Yet the idea that rampant inflation will trigger an investment debacle is perhaps overblown. A touch of inflation can be a good thing and it depends on how you invest.
I’m not discounting the possibility of a bond bubble bursting, so be sure to shorten your maturities on high-quality bonds because they will get hardest hit by any interest-rate increases. Beyond that, the news may not be all that bad based on historical results for stocks.
Consumer inflation is running at a nearly four percent clip, according to the latest government report, which shows the annual rate at its highest since June, 2008. The bulk of the increase was in energy (fuel prices — up 21 percent) and food.
A little inflation isn’t that toxic to stock returns. According to research from the Leuthold Group, stocks often gain in periods of mild inflation. The last time inflation was climbing at least three percent, stocks did just fine. Leuthold found that in September, 2000; September, 1996; and June, 1995, the subsequent one-year performance of stocks was 13 percent, 20 percent and 26 percent, respectively.