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Rising Inflation Risk and How to Address It

Inflation risk can be mitigated by using inflation-linked bonds, cyclical assets, and high-yielding bonds with low duration
Yoram Lustig Head of Multi‐Asset Solutions, EMEA; Michael Walsh Solutions Strategist, EMEA
T. Rowe Price,  October 2021

Key Insights

  • Sustained inflation has historically been a headwind for stocks and bonds, reducing the diversification benefits of holding both in a multi‑asset portfolio.
  • Although markets appear to assume the current inflation spike is temporary, durable increases in housing costs and wages may challenge that view.
  • Inflation risk can be mitigated by inflation‑linked sovereign bonds; cyclical stocks that keep up with inflation; and high‑yielding, low‑duration bonds.


For more than a decade, inflation has not been regarded as a major investment risk. Indeed, since the global financial crisis, deflation has been seen by many as a bigger threat—policymakers in Japan and the eurozone have been struggling to push inflation up, not down. With inflationary pressures now building across the world, though, this could change.


Access the full report from T. Rowe Price