While this trend may seem like an unlikely threat to savers, FE Alpha Manager Amit Lodha believes investors need to start thinking about inflation-proofing their portfolios.
"The financial crisis has reshaped the investment landscape and we are currently in uncharted territory," said Lodha, who manages the Fidelity Global Focus and Fidelity Global Real Asset Securities funds.
"We have seen an unprecedented injection of liquidity from central banks."
"While the timing is uncertain, at some stage this is almost certain to translate into higher levels of inflation in the form of both asset price inflation and a rise in consumer goods/services prices." "In my opinion it is a question of when, not if."
With this in mind, Lodha and investment director at Fidelity Tom Stevenson (pictured), highlight five strategies investors can employ to combat the destructive impact of inflation – before it is too late:
Move into equities
On a very simple level, Stevenson says investing in equities is a good way to protect against inflation, but adds the asset class may still struggle when rising prices get out of control.
"In a modestly inflationary environment, equities are a good hedge against rising prices," he said.
"This is because shares represent a real claim on a company's assets and its cash-flows, which can rise in line with prices if a company has any pricing power."
"Inflation rising to about 4 per cent from a low base is often associated with rising equity valuations because it usually means that the economy is recovering."
"Inflation rising much above this level, however, can result in valuations falling back again because it can be associated with rising interest rates."
"Rising longevity means retirees should consider a higher equity weighting than was considered appropriate when people did not live so long," he added.
Stevenson says dividend-paying equities are particularly effective in an inflationary environment.
"The compounded growth of reinvested dividends can maintain the real value of your investments," he said.
"Reinvested income provides the lion’s share of total returns over the long-run."
Performance of index over 20yrs
Source: FE Analytics
FE data shows that the FTSE All Share has risen 140.14 per cent in price terms over a 20-year period. With dividends reinvested, the index has made 372.8 per cent.
Gain exposure to real assets
Lodha says it makes sense for investors to have at least part of their portfolio in inflation-resistant assets, which are not as easily replicated as money.
"While it would be impractical for most of us to buy an airport or a gold mine, it is possible to invest in stocks backed by real assets whose value is less likely to be eroded by inflation," he explained.
As well as Lodha’s Fidelity Global Real Asset Securities fund, portfolios with a focus on infrastructure also offer a good way of getting access to real assets via equities.
First State Global Listed Infrastructure and the 3i Infrastructure IT are both viable options available to UK investors.
Invest in gold
"Gold can offer a protection against inflation but, offering no income, it is less of an investment than a speculation or insurance policy," explained Stevenson.
The gold spot price has never been below inflation over a 15-year period. It has returned more than 550 per cent, compared with 34.34 per cent from the consumer price index (CPI).
Performance of index over 15yrs
Source: FE Analytics
Investors can directly access gold via an ETF, such as ETFS Physical Gold.
Alternatively, they can get exposure to the previous metal via a commodities fund, such as BlackRock Gold & General or JPM Natural Resources, which both hold bullion in their portfolios.
Invest in assets that are scarce
Stevenson thinks there is scope for more adventurous investors to hold rare, physical assets, but adds this strategy is only applicable to high net-worth individuals.
"Always buy the best, scarcest assets you can – especially things that they can't make any more," he said.
"Land, prime property in world-class cities, wine and classic cars can all do well in inflationary environments, but the latter two are also prone to horrendous busts as well as booms. Take great care with these."
Stevenson finished: "People tend to underestimate the destructive power of inflation. But remember that an inflation rate of 7 per cent will halve the value of your income in just 10 years and reduce it by three quarters in 20 years."
"This is potentially catastrophic in an environment in which many pensioners are locked in to extremely low annuity rates."