It also favors banks and companies related to raw materials, which have struggled in previous environments of low inflation and low interest rates.
Second, and as can be seen in the following graph, bond and equity markets have performed well even in periods of even higher inflation than today. It is usually at the extremes (when inflation is higher than 6% or negative) when financial assets tend to suffer.
In third place, sustained periods of high inflation are rare. Some may recall the ultra-high inflation of the 1970s. In retrospect, it was clear that it was a unique period. In fact, as experts on the Great Depression are well aware, deflationary pressures are often more difficult to contain.
In the recent past, inflation in most developed markets has stayed below 5% most of the time. Following the financial crisis of 2007-09, US inflation has struggled to meet the 2% target set by the Federal Reserve, despite unprecedented stimulus measures and historically low interest rates.