Inflation Protected


DEFINITION of 'Inflation Protected'

The types of investments that provide protection against inflation or the rise in prices of goods and services. Most hard assets are typically protected against inflation. This is because commodities tend to appreciate during times of high inflation.

BREAKING DOWN 'Inflation Protected'

Certain funds are also created to protect investors from the negative effects of inflation. These funds focus on investing in securities that bring a real return, which is the return on an investment, minus the reduction in its value as a result of inflation. These funds also invest in bonds backed by the federal government. The funds' principal is adjusted quarterly based on the current inflation rate.

The Treasury Inflation Protected Securities (TIPS) is an example of this. The principal portion of this security increases with inflation and decreases with deflation in accordance with the Consumer Price Index (CPI). At maturity, the adjusted or original principal is paid; whichever amount is higher.

  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Inflation-Indexed Security

    A security that guarantees a return higher than the rate of inflation ...
  3. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  4. Consumer Price Index For All Urban ...

    A measure that examines the changes in the price of a basket ...
  5. Deflation

    A general decline in prices, often caused by a reduction in the ...
  6. Inflationary Psychology

    A state of mind that leads consumers to spend more quickly in ...
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