The official blog of BNP Paribas Asset Management
Just a year ago, inflation appeared under control. Published annual consumer price rises stood at 2% in the eurozone and 5% in the US, which was higher than normal. The US Federal Reserve dismissed concerns, saying price rises reflected “transitory factors.”  
What has happened since has surprised all the main advanced economy central banks. The latest published inflation rates stand at 8.6% in the US, 8.1% in the eurozone and 9.1% in the UK.  
How could this happen? What are the consequences? Which investment strategies make sense, now that inflation is back ? Find the answers to these questions in our infographic.
Inflation is the enemy of bond investors because over time inflation erodes the purchasing power of a bond’s fixed coupon.
As we have seen this year, inflation can also pose challenges for equity investors, especially in the short term, though stocks have historically been a solid long-term hedge against moderate levels of inflation. In the short run, rising input costs can erode corporate profit margins.
Periods of very high inflation can upset equities – most stocks performed poorly during the two double-digit spikes in inflation spikes during the 1970s.
Indirectly, inflation can also impact equity performance. Since the start of 2022, rising interest rates to counteract inflation have triggered a fall in of asset valuations, as the net present value of a stock’s future cash flows must be discounted using a higher interest rate. 
In this infographic, we first give our analysis of the inflation revival and the likely consequences. We then review investment ideas that we think make sense for investors seeking to protect portfolios from inflation.  
To discuss further, please contact your dedicated BNP Paribas Asset Management client relationship manager.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.  
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.  
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).  
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
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