Equities and real estate to protect against inflation in the eurozone – Natixis

Inflation is currently very low but there is high uncertainty over the level of inflation in the future: there is talk of deflation, but also of a return of inflation for various reasons. Economists at Natixis find that protection against inflation is provided by equities and real estate at all horizons in the eurozone and by only bonds at a very long horizon in the US.

See – Financial markets expect low inflation but not deflation – Natixis

Key quotes

“Inflation is currently very low both in the United States and in the eurozone. But there is high uncertainty over the future level of inflation, due to excess global savings; there is talk of a risk of deflation and strong money creation, population ageing, the energy transition, reshoring, etc. There is also talk of a return of inflation. Faced with this uncertainty, investors may want to protect against inflation.”

“The most direct way to protect against inflation is to use assets that are directly linked to it (inflation-indexed bonds), which is currently effective because expected inflation is low.”

“We find a significant positive correlation between inflation and returns on equities and real estate in the eurozone in monthly, quarterly and annual data as well as over two and four-year periods and equity returns in the United States in annual data and bond returns in the United States over four-year periods.”