Experts like Goldman Sachs' Nikhil Choraria often design complex transactions that benefit from changes in inflation dynamics.

According to well-informed circles, the biggest surge in inflation in decades helped the Wall Street Bank alone in 2021 to generate around 450 million dollars (400 million euros) in income, twice the volume of previous years.

Choraria's team benefited from correctly predicting the path of European inflation in the wake of the pandemic, according to people familiar with it.

At JPMorgan Chase in New York, Gil Holmes, head of non-linear rates, made around $300 million last year trading inflation.

Barclays and Morgan Stanley traders are also reported to have benefited.

According to data from Vali Analytics, the largest Wall Street banks made about $2.3 billion in the business in 2021, more than double the volume in 2019.

However, the business also involves major risks.

The sterling inflation market, for example, is referred to as the "widowmaker."

In view of the many confusing factors in price development, traders who miscalculate face enormous losses.

The market is also so small and specialized that even a few staff changes can make it difficult to find someone to trade.

It's not a market for the faint of heart.

However, for those who can weather the challenges, inflation has become a bonanza as rising energy costs and gridlocked supply chains have pushed up the cost of just about everything.

After the 2008 financial crisis, interest rates had been cut to unprecedentedly low levels and kept there.

A key factor in inflation volatility was removed and the business became a sideshow.

"Pretty boring," recalls Tim Magnusson, chief investment officer at hedge fund Garda Capital Partners.

Investors are now flocking to the segment to protect their investments or speculate on how consumer prices might develop.

Trade increases by 30 percent

Average trading volume in inflation-linked government bonds and derivatives per session is up 30 percent year-on-year, data from London-based Tradeweb Markets Inc. shows.

It has more than doubled compared to 2019.

"Fixed income investors are getting more and more nervous because they think the zero interest rate environment is over, so they need to move into this type of investing," said Peter Hahn, a former banker at Citigroup Inc. and now professor emeritus at the London Institute of Banking & Finance.

"And that's going to make Wall Street money."

In the US, the consumer price index rose 7.5 percent in January, the highest increase since 1982. Back then, Goldman specialist Choraria was not even born.

In the UK, one in ten people is now at risk of not being able to afford heating and electricity on an ongoing basis.

In the European Union, many governments are relying on aid packages to help citizens cope with the rising bills.

Households from Latin America to South Asia are struggling with rising prices.

Meanwhile, central banks around the world are debating how far they should hike rates to ease some of the pressure while not risking jeopardizing the economic recovery.

Meanwhile, inflation derivative traders are trying to anticipate peak inflation.

As UK inflation expectations near their highest level since 2009, concerns in the US and Europe have already eased from last year.

high interest

"Interest in the inflation markets is greater than anything we've seen in the last decade, and we think we're just getting started," said former inflation trader Lindsay Politi, now based at One River Asset Management in Greenwich , Connecticut, works.

“Market participants have yet to properly recognize the regime we have entered.

Most market observers have been expecting inflation to return to normal levels for over a year and that has not come true.”

Inflation-linked bonds can be traced back to 1780.

Back then, the Commonwealth of Massachusetts issued them to soldiers fighting in the Revolutionary War to protect them from rising prices.

Two centuries later, Britain began issuing similar securities, now known as linkers.

In 1997 the USA followed with Treasury Inflation-Protected Securities (TIPS).

Derivatives linked to inflation, such as inflation swaps, also emerged.

Example zero-coupon inflation swaps: They have a fixed interest rate for the issuer coupled with a variable interest rate after a certain period of time.

A benchmark such as the US consumer price index is crucial.

An investor who bought a 12-month swap a year ago would earn more than 5 percent today, Politi said.

Traders also buy and sell the securities to take advantage of price fluctuations and to make short-term gains.

Derivatives prices hit an all-time high in November and are still trading at more than double their historical average.

On February 10, when the US Department of Labor released higher-than-expected inflation figures, they rose at their highest rate in more than a decade, according to Bloomberg data.

"Inflation volatility has increased significantly," said Semin Soher Power, head of inflation trading at the Bank of Ireland.

This also increased the business potential.