How To Combat Inflation In 2026?

• Inflation has eroded purchasing power by over 20% in the past four years, though portfolio returns have kept pace with rising prices
• Secular factors turning inflationary include slowing globalization, shifting demographics, increased fiscal spending with weakened deficit concerns, and AI infrastructure buildout driving up processor and memory costs
• Recommended inflation hedges include dividend-paying equities (with dividend growth historically outpacing inflation) and real asset exposure such as the TSX index

Market Summary: Inflation Outlook for 2026

Key Findings

Global inflation continued cooling in 2025, with World Economy Weighted Inflation declining from 4.4% to 3.3%. The article, authored by Craig Basinger, Chief Market Strategist at Purpose Investments, assesses inflation risks heading into 2026.

Current Environment

Supply chain pressures remain low, wage growth has moderated, and oil prices around $50/barrel provide deflationary support. While global money growth is increasing slightly, velocity is falling, indicating conditions for a 2021/22-style inflation spike are absent. The optimal range for equities is 2-4% inflation, where companies maintain pricing power and strong top-line growth.

Regional Risks

The United States faces elevated inflation risk due to aggressive fiscal spending, potential erosion of central bank independence, and a positive output gap (economy running "too hot"). Inflationary pressures from fiscal spending, immigration policy, tariffs, and a weaker dollar compound these concerns. Conversely, Germany, Japan, France, and Canada have negative output gaps, providing inflation buffers.

Long-Term Structural Factors

Five-year inflation outlook suggests higher and more volatile inflation compared to the 2010s, driven by:

• Globalization slowdown (now inflationary)
• Labor/demographics shifts and immigration restrictions
• Policy changes emphasizing fiscal spending over deficit concerns
• AI infrastructure spending proving inflationary near-term despite potential long-term productivity gains

Total purchasing power has eroded over 20% in four years.

Investment Implications

Recommended inflation hedges include dividend-paying equities (dividend growth historically outpaces inflation) and real assets, particularly TSX exposure given its real asset concentration, though near-term valuations appear stretched following 2025's strong performance.