Scenario guides / Inflation surge
💸 Inflation surge
Inflation is the quietest crisis on this site — nothing burns, nothing closes — and yet it is the one that most reliably destroys wealth. It punishes anyone holding promises of fixed future money (bonds, cash) and favours those holding real things.
What history shows
The 1970s is the canonical episode. US inflation peaked at 13.5% in 1980, and the damage to "safe" assets was extraordinary: long-term government bonds earned the nickname certificates of confiscation, losing a third or more of their purchasing power over the decade. Equities went roughly nowhere in real terms for fifteen years. Meanwhile gold rose from $35/oz in 1971 (when the dollar left the gold standard) to a peak of $850 in January 1980 — a 24-fold move.
2021–2023 provided a modern refresher. US CPI peaked at 9.1% in June 2022, and central banks responded with the fastest rate-hiking cycle in four decades. The result: 2022 was the worst year for US bonds in modern history (the aggregate bond index fell about 13%), and the classic 60/40 stock-bond portfolio had its worst year since the 1930s because both halves fell together. Energy stocks were the standout winner — the S&P 500 energy sector gained roughly 59% in 2022 while the index fell 19%.
Assets that have tended to gain
- Inflation-linked bonds (TIPS) — principal indexed to consumer prices; the only bond built for this scenario.
- Gold and commodities — real, supply-constrained assets that reprice with money itself.
- Energy producers — inflation surges are very often energy-price surges wearing a different hat.
- Property (with caveats) — rents and replacement costs rise with inflation, though rising mortgage rates can offset this, as 2022–23 housing markets showed.
- Companies with pricing power — staples and infrastructure that can pass costs through to customers.
Assets that have tended to suffer
- Conventional government bonds — the direct victim: fixed coupons are worth less in inflated money, and rate hikes cut prices further.
- Cash — the stealth casualty. At 8% inflation, money in a zero-interest account loses half its purchasing power in nine years.
- Growth and technology stocks — distant future earnings are discounted at higher rates; the Nasdaq fell 33% in 2022.
- Long-duration everything — the further away the cash flows, the bigger the markdown.
Wildcards and caveats
A subtlety from 2022: even TIPS posted negative returns that year, because real interest rates rose sharply — they beat conventional bonds but did not make money. Inflation hedges work over the full episode, not necessarily in every quarter. And when inflation combines with recession — stagflation — the refuge list shrinks to real assets and little else, which is why the dashboard's stagflation preset is the harshest environment in the model.