Jamie Dimon, CEO of America's largest bank, JPMorgan Chase (JPM 1.72%), is worth listening to when he shares his concerns about risks to the economy. For the past few years, Dimon has been saying that geopolitical risk, such as Russia's invasion of Ukraine, is top of mind for him. Now that America is engaged in a new war in Iran, Dimon was asked what he thought might happen next for oil prices and inflation.
In a March 2 interview with CNBC, Dimon expressed optimism that if the Iran conflict is short, it would not lead to a long-term upsurge in inflation. But he warned that inflation is still a risk that investors are a little too complacent about right now. If inflation sticks around longer than investors expect, Dimon said, inflation could be like a "skunk in a party."
If you're worried about the Iran war or other inflation risks, here's an idea for how to invest.
Image source: Getty Images.
What to think about Iran war inflation risks
If the war in Iran causes severe disruptions to oil supplies, such as Iran shutting down international shipping through the Strait of Hormuz, this could make gas prices go up. But other countries can also take actions to keep shipping lanes open or boost oil supplies from other places.
When asked by CNBC if he sees a risk of long-lasting inflation due to higher oil prices as a result of the conflict, Dimon said no. He said that the current Iran conflict "will increase gas prices a little bit. And, again, if it's not prolonged, it's not going to be a major inflationary hit."
But crude oil prices are already up about 30% year to date. If oil prices stay higher for longer, this could spill over into higher inflation throughout the economy. Even if oil prices don't stay high, Dimon sees some risk that the economy could still have too much inflation built into it.
He told CNBC, "I think there's some risk there is more inflation than people think, and that could be like a skunk in a party if that ever happens."
How to invest for higher inflation
A few typical investments to protect against higher inflation are oil stocks, commodities, and utilities. The Vanguard Utilities Index Fund ETF (VPU +0.67%) is an easy way to invest for a future of higher energy prices.
NYSEMKT: VPU
Key Data Points
This utility ETF lets you own 67 stocks in electric utilities, gas utilities, water utilities, and more. The fund's top holdings include major utilities NextEra Energy (12.2% of the fund), Southern Co. (6.4%), Duke Energy (6.4%) and Constellation Energy (5.9%).
This utility ETF has delivered average annual returns of 10.9% for the past 10 years, and it's up 10.5% year to date. It charges a low expense ratio of 0.09%. And it might be undervalued. The Vanguard Utilities Index Fund ETF's price-to-earnings ratio is only 21.2, which is cheaper than the S&P 500 index P/E ratio of 29.3.
Buying utility stocks is a way to make a broad bet on future demand for energy. It won't protect you from every risk, but this utility ETF could be a good buy in case inflation sticks around.
