Solving the problem of inflation measures

With fears about future inflation still plaguing investors, inflation-linked products may seem like a sensible way of hedging against the rising cost of living. But the effect of substitution, interest rate rises and timing mean that returns on these investments might not necessarily reflect what the consumer is seeing at the checkout. Clare Dickinson reports

Measuring inflation is not an exact science

Inflation has dominated the news in the US and UK on and off over the past few months and investors are looking to use inflation-linked investments to hedge themselves against a rise in their cost of living. Figures from Barclays in March indicate that global issuance of inflation-linked government bonds will reach $2 trillion this year. But investments linked to inflation may not be as simple as most people think, as various factors mean that indexes and products do not reflect inflation as