Why commodities shine in a time of stagflation

testify before Congress on March 7th brought on an irrepressible sense of déjà vu. “The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” warned the Federal Reserve’s chairman. Recent economic data suggest that “the ultimate level of interest rates is likely to be higher than previously anticipated.” It is a message that Mr Powell and his colleagues have been repeating, in various forms, since the Fed started raising rates a year ago. As so many times before, markets that had lulled themselves into a sense of complacency took fright and sold off.Investors are serially reluctant to take Mr Powell at his word because its implications are unpleasant for them. An ideal portfolio would contain a mix of asset classes that each prospers in different economic scenarios. But all the traditional classes—cash, bonds and stocks—do badly when inflation is high and rates are rising. Inflation erodes the value of both cash and the coupons paid by fixed-rate bonds. Rising rates push bond prices down to align their yields with those prevailing in the market, and knock share prices by making future earnings less valuable today.