1. National Society of Institutional Investment Professionals Inflation – The Next Disaster? Mark Roberts, CFA® Global Director of Research December 3, 2009
North America: Dallas • San Francisco • Newport Beach • New York • Atlanta
Europe: London • Paris • Munich • Prague • Madrid
Asia: Hong Kong • Shanghai • Tokyo

2. Table of Contents Structural and Cyclical Components
“Road Signs” - Leading Indicators
How Can Investors Protect Themselves - Correlations
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3. Demographics Can Impact Inflation Population of persons can drive consumption and credit demand
Source: Invesco Real Estate using data from Moody’s Economy.com. Chart reflects annual data from December 31, 1965 – September 2009.

4. Government Spending Can Impact Inflation Sharp moves in spending can lead inflation by 3-4 years
Source: Invesco Real Estate using data from Moody’s Economy.com. Chart reflects annual data from December 31, 1965 – September Government Spending as a share of GDP is shifted forward by three years to reflect the leading impact it has on inflation.

5. Shelter Costs Down, Oil Presents Inflation Risk
CPI-Shelter Costs; Qtr Growth, Annual
Oil Price: WTI, ($/Bbl)
Source: Invesco Real Estate using data from Moody’s Economy.com, December 31, 1998 – September 30, CPI-Shelter Costs reflect quarterly growth and is shown in annualized terms.

6. Business Inventories: Shortages Could Present Inflation Risk, But Plenty of Capacity Available
Moody’s Economy.com:
IITB.US
SITB.US
Census Bureau: Manufacturing and Trade Inventories and Sales - NAICS version
Source: Invesco Real Estate using data from Moody’s Economy.com; December 31, 1992 – September 30, 2009

7. Money Supply Growth High but Velocity Down
M2 Growth by Quarter, Annualized
Money Velocity (GDP/M2)
Source: Invesco Real Estate using data from Moody’s Economy.com. Money Supply Growth (M2) and Velocity charting quarterly data from 1970 through 3Q09 and shown in annualized terms.

8. Inflation Expectations Remain Low Expectations equal to the difference between bond yields and TIPs
Source: Invesco Real Estate using data from the Federal Reserve Board from December 31, 2002 – September 30, Expected inflation is calculated as the difference between the 5-year nominal Treasury yield and the 5-Year Treasury Inflation Protected (TIP) yield.

9. Inflation Expectations Predict Trends Well Since 2003, the bond market leads actual inflation by 6-9 months
Source: Invesco Real Estate using data from the Federal Reserve Board and Moody's Economy.com for the inflation data. Data reflects the timeframe from December 31, 2002 – September 30, Expected inflation is calculated as the difference between the 5-year nominal Treasury yield and the 5-Year Treasury Inflation Protected (TIP) yield.

10. Correlation of Asset Class Returns and Inflation Long-Term Historical Correlations
Source: Invesco Real Estate using data from Morningstar/Ibbotson & Associates. Correlations for the time period from December 31, 1979 – December 31, 2008 with the exception of the Gold and Silver Index December 1991-December 2008 and Bar Cap TIPs which commences in December 1997 – December 2008.

11. Correlation of Real Estate Returns and Inflation Sectors with shorter lease terms may provide a better inflation hedge
Source: Invesco Real Estate using data from Morningstar/Ibbotson & Associates and NCREIF. Correlations for the time period from December 31, 1977 – September 30, 2008.

12. Correlation of Real Estate Returns and Inflation: Expected and Unexpected Long-Term Historical Correlations by Property Type
Source: Invesco Real Estate using data from Morningstar/Ibbotson & Associates and NCREIF. Correlations for the time period from December 31, 1977 – September 30, 2008.

13. Thank You! Mark Roberts, CFA® Global Director of Research