Can you remember the last time the US inflation rate exceeded 5 per cent? The answer, unbelievably, is 1990 – long before most investors operating today even got into the game. But with April CPI hitting 4.2 per cent and most large asset owners long equities and bonds -- asset classes which have historically suffered in inflations -- it’s a good time to start evaluating alternative inflation hedging strategies.
In a newly published research paper in SSRN, the authors attempt to offer some insights into the best strategies.
Our research, it should be stressed, is not designed to forecast the level of inflation but rather draws on 34 inflation episodes in the US, UK and Japan (using nearly a century of data) to understand the impact of inflation on asset prices.