Building an Inflation Portfolio Using Stocks

Identifying Inflation-Proxy Stocks

August 2021. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • An inflation portfolio can be created by systematically selecting stocks correlated to inflation
  • This would have resulted in a portfolio with strong sector and factor biases
  • However, the correlation to inflation would not have been significantly higher than for stocks overall


Measuring inflation is as challenging as calculating our body weight changes using only a mirror. We might feel heavier and our pants might seem unusually tight after the Christmas period, but it is tough knowing the exact number without a scale. Economists are not short of tools that measure inflation, it is more a question of which is the most relevant one. There are plenty of metrics, and then official and shadow statistics, making inflation a complex topic.

The quick economic recovery from the COVID-19 crisis has created unexpected levels of inflation and made it the most discussed topic in financial markets, after cryptocurrencies, in 2021. Both topics are related as many cryptocurrency enthusiasts are seeking to move their wealth away from fiat currencies as they believe the actual inflation is higher than reported, or significant inflation is ahead. However, the volatility of cryptocurrencies makes it a difficult asset class and there is little evidence that these do protect against inflation.

The traditional instruments for hedging against inflation are commodities, treasury inflation-protected securities (TIPS), and stocks. Most academic research suggests that commodities have the best inflation-protection characteristics, but holding commodities has been difficult given poor performance. The Goldman Sachs Commodities Index (S&P GSCI) trades at the same level as in 1991. TIPS protect against inflation, but they currently exhibit low yields and will not contribute much return to a portfolio. That leaves investors with stocks.

In this research note, we will analyze stocks that are highly correlated to inflation and can be used to create an inflation portfolio.


We focus on all stocks in the US with a market capitalization above $1 billion in the period from 2007 to 2018. We calculated the correlation of each stock to the US 10-Year brea