The inflation variable: evaluating potential outcomes

This research note is a response to the many client questions we have received about rising inflation and its potential impact on portfolio performance. It follows our recent note, Inflation: Is It Coming and Should We Care?, which explored the history of inflation in the US, why the inflation situation may be changing, and what impact inflation may have on asset prices.

Asset owners are well aware that inflation has an impact on performance. However, the extent of the impact and even the direction depend on several factors. Accordingly, Meketa developed a quantitative tool to assist decisionmakers in their consideration of the potential impacts of a range of inflationary scenarios upon investment portfolios. This note explores the most influential variables — from the source of inflation, whether it was anticipated, and the length of the inflationary period, among other factors — and outlines how these considerations can be expected to affect performance across asset classes.