US Inflation and Global Asset Returns

Author: Wei Dai, Mamdouh Medhat

We study the relation between US inflation and the performance of global asset classes (including bonds, stocks, industry portfolios, factor premiums, commodities, and REITs), both over a long sample period (1927–2020) and over the most recent 30 years (1991–2020). We find that most assets had positive average real returns in both low- and high-inflation years. While average real returns were lower in years with higher inflation for most assets, many of the differences are not statistically reliable, especially among non-bond assets and in more recent times. We also find mostly weak correlations over time between nominal returns and inflation, including contemporaneous, lagged, expected, and unexpected inflation. The notable exceptions are energy stocks and commodities, where there are reliably positive correlations with both expected and unexpected inflation, but our results also suggest both assets are too volatile to be an effective inflation hedge. Our results confirm the potential of most asset classes to outpace inflation over the long term and suggest that, for investors prioritizing the preservation of purchasing power, inflation-indexed securities may be a more appropriate inflation hedge than commonly suggested alternatives.

Dai, Wei and Medhat, Mamdouh, US Inflation and Global Asset Returns (July 13, 2021). Available at SSRN: or

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