflation rises, as it eats away at the real value of that income. Higher inflation also increases the likelihood that the Bank of England will raise interest rates as it has, which would be bad news for bonds as it reduces the relative value of their payments to new debt issued.

Investors should protect themselves by buying index-linked bonds, where the interest paid increases with inflation.

Moderate inflation isn’t necessarily bad for stocks, as some companies can pass the cost onto consumers to offset rising input costs. Those with strong pricing power like utilities or big consumer brands should be able to continue doing business as usual.

Oil and mining companies will also do well as rising commodity prices are good for their bottom line. Utilities often pay inflation-linked dividends.

However, inflation could be bad for retailers like supermarkets who may not be able to raise prices.

Infrastructure and real estate mutual funds often have contracts linked to inflation, so their earnings and dividends would increase with inflation. Gold could also increase in value. Supply is relatively tight, so more money circulating in the economy should increase people’s willingness to pay. Three things you must do today to beat inflation

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