Inflation: How to Trade It and What to Avoid
By Kathleen Brooks, Research Director UK
Date: 7 April 2026
Key Takeaways
- Gold disappoints after a strong run.
- BP catches up with peers as oil price surges.
- Dividend ‘Aristocrats’ in focus.
- Pepsi goes flat.
Current Market Overview
Inflation is on the rise, with oil prices remaining elevated due to geopolitical tensions in the Middle East. Recent PMI data indicates a slowdown in growth, with businesses facing increased cost pressures globally.
In the UK, service sector activity has slowed significantly, with the S&P Global PMI survey indicating a rise in cost burdens for companies. The inflation index reached its highest level since February 2023, coinciding with a time when UK CPI was above 10%.
Similarly, in the US, the manufacturing ISM's prices paid index has risen to levels not seen since the inflation peak in 2022. In Europe, all sectors measured by the PMI reported price increases, exacerbated by Brent crude oil prices exceeding $100 per barrel.
Investment Strategies in High Inflation
Investors need to adapt their portfolios to the changing economic landscape, as inflation erodes the purchasing power of returns. Commodities are traditionally seen as inflation hedges, but recent performance has varied.
Despite a significant rise in oil prices, gold has underperformed, declining nearly 10% since the onset of the Middle East conflict. This highlights the need for investors to critically assess traditional inflation hedges and monitor market conditions closely.
Sector Performance
BP and Oil Majors
BP has seen a resurgence, with its share price increasing by 21% in the past month, benefiting from the rising oil prices. Its market capitalization has grown significantly, although it still lags behind Shell. BP's pricing power during this period makes it an attractive option for investors.
Dividend Aristocrats
Dividend-paying stocks are appealing in times of economic uncertainty. Companies that maintain dividends during geopolitical stress demonstrate financial strength. Notable US dividend aristocrats include Target and T Rowe Price Group, while in the UK, Legal & General and HSBC are among the top payers.
PepsiCo's Struggles
Contrary to expectations, PepsiCo has faced challenges, with its share price falling 2% recently. The company is reviewing prices to boost sales after a slump, particularly in its snacks division. This situation illustrates that not all consumer staples are immune to inflationary pressures.
Conclusion
Investors must remain vigilant during periods of high inflation, as there is no guaranteed strategy to protect portfolios. Continuous scrutiny of market conditions and asset performance is essential to navigate the economic landscape effectively.