Understanding the Impact of US Inflation Rate

Since March 2021, the United States has grappled with a significant rise in inflation rates, driven by supply chain disruptions, increased post-COVID-19 demand, and escalating commodity prices. Despite efforts, the Federal Reserve has been unable to rein inflation back to the 2% target, leading to ongoing economic adjustments. As of April 2024, the US inflation rate stands at 3.4%. While this figure might not seem substantial, it is essential to consider the broader context: consumer price inflation has surged by 19.32% between January 2020 and April 2024, with persistently high housing costs contributing significantly to this increase. 

These dynamics have profound implications for interconnected global markets, including Hong Kong. Hong Kong investors face increased market volatility, potential currency fluctuations, and inflationary pressures that could impact domestic prices and consumer behavior. With the Federal Reserve tightening monetary policy to counter inflation, understanding these effects is crucial for Hong Kong investors to strategically adjust their investment approaches.

Understanding Inflation

Inflation is the gradual erosion of purchasing power, marked by a broad increase in prices for goods and services over time. It's measured by the average price rise of a selected basket of goods and services over a year. High inflation signifies rapid price increases, while low inflation indicates slower price growth. Inflation contrasts with deflation, where prices decline, increasing purchasing power.

Common inflation types include demand-pull, cost-push, and built in. Key indexes for measuring inflation include the Consumer Price Index and Wholesale Price Index. Inflation's impact can be positive or negative, depending on individual perspectives and the rate of change. Some, particularly those with tangible assets like property or commodities, may benefit from moderate inflation as it raises asset values.

Types of Inflation

• Cost-Push Inflation: occurs when the overall prices of goods and services rise due to increased costs of production. This type of inflation is driven by factors such as higher wages, rising costs of raw materials, or supply chain disruptions. When production costs increase, businesses often pass these costs onto consumers in the form of higher prices, leading to inflation. This can create a cycle where rising costs lead to higher prices, which in turn can lead to demands for higher wages, perpetuating the inflationary trend.

• Demand-Pull Inflation: occurs when the overall price levels rise because the demand for goods and services exceeds the economy's capacity to produce them. This type of inflation typically happens in a growing economy where consumer and business spending increases rapidly. When demand outstrips supply, prices are driven up as consumers compete to purchase the limited goods and services available. Factors such as increased consumer confidence, higher disposable incomes, and expansionary fiscal or monetary policies can contribute to demand-pull inflation.

• Deflation: is the decline in general price levels of goods and services, increasing the purchasing power of money. It can result from decreased demand, technological advancements, or an oversupply of goods. While lower prices benefit consumers, deflation can harm the economy by reducing profits, wages, and increasing unemployment and debt burdens, potentially leading to a recession.

• Disinflation: is the slowing down of the rate at which prices are rising, indicating a reduction in the inflation rate. Unlike deflation, where prices decrease, disinflation means that prices are still increasing but at a slower pace than before. This can result from monetary policies aimed at cooling an overheated economy or from improved productivity and supply chain efficiencies. Disinflation is generally viewed as a positive sign, indicating that inflationary pressures are being brought under control without leading to a decline in overall prices.

• Reflation: is the act of stimulating the economy by increasing the money supply or reducing taxes to counteract deflationary pressures and achieve a desired level of inflation. It aims to boost economic activity, raise prices, and reduce unemployment. Reflation policies are typically used after a period of economic slowdown or recession to revive growth and restore normal inflation levels.

• Creeping Inflation: refers to a situation where prices rise gradually over time at a low, steady rate, typically around 1-3% annually. This slow, predictable increase in prices is generally considered manageable and not harmful to the economy. In fact, it can be beneficial as it encourages consumption and investment, as people are motivated to buy now rather than later when prices might be higher. Creeping inflation is often seen as a sign of a healthy, growing economy.

• Walking or Trotting Inflation: refers to a moderate level of inflation, where prices increase at a rate between 3% and 10% annually. This type of inflation is more noticeable than creeping inflation and can start to create concerns among consumers and businesses. It may lead to reduced purchasing power, as wages may not keep pace with rising prices. If not managed properly, walking inflation can erode savings and discourage long-term investments, potentially destabilizing the economy.

• Running Inflation: occurs when prices rise rapidly, typically at an annual rate of 10% to 20%. This high level of inflation can significantly erode purchasing power, leading to a loss of consumer confidence and creating uncertainty in the economy. It often results in people spending quickly before prices increase further, which can exacerbate the inflationary cycle. Running inflation can disrupt economic stability, making it difficult for businesses to plan and for consumers to maintain their standard of living.

• Hyperinflation: is an extreme form of inflation characterised by a rapid and uncontrollable increase in prices, often reaching several hundred or even thousands of percent annually. It typically occurs when a country's government resorts to excessive money printing to meet its financial obligations, leading to a collapse in the value of the national currency. Hyperinflation erodes the purchasing power of money at an alarming rate, causing severe economic instability, widespread poverty, and social unrest. Savings become virtually worthless, and essential goods and services become increasingly unaffordable. Hyperinflationary periods are often accompanied by a breakdown in economic and political institutions, with long-lasting consequences for the affected population.

• Stagflation: is a rare economic phenomenon characterised by a combination of stagnant economic growth, high unemployment, and high inflation occurring simultaneously. Typically, inflation rises during periods of economic expansion, while unemployment falls. However, in stagflation, the economy experiences stagnation or recession alongside inflationary pressures. This situation presents policymakers with a challenging dilemma, as traditional monetary and fiscal policies may be ineffective or even exacerbate the problem. Stagflation can result from various factors, including supply shocks, excessive government intervention, or structural imbalances within the economy.

How Is Inflation Measured

Inflation is primarily measured through two indices:

• Consumer Price Index (CPI): This index tracks the changes in the price level of a market basket of consumer goods and services purchased by households. The CPI is the most widely used indicator of inflation and is often used to adjust incomes or to index social security payments.

• Personal Consumption Expenditures (PCE) Price Index: This index reflects changes in the prices of goods and services consumed by individuals and is believed to account for changes in consumer behavior better than the CPI because it includes all consumption expenditures. It is the preferred measure of inflation by the Federal Reserve for setting monetary policy due to its comprehensive nature and ability to incorporate data revisions and changes in consumer spending patterns over time.

Both indices have their merits and are used by various government agencies for different purposes. The CPI is more familiar to the public and is commonly used for cost-of-living adjustments, while the PCE provides a broader measure of inflationary trends, influencing monetary policy decisions.

Economic Linkages Between the US and Hong Kong

The linked exchange rate system (LERS) between the US dollar and the Hong Kong dollar is a cornerstone of Hong Kong's financial system, established on October 17, 1983. This system pegs the Hong Kong dollar to the US dollar at a fixed rate of 7.8 HKD to 1 USD. The LERS operates under a Currency Board arrangement, which ensures that the Hong Kong dollar's value is backed by US dollar reserves, maintaining stability in the exchange rate within a tight band of HK$7.75 to HK$7.85 per US dollar.

The system mandates that the monetary base—comprising certificates of indebtedness, government-issued coins and notes, and the aggregate balance of banking institutions—is fully backed by US dollar reserves held in the Exchange Fund, which is among the largest of such reserves globally. This arrangement not only stabilises the currency but also reinforces Hong Kong's position as a global financial center by providing certainty in exchange rates for international investors and traders.

Impact of US Monetary Policy on Hong Kong’s Financial Markets

US monetary policy has a direct and significant impact on Hong Kong's financial markets due to the LERS. When the US Federal Reserve adjusts interest rates, the Hong Kong Monetary Authority (HKMA) typically follows suit to maintain the peg. For instance, if the Fed raises rates, the HKMA will increase its base rate to prevent capital outflows that might destabilise the currency peg.

This synchronization of monetary policies means that Hong Kong effectively imports US monetary conditions, influencing everything from interest rates to liquidity in the financial system. For example, tightening by the Fed can lead to higher interest rates in Hong Kong, affecting sectors sensitive to borrowing costs, such as real estate and construction. Conversely, US monetary easing can relieve pressure on these sectors by lowering interest rates.

Moreover, the HKMA's adherence to US monetary policy under the LERS can sometimes pose challenges. For instance, when the US adjusts its rates to address domestic economic conditions, the corresponding changes in Hong Kong's rates might not align with the local economic needs. This can lead to situations where the economic environment in Hong Kong might require different monetary measures than those dictated by US policy, potentially constraining the HKMA's ability to tailor financial conditions to better suit the local context.

Sector-Specific Impacts

Real Estate Sector

As US inflation leads to changes in interest rates set by the Federal Reserve, these adjustments are mirrored by the Hong Kong Monetary Authority (HKMA) to maintain the currency peg. Higher US interest rates can lead to increased mortgage rates in Hong Kong, dampening demand in the real estate market as borrowing costs rise. Conversely, when US rates are cut, mortgage rates in Hong Kong tend to decrease, potentially boosting property market activity. The real estate sector's sensitivity to US monetary policy underscores its vulnerability to US inflation trends. 

Stock Market

The Hong Kong stock market is also responsive to US inflation indicators and the subsequent monetary policy adjustments by the US Federal Reserve. Since higher inflation often leads to higher interest rates, this can result in reduced investment in stocks due to the higher attractiveness of fixed-income investments. Additionally, inflationary pressures in the US can lead to global economic uncertainty, which typically results in increased market volatility and could affect investor sentiment in Hong Kong. The performance of the Hang Seng Index, a barometer for the Hong Kong stock market, often reflects these global economic shifts driven by US economic policies.

Construction Sector

The construction sector in Hong Kong faces direct impacts from US inflation through the channel of global supply chain disruptions and increased material costs. As noted in the discussions on global supply chain pressures, disruptions have led to increased costs for construction materials. These disruptions, exacerbated during the COVID-19 pandemic, have led to higher input costs for Hong Kong’s construction projects. McKinsey & Company highlighted that accelerating inflation coupled with declining productivity could drive up construction costs significantly in Hong Kong, estimating an increase of up to US $22 billion by 2031 due to inflation alone. The sector is particularly sensitive to changes in the cost of bulk materials and freight, which are influenced by global economic conditions tied to US inflation dynamics.

Influence of Global Supply Chain Disruptions and Increased Material Costs

Global supply chain disruptions have a pronounced impact on various sectors in Hong Kong by increasing the costs of imported goods, including raw materials essential for manufacturing and construction. These disruptions, often resulting from geopolitical tensions, natural disasters, or significant global economic shifts like those induced by the pandemic, lead to increased prices and delayed delivery times for materials.

For Hong Kong, a region reliant on imports for many of its supplies, this can lead to increased operational costs and project delays in construction and other material-dependent sectors. The direct correlation between supply chain efficiency and sectoral performance in Hong Kong underscores the broader economic vulnerability to shifts in the global logistical landscape, heavily influenced by economic conditions in the US.

Investment Strategies for Hong Kong Investors

Inflation can erode the purchasing power of money over time, making it crucial for investors to find effective ways to protect their portfolios. Various asset classes offer different levels of protection against inflation, each with its own strengths and weaknesses. In Hong Kong particularly, investors have access to a dynamic financial market, highlighted by the fifth-largest stock exchange globally and a thriving fund management sector, enriched by initiatives like the Shanghai-Hong Kong Stock Connect and the Greater Bay Area project. These opportunities are bolstered by a robust regulatory framework, making the region attractive for both retail and institutional investors. 

Interest Rates Driven Investment

Hedging against inflation can be effectively achieved through high-interest rate investments such as time deposits, high yield savings accounts, and robo-advisors. Time deposits, or fixed deposits, offer secure and predictable returns by locking in funds for a specified period at interest rates typically higher than regular savings accounts, making them attractive in a rising interest rate environment. High yield savings accounts provide liquidity while offering significantly higher interest rates compared to regular savings accounts, helping to offset inflation effects. Meanwhile, robo-advisors utilise algorithms to manage diversified portfolios tailored to individual risk preferences, often incorporating higher-yield investments to combat inflation and grow wealth over time.

For those seeking an innovative approach to high interest return, the StashAway USD Cash Yield portfolio is worth considering. This portfolio invests in ultra-low-risk short-term US treasuries and  offers competitive interest rates of 4.7% p.a.. USD Cash Yield portfolio has no minimum requirement and lock-up period,, making it a flexible and attractive option for savers. By offering higher yields compared to traditional savings accounts, it helps to better combat the effects of inflation, ensuring that your money maintains its value over time.

Gold

Gold is a tangible asset that tends to hold its value over time, making it a popular choice for hedging against inflation. In times of economic uncertainty or currency devaluation, gold can serve as a stable store of value. However, it's important to note that gold is not a perfect hedge against inflation. Central banks often raise interest rates to combat inflation, which can make non-yielding assets like gold less attractive compared to interest-bearing assets.

• Gold Bullion and Coins: Investors can purchase gold bullion and coins from reputable dealers including banks like Hang Seng Bank and Bank of China (Hong Kong), as well as specialised precious metal shops such as Chow Tai Fook and Luk Fook.

• Hong Kong Mercantile Exchange (HKMEx): This platform allows for trading in gold futures contracts, providing a regulated environment for investors looking to trade gold without physically holding it.

• Gold Certificates: Gold certificates represent ownership of gold without the need to store physical gold. These are typically offered by banks and can be a practical alternative for investors looking to avoid the logistics of handling physical gold.

• Gold Tokens: A digital way to invest in gold. These tokens represent a specific amount of physical gold stored by the bank, combining the benefits of physical gold ownership with the convenience of digital transactions. 

• Gold ETFs: Gold ETFs offer convenient and diversified ways to invest in gold, providing exposure to gold prices or gold mining companies without the need to physically hold the metal.

Gold ETFs in US Stocks:

• SPDR Gold ETF (GLD.US): The world's largest gold ETF, providing investors with an opportunity to track gold spot prices.
• iShares Gold Trust (IAU.US): Another major gold ETF that tracks the market value of gold.
• VanEck Gold Miners Equity ETF (GDX.US): This ETF invests in various gold mining companies globally, rather than directly in gold.
• VanEck Junior Gold Miners ETF (GDXJ.US): Similar to GDX, but focuses on small to medium-sized gold mining companies worldwide.

Gold ETFs in Hong Kong Stocks:

• SPDR Gold Trust (02840.HK): Listed on the Hong Kong Stock Exchange, this ETF is a sister fund to the US-listed GLD and aims to track gold prices.
• Value Gold ETF (03081.HK): Another gold ETF on the HKEx, tracking the price of gold on the London Gold Market

Commodities

Besides gold, other commodities are also widely traded in Hong Kong, offering investors diverse opportunities to hedge against inflation and diversify their portfolios. Here are some key commodities to look at:

• USD and CNH Silver Futures: Denominated in USD and offshore RMB (CNH), these contracts allow investors to trade silver and hedge against price fluctuations.

• USD TSI Iron Ore Fines 62% Fe CFR China Futures: These cash-settled contracts are based on the TSI Iron Ore Fines benchmark, offering exposure to the iron ore market, essential for the steel industry. They allow investors to hedge against price volatility in iron ore.

• USD and CNH London Metal Mini Futures: These include futures for metals such as aluminum, zinc, copper, nickel, tin, and lead. Mini contracts cater to more granular trading strategies, providing exposure to key industrial metals.

For broader exposure to various commodities without engaging directly in futures trading, investors can consider several commodity ETFs:

• iShares S&P GSCI Commodity-Indexed Trust (GSG): This ETF offers broad exposure to a diversified basket of commodities, including energy, metals, and agricultural products. It tracks the S&P GSCI Total Return Index, making it a comprehensive option for investors aiming to hedge against inflation and diversify their portfolios.

• Invesco DB Commodity Index Tracking Fund (DBC): Tracks a diversified index of commodities, including energy, precious metals, industrial metals, and agriculture. It provides investors with exposure to a wide range of commodities, helping them manage inflation risks.

60/40 Stock/Bond Portfolio

A traditional 60/40 stock/bond portfolio balances risk and return, providing a conservative investment strategy that can hedge against inflation. This portfolio allocates 60% to stocks for growth potential and 40% to bonds for stability, smoothing out returns over time and reducing volatility. The Dimensional DFA Global Allocation 60/40 Portfolio (I) (DGSIX) exemplifies this strategy, with an expense ratio of 0.24% and a five-year average return of 8.17%. It offers diversification across global markets, helping to protect against inflation and market downturns.

However, while a 60/40 portfolio mitigates risk, it may underperform compared to an all-equity portfolio over the long term due to the lower returns typically associated with bonds. The compounding effect of equities can lead to higher returns, but the conservative allocation in a 60/40 portfolio provides more stable, moderate growth. This balance makes it suitable for investors seeking a mix of growth and stability, rather than maximum returns.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a collective investment scheme designed to deliver a source of recurrent income to investors through focused investments in a portfolio of income-generating properties such as shopping malls, offices, hotels, and service apartments in Hong Kong and overseas. REITs distribute the majority of their net income after tax as dividends, with regulations requiring a dividend payout ratio of at least 90%. This high payout ratio ensures that investors receive regular income distributions, making REITs an attractive option for those looking to hedge against inflation. As property values and rental incomes typically rise with inflation, REITs can help maintain purchasing power and provide a reliable income stream.

REITs in Hong Kong are primarily regulated by the Securities and Futures Commission (SFC) and must be authorised by the SFC before being listed on the Stock Exchange of Hong Kong (HKEX). The SFC's Code on Real Estate Investment Trusts and the relevant listing rules govern these investments. Investors can buy and sell REIT units on the HKEX, similar to trading stocks. However, REITs may trade at a premium or discount to their net asset values (NAV), which investors should consider when making investment decisions. For those interested in exploring available REITs, here are some notable ones listed on HKEX:

1. Link Real Estate Investment Trust (0823.HK): The largest REIT in Asia, focusing on retail properties and car parks.
2. Sunlight Real Estate Investment Trust (0435.HK): Invests in office and retail properties across Hong Kong.
3. Hui Xian Real Estate Investment Trust (87001.HK): Focuses on commercial properties in China and is the first RMB-denominated REIT listed in Hong Kong.
4. Champion Real Estate Investment Trust (2778.HK): Invests in Grade A office buildings and shopping arcades.
5. Fortune Real Estate Investment Trust (0778.HK): Focuses on retail properties in Hong Kong.

These REITs offer various opportunities for investors to gain exposure to different segments of the real estate market, providing both income and potential for capital appreciation. 

The S&P 500

Investing in the S&P 500, an index of the 500 largest U.S. public companies, offers significant long-term upside potential. This index is widely regarded as a benchmark for the overall performance of the U.S. stock market. Companies in the S&P 500 span various sectors, with a notable concentration in technology and communication services. These sectors tend to benefit from inflation due to their capital-light nature, meaning they require less capital expenditure compared to industrial or resource-based businesses. This allows them to maintain profitability even as costs rise.

The SPDR S&P 500 ETF (SPY) is a popular investment vehicle that tracks the performance of the S&P 500 index. With an expense ratio of 0.0945% and a five-year return of 10.86%, SPY offers a cost-effective way for investors to gain exposure to a broad range of large-cap U.S. companies. This ETF is highly liquid and widely traded, making it accessible for both individual and institutional investors.

However, the S&P 500 index's heavy weighting towards large-cap companies, especially those with substantial market capitalizations like Apple, Microsoft, and Amazon, means that the performance of these few companies significantly impacts the index. This can be both an advantage and a drawback. While strong performance by these leading companies can drive the index higher, poor performance can have a disproportionately negative effect. Additionally, the index provides limited exposure to small-cap companies, which have historically offered higher returns over the long term but with increased volatility.

Investors considering the S&P 500 should be aware of these dynamics and how they align with their investment goals and risk tolerance. Diversifying with other indices or sectors can help mitigate the concentration risk inherent in the S&P 500. Overall, the S&P 500 remains a cornerstone for many portfolios due to its proven track record of growth and stability.

Real Estate Income

Real estate income from renting out properties is an effective hedge against inflation. As inflation rises, both property values and rental income tend to increase, allowing landlords to maintain their purchasing power. This makes rental properties a reliable investment for protecting wealth from inflation's eroding effects. Higher rental income ensures that the revenue generated from the property keeps pace with the rising cost of living, thereby preserving the real value of the income stream. Additionally, property value appreciation in response to inflation offers capital gains, enhancing the overall return on investment.

Investing in vehicles like the VanEck Vectors Mortgage REIT Income ETF (MORT) can provide exposure to real estate income without the direct responsibilities of property management. MORT has an expense ratio of 0.43% and offers a diversified portfolio of mortgage REITs, which generate income from interest on mortgage loans and rental properties. However, direct real estate investments come with challenges, including illiquidity, significant transaction costs, and management responsibilities. Despite these considerations, rental income remains a strong hedge against inflation, offering both steady income and potential for property value growth.

The Bloomberg Aggregate Bond Index

The Bloomberg Aggregate Bond Index tracks a broad range of U.S. bonds, including government, corporate, taxable, and municipal bonds. It is widely recognised as a benchmark for the U.S. bond market, offering comprehensive coverage and reflecting the performance of investment-grade bonds. The iShares Core U.S. Aggregate Bond ETF (AGG) replicates this index, providing investors with exposure to the entire spectrum of the U.S. bond market. With a low expense ratio of 0.03%, AGG is a cost-effective way to gain diversified bond exposure. Bonds can provide stability in an investment portfolio, offering regular interest payments and lower volatility compared to equities.

However, the Bloomberg Aggregate Bond Index is heavily weighted towards issuers with the most debt, particularly government securities, leading to a concentration in government exposure. This means the index is less diversified across different sectors compared to other bond indices. Despite this, bonds remain a valuable component for hedging against inflation. Interest payments from bonds can help offset the loss of purchasing power due to inflation, and their prices often increase when interest rates rise to combat inflation. Therefore, incorporating bonds through ETFs like AGG can provide a stabilizing effect in a portfolio, helping to manage inflation risk while maintaining steady income.

Real Impact to Hong Kong based on Historical Events

Historically, there have been several instances where inflationary trends in the United States have had implications for Hong Kong's markets:

• Global Financial Crisis (2007-2008): The US experienced a housing market collapse and financial crisis, prompting aggressive monetary policy measures such as quantitative easing to stimulate the economy. While these measures helped stabilise the US economy, they also led to increased liquidity in global financial markets, including Hong Kong. This influx of liquidity contributed to a surge in property prices in Hong Kong, fuelling concerns about an overheated real estate market.

• Taper Tantrum (2013): When the Federal Reserve hinted at reducing its bond-buying program (quantitative easing), it triggered a "taper tantrum" in global financial markets. Investors feared the withdrawal of monetary stimulus would lead to higher interest rates and reduced liquidity. In Hong Kong, this resulted in capital outflows and a depreciation of the Hong Kong dollar, affecting asset prices, including real estate.

• US-China Trade War (2018-2019): Trade tensions between the US and China escalated, leading to concerns about global economic growth and market volatility. In response, the Federal Reserve adopted a more dovish monetary policy stance, cutting interest rates to mitigate economic risks. This contributed to lower borrowing costs globally, including in Hong Kong, where interest rates influence property prices and mortgage affordability.

• COVID-19 Pandemic (2020-2022): The pandemic prompted unprecedented monetary and fiscal stimulus measures worldwide, including in the US. The Federal Reserve implemented aggressive rate cuts and asset purchases to support the economy, leading to abundant liquidity in global financial markets. In Hong Kong, ultra-low interest rates and ample liquidity contributed to a surge in property prices, despite economic uncertainties.

Hong Kong investors responded to each of these crises with resilience and adaptability, adjusting their investment strategies to navigate market volatility and economic uncertainty. During the global financial crisis, many sought safety in stable assets like bonds and cash while some capitalised on distressed asset prices. The taper tantrum and US-China trade war prompted increased market volatility, leading investors to diversify portfolios and hedge against risk. Amid the COVID-19 pandemic, defensive positions were favored, with a shift towards cash and fixed-income securities, while opportunistic investors seized discounted assets and explored emerging sectors like technology and healthcare. Throughout these challenges, Hong Kong investors demonstrated their ability to assess and respond to changing market conditions, seeking to mitigate risks and capitalise on opportunities for growth.

Strategic Insights for Navigating US Inflation Impact on Hong Kong's Financial Landscape

US inflation significantly impacts Hong Kong's economy due to the linked exchange rate system, which ties the Hong Kong dollar to the US dollar, compelling the Hong Kong Monetary Authority (HKMA) to align local monetary policies with those of the US Federal Reserve. This linkage affects various sectors in Hong Kong, including real estate, the stock market, and construction, which are sensitive to changes in US interest rates and global supply chain dynamics. Additionally, geopolitical tensions between the US and China, along with international policies and sanctions, further influence Hong Kong's financial market stability and investor confidence.

To navigate the complexities of US inflation fluctuations, Hong Kong investors need to employ strategies such as proactive monitoring of economic indicators, flexible investment approaches, and enhanced diversification across asset classes and regions. Investments in inflation-protected assets like TIPS, real estate, and commodities, along with the strategic use of derivatives, are crucial for hedging against inflation. These measures will help investors mitigate risks and capitalise on opportunities, emphasizing the importance of adaptability and comprehensive portfolio management in a globally interconnected financial landscape.