Investing in equities has been a better hedge against inflation. Equities have historically performed well in times of moderate and stable inflation as good management can often raise prices, leading to higher revenues. This has tended to be true of companies with pricing power – in other words, those with a sufficiently robust competitive position to raise prices.

Rent increases have typically risen at the same time as consumer prices, although there may be a time lag. On the other hand, rising interest rates can reduce property values, which would affect short-term investors. Yet hedging against inflation through buying real estate directly brings a high barrier of entry, as well as the complications of low liquidity. A simpler way to get exposure is through the stocks of listed real estate companies.

Commodities can fulfill their role in inflation hedging in two ways. First of all, their intrinsic value rises when prices for consumer goods rise. They also react faster to unexpected inflation than many other asset classes. Yet, secondly, their return is less correlated with broad equity or bond markets and can diversify a portfolio. It is important to mention that investing in commodities via derivatives is difficult for ordinary investors – it’s more straightforward to buy shares in commodity producers, for example, mining companies or oil services as a proxy. An Inflation ETF focused on commodity producers can be an attractive choice for low-cost diversification.