Inflation risk

Inflation risk

Also called purchasing power risk, the risk that changes in the real return the investor will realize after adjusting for inflation will be negative.

Inflation Risk

The risk that the rate of inflation will exceeds the rate of return on an investment. For example, if the rate of inflation is 5% over a year and the rate of return is 3%, then the investor has effectively taken a loss even though he/she has made a profit in absolute terms. Inflation risk applies especially to fixed-return securities as there is no possibility that the rate of return will increase to surpass inflation. For this reason, some fixed-return securities are inflation-indexed, which means that their nominal returns change, while their real returns stay the same. See also: Treasury Inflation Protected Securities.
References in periodicals archive ?
He stressed that increasing the social package of expenses aims to increase the money supply in the country, adding that at present there is no inflation risk associated with an excess money supply in Azerbaijan.
and global GDP growth, a firm path for in trade despite tariff fears, fiscal stimulus, and limited inflation risk.
Yet the rise in inflation break even rates and global metal prices (30 per cent rise in aluminium after Rusal's US sanctions hit!) definitely exhibit an uptick in inflation risk. The correlations between crude oil and inflation expectations are high at almost 0.5.
'Inflation risk is also still muted in 2018, and combined with the steady growth of the economy, these make for the perfect ingredients for risk-taking this year,' the BPI official also said.
Advisors, Fidelity said, should be prepared to help their clients diversify beyond mainstream asset classes to manage inflation risk, including by considering a mix of inflation-resistant asset classes as part of a strategic allocation.
The developer is also protected from any revenue or inflation risk.
The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium.
"In late August, the central bank is likely to, for the fourth time in a row, yield to (Prime Minister Tayyip) Erdogan's pressure to cut interest rates to stimulate growth, even though inflation risk is mounting," Nordea Bank said in a note.
To the extent that inflation risk is small at short-horizons, nominal short-term bonds are good substitutes for inflation-indexed short-term bonds.
Summary: TEHRAN (FNA)- The International Monetary Fund warned Saudi Arabia of a possible inflation risk, urging the kingdom to take preemptive measures against the potential risk.
Q4 GDP was anyway a disaster, leading institutions such as the IMF to downgrade 2013 forecasts; combined with the sell-off in commodities, which reduces immediate inflation risk, this development prompted the CBRT to cut rates by 50bp across the board in April.
For example, one measure of expected inflation can come from a derivative known as an inflation swap, which avoids the problem of two different bonds, but it still docs not correct for the inflation risk premium.