Expect the Unexpected: The Role of Commodities During Periods of Unexpected Inflation
Asset prices have historically been much more sensitive to inflation surprises than inflation itself. Very few assets perform well during periods when inflation exceeds expectations. In addition, no one single asset class does the best in each inflationary environment, so being broadly diversified is the only way to hedge against an unexpected inflation surprise.
In these environments, commodities, relative to either stocks or bonds, offer the greatest opportunity for positive performance. As such, we advise that including commodities in a portfolio not only offers the opportunity for increased diversification, but also helps to protect an investment portfolio from the worst inflationary storms.