If I want to position my portfolio to hedge inflation, aside from gold, what S&P sector should be overweight to hedge inflation? I'm thinking consumer staples particularly food producers would provide the best inflation hedge. If we end up in a stagflation situation where the cost of goods and services rises faster than wages which I suspect will be the case, then people may not have as much money left over to spend on vacations and electronics. But food will be the last item cut. I'm thinking companies like KHC, GIS, and MDLZ might be good inflation hedges. Granted, their input costs also rise, but a higher price on the final sold good should provide higher margin -- same reason oil refiners typically benefit from higher oil prices. If one has the view that the dollar will weaken in a stagflation scenario, then choosing a producer that sells products globally such as ADM might be a good idea. I also thought about homebuilders, but in a stagflation situation, fewer people will be able to afford homes, especially if interest rates also go higher despite the Fed's best attempts to keep them low. Also considered healthcare, but under a Dem president + congress, I suspect we would attempt to see some form of price controls implemented. Also considered energy, but there's just too much oil right now. Any other thoughts?
Hmm, guess I'm piggybacking this question thread with another. We can price inflation using the forward breakevens in the fives and tens. Could we theoretically trade the breakeven using CBOT rate spreads? (Would this be a good inflation hedge, while still preserving a diverse allocation?)
my 2 cents... let me know if you agree. best way to hedge inflation besides metals are: 1) TIPS 2) commodities 3) utilities (pass through inflation) 4) companies associated to #1 and #3 5) crypto (finite amount of coins) I would also add FRNs if you're also looking at financials...
I also thought about utilities, but most people buy utilities for the dividend. If inflation goes higher, would utilities be able to raise the dividend? I thought most utilities have to justify cost increases (since they are a legally-allowed monopoly). Would governments allow them to raise their rates so they could raise their dividend to keep up with inflation?