Inflation Trade


DEFINITION of 'Inflation Trade'

A method of investing that seeks to profit from an overall increase in price levels. The inflation trade often involves trades in commodities, such as gold and oil, because their prices rise when inflation occurs. Everyone needs to protect themselves against inflation, but the term "inflation trade" refers to a speculative practice of attempting to profit when inflation occurs rather than just hedging against it.

BREAKING DOWN 'Inflation Trade'

Inflation is caused by the Federal Reserve's printing of money, and it is a detrimental force that erodes the value of money over time. It means that people cannot buy as much with their money tomorrow as they can today. Inflation also reduces the impact of investment earnings and makes it risky to hold too much of one's nest egg in cash. Because of inflation, people must expend time and effort just to preserve the value of the wealth they have accumulated, let alone to increase its value. To increase wealth, people must select investments with returns that can outpace inflation, such as stocks.

  1. Stagflation

    A condition of slow economic growth and relatively high unemployment ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Headline Inflation

    The raw inflation figure as reported through the Consumer Price ...
  4. Treasury Inflation Protected Securities ...

    A treasury security that is indexed to inflation in order to ...
  5. Reflation

    A fiscal or monetary policy, designed to expand a country's output ...
  6. Deflation

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