Steady-on, says the economist

Is it time to reallocate assets due to high inflation?
No. It is still too volatile and short term to recommend a reallocation of assets by investors. We need to wait to see what happens over the next few months before we do so. The confidence that oil prices will fall looks shaky and it is still unclear what will happen in the future in oil.

The equity market falls in the short run due to inflation, should investors buy more when this happens, in anticipation of a rise in the longer run?
It is true that cost-push inflation increases input prices for industry that they are unable to pass on to the consumers in the short run. This affects margins and profitability and squeezes the share price. Over time the industry is either able to cut cost or raise product price and come back to the desired margin and profitability, raising share prices. But we are in a volatile situation with inflation and it is unclear how it would affect the other variables that go into stock price determination. It would be unwise to link share prices to only to the impact of inflation at this point.

Is this inflation good for borrowers?
Yes, as the real value of the amount owed goes down, it is good. But it is good only for those with fixed rates of interest, those with variable rates will see a hike in their EMIs if the banks increase the rates.

So what should investors do?
Wait for inflation rates to stabilise. If inflation becomes permanent you may need to get out of weak inflation hedges at that point. Right now, I don8217;t think you need to reallocate your resources.