The market seems to have settled the debate between investors who see deflation as the greatest threat versus others who have warned about inflation–in favor of the former. But that is precisely what leads indexing guru Rob Arnott, a lone inflationista wolf, to howl that today’s market provides a golden opportunity to buy inflation-fighting asset classes at “below retail prices.”

In his latest newsletter to his Research Affiliates clients, Arnott argues that the “3-D” threat of “unending deficits, massive debt and unfavorable demographics” will eventually overwhelm the deflationary impact of our weak, possibly recessionary economy. And prepared investors can protect their portfolios now, cheaply, from the hyperinflation he expects will ensue.

In his subtly argued missive, Arnott asserts that asset classes that serve to fight inflation should be viewed not merely as an important part of a portfolio including stocks and bonds but should actually be seen as the portfolio’s core –“the largest and most central part of one’s portfolio mix.”

Looking back at September’s market performance, Arnott observed that these asset classes got clobbered; indeed, only four periods in recent market history saw worse performance and all of them were associated with major crises–the 2008 global financial crisis; the 1998 Long-Term Capital Management/Russian default market plunge; the 1990 invasion of Kuwait; and the 9/11 terrorist attacks.

So why would the diversified portfolio Arnott recommends perform so poorly (and worse than a 60/40 stock and bond mix) at this juncture in market history? Because, he says, “the markets wholeheartedly abandoned the idea of inflation protection during the third quarter.”

Arnott points out that in crisis periods where his diversified portfolio plummeted, the subsequent three years trounced 60-40 stock-bond portfolios by an impressive 2.7% margin.

Further bolstering his case for inflation-fighting asset classes–which include not only traditional tools such as TIPS, commodities and REITs but “stealth inflation fighters” such as bank loans, emerging market currency debt and high-yield bonds–Arnott explains that inflation is grossly undercounted; real inflation may be as much as double official inflation, he says. According to the current method of calculating inflation, if an iPad2 costs the same as the original iPad but with far better features, that is measured as if prices have fallen. But you can’t eat an iPad, he points out.

Worse, were one to rely on the new calculation method, one can’t but expect rapidly rising inflation since the average is based on soon-to-be-dropped year-ago and three-year ago figures when inflation was zero or actually negative (in 2008, for example).

That should soon put official figures for total inflation in the 4-5% range and true inflation as Arnott reckons it in the 6-10% range. A continuation of the Fed’s current monetary policy (i.e., printing money) under these circumstances should lead to hyperinflation.

Arnott’s conclusion: buy emerging market debt, investment-grade credit, emerging-market equities and high-yield bonds now–while they’re cheap. He acknowledges it may be too early–the macroeconomic picture continues to deteriorate–but says investors can mitigate the risk by adding exposure incrementally.

To make room for these investments, he advises selling U.S. and other developed market debt, which he foresees bringing negative real returns over the coming years.

See an earlier exclusive AdvisorOne interview with Arnott where he discusses the U.S. debt problem and how to address the Social Security issue.