Many investors’ portfolios are traditionally dominated by a mix of equities and nominal bonds. While these asset classes tend to behave in opposite ways in an environment of increasing or declining economic growth, rising inflationary pressure has a negative impact on both types of instruments.

Inflation-linked bonds can offer protection against inflation risks because their capital value is linked to an official inflation index. This means that both the coupons and the capital repayments rise in line with inflation. However, this protection is only effective over the long term, not the short term.