Inflation, gilt yields and economic policy

MACROECONOMIC FOCUS

With the rise in inflation hitting developed nations, there could be long-term repercussions for the economy, says Paul Kaplan, quantitative research director at Morningstar Europe

In the last half of the 20th Century the developed nations experienced a new economic phenomenon: a long-term, steady rise in the general level of prices, known simply as inflation. According to data from the IMF, the general price level in the UK has risen 19-fold since 1956. Inflation has many consequences for the economy in general, and for capital markets in particular, and especially for fixed income markets. For example, an investor who bought and held a 10-year gilt in June 1972 until maturity would have found that at maturity, the face value of the gilt could only buy one-fourth ...