The threat of deflation has been much touted in the press in recent weeks. Many commentators are concerned about the potential for a deflationary spiral leading to a period of depression, as consumers put off purchases in the hope that prices will fall further.
It may come as some surprise, therefore, that the Bank of England"s own pension fund has been realigned in order to hedge against the risk of inflation, not deflation.
According to the recently published annual Bank of England Pension Report, the Bank"s fund managers have spent the past year amassing Index Linked Gilts. These are linked to RPI, a measure of inflation. As RPI goes up, so does the value of the Bank"s own pension pot.
Given that the Bank of England pension fund is, presumably, run by a group of people with significant insight into market movements, some commentators are suggesting that this should be seen as a foreshadowing of things to come.
