Investors Broaden Inflation Hedges Beyond TIPS as Price Pressures Persist

U.S. investors are broadening their search for inflation protection beyond Treasury Inflation-Protected Securities as price growth remains above the Federal Reserve’s target and September CPI data approaches.

The September Consumer Price Index is scheduled for release Oct. 14 at 8:30 a.m. ET (12:30 p.m. UTC). August headline inflation rose 3.4% from a year earlier, while core inflation increased 2.4%.

August personal consumption expenditures inflation was 3.4% year over year, while core PCE inflation was 3%. One-year-ahead inflation expectations rose to 3.9% in September, the highest level since May 2023.

TIPS adjust their principal based on the nonseasonally adjusted CPI for All Urban Consumers. At maturity, investors receive the inflation-adjusted principal or the original principal, whichever is greater.

That protection does not eliminate market risk. TIPS prices can decline when real yields rise, and longer-maturity securities generally carry greater duration exposure. Holding an individual TIPS until maturity also differs from owning a fund that regularly maintains its duration.

“Given where rates are, it’s getting interesting,” said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management.

Commodities may benefit when producers pass higher input costs on to customers. Infrastructure companies can also receive revenue through contracts that include inflation adjustments, while gold and real estate investment trusts can add different sources of portfolio exposure.

These assets do not provide guaranteed protection in every inflation environment. Their performance can vary with interest rates, economic conditions and the specific forces affecting each market.

TIPS remain a central option for investors focused on inflation-linked principal, but the broader mix reflects the difficulty of relying on one hedge when both consumer prices and real yields are moving. The next major data point is the September CPI release on Oct. 14.