The Impact of Higher Inflation on US Asset Class Returns

The Impact of Higher Inflation on US Asset Class Returns

Which US asset classes perform best or worst amid periods of high inflation (6% or more)? Answer: commodities perform best, while bills perform worst. It’s commonly recognized that bonds are not a good inflation hedge – and they aren’t – but less recognized is that equities also fail in this regard; each has returned only a bit more than bills amid periods of higher inflation.

With the US CPI up by 6.9% over the past year – the highest rate since 1982 — have US asset returns reflected this longer-term history? Mostly, but not perfectly. Figure One illustrates how commodities have outperformed all other assets over the past year (through November, the latest available CPI data), with a real gain of 46%. Bills have lost 6.2%, also consistent with the history.

The outlier is equities, which have gained 19.7%…

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