Inflation Derivatives

See: Inflation Hedge.

A little Econ 101 action to start off:

Inflation measures the rate at which prices are rising. Rising prices mean that money is losing its value, i.e. it takes more currency to buy the same amount of stuff.

Those basic economic facts make inflation a real danger for investors. Any return earned from an investment has to at least outstrip the impact of inflation. Otherwise, the investor is just losing ground in terms of buying power.

Inflation derivatives are financial contracts that allow investors to hedge against inflation risk. Generally, derivatives (like options or futures) are tied to some underlying asset. For instance, you can purchase an option to buy 1,000 share of AMZN at $2,000 a share.

Inflation derivatives work the same way, except instead of applying to a stock or a commodity, they operate in relation to some inflation measure...usually the Consumer Price Index. You can bet for or against certain movements in the CPI, letting you minimize the inflation risk elsewhere in your portfolio.