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An inflation premium is the additional return on an investment that compensates for the expected loss of purchasing power due to inflation. In other words, it is the extra return that investors require to make up for the decline in the real value of their investment caused by inflation. The inflation premium is usually included in the nominal interest rate that an investor receives on a bond or other fixed-income security. It reflects the market’s expectation of future inflation and is influenced by various factors, such as economic growth, monetary policy, and investor sentiment.
The effects of inflation are often not directly felt but are played out over a long time, especially long-term investments are vulnerable to inflation.
At Horizon65, we created a mobile app that enabled you to check the effect of inflation on your savings.