What is an inflation risk premium and why does it matter?

When inflation is erratic, it creates economic upheaval, essentially offering a windfall to either creditors (in the event of a surprise fall in inflation) or debtors (with rising prices). Over time, lenders would demand higher interest as compensation — an inflation risk premium.

What are the 5 essential questions to ask about inflation?

In an inflation-scare moment like this one, you can boil that down to five essential questions: Is this a change in relative prices, or a change in overall prices? Are the prices of items becoming more expensive likely to rise further, stay the same, or go down?

What is inflation and how is It measured?

A basic definition of inflation is that inflation is a rise in the general price level throughout the economy. This general price level is commonly measured by the Consumer Price Index 3. What Does “too Many Dollars Chasing Too Few Goods” Mean?

Is inflation so scary?

But inflation isn’t so scary if you focus on the precise mechanics by which the value of a dollar changes over time — and how it might affect you. In an inflation-scare moment like this one, you can boil that down to five essential questions: Is this a change in relative prices, or a change in overall prices?