📘 What is an Inflation Hedge?

An Inflation Hedge is an investment designed to protect against the eroding effects of inflation. It helps preserve an investor’s purchasing power by increasing in value or generating income that rises with inflation.

Real estate is commonly considered a strong inflation hedge because property values and rental income often increase alongside the cost of living.

📌 When and Why It’s Used

Investors use inflation hedges during periods of rising prices or economic uncertainty. These assets are meant to maintain long-term wealth by offsetting inflation's impact on cash and fixed-income investments.

Real estate, with its potential for appreciation and rental adjustments, is used strategically to balance portfolios that might otherwise be vulnerable to inflationary pressures.

🧮 How It’s Calculated or Applied

While there's no direct formula to calculate an "inflation hedge," effectiveness is measured by comparing an asset’s return to the rate of inflation. If an investment grows faster than inflation over time, it’s considered an effective hedge.

Real estate, for example, can outpace inflation through both property appreciation and rental income growth—especially in high-demand markets.

Investors often monitor the Consumer Price Index (CPI) alongside their property returns to gauge performance.

✅ Pros

• Preserves wealth and purchasing power over the long term
• Real estate income can adjust with inflation via lease renewals
• Offers physical asset backing, which is less volatile than stocks

⚠️ Cons

• Not all real estate markets keep pace with inflation
• Illiquidity may limit quick response to inflation spikes
• Property expenses like taxes and insurance may also rise with inflation