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%.

  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. Return

    The gain or loss of a security in a particular period. The return ...
  4. Real Rate Of Return

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