Hedging against Inflation

Hedging is a way for commodity traders, producers and end-users to cover themselves against negative pricemovements. That is to say, it is an insurance against price changes in any specific market – for instance the market for sugar or cocoa beans. We’ve talked about it extensively in our recent article on hedging with agricultural options. In this next piece on hedging we approach price changes on a more general, indeed macro level: price changes due to inflation. Inflation is defined as a general increase in prices and (therefore) a fall in the purchasing value of money. An inflation hedge in turn is an investment that is considered to protect the decreased purchasing power of a currency that results from that loss of value. Inflation The rate of inflation is measured as a percentage of change of a price index – a sample of goods and services – from one year to the next. ‘If you’re not moving forwards, you’re moving backwards’ and ‘stagnation is regression’ are two expressions related to human development, but are said to apply to money as well. Inflation is always with us. Which is not necessarily a bad thing, as economists like to see a slow, steady… continue reading

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Source: CTRM Center

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