Inflation is an average rise in prices of goods and services over a period of time. Over a period of time, currency value comes down due to inflation.
Investments in equity funds for long term generates inflation adjusted real rate of return.
Inflation affects investment returns. If fixed deposit interest is 5% when inflation is 4%, real return for the investor is 1% only. Fixed income securities on the face of it provide regular interest income but its purchasing power declines in an inflationary economy.
The period of low interest rates enable the economy to grow which paves way for increase in inflation. There exists an inverse relationship between interest rates and inflation rate. The central banks manage the money supply to keep inflation within permissible limits for the economy.
Moderate inflation is ideally required as it drives people to spend and it results in economic growth. British economist John Maynard Keynes actively supported for moderate inflation.
