A return to the stagflation that impacted many developed world economies in the 1970s is a growing fear of Dr Susan Gosling, head of investments at MLC.

The 1970s were marked by commodity price spikes, a high US Dollar, bond yields climbing, high unemployment and equities flat lining, as the Dow Jones realised just 5 per cent growth over the decade.

Jobs and wages data from the US are one of the key indicators that this situation might reoccur.

“We’re seeing wages rise at the same time as high unemployment, they shouldn’t rise at the same time,” says Gosling.

“Some say the Fed is in denial about that, some say they’re lying. Why? Because they have a debt overhang and have to get out of it somehow. If they get a bit of inflation that’s probably the ideal scenario.

“If they allow inflation to creep in, there’s a risk it’ll go too high, higher than they’d [The Fed] like and you can’t measure these things.”

Gosling and her team at MLC have dialled down the gearing of the MLC inflation plus assertive fund from 18 per cent two years ago to zero today, with a 5 per cent cash allocation so they can be opportunistic if and when volatility drives down asset prices.

“Asset prices have climbed higher on a very benign environment not supportive of them. As asset prices get riskier, we have to take risk off the table,” she says.