The Covid-19 crisis has resulted in enormous fiscal and monetary stimulus while also destroying capacity in some sectors of the economy. This has led some investors to believe we are on the cusp of a rise in inflation. We analyse the impact of this potential scenario on seven asset classes and find that while some of them have desirable inflation-hedging properties, their ability to generate positive real (inflation-adjusted) returns varies over time. Whichever inflation scenario unfolds, traditional equity and bond investors face the greatest risks and cannot afford to be complacent.
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