Investors need not be too concerned about the prospect of fast-rising inflation as the current Consumer Price Index (CPI) measure may have been temporarily distorted by recent events, according to Richard Gwilliam, an analyst with the property research team at PRUPIM.

Gwilliam told Pensions Age that there is always a potential for analysts and pension schemes to be "too heavily influenced by the past on the way forward".

"The figures that just came out recently of 3.7 per cent CPI are quite above the target of three per cent, so it has been high in the past 12 months, but won't necessarily be so for the next 12 months," he said.

"There are also some issues on why we have quite a high figure; such as the reversion of VAT back to 17.5 per cent. Remember, when it went down originally, we were down to very low inflation. If we compare ourselves to 1980s and 70s when we were in a high inflation world wages and salaries were rising as well as prices. The very fact that we had so many salaries linked to inflation itself was a major factor."

Now however, he explained, salary negotiations are dominated by free market decisions, making them more stagnant. In addition, the economy has suffered from job losses, freezes and cuts.

"Looking forward, the economic recovery is coming at a sluggish pace, following our disastrous recession. Not many people out there expecting a huge bounce back in job growth. The outlook on increases to salary not that good so sustained inflation is not really possible," he added.

Nevertheless, should inflation should continue to rise then pension funds could do a lot worse than hedge against it with further property investment, he argued.

Property, he pointed out, has a lease-structure which incorporates upward-only rent reviews, giving an investor a "natural floor" to rely on.

"With UK property," Gwilliam said, "we have a region of 85-90 per cent of buildings that have an upward five-year rent review. On top of that, a proportion have a rental uplift built into them. So in the contract every single year, you're seeing fixed uplift every year of 2.5 per cent.

"So however you look at it, property offers a natural hedge against inflation and in terms of value, is better than gold. Gold offers price rises, but you have no income from that investment. You get six to seven per cent income return every year from property."

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