Which asset types are commonly used to hedge against inflation?

• A. Inflation hedges include cash and cash equivalents.
• B. Inflation-linked bonds, real assets, and flexible strategies.
• C. Stocks alone are the best inflation hedge.
• D. Nominal bonds with long duration are the primary hedge.

Answer: (B)

When inflation picks up, you want assets that either rise with price levels or maintain value in real terms. Inflation-linked bonds, real assets, and flexible strategies fit that need. Inflation-linked bonds adjust their principal and interest with inflation, so their real purchasing power stays intact as prices rise. Real assets such as real estate and commodities tend to keep pace with inflation because rents and commodity prices often increase with the cost of goods and services. Flexible strategies can adapt to changing inflation signals, shifting exposure toward inflation-sensitive assets when needed. In contrast, cash and cash equivalents lose purchasing power in higher inflation, nominal long-duration bonds struggle as rates rise, and stocks, while helpful for diversification, do not consistently hedge inflation on a real basis. Therefore, the combination in option includes the most reliable inflation hedges.