One Asset Does Not Fit All: Inflation Hedging by Index and Horizon

Abstract Using time-series models, we estimate the inflation-hedging ability of various assets and portfolios, for multiple inflation indices at horizons from one month to 30 years. There is no one-size-fits-all approach to inflation hedging. Food and energy prices comove strongly with commodities and certain stock portfolios, but non-housing service prices and wages are not highly correlated with any financial asset. Inflation-linked bonds and swaps are good hedges for headline CPI at horizons matching their maturities, but they can perform poorly at other horizons and for other price indices. During the inflationary period of 2021–2023, many historical hedging relationships failed.