Inflationary risk can be defined as;
“A risk that is relevant to inflation rate of a country and this risk also called purchasing power risk because the worth of cash flows from investment would not be worth more.”
An inflationary risk is approximately higher in fixed income securities.This type of risk is also most worry for the income investors to invest in any sector and if the inflation rate goes upward the rate of risk will be up and the investment money’s worth will go down. This risk applies to fixing return securities as the rate of return increases to surpass of inflation.
How it works
In this risk, the cash flow to adjust for inflation, changes in purchasing power to prevent some securities. Treasury Inflation Protected Securities (Tips) are probably the most popular of these securities. A guaranteed real rate of return to investors the coupon and principal adjusted for changes in the Consumer Price Index.
Why it Matters
Inflation causes money to lose value, and cash flow over time require that any investment that is exposed to inflation risk, we are going to get a sense of where inflation; such as production curves and much speculation about the study indicator is one of the reasons.
For example, many economists generally higher future inflation and the steep yield curve, investors increasingly expect the inverted yield curve means that investors expect lower inflation meant that believe.