What Is an Inflationary Gap? An inflationary gap is a macroeconomic concept that measures the difference between the current level of real gross domestic product (GDP) and the GDP that would exist if an economy was operating at full employment. Key Takeaways An inflationary gap measures the difference between the current level of real GDP and
What Is Inflationary Psychology? Inflationary psychology is a state of mind that leads consumers to spend more quickly than they otherwise would in the belief that prices are rising. Most consumers will spend their money on a product immediately if they think its price is going to increase shortly. The rationale for this decision is
What Are Inflation Derivatives? Inflation derivatives are a subclass of derivatives contracts used by investors or firms to manage the potential negative impact of rising inflation levels or speculate on future inflation levels. Like other derivatives including options or futures, inflation derivatives allow individuals to participate in price movements of an underlying market or index
What Is an Inflation Hedge? An inflation hedge is an investment that is considered to protect the decreased purchasing power of a currency that results from the loss of its value due to rising prices either macro-economically or due to inflation. It typically involves investing in an asset that is expected to maintain or increase
What Are Inflation-Linked Certificates of Deposit? As their name suggests, inflation-linked certificates of deposit (CD) are a type of CD whose interest rates are indexed to the rate of inflation. In exchange for this added protection, inflation-linked CDs generally offer slightly lower interest rates as compared to traditional CDs. Key Takeaways Inflation-linked CDs are an
Definition of Inflation Protected Inflation protected refers to investments that provide a hedge against the rise in prices of goods and services over time. An inflation-protected portfolio, for example, will have assets that perform well in times of higher inflation. An inflation-protected investment will contain some type of adjustment mechanism that periodically ratchets the payouts
What Is an Inflation-Protected Annuity (IPA)? An inflation-protected annuity (IPA) is an annuity that guarantees a real rate of return at or above inflation. The real rate of return is the nominal return, less the inflation rate, thus protecting annuitants and beneficiary investors from inflation. Inflation-protected annuities are becoming more popular, with annuity investors worried
What Is an Inflation-Protected Security (IPS)? An inflation-protected security (IPS) is a type of fixed-income investment that guarantees a real rate of return. This means the annual percentage return realized is adjusted for changes in prices due to inflation or other external effects. Expressing rates of return in real values rather than in non-inflation-adjusted terms, especially during periods
What Is an Inflation Trade? An inflation trade is an investing strategy or trading method that seeks to profit from rising price levels influenced by inflation or expectations of coming inflation. Key Takeaways An inflation trade is an investing strategy or trading method that seeks to profit from rising price levels influenced by inflation or
What Is an Inflexible Expense? An inflexible expense is one that cannot be adjusted or eliminated by a company or individual. It is often the result of a contractual obligation or a long-term obligation that can not be easily adjusted or discontinued. Inflexible expenses are often called fixed expenses. Key Takeaways An inflexible expense is
