Inflation is a significant economic issue that erodes the value of savings, impacts investment returns, and prompts central banks to take action. Investors need to get ready for inflation to rise and then eventually fall or stabilise to keep their actual wealth safe. 

In this blog, learn how to plan for economic cycles, pick the right assets during inflation changes, avoid pitfalls, and build a strong, diversified portfolio with RMoney.

Why Inflation Cycles Matter

Inflation cycles impact your money, interest rates, and investments. Understanding them helps protect wealth and spot opportunities.

• Loss of purchasing power: Even a small amount of inflation reduces the real value of the money you have. Over time, such a loss can significantly erode your standard of living or retirement savings. 

• Interest rates & monetary policy: Central banks typically raise rates in a high inflation situation, which affects bond yields, costs of loans, and returns on equity. When inflation is falling, central banks typically cut interest rates or pursue other forms of easing. 

• Sectoral winners and losers: Different sectors, asset classes, and geographic locations react differently as to whether inflation is rising or falling. It is key to identify which parts of your investments will help you or hurt you.

Key Phases of an Inflation Cycle

Let’s break down what typically happens in two major phases:

Past Performance Of Inflation:

Studying past inflation helps investors spot trends and know which assets may gain or lose value.

• 1970s US stagflation: Inflation over 10% caused gold prices to surge 500-600%, while bonds lost value due to rising rates.
• Post-COVID (2021-2023): Energy stocks outperformed by up to 50%, tech lagged amid rate hikes.
• India 2024-2025: CPI inflation at 2.07% in August 2025 (latest data), stabilising low; gold ETFs delivered 26-47% returns, per sources like Economic Times and Tickertape.

Strategies to Protect & Grow Your Portfolio Across Inflation Cycles

Investors should take into account these broad methods, which include examples, in both rising and decreasing inflation circumstances.

1- Diversify Across Asset Classes:

Tangible assets: These include real estate, infrastructure, or commodities (e.g., oil, metals), which are often seen as ways to protect against inflation.

• Inflation-protected securities: Inflation-protected securities are known as TIPS. In India, you can find similar government securities that change either the amount you invest or the interest you earn based on inflation.
• Gold and precious metals: tend to retain value during loss of purchasing power in fiat currency; however, these assets often do not produce income (dividends/interest), therefore, the share in the portfolios’ allocation should be balanced. 
• Equities selected by group can be appropriate: Equities such as consumer staples, energy, or certain utilities tend to have pricing power, which makes it easier to pass on inflation increases; avoid sectors that have increased costs but limited pricing power.

2- Use Duration Management in Bonds

With rising inflation & rising interest rates, long-duration bonds will decline in value, and investors may want to consider short-duration or floating-rate bonds. When inflation declines, and rates are likely to come down, long-duration bonds can become significantly rewarding with more value.

Barbell strategies involve mixing very short-term and long-term investments while skipping the riskier middle-term ones. This approach can help lower the risk of losing money due to changes in interest rates.

3 – Regular Portfolio Rebalancing

• Remove overvalued assets that may have increased substantially during inflation.
• Transition to defensive positioning in anticipation of inflation peaks.
• Align allocations with risk tolerance: if inflation is creating volatility in the markets, perhaps decrease exposure to assets that are sensitive to rate hikes.

As observed by Mercer and other research organisations focused on investments, diversification and rebalancing are key to inflation protection.

4 – Focus on Income-Generating Assets

Regular cash flows from infrastructure assets, real estate rental revenue, and dividend-paying stocks usually counteract inflationary erosion.

5 – Monitor Macroeconomic Indicators

Primary indicators:

• CPI/inflation rates
• Producer price indices
• Wage growth and labour market tightness
• Commodity price trends
• Central bank interest rate policy signals

These factors help you understand when inflation changes from increasing to stabilising or decreasing. So, you can change your approach as needed. Investors who have the correct timing can then transition into more favourable assets (ie, bonds) ahead of the market.

6 – Hedging Where Possible

• Use asset types like commodity Exchange-Traded Funds (ETFs) or futures contracts if possible. 
• Deploy inflation-indexed bonds.
• Think about using currency hedging if your business operates in different countries, as inflation rates can vary between them.

Pitfalls to Avoid

• Pursuing returns: Investing in “hot” inflation-sensitive assets after they have appreciated can lead to dramatic reversals.

• Over-leveraging: During inflationary periods, debt can be advantageous as rising inflation reduces the real burden of debt by eroding its purchasing power. However, higher interest rates can elevate borrowing costs, offsetting some of these benefits.

• Ignoring costs: Costs, such as taxes, transaction fees, and management expenses, can take a bite out of returns, especially in inflationary environments.

• Not adjusting risk: Because dramatic increases in volatility can occur in inflation cycles, investors should, as a routine practice, ensure the risk of their portfolio aligns with their ability to absorb shocks.

Sample Portfolio Approaches

Several institutional and advisory companies recommend modifying allocations they believe would fare better in inflation, which prompts investors to have more inflation-hedged assets: 

• Morgan Stanley’s CIO suggested an allocation of 60% equities, 20% bonds, and 20% gold, as a strategy resilient to inflation pressures. 
• By the same token, they proposed a 60% equities, 30% bonds, and 10% inflation-indexed/protected portfolio (“TIPS” is an example of protection). 

Neither is one size fits all, as you would need to take into account your age, goals, risk tolerance, tax situation, and investment horizon to adjust the mix.

How RMoney Can Help

RMoney is created to assist you in managing inflation movement up and down cycles, utilising tools and services that help with:

• Intelligent asset allocation recommendations based on your risk profile.
• Data-driven alerts: push notifications, if inflation indicators (i.e., CPI, commodity prices, interest rates) move into areas that have historically been accompanied by rising or falling inflation stages.
• The ability to invest in inflation-protected assets, diversified real asset funds, and low-cost access to commodities.
• Rebalancing tools for allocating at different inflation phases.
• Educational content for investors to gain understanding regarding which sectors/countries/asset classes perform given each inflation phase.

With RMoney, you can take charge of your investment strategy instead of just reacting to changes. This way, you can protect your buying power, reduce risks, and benefit from changes as inflation rises.

Action Plan / Checklist

Use this list to evaluate your own portfolio by keeping these points in mind:

1. Analyse your existing portfolio: asset classes, durations, sectors.
2. Consider your exposure to inflation: how much of your wealth is in cash, fixed income, etc., which is depreciated with inflation.
3. Consider what inflation scenarios you believe could occur in the near-term (e.g., moderate increase, spike, decrease).
4. Rebalance your portfolio accordingly: increase your exposure to real assets, lower your long bonds in the increasing inflation scenario.
5. Set thresholds for rebalancing: decide when you’ll shift allocations (e.g., when inflation reaches X%, or the central bank signals rate hikes).
6. Continuously monitor: inflation data, central bank policy, geopolitical / supply chain risks.
   

Conclusion

Inflation cycles are a fact of life; however, the damage done to your wealth doesn’t have to be. By understanding the difference between rising and falling inflation, choosing the right asset classes, keeping an eye on a duration position, and exercising caution, you can safeguard and even build real purchasing power in rough patches. 

• If you’re considering building or modifying a portfolio around inflation, RMoney can help. We currently offer: 
• Personalised portfolio analysis 
• Options for inflation-hedged financial instruments 
• Regular rebalancing support 
• Notifications when macro conditions change 

Contact us to get free consultation today to map a strategy around inflation cycles. Sustainability of long-term financial security should never be threatened by inflation. 

Disclaimer:
The information provided in this blog is for educational and informational purposes only and should not be considered as investment advice or a recommendation to buy or sell any securities. Please consult a SEBI-registered investment advisor before making any investment decisions.

About Author

Megha Singh

I have expertise in simplifying complex concepts around trading and investing into clear, practical insights. At RMoney, I write on trading, equity markets, derivatives, and long-term investing to help readers make informed financial decisions. My writing is focused on delivering clarity and confidence to investors at every stage of their journey.