Inflation-Adjusted Return

DEFINITION of 'Inflation-Adjusted Return'

A measure of return that accounts for the return period's inflation rate. Inflation-adjusted return reveals the return on an investment after removing the effects of inflation.

It is calculated as follows:

Inflation-Adjusted Return



Also, a simple approximation for inflation-adjusted return is given by subtracting the inflation rate from the rate of return.

BREAKING DOWN 'Inflation-Adjusted Return'

Removing the effects of inflation from the return of an investment allows the investor to see the true earning potential of the security, without external economic forces. For example, say an investor held a bond that returned 4% over one year. Examining only the return shows that this bond earned a positive income. However, if inflation for the year was 5%, the real rate of return on the bond becomes -1%.

RELATED TERMS
  1. Inflation

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

    Special accounting techniques, which can be used during periods ...
  3. Real Rate Of Return

    The annual percentage return realized on an investment, which ...
  4. Return

    The gain or loss of a security in a particular period. The return ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise ...
  6. Required Rate Of Return - RRR

    The minimum annual percentage earned by an investment that will ...
Related Articles
  1. Economics

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  2. Bonds & Fixed Income

    Curbing The Effects Of Inflation

    Your investments suffer when general price levels rise. Learn how you can control the damage with IPSs.
  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. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  6. Retirement

    Inflation-Protected Annuities: Part Of A Solid Financial Plan

    If you worry about inflation and longevity risks, this may be the investment for you.
  7. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  8. Economics

    Will Silver Recover in 2016? (SLV, GLD, JJC)

    The end of the silver downtrend is likely to coincide with similar recoveries in gold, iron and copper.
  9. Forex

    The Consumer Price Index

    Find out how this economic measure can help you make key financial decisions.
  10. Economics

    Understanding the History of Money

    Money has been a part of human history for at least 3,000 years, evolving from bartering to banknotes.
RELATED FAQS
  1. Which has performed better historically, the stock market or real estate?

    For the majority of U.S. history – or at least as far back as reliable information goes – housing prices have increased only ... Read Full Answer >>
  2. What is comparative advantage?

    Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it ... Read Full Answer >>
  3. How does the Wall Street Journal prime rate forecast work?

    The prime rate forecast is also known as the consensus prime rate, or the average prime rate defined by the Wall Street Journal ... Read Full Answer >>
  4. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  5. How does a cost-of-living adjustment (COLA) affect my salary?

    Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees. ... Read Full Answer >>
  6. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center