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How to play the inflation trade in these times

30.06.2022

When prices rise, goods and services suffer in quality. There are signs of skimpflation all around us. Maybe you're seeing longer waits for food delivery, fewer condiment options at the convenience store, and bare-bones customer service at the airport or hotel reception desk.

The COVID 19 pandemic is inching closer to the two-year mark and consumers are noticering that service just hasn't been the same at the local restaurant, the airport or hotels. Businesses across the country are facing inflationary pressures that are showing up in the details. The breakfast buffets have turned into grab-and- go cereal and coffee, and travellers are beginning to notice that hotels are no longer providing daily housekeeping services. Companies are choosing to skimp on goods and services instead of raising prices, creating a different type of inflation.

Our team of experts discussed how to inflation-proof your portfolio during these challenging times. The 45-minute conversation is hosted by TheStreet's Susan McGinnis. You can watch the full webinar below or watch the excerpt above.

How do I play the Inflation Trade?

David Schassler, Portfolio Manager of the Inflation Allocation Exchange Traded Fund, RAAX, at VanEck, is concerned about the stagflationary scenario.

00: 38: 15 Corporate earnings are under pressure. The wage inflation pressures the margins. The employees are demanding higher wages because of the fact that they are taking the reins. Schassler says he is looking for companies that benefit from higher inflation.

Some businesses are adding surcharges to their bills that might cause you to miss it if you are not looking. The surcharges can be charged in the form of a COVID- 19 fee, Coronavirus fee, PPE fee, Sanitation Fee, or Cleaning Fee. Skimpflation is a measure that isn't being captured in government data despite its seemingly transitory nature, due to the national labor shortage and supply chain disruptions. Will there be a breaking point for consumers and businesses as the quality of service declines?

In the 1970s stagflation saw bonds and stocks decline in tandem. While the current monetary and fiscal policy environment is different, the current investment landscape is not one for investors to be complacent without reassessing and diversifying assets.

Nancy Davis, founder and chief investment officer at Quadratic Capital Management, is concerned about the potential for a stagflationary environment and its effects on a traditional 60 -- 40 portfolio.

The room hasn't been talked about as a big bugaboo. Earnings will be negatively impacted by wage pressure and wage hikes, so can companies raise prices just enough to offset wage hikes or will shareholders bear the brunt of lower earnings.