Holding stocks is often a way to hedge inflation.

Inflation is a rise in the general level of prices for goods and services in an economy over a period of time. It can also be described as a decline in the real value of money – a loss of purchasing power, fixed-asset values are affected, companies adjust their pricing of goods and services, financial markets react and there is an impact on the composition of investment portfolios. In short, inflation reflects a situation where the demand for goods and services exceeds their supply in the economy

Inflation is a fact of life. Consumers, businesses and investors are impacted by any upward trend in prices. It is not something that is purely good or bad, but it certainly does impact the investing environment. Investors need to understand the impacts of inflation and structure their portfolios accordingly.


Normally high rates of inflation are caused by an excessive growth of the money supply. Inflation discourages savings due to the fact that the money is worth more presently than in the future.

Depending on personal circumstances, investors need to maintain a blend of equity and fixed-income investments with adequate real returns to address inflationary issues. Inflation hurts people who are retired and living on a fixed income. However, it may be good for borrowers as the real value of their debts will be eroded by inflation.

Over the long term, equities and properties are the best hedge against inflation. Companies can raise prices to account for the rising costs associated with inflation. In the long run, a company’s revenue and earnings should increase at the same pace as inflation. As such, stock price should rise with inflation.