I have never felt comfortable with stocks as an inflation hedge in rapid inflationary periods. While they tend to be driven up, they generally do not keep pace with inflation as well as hard assets. If that is the case, then you will lose purchasing power even as your nominal wealth increases. That is better than fixed income investments where you will lose both purchasing power and nominal wealth.
Here is some data from Financial Armageddon on the Weimar experience:
by Michael Panzner
One of the (many) excuses that the bulls use to justify buying stocks at the present time is their belief that equities are a great hedge against inflation, particularly a hyperinflationary episode.
Whether or not we’ve reached the point where the prices of most goods and services are set to rise at a rapid rate (for the record, I don’t think we’re there — yet), history suggests that timing is everything as far as this kind of hedge is concerned.
If, as the following chart (courtesy of A World of Possible Futures) reveals, you bought equities at the wrong point during the Weimar inflation of the early 1920s (i.e., September 1921), your portfolio took a gargantuan hit (i.e., roughly 85% in real terms through November 1922) before share prices began to catch up with what was happening on the ground.
Hmmm. I wonder how many investors actually held on for the eventual recovery?