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4 Types of Inflation Risk
 John Spacey, August 24, 2015 updated on March 19, 2021

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Inflation risk is the probability that the value of assets and

Risks
investments will be negatively affected by changes in inflation.
Dread Risk

Secondary Risk
1. Price Risk
Passive Risk
Inflation affects the price of business inputs such as labor and
materials. In some cases, it is difficult for a business to pass these
costs on to their customers as higher prices resulting in declining
margins.

2. Interest Rates
Inflation is one of the key drivers of interest rates. Governments
typically increase interest rates when inflation exceeds their targets.
Increases in interest rates can lead to declining asset prices and
increased borrowing costs.

3. Purchasing Power
Inflation reduces the purchasing power of savings. This is a risk to
anyone who has saved money and is a particular concern for
retirement planning.

4. Hyperinflation
Hyperinflation is a condition of extremely high inflation that spirals
out of control as a government issues new currency at a high rate to
pay an unmanageable debt. Under hyperinflation, prices change so
quickly that normal business conditions breakdown. People lose
confidence in the currency and begin to trade using hard assets such
as gold or barter with goods such as food.

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