Inflation is coming back: what should you buy?

GBP/JPY

Key zone: 215.00 - 216.00

Buy: 216.50 (on strong positive fundamentals); target 218.00-218.50; StopLoss 215.80

Sell: 214.50 (on a decisive break of 215.00) ; target 213.00; StopLoss 215.20

Oil is above $90, and Treasury yields are rising. The inflation scenario in 2026 has turned out to be tougher than initially expected. The IMF raised its global inflation forecast to 4.7%, with the Fund itself attributing the revision primarily to the energy shock. At the same time, the war in the Middle East is preventing oil prices from returning to normal levels. On August 19, Brent is trading at around $91.56, while only a handful of vessels are passing through the Strait of Hormuz each day.

For investors, the problem is no longer simply that CPI may come in above forecasts. There is a more serious threat: the inflation shock is simultaneously hitting demand and economic growth. This is classic ground for stagflation.

A reminder:

In the U.S., July CPI came in at 3.4% year over year, while core inflation was 2.5%. At the same time, the energy factor remains dangerous: oil prices are rising again, while the bond market is already pricing in elevated inflation and fiscal risks. The 10-year Treasury yield recently climbed to around 4.75%.

That is why it makes little sense now to search for a single “magic” inflation asset. What is needed is a portfolio capable of surviving both persistent inflation and another acceleration.

Short-Term Bonds Instead of Long-Term Debt

When inflation expectations rise, long-term bond yields increase and their prices fall. That is precisely why it makes more sense now to keep the conservative portion of a portfolio in Treasury bills, money market funds, and short-term government bonds. This is not a bet on huge returns. It is a place to park capital with lower interest-rate risk.

TIPS as an inflation hedge

For the dollar-denominated portion of a portfolio, TIPS make much more sense than conventional fixed-rate bonds if an investor is concerned that actual inflation will exceed expectations. Their principal is adjusted for inflation, so the instrument is directly linked to increases in consumer prices. But TIPS should not be considered risk-free assets. If real yields rise sharply, the market price of previously issued securities may decline.

Gold — don’t chase the price

Gold remains a natural component of a defensive portfolio, but buying it after a vertical move is a bad idea. Gold pays no coupon and generates no cash flow. Its role in this type of portfolio is different: to insure against currency, inflation, and geopolitical risks. So the position should be built gradually during technical corrections. Do not try to catch the absolute bottom, and certainly do not commit all your capital after a strong price surge.

Stocks: buy pricing power, not “protection”

Inflation by itself does not make stocks defensive. The key question is whether a company can pass rising costs on to its customers.

Priority should be given to companies with:

• high gross and operating margins;
• low debt levels;
• stable cash flow;
• essential goods;
• a strong brand;
• a virtually irreplaceable product;
• a proven ability to raise prices without causing demand to collapse.

Companies whose valuations depend on earnings 5–10 years into the future, however, require extra caution. The more sensitive a business is to the cost of capital, the more painful rising yields will be.

So, what does this mean?

The main risk is not inflation itself. The main risk is a poorly constructed portfolio.

Do not use inflation as an excuse to buy everything related to commodities. The IMF expects global inflation of 4.7% in 2026, but at the same time forecasts global economic growth of 3%. This is an unpleasant inflationary scenario, but it is not yet an economic catastrophe.

The rational portfolio structure now looks tougher and simpler: short-term Treasuries for liquidity; TIPS to protect purchasing power; gold for insurance; high-quality companies for capital growth; and energy as a tactical bet on the continuation of the commodity shock.

So the winner now is not the investor who correctly guesses CPI. It is the one whose portfolio can survive both scenarios.

So we act wisely and avoid unnecessary risks.

Profits to y’all!