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. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Treasury Inflation Protected Securities ...

    A treasury security that is indexed to inflation in order to ...
  3. Headline Inflation

    The raw inflation figure as reported through the Consumer Price ...
  4. Reflation

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

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

    A condition of slow economic growth and relatively high unemployment ...
Related Articles
  1. Entrepreneurship

    Cost-Push Inflation Versus Demand-Pull Inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  2. Options & Futures

    The Consumer Price Index: A Friend To Investors

    As a measure of inflation, this index can help you make key financial decisions.
  3. Economics

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  4. Options & Futures

    Introduction To Inflation-Protected Securities

    Inflation is an enemy to investors - except to those who invest in IPS, which guarantee a real rate of return with no credit risk.
  5. Forex Education

    How Inflation-Fighting Techniques Affect The Currency Market

    Central banks use these strategies to calm inflation, but they can also provide longer-term clues for forex traders.
  6. Investing Basics

    Learn How To Trade Gold In 4 Steps

    Trading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
  7. Professionals

    Top Stocks to Short, Go Long On to Beat the Market

    A long/short portfolio can help weather a variety of market scenarios. Here's how to put one together.
  8. Mutual Funds & ETFs

    Top 4 Inverse Equities ETFs

    Explore analysis of some of the most popular inverse and leveraged-inverse ETFs that track equity indexes, and learn about the suitability of these ETFs.
  9. Mutual Funds & ETFs

    Top 4 Inverse Bonds ETFs

    Explore analysis of popular inverse bond ETFs that track the U.S. Treasury market, and learn how to use the ETFs as a tactical day trade if interest rates rise.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  1. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  2. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    The food and beverage sector exhibits greater volatility than the broader market and tends to suffer larger-than-average ... Read Full Answer >>
  3. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  4. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  5. What techniques are most useful for hedging exposure to the utilities sector?

    Utilities is one of the most stable sectors in the market. As such, its primary appeal to investors is its resistance to ... Read Full Answer >>
  6. What techniques are most useful for hedging exposure to the telecommunications sector?

    A couple of option strategies can be used to hedge exposure to the telecommunications sector. Certain option strategies can ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!