What is inflation risk?

It is the risk that the annual rate of increase in the prices of the goods we buy and services we consume will be higher than you were anticipating. When a higher inflation rate is subtracted from the rate of return your investments are earning, soon you may be left achieving little or no “real” return each year. See Inflation to learn more.

How this risk plays out in the real world

Aug 30, 2018: U.S. inflation hits six-year high as consumers keep spending
Jul 02, 2018: Inflation in Venezuela hits 42,000% as investors dump bolívar ‘like hot potato’ 
Oct 17, 2017: Oil prices rise as API data reportedly shows a hefty decline in U.S. crude supply
Oct 05, 2017: Netflix is raising its prices starting this month
Sep 05, 2017: Since Harvey, gas prices at the pump are up 50 cents a gallon
Oct 18, 2016: Social Security Benefits to Rise 0.3% in 2017
Sep 27, 2016: Grocery Prices are Plunging
Oct 15, 2015: Social Security recipients can expect no benefit increase next year
Sep 08, 2014: Milk Costs Most Ever to Signal Higher Prices for Pizza
Aug 25, 2014; Three reasons college textbook prices are out of control
Apr 14, 2014: Beef prices hit record high
Jan 04, 2014: Chobani yogurt is latest victim in shrinking grocery case
Nov 15, 2013: Around the World, Inflation Is Falling to Levels Not Seen for Years
Nov 13, 2013: Still Basically True: More Money Leads to Higher Inflation
Sep 14, 2012: Higher gas costs drive up US consumer prices

Connection to other risks

This risk relates to Interest rate risk because as prices rise, lenders will demand higher interest rates to keep pace.

How investors can manage Inflation risk

  1. Select investments whose rates of return are expected to exceed the rate of inflation. For example, don’t buy long-term bonds or otherwise agree to lend your money out at a low fixed rate of interest for a long period of time.
  2. Buy TIPS bonds, a special type of bond issued by the United States government that compensates bond investors for inflation.
  3. Invest a portion of your portfolio in real assets, such as the metals gold and silver, whose values usually rise when the rate of inflation increases.