Where to Hide to Escape Inflation

For mutual fund investors looking to avoid the concerns of inflation, we continue our inflation watch to see which countries offer safe havens and which do not.

Ben Bernanke recently suggested that he was not that concerned about the possibility of 1970s style inflation in the U.S. economy, as he did not see the same wage inflation at present. Given the soft labor market we have now, he seems to have a point.

However, the rise in consumer prices, fueled first by excess global liquidity and now by the Federal Reserve further tinkering with interest rates, is starting to generate its own head of steam. It's likely to accelerate if interest rates are not raised soon and liquidity growth curtailed.

A country-by-country look shows some alarming growth rates and high absolute numbers for the rise in year-over-year consumer prices.

There are only a handful of countries that have escaped inflation: The United Kingdom, Canada and Japan, which has finally recorded any form of inflation after nearly two decades of deflation. The U.K. and Canada are actually experiencing falling prices.

	Consumer Prices June 2008 YOY%	Consumer Prices June 2007 YOY%	Percentage Change
U.K.	3.00%	3.30%	-9%
Canada	1.70%	2.20%	-23%
Japan	0.80%	0.00%	N/A

Below is a list of the countries that have experienced a marked increase.

As a general rule, an inflation rate of 3% is high for an industrialized country and usually represents the upper boundary that policymakers will tolerate. Target rates of 2% to 3 % are what we hear from public officials here in the U.S., so the current scenario is clearly outside that bandwidth.

If you have funds exposed to these countries -- especially the ones with higher absolute numbers -- you may want to start looking for investment options linked to Canada and the U.K., or even Japan, if avoiding inflation is your objective.

	Consumer Prices June 2008 YOY%	Consumer Prices June 2007 YOY%	Percentage Change
Taiwan	3.70%	0.00%	N/A
Singapore	7.50%	0.60%	1150%
Hong Kong	5.40%	1.30%	315%
France	3.30%	1.10%	200%
Kuwait	9.50%	3.30%	188%
Italy	3.60%	1.50%	140%
China	7.70%	3.40%	126%
S.Korea	4.90%	2.30%	113%
Spain	4.60%	2.30%	100%
Malaysia	3.00%	1.50%	100%
Russia	15.10%	7.60%	99%
Australia	4.20%	2.40%	75%
Brazil	5.60%	3.20%	75%
Indonesia	10.40%	6.00%	73%
Germany	3.10%	1.90%	63%
South Africa	11.10%	7.00%	59%
U.S.	3.90%	2.60%	50%
Mexico	5.00%	4.00%	25%
India	7.90%	6.70%	18%