Inflation: How inflation will impact investing in different asset classes

Inflation is a critical and cyclical macro indicator which influences actions from all economy participants, be it central banks, government policymakers, producers or consumers. Because of its far-reaching implications, even capital markets need to be attuned to the vast factors that could lead to changes in inflation over differing time horizons. At the very basic fundamental level, inflation also impacts returns that an investor earns on the investments he or she makes. Therefore, the concept of inflation-adjusted or real returns is important for all investors to comprehend. Put it simply, real return = nominal return less inflation.

For example, when a bank savings account gives a nominal return of 4 per cent per annum, the real return is negative because the last 12-months average inflation has been at ~6 per cent — much higher than the 4 per cent bank yield.

With that understanding now in place, let us look at how inflation impacts multiple…

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