Inflation and Fixed Annuities

There are certainly fixed annuities that are inflation adjusted and I would imagine in most cases that the benchmark is the consumer price index (CPI).

Some fixed annuities provide a sort of option to adjust the interest rate in light of dramatic changes in interest rates which would presumably track inflation expectations.

The subaccounts of a variable annuity can, in theory, be used as an inflation hedge. Not so much the equity exposure but rather any commodity/TIPS exposure.

Not entirely sure about your question regarding indexed annuities and inflation benchmarking. It is a good question--I will dig a bit and open it up to other folks who might want to comment on this thread.

There is obviously broad equity exposure through an indexed annuity. Some inflation hedge potential here to the extent that a broad equity index correlates to inflation. I am skeptical and tend to agree with Zvi Bodie on this one (that equities are not a good inflation hedge). The trick with equities and inflation seems to involve finding the outstanding business with both pricing power and few tangible, fixed assets.