After years of negligible rises, Investors have almost forgotten about inflation and its implications on assets. With huge amounts of stimulus of government stimulus around the globe, the risk of inflation is real. Ten year bonds are considered most affected by inflation worries, and you can see recent movements in Australian bonds on the following chart.
RBC list the following four main reasons as to why:
These all add to inflation risk.
RBC further note “inflation reduces purchasing power as it erodes the value of cash over time. Things cost more, so you need more money to buy the same things”.
Investors therefore need to consider whether the return on their investments outpaces the rate at which their purchasing power is declining.