Explain how inflation behaves across the business cycle and what it means for returns on cash, bonds, equities and real estate

Inflation tends to lag the cycle, rising in late expansion as slack disappears and falling during contraction. With inflation at or below expectations, cash is neutral, bonds benefit as yields stay stable or fall, equities benefit, and real estate is roughly neutral. With inflation above expectations, cash gains as short rates reset upwards, bonds lose from rising yields, equities are hurt unless firms can pass costs through, and real estate tends to do well as rents and replacement costs rise. With deflation, cash suffers near the zero bound, high-quality bonds gain, and equities and real estate suffer as nominal revenues and asset values fall. The trap is focusing on the inflation level rather than the surprise relative to expectations.