After more than a decade of historically low inflation, the surge in consumer prices from 2021 to 2023 was a reminder that inflation risk is real — and that many portfolios that appeared diversified were not well-positioned for it. For internationally mobile investors, the inflation challenge is multi-dimensional: you face inflation risk in multiple currencies simultaneously, and the correlation between different countries' inflation rates can be lower than assumed.
What the 2021–2023 episode showed
The sharp rise in inflation following the Covid-19 pandemic and the 2022 energy price shock produced several lessons for investors:
- Cash was not a safe haven. Real interest rates (rates minus inflation) were deeply negative for extended periods. Cash deposits lost purchasing power rapidly.
- Government bonds fell sharply. The 2022 sell-off in government bonds — driven by central banks' aggressive rate-hiking campaigns — was one of the worst on record for fixed income investors. The traditional "safe" allocation behaved as a risk asset.
- Equities were mixed. Growth-oriented equities (particularly technology stocks priced on distant future earnings) fell significantly. Commodity-producing and energy companies, on the other hand, delivered strong returns.
- Real assets held their value or appreciated. Energy, infrastructure, and real estate (in many markets) provided genuine inflation protection.
- Inflation was not uniform. UK inflation peaked differently to US inflation; Eurozone inflation had its own profile. International investors had varying experiences depending on where their income and expenses were located.
As of 2026, global inflation has broadly normalised from post-Covid highs, though central banks remain watchful and the debate about whether structural factors (energy transition costs, deglobalisation, demographic shifts) mean inflation will remain above the 2% targets of the pre-2020 era has not been resolved.
Building inflation resilience into a portfolio
Real assets
Real assets — those with intrinsic physical value — have historically been among the best inflation hedges. The primary categories:
Property. Real estate has a long-term record of preserving purchasing power, partly because rental income and capital values tend to rise with the general price level over time. For internationally mobile investors, property in multiple jurisdictions provides both inflation protection and currency diversification.
Infrastructure. Listed and unlisted infrastructure funds invest in regulated assets such as utilities, toll roads, airports, and renewable energy facilities. Many infrastructure contracts include explicit inflation-linkage (revenues indexed to RPI or CPI). Infrastructure funds are accessible to retail investors through listed investment trusts and UCITS structures.
Commodities. Commodity prices tend to rise during inflationary periods — particularly when inflation is supply-driven (energy costs, food prices, materials). Broad commodity exposure via ETFs (covering energy, metals, and agricultural commodities) provides portfolio-level inflation sensitivity, though with high short-term volatility. Direct gold holdings remain popular as an inflation hedge, though the empirical evidence over shorter time periods is mixed.
Index-linked bonds
UK index-linked gilts and US TIPS (Treasury Inflation-Protected Securities) provide direct inflation protection on the principal and coupon, linked to the domestic price index. For UK investors, index-linked gilts are straightforward protection.
The complication: in 2022, even index-linked gilts fell significantly in capital value, because the real (inflation-adjusted) interest rate they offer rose sharply. This illustrates the difference between inflation-linking and safety from capital loss. Index-linked bonds protect against inflation eroding the real value of the coupons and principal — but they are still interest-rate sensitive.
For an international portfolio, a mix of UK, US, and eurozone inflation-linked government bonds provides broad-based real protection.
Floating rate bonds
Unlike fixed-rate bonds (which lose value when rates rise), floating rate notes pay a coupon that resets periodically in line with a benchmark interest rate. When central banks raise rates in response to inflation, floating rate coupons increase. This provides partial protection against the rate-tightening that typically accompanies inflation.
Dividend growth equities
Not all equities are equal in an inflationary environment. Companies with pricing power — the ability to pass on cost increases to customers — tend to protect margins and maintain or grow dividends in real terms. Consumer staples, healthcare, and utilities have historically been among the more resilient sectors. Energy and materials companies benefit directly from higher commodity prices.
High-multiple growth stocks, by contrast, are more vulnerable during high-inflation periods: their valuations depend on discounting distant future earnings at a low rate, and when that rate rises, valuations compress.
A portfolio tilted towards dividend-paying, cash-generative businesses with genuine pricing power is more resilient to inflation than one concentrated in high-growth, long-duration equities.
Commodity equities
An alternative to holding physical commodities is to invest in the companies that produce them — oil majors, mining companies, agricultural producers. These companies benefit from higher commodity prices both through increased revenues and often through capital appreciation in their own shares. They are accessible through global equity funds with sector tilts or specialist natural resources funds.
Currency diversification as inflation protection
For internationally mobile investors, one of the most effective responses to inflation risk is currency diversification. If your home currency is depreciating (as sterling did sharply in 2022), holding assets denominated in stronger currencies (USD, CHF, or commodity currencies like AUD and CAD) provides a natural offset.
This is not a timing call — it is a structural feature of an international portfolio. Holding assets across USD, EUR, GBP, and other currencies means that no single currency's inflation trajectory dominates your outcomes.
What to avoid
- Heavy concentration in long-duration fixed income — the 2022 experience demonstrated the cost clearly.
- Excessive cash holdings — cash preserves nominal value but loses real value during inflation. The appropriate cash buffer is for liquidity purposes, not as an inflation hedge.
- Ignoring the currency in which you spend — inflation protection in GBP is less valuable if your costs are in euros or dirhams. Match inflation protection to the currency of your liabilities.
Current positioning (2026)
Inflation has retreated from its 2022–2023 peaks across most major economies, with central bank targets broadly in view, though not universally reached. Real interest rates are now positive in most developed markets, meaning bonds offer genuine real returns for the first time in over a decade. This is a meaningfully different environment from the ZIRP (zero interest rate policy) era.
The appropriate portfolio positioning in 2026 balances:
- Genuine exposure to inflation-sensitive real assets as a hedge against a potential resurgence
- Reinstatement of fixed income as a genuine diversifier now that real yields are positive
- Continued currency diversification for international investors
Property as an inflation hedge: the nuanced case
Direct residential and commercial property is often cited as one of the best inflation hedges, and over long periods it has been — rental income and capital values have broadly tracked or exceeded inflation in most developed markets over the post-war era.
However, the relationship is not straightforward in the short to medium term. The 2022 tightening cycle demonstrated how sharply rising interest rates can pressure property values — mortgage costs increase, affordability falls, and buyers become more cautious. This is particularly true for leveraged property, where the cost of debt can deteriorate the cash yield significantly in a short period.
In an inflationary environment with rising interest rates, the optimal response for property investors is to:
- Prefer properties with shorter lease terms or variable rental agreements that can be reset to reflect market rents, rather than long fixed-rent leases that become eroded in real terms
- Avoid highly leveraged positions that become distressed when rates rise sharply
- Diversify geographically — inflation rates differ across jurisdictions, and diversification reduces the impact of any single country's price level rising faster than expected
For internationally mobile investors, owning property in multiple currencies across multiple jurisdictions provides natural diversification against single-country inflation risk.
ESG and climate risk as an inflation dimension
An often-overlooked dimension of long-term inflation planning is the interaction with climate risk. The transition to lower-carbon energy sources will itself generate inflationary pressures in specific sectors (energy transition costs, commodity prices for critical minerals) while potentially reducing costs in others (renewable energy becoming cheaper over time).
Energy costs have been a primary driver of inflationary episodes in Europe and the UK over the past decade. Portfolios with exposure to renewable energy infrastructure provide some natural hedge against this specific inflation risk while also aligning with the broader transition.
Frequently asked questions
Should I move to cash if inflation rises again? No — at least not beyond the amount you need for short-term liquidity. Cash loses real value in an inflationary environment. If inflation returns to 5% and your cash account pays 3%, you are losing 2% of purchasing power per year. The appropriate cash allocation is a liquidity buffer, not an inflation hedge.
Are commodities a reliable inflation hedge? Commodities have historically exhibited positive correlation with inflation, particularly oil, agricultural commodities, and industrial metals. However, commodity prices are highly volatile in the short term and driven by supply and demand factors that can diverge from inflation trends. Physical gold has a mixed short-term inflation-hedging record but is widely held as a crisis hedge. A modest allocation (5–10%) to a diversified commodity basket or commodity equities can add inflation sensitivity without excessive concentration.
Does investing in an inflation-linked bond guarantee I won't lose money? No. Index-linked bonds protect the real (inflation-adjusted) value of coupons and principal — but they are still interest-rate sensitive. If real interest rates rise (as they did sharply in 2022), the capital value of index-linked bonds falls, even though the inflation-linking remains in place. They are a better inflation hedge than nominal bonds, but they are not risk-free instruments.
How Global Investments can help
Inflation risk is best managed with a structured, diversified portfolio rather than tactical short-term moves. Global Investments can help internationally mobile investors build portfolios designed to preserve real purchasing power across multiple inflation scenarios. Contact us to discuss your investment strategy.
This article is for general information only and does not constitute investment advice. Past performance is not a guide to future returns. Investments can fall as well as rise.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.