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Inflation in a Historical Context

Learn how inflation spikes over the last century have demonstrated a need for inflation-hedged portfolios.

Historically, there have been several periods of high inflation. When this has happened, it has tended to spike quickly– and unexpectedly.

What this chart shows

Over the past century, the U.S. and Europe have experienced a number of periods of high inflation. For example, hyperinflation hit post-WWII Europe, and, more recently, the U.S. had a period of higher inflation in the 1970s.

 

The chart compares the peaks and troughs of U.S. (3.12%), U.K. (4.31%) and French (7.96%) inflation rates from 1900 to 2015. For the last 20 years inflation has been relatively low in all three countries.

What it means for investors

Very high inflation tends to have a negative impact on assets such as stocks and bonds. Maintaining a constant allocation to inflation-hedging assets can help investors cushion their portfolios against unexpected spikes.

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Disclosures

A word about risk: Inflation-indexed bonds issued by the U.S. government, known as TIPS, are fixed income securities whose principal value is periodically adjusted according to the rate of inflation, which will affect the interest payable on them. Repayment upon maturity of the adjusted principal value is guaranteed by the U.S. government. Neither the current market value of inflation-indexed bonds nor the share value of a fund that invests in them is guaranteed, and either or both may fluctuate.

U.S. inflation is represented by the Consumer Price Index (CPI), which is an unmanaged index representing the rate of inflation in U.S. consumer prices as determined by the U.S. Bureau of Labor Statistics. U.K. inflation is represented by the U.K. Retail Prices Index, which is the most familiar general purpose domestic measure of inflation in the U.K. French inflation is measured by the France Consumer Price Index, which measures changes in the price of a fixed basket of 303 goods and services offered to the public. There can be no guarantee that the CPI or other indexes will reflect the exact level of inflation at any given time. It is not possible to invest in an index.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a registered trademark of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. © 2016 PIMCO
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