Inflation's Impact on Fixed Income (Essay Sample)

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Inflation's Impact on Fixed Income
Inflation can affect fixed-income investments when interest rates rise. Central banks frequently set inflation objectives, and if inflation rises above the acceptable level, interest rates may be raised by the officials in charge (Szyszko 288). Investment returns on current fixed-income assets typically drop when they become less competitive than newer higher-rate fixed-income assets. In other words, interest rates and the prices of fixed-income assets are inversely related. Inflationary effects can also cause damage to fixed-payment strategies. Due to rising inflation, investment returns usually lose purchasing power since most fixed-income investments have the same interest until maturity.
Inflation is a major concern for investors since it harms real savings as well as returns on investments. Investors aim to improve their buying power over time, but inflation gets in the way because investment returns must stay up with inflation in order to increase real purchasing power (Mahlstedt and Zagst 9). An investment that is predicted to return