Investors are pouring money into mutual funds and exchange traded funds that hold inflation-protected bonds and commodities as protection against inflation.
The worry is that the massive fiscal and monetary stimulus implemented to fight the recession won’t be withdrawn quickly enough to avoid a jump in inflation.
In November alone, investors allocated $3.9 billion to commodity-related mutual funds and ETFs and $2 billion to mutual funds holding inflation-protected bonds, according to research firm Morningstar.
Even stock funds are seeking hedges against inflation, putting money into basic materials companies and companies that can raise prices.
"I'm very skeptical that the Fed is going to be able to sop up the liquidity in a timely period," John Longo, chairman of the investment committee at money manager MDE Group, told The Wall Street Journal.
With consumer prices actually down 0.2 percent in the year through November, inflation isn’t a worry now.
"Investors have a year or two to build a bomb shelter against inflation," Milton Stern, a principal at investment adviser Bridgewater Advisors, tells The Journal. But that doesn’t mean you should wait.
"Nobody is going to ring a bell and say now's the time to get inflation protection," he said.
The 1.8 percent rise in producer prices for November has many worried about inflation. “Given the move up in gold and commodities and the drop in the dollar in recent months, we remain concerned about the longer-run outlook for inflation," RDQ Economics wrote its clients.
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