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 ?
There is no direct evidence on the illiquidity premiums in TIPS yields and on inflation risk premiums, so we rely on indirect evidence and model-based estimates.
Nonetheless, the breakeven spread is still the cost one pays to insure against upside inflation risk, and at present we think that this insurance is very cheap.
Finally, the model, as posed, severely restricts the price of inflation risk by fixing the price of inflation risk at unity.
If aluminum prices don't recede further, we still see cost inflation risk for the beverage industry with Coca-Cola, Cott and Molson Coors Brewing being the most exposed in our view.
3) The first one attributes the current low level of the long bond rate to the lowering of the inflation risk premium.
Instead, we believed that full employment was not inherently inflationary; in fact, we saw the greater inflation risk in stagnation itself.
Interest savings are based on the assumption that the Treasury can capture most of an inflation risk premium embedded in nominal bond yields and will benefit from a further decline in inflation.
There has always been pressure on the Federal Reserve for ``easy money,'' and the case that the inflation risk should be downgraded in favor of more monetary stimulus remains very much a minority view, at least among economists.
The aim of the SPDR Barclays EM Inflation Linked Local Bond UCITS ETF is to track the performance of government bonds from individual emerging-market countries in local currencies with protection against inflation risk.
The rising prices of food and energy this year drive up the inflation risk.
Maintaining the (rate) would have portrayed the MPC as overly averse to inflation risk," he said.
This Commentary explains how the output of the model gives us cleaner, more useful estimates of inflation expectations and inflation risk, and what those expectations might imply for monetary policy.