7.3.4 Inflation-Adjusted Rate of Return
The inflation-adjusted return, also known as the real rate of return, measures the difference between investment return and inflation. This type of return assesses an investment’s purchasing power, meaning whether the investment is able to keep up with the change in the cost of goods and services. Investments that have real rates of return less than zero are not keeping up with inflation and are, therefore, subject to purchasing power risk, while investments with real rates of return that are greater than zero are keeping up with inflation and are not su