These track the inflation rate and pay a rate of interest at the end of the year.
Recent sharp rises in commodity prices have been an important factor contributing to the rising rate of inflation in the UK and creating uncertainty for interest rate policymakers.
What matters, in large part, is the difference between the interest rate the borrower is paying and the inflation rate in general.
The Cleveland Fed inflation estimates, based on financial market data including the interest rate spread between ordinary and inflation-protected Treasury bonds, show expected inflation of 1.4 percent per year over the next ten years.
It is hardly surprising that the middle class has been the mainstay of the campaign - for the first time in nearly a decade it is feeling the squeeze of inflation, serial interest rate hikes and a slowdown in jobs in the cities.
In this sense the liquidity premium, like the inflation premium, is another interest rate distorter, and therefore another masker of the truth.
Price volatility is scary for income investors because in the past it was identified with inflation and interest rate moves.
So, if we observe an economy, in which the interest rate was below the nominal growth rate and inflation was not increasing what might we conclude?
Jeffrey Lacker of the Federal Reserve Bank of Richmond voted against the latest Fed decision on the grounds that inflation would rise and require an interest rate hike.
Long bonds usually have higher coupons than short ones, as investors demand a premium for exposure to the risk of interest-rate rises and inflation.
Oddly, as both the tax increases and interest-rate rises were already known to the Bank when it prepared the Inflation Report, it underestimated July's headline and underlying inflation.
Underlying the rate worries, bonds -- whose fixed return makes them linked to interest rate and inflation expectations - also weakened.
As brilliantly explained by the Austrians (see here), monetary inflation distorts interest rate and price signals.
For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%.
Investors money is tied into these accounts, and so the interest paid can fall if the inflation rate drops in subsequent months.
Series I Savings Bonds are currently yielding 1.76% and the interest rate is adjusted every six months for inflation.
Recent economic indicators had suggested the economy was cooling sufficiently to reduce concerns over inflation, and hence fears of further interest rate rises.
The central bank last Thursday kept its interest rate unchanged and said it was confident inflation was under control.
Worries are now growing that the pattern of previous oil price shocks may be repeated: inflation, interest rate hikes and, finally, years of painful recession.
Well, if the set interest rates lower than the natural rate then they will have rising inflation and output which will mean an ever increasing natural rate and even faster inflation until eventually the economy moves into hyper-inflation and their control over the medium of exchange collapses.
Because all member states share the same nominal interest rate, slow-growing economies with lower inflation, such as Germany and Italy, have higher real interest rates than fast growers, such as Spain and Greece.
The recent strong pace of growth in America and the rise in its core inflation rate therefore make a strong case for a rise in interest rates now.
ECONOMIST: How should central banks respond to a rise in oil prices?
Their decision to keep interest rates below the inflation rate is driving equity valuations up out of necessity, and this trend will likely continue for the foreseeable future.
India's economy is projected to have grown just 5.0% last fiscal year, slower than the 9% expansion it was averaging just before the global financial crisis, hurt by the steep interest-rate increases by the central bank in 2010 and 2011 to control inflation.
Troubled businesses and retailers might have expected that the encouraging news on inflation would open the door to another interest-rate cut.
ECONOMIST: The Bank is in no hurry to raise the price of money
Indeed, without the recent fall in oil and commodity prices, America's inflation rate would have risen, forcing the Federal Reserve to raise interest rates.
Membership in the euro area leaves the country monetarily at the mercy of the ECB, which seems determined to maintain a hard line on inflation, and thus to resist calls for an interest-rate cut.
The Item Club also says that the government's choices include sticking to the current inflation target of 2% - which could mean no more interest rate cuts for some time, and therefore lower economic growth.
Some Fed officials are uncomfortable that interest rates are so low when headline inflation is at 5% and the economy is still growing at a decent rate.
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