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In a modern economic system, some level of inflation is expected and largely unavoidable. Population growth increases demand. Fiscal spending injects money into the economy. Even productivity gains, while beneficial, can lead to higher consumption, which feeds back into pricing pressures.
Because of its impact on everyday life, inflation is a major concern for policymakers. It affects housing affordability, food costs, transportation and overall living standards. Left unchecked, it can erode purchasing power and contribute to economic instability.
For investors, inflation can eat into their real returns. While nominal returns are the headline numbers you see — the percentage gain of an investment over time — real returns adjust for inflation, reflecting what your money can actually buy after prices rise.
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One half of the Federal Reserve’s dual mandate is to maintain price stability around 2% annual inflation, but that target has not always been met.
Most of us remember the macro environment a few years back, when inflation peaked at a 40-year high of 9.1% in June 2022. This was driven by a combination of pandemic-era stimulus and supply chain disruptions, which pushed up the cost of essentials like groceries and gasoline — and weighed on investors’ real returns.
Earlier periods were even more severe. During the late 1970s and early 1980s, inflation climbed into the double digits. Then-Fed Chair Paul Volcker responded by raising interest rates above inflation to bring it under control. His monetary policy worked, but it came at the cost of a deep recession, widespread economic strain and civil unrest.
“While higher inflation is certainly a concern, it’s also a reason for investors to take risks.”
More recently, the ongoing conflict in the Middle East has caused inflation to accelerate once again. The war between the U.S., Israel and Iran caused a temporary shutdown of the Strait of Hormuz, which created a supply-side shock as disruptions to the flow of oil and key shipping routes reduced available supply while demand remained relatively stable.
Energy prices moved higher almost immediately, and because energy is a key input in transportation, manufacturing and agriculture, those cost increases will eventually filter through to food and other goods.
While higher inflation is certainly a concern, it’s also a reason for investors to take risks. Holding cash over long periods inevitably leads to a loss of purchasing power. Even if your balance stays the same, what it can buy declines year after year.
Stocks are often viewed as a long-term way to outpace inflation, but some assets are more directly tied to rising prices than others. These can be accessed through more specialized exchange-traded funds (ETFs) and may serve as useful tools when building an inflation-resistant portfolio.
How is inflation measured?
The two primary measures of inflation are the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE).
CPI is managed by the Bureau of Labor Statistics (BLS), while PCE is calculated by the Bureau of Economic Analysis (BEA). Both track changes in prices, but they differ in what they measure and how they are constructed.
CPI is based on a consumer expenditure survey and reflects out-of-pocket spending by urban households. It includes categories such as housing, food, transportation, medical care and energy, with fixed weights assigned to each.
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PCE, on the other hand, draws from business surveys such as retail sales and service reports. It measures goods and services consumed across all households, including items paid for on behalf of consumers, such as employer-sponsored healthcare.
For investors, CPI is generally more intuitive and relevant, as it better reflects the direct cost of living. The Fed, however, prefers PCE because of its broader coverage and ability to adjust as consumer behavior changes.
When CPI and PCE are reported, both include “core” readings, which exclude volatile food and energy prices and are typically considered to be better predictors of future inflation.
Understanding inflation sensitivity for assets
For a retail investor, understanding how assets respond to inflation often starts by breaking down these “baskets” of goods and services. CPI, for instance, includes housing, food, energy and transportation. From there, you can work backward and map those categories to investments.
Certain patterns tend to emerge. Many inflation-proof investments fall under the category of real assets. These include real estate and infrastructure, which often generate income linked to inflation through rents, tolls or regulated pricing structures.
Commodities are another major category. This goes beyond precious metals such as gold and silver and includes energy products (crude oil and natural gas) and agricultural inputs (wheat, corn, soybeans and fertilizers like potash). These are among the first to rise during inflationary periods.
There are also financial instruments designed specifically to track inflation. A common example for U.S. investors is Treasury Inflation-Protected Securities (TIPS). These are special government bonds where the principal adjusts to changes in CPI. When inflation rises, the bond’s value and coupon payments increase. This contrasts with traditional Treasury bonds that tend to lose value in inflationary environments.
All of these approaches can be accessed through ETFs. Some funds focus on a single category, while others combine multiple inflation-sensitive assets. Either way, it helps to look beyond the ETF label. Break down the inflation measure you care about, understand its components, and analyze those based on what the prospective ETF actually holds.
How we picked the best inflation-fighting ETFs
If you use a screener such as ETF Central, you can filter for funds with the word “inflation” in their name. That currently returns 29 funds. However, an ETF’s name alone is not enough to determine whether a fund actually works as an inflation hedge.
Beyond mapping inflation inputs to what a fund holds, it helps to see how these ETFs performed during a real inflationary period. None of these ETFs were around during the Volcker era, but many were active during the 2021 to 2022 inflation surge.
Before looking at assets under management or fees, we backtested each ETF using testfolio.io. We focused on the one-year period from December 31, 2021, to December 30, 2022. To qualify, an inflation-hedging ETF needed to deliver a total return that exceeded the 6.46% inflation rate during that period.
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That time frame was not only marked by high inflation, but also the start of a bear market and rising interest rates. This added a meaningful hurdle as many diversification assumptions broke down in 2022. For example, many TIPS ETFs declined as interest rates rose and traditionally inflation-resistant equities, such as real estate investment trusts (REITs) and infrastructure stocks, declined due to cyclical risk.
After identifying funds that passed our above-inflation return test, we adjusted our usual ETF screening approach. Because this process already narrowed the list significantly, we did not enforce strict minimums for assets under management or maximum expense ratios.
Instead, if a fund had relatively high fees or a smaller asset base that could raise closure risk, we highlighted those considerations in the individual write-ups.
ProShares Inflation Expectations ETF
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- Assets under management: $18.2 million
- Net expense ratio: 0.30%
- Cumulative total return (December 31, 2021, to December 30, 2022): 8.8%
The ProShares Inflation Expectations ETF (RINF) tracks the FTSE 30-Year TIPS Treasury Rate Hedge Index, which is built around the concept of the breakeven inflation rate. This is the difference in yield between a nominal Treasury bond and a TIPS of the same maturity. When inflation expectations rise, this spread widens.
To express this thesis, RINF takes a long position in 30-year TIPS and an offsetting short position in duration-matched nominal Treasury bonds. Long-duration TIPS are particularly sensitive to inflation expectations, but they also carry significant interest rate risk. The short position in nominal Treasuries acts as a hedge against that risk.
RINF’s goal is to isolate inflation expectations while offsetting interest rate movements. The strategy tends to perform well when inflation expectations are rising faster than nominal yields. It can struggle when both real yields and nominal yields move higher, or when inflation expectations decline.
Rather than holding 30-year TIPS and shorting nominal bonds directly, RINF implements its exposure synthetically using index swaps with counterparties such as Société Générale and Citibank. The positions are backed by cash-like collateral, which also generates some interest income.
There are a couple of considerations. With assets under management below $50 million, RINF carries a higher risk of closure. Its gross expense ratio is also relatively high at 1.12%, although ProShares currently waives a portion of the fee, bringing the net expense ratio down to 0.30%.
Learn more about RINF at the ProShares provider site.
State Street Multi-Asset Real Return ETF
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- Assets under management: $1.2 billion
- Net expense ratio: 0.50%
- Cumulative total return (December 31, 2021, to December 30, 2022): 7.8%
Many single-sector inflation plays, particularly energy ETFs, performed very well in 2022. But that cuts both ways. Just two years earlier, during the March 2020 COVID-19 shock, oil prices briefly turned negative and energy-heavy funds saw steep losses. That level of volatility and concentration can make them difficult to rely on as a consistent inflation hedge.
The State Street Multi-Asset Real Return ETF (RLY) takes a more diversified approach. It is an actively managed ETF that can invest across domestic and international inflation-linked bonds, real estate, commodities, infrastructure and natural resource stocks spanning agriculture, energy, metals, mining and utilities. The ETF is structured as a fund of funds, primarily holding other State Street ETFs while also allocating to select third-party funds.
As of April 2026, natural resource stocks make up 35.6% of RLY, followed by commodities at 25.1% and global infrastructure at 24.6%. Inflation-linked bonds account for 8.8% of the portfolio, with smaller allocations to real estate (3.3%) and cash (2.5%).
Many of these underlying assets generate income, too, contributing to a relatively healthy 3.1% 30-day SEC yield.
Learn more about RLY at the State Street Investment Management provider site.
FlexShares Morningstar Global Upstream Natural Resources Index Fund
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- Assets under management: $7.4 billion
- Net expense ratio: 0.46%
- Cumulative total return (December 31, 2021, to December 30, 2022): 14.9%
Investors looking for the inflation sensitivity of commodity producers but with broader diversification beyond the energy sector may find the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) appealing.
This ETF passively tracks the Morningstar Global Upstream Natural Resources Index. Energy accounts for 29.9% of the portfolio as of April 2026. The rest is spread evenly across metals (29.3%) and agriculture (27.8%), with smaller allocations to water (5.0%) and timber (4.4%).
GUNR also adds geographic diversification. The U.S. represents 39.3% of the portfolio, followed by Canada (16.3%) and Australia (10.3%), both of which are major natural resource producers with stable political environments.
As expected, there is also an income component, though lower than multi-asset funds such as RLY. GUNR currently offers a 2.1% 30-day SEC yield after accounting for expenses.
Learn more about GUNR at the FlexShares provider site.
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF
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- Assets under management: $6.3 billion
- Net expense ratio: 0.59%
- Cumulative total return (December 31, 2021, to December 30, 2022): 19.3%
Energy and commodity-producing equities can respond well to inflation, but they still carry equity market risk. They are stocks, so they can decline alongside broader markets. While they held up in 2022, it is not hard to imagine an inflationary period where a sharp stock sell-off pulls them down anyway.
In that scenario, a less-correlated hedge such as the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) may be more effective. Instead of owning stocks, PDBC’s portfolio spans a wide range of commodities, including crude oil (Brent), natural gas, copper, gold, aluminum, zinc, corn, soybeans, cotton and feeder cattle. This broad positioning give investors exposure to multiple parts of the inflation basket.
However, there are additional mechanics to understand. Commodity ETFs like PDBC rely on futures contracts, which trade along a curve. In many markets, that curve is in contango, meaning longer-dated contracts are more expensive than near-term ones.
As contracts approach expiration, the fund must roll its positions. In a contango environment, this can create drag if the fund sells lower-priced expiring contracts and buys higher-priced new ones. PDBC addresses this with an “optimum yield” strategy. Instead of blindly rolling into the next contract, it selects contracts along the curve that may reduce the impact of contango.
Another consideration is taxes. Many commodity funds are structured as partnerships and issue a Schedule K-1, which can complicate tax filing. PDBC avoids this, but investors should still be aware that it can generate sizable year-end capital gains distributions, which may reduce tax efficiency.
Learn more about PDBC at the Invesco provider site.
Global X MLP & Energy Infrastructure ETF
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- Assets under management: $3.35 billion
- Net expense ratio: 0.45%
- Cumulative total return (December 31, 2021, to December 30, 2022): 21.5%
Upstream energy producers tend to have strong sensitivity to inflation, but they also come with high volatility. A more moderate approach is to focus on midstream companies, which operate the infrastructure transporting crude oil and natural gas via pipelines, storage facilities and export terminals.
Exposure to this segment is available through the Global X MLP & Energy Infrastructure ETF (MLPX), which tracks the Solactive MLP & Energy Infrastructure Index. The portfolio is primarily composed of large, incorporated pipeline operators including Enbridge (ENB), TC Energy (TRP) and Kinder Morgan (KMI).
MLPX can also allocate some of its assets to master limited partnerships (MLPs). These are pass-through entities that own midstream infrastructure and often pay higher yields. Direct ownership of MLPs can be more complex due to Schedule K-1 tax forms, but within a regulated investment company structure like MLPX, and with a 25% cap, investors receive a standard 1099-DIV form instead.
The midstream focus tends to result in higher income and lower volatility compared to upstream producers. Relative to the S&P 500, MLPX has a beta of 0.5, making it half as sensitive historically to broader market movements. It currently pays a 4.2% 30-day SEC yield after fees.
Learn more about MLPX at the Global X ETFs provider site.
