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One

What is inflation? Inflation is why a gallon of milk costs more today than it did last month (and way more than it did 50 years ago). In technical terms, it’s a rise in the cost of goods and services that ultimately erodes long-term purchasing power. You may hear it referenced in terms of the CPI, or Consumer Price Index.

Two

Why is it a concern today? Unprecedented government stimulus during the pandemic helped keep consumer demand high, but supply-chain bottlenecks mean supply can’t keep up. Add in continued labor shortages, which are driving wages higher, and you get a perfect storm of rising inflation.

Three

What can I expect in my daily life? As prices for everyday items rise significantly, your income may not cover as much as it used to. Cars, housing, gas, and electronics prices have been particularly impacted.

Four

Is inflation all bad? Like most things in life, moderation is key. A little bit of inflation is desirable because it means the economy is growing. But rapidly rising prices can noticeably erode consumers’ purchasing power or force retirees to dip deeper into their nest egg than expected.

Five

How often has inflation been an issue? Inflation tends to crop up after wars as the economy returns to a peacetime rhythm. Climbing oil prices are also a common culprit for US inflation: The 1970s are the most well-known period of lasting inflation, caused by two oil supply-related issues. Oil prices also spurred inflation in the late 1980s and early 1990s after the First Gulf War; it hasn’t been much of a concern in the US since then. 

Six

Do rising prices just run unchecked? One of the main goals of the Federal Reserve (the Fed) is to keep inflation near 2% over the long term. The 2% target is meant to keep inflation gradual and more predictable to help minimize its impact. 

Seven

What could end inflation? If supply-chain issues resolve, prices could begin to stabilize. However, if inflation persists, the Fed can step in and raise interest rates in an effort to dampen economic growth and help suppress inflation.

Eight

What if prices reverse course? The Fed strives to maintain a Goldilocks-like balance of inflation that’s neither too high nor too low. If prices decline rapidly, known as deflation, it can be a sign of a weakening economy. Without sufficient demand, companies may end up cutting production and jobs. 

Nine

What could happen to my portfolio? Some asset classes are more sensitive to inflation than others. Fixed income is particularly vulnerable to rising prices, although Treasury-Inflation Protected Securities (TIPS) can adjust their principal to account for rising or falling inflation (which means their interest payments adjust, too).

Ten

Can anything good come from inflation? Some asset classes have historically thrived during periods of rising inflation. Commodities may be particularly well-suited because they can pass price increases along to consumers. Equities have tended to perform well, too, especially US small-cap, US value, and international equities.

FIGURE 1

Asset Classes That Benefited During Past Periods of Rising Inflation 

Average Returns During Eight Inflationary Periods Since 1970

Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. See below for representative index definitions. For illustrative purposes only. Note: Historical data unavailable for some asset classes. Rising core CPI periods, which do not include food or energy prices, defined as increases of about 1% or more. Eight time periods shown in chart are: 1973-1975, 1977-1980, 1983-1984, 1987-1991, 1999-2001, 2003-2006, 2010-2012, 2020-2021. Source: Hartford Funds as of 12/31/21. 

  

Talk to your financial professional about managing the effects of inflation on your portfolio. 

Commodities are represented by the Bloomberg Commodity Total Return Index, an index composed of futures contracts and reflects the returns on a fully collateralized investment in the BCOM. This combines the returns of the BCOM with the returns on cash collateral invested in 13 week (3 Month) US Treasury Bills. High Yield Bonds are represented by the Bloomberg US Corporate High Yield Total Return Index, an unmanaged broad-based market-value-weighted index that tracks the total-return performance of non-investment grade, fixed-rate, publicly placed, dollar-denominated and nonconvertible debt registered with the Securities and Exchange Commission. International Stocks are represented by the MSCI World ex USA Index, a free float-adjusted market-capitalization index that captures large- and mid-cap representation across developed-markets countries excluding the United States. MSCI performance is shown net of dividend withholding tax. Investment-Grade (IG) Corporate Bonds are represented by the Bloomberg US Corporate Index, a market-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more. Treasury Bonds are represented by the Bloomberg US Treasury Index, an unmanaged index of prices of US Treasury bonds with maturities of one to 30 years. US Large Value Stocks are represented by the top 30% of the top 1000 US stocks based on a value score that equally weights multiple valuation metrics to arrive at an aggregated valuation metric. Valuation metrics include: Earnings Yield, Operating Cash Flow/Enterprise Value (EV), EBITDA (earnings before interest, taxes, depreciation, and amortization)/EV, Sales/EV, Dividend Yield, and Equity Yield. US Large Growth Stocks are represented by the top 30% of the top 1000 US Stocks based on 50% year-over-year total earnings growth and 50% year-over-year revenue growth. US Small Cap Stocks are represented by the US universe of small-cap stocks as identified by US stocks between the 85th and 98th percentiles of market cap. TIPS are represented by the Bloomberg US Treasury Inflation-Linked Bond Index (Series L), which measures the performance of the US Treasury Inflation-Protected Securities (TIPS) market. Federal Reserve holdings of US TIPS are not index eligible and are excluded from the face amount outstanding of each bond in the index.

Important Risks: Investing involves risk, including the possible loss of principal. •Investments in the commodities market may increase liquidity risk, volatility, and risk of loss if adverse developments occur.  •For dividend-paying stocks, dividends are not guaranteed and may decrease without notice. •Small-cap securities can have greater risks, including liquidity risk, and volatility than large-cap securities. • Different investment styles may go in and out of favor, which may cause a fund to underperform the broader stock market. •Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political, economic and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets. •Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. •The value of inflation-protected securities (IPS) generally fluctuates with changes in real interest rates, and the market for IPS may be less developed or liquid, and more volatile, than other securities markets. •Obligations of US Government agencies are supported by varying degrees of credit but are generally not backed by the full faith and credit of the US Government. •Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities.

“Bloomberg®” and any Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Hartford Funds. Bloomberg is not affiliated with Hartford Funds, and Bloomberg does not approve, endorse, review, or recommend any Hartford Funds product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Hartford Fund products.

Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. 

 

CCWP113 227115

The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, or ETF summary prospectus and/or prospectus, which can be obtained from a financial professional and should be read carefully before investing.

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