Inflation risk

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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 ?
US wage inflation from December (2.4%) to January (2.9%) saw bond yields rise to offset inflationary risk as the Federal Reserve took up the lead of monetary policy tightening.
SBP had hiked the interest rates by 25 basis points in January to tackle rising external imbalances and inflationary risk.
However, it said BNM's future actions were expected to be data-dependent so another rate hike might be warranted if GDP growth surprised on the upside and inflationary risk increased.
There are potentially lots of different types of risks, such as investment risk and inflationary risk, and these need to be discussed in detail with an independent financial adviser.
Explaining its decision, the MPC pointed to inflationary risk from rising global food prices, risks surrounding a global economic recovery and persistent weak investment in Egypt.
Perng noted that while Taiwan's economic growth will rise quarter by quarter this year, there is no immediate inflationary risk in the first half, justifying the maintenance of interest rate at the current level.
Liikanen also stressed that that the ECB would act against any perceived inflationary risk - meanwhile, the ECB has recently raised interest rates.
Ali Babacan said economy experts had not seen any serious inflationary risk in Turkey right now.
The report suggested that challenges for Korea in 2010 are as follows: Creating more and better jobs, reforming education by nurturing creativity, improving public schools and reducing private education expenditures, deploying exit stimulus policies yet containing double-dip and inflationary risk, bridging widening income and regional gaps, successfully hosting the G-20 summit and steering G-20 affairs.
"This is an inflationary risk we will have to monitor throughout the year," said Gutierrez.
<p>While questions hang over the outlook for some exports, the downturn could boost remittances from Moroccans abroad and curb the inflationary risk from imported goods, Bank al-Maghrib governor Abdellatif Jouahri told Reuters in an interview.
The first inflationary risk occurs from time to time when large and persistent relative price shocks temporarily ripple through the inflation data.