Hedging for inflation

With inflation a growing possibility, what are the implications for equities?

The authorities’ response to the financial crisis and subsequent economic recession has been banking support with fiscal and monetary expansion. There are widely held views that the monetary measures could lead to inflation if central banks allow money supply to grow rapidly. If inflation does rise, what does this mean for equity investors? In the short term, rising inflation would usually prompt a tighter monetary policy and higher interest rates – not a good scenario for equity or bond holders. Over the medium term, however, equities have usually provided ‘real’ returns during periods ...