Inflation primer: what does the past tell us?

Apr 14, 2021 | Jeremy Goldfarb


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 The subject of rising inflation is dominating headlines, and in some cases, discussions, almost on a daily basis. IF this much cash is being dumped into the system at the same time, how can we possibly expect that inflation will remain in check. Let us suppose for a moment that we do see rising inflation rates (all else being equal), how does that affect portfolios? 

 

There are a few ways to answer this question, although a more exhaustive analysis is beyond the scope of this blog. 

 

1- Bond portfolios will struggle. Persistent inflation will inevitably lead to rising rates, and rising rates are usually bad for bond prices. We have seen some pressure already with the rise in the US 10 year

2- Commodities usually come out winners in rising inflation environments. The question though, is which ones. The commodities of yesterday (and the winning ones) may differ from those of tomorrow

3- equities --- the story can be told in a nice chart from RBC WM, Yale University, NYU and Bloomberg. It looks at "by the decade" inflation and corresponding rates of return

 

 

If you are interested in knowing more, let us know!

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