What Is the Inflation-Adjusted Return? The inflation-adjusted return is the measure of return that takes into account the time period’s inflation rate. The purpose of the inflation-adjusted return metric is to reveal the return on an investment after removing the effects of inflation. Removing the effects of inflation from the return of an investment allows
What Is Inflation Targeting? Inflation targeting is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation. This is known as the target rate, which is normally set at around 2% to 3%. The principle of inflation targeting is based on the belief that long-term economic growth
What Is Inflation Accounting? Inflation accounting is a special technique used to factor in the impact that soaring or plummeting costs of goods in some regions of the world have on the reported figures of international companies. Financial statements are adjusted according to price indexes, rather than relying solely on a cost accounting basis, to paint a
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
