The effectiveness of different asset types as a hedge against inflation

Abstract

Rationale The current period of high inflation makes it difficult for investors to maintain their profitability targets in real terms. Against this background, it is important to analyse the returns on different types of assets recorded in this and past inflationary episodes. Takeaways •In the past, both commodities and inflation-linked bonds have generated positive real returns during inflationary periods, while conventional sovereign bonds and general stock market indices have yielded negative real returns. •In the current inflationary episode energy-related assets have generated the highest returns, while in the United States residential real estate has also performed well. •In the recent period, both in the euro area and the United States investors have increased their holdings in investment funds specialising in inflation-linked bonds, and have reduced their holdings in conventional bond and equity funds.