US inflationary pressures are developing that could be destructive. Investors need to seek protection quickly. But how? For municipal investors, some inflation strategies fall short, leaving portfolios at risk.

To be sure, not everyone is convinced that inflation is a serious concern today. In fact, until a January data release showed accelerating wage growth, a good many investors believed that inflation was dead because it had been dormant for so long. But that data, followed on February 14 by faster-than-expected core inflation data, which excludes food and energy, began to turn investors’ heads.

Many investors are now coming around to our view that inflation is going to rise in 2018.

Inflation Pressure Is Building

At 1.85%, year-over-year core inflation is still below the Fed’s 2% target. However, pressures are building below the surface. Six-month annualized core inflation is running well above the 2% mark and is climbing. Various factors that continue to hold down the year-over-year reading are likely to dissipate over the next few months.

At the same time, many factors are likely to drive inflation higher over the near to medium term. These include accelerating US and global growth, tighter labor markets, a weakening dollar, and easier financial conditions. (It’s true: despite the Federal Reserve’s efforts to drain liquidity from the system, it’s easier for businesses to access and deploy capital today than at the start of 2017.)

Further factors? Falling federal revenues and increased federal spending—think tax reform and the federal budget deal—which together create an inflationary environment. Rising oil and copper prices over the longer term, which offer further evidence to support our expectations for higher prices over the near term. And we’ve also considered demographic trends, such as retiring baby boomers, which translate into a declining work force; as well as more restrictive trade and capital flows, which encourage cash trapping.

Put it all together, and inflation could heat up.