What is inflation-adjusted return May 01, 2021 A phone call between two friends leads to a talk about inflation-adjusted returns. Akhila: What are you up to, Karthik? Karthik: I was planning to buy a television set for ₹50,000. But I later changed my mind to save and invest that amount to buy a better version next year. Akhila: I hope inflation doesn’t eat into your returns. Karthik: What do you mean? Akhila: A few economists expect inflation to rise going ahead. If that happens, your inflation-adjusted returns can be low or even negative. Karthik: Can you explain that? Akhila: If you invest that ₹50,000 at four per cent p.a. in a fixed-income instrument, your investment will be worth ₹52,000 by year-end. Say, the average inflation over the next one year is six per cent and the price of the TV set which you decided not to buy, becomes ₹53,000. Let alone buying a better version, your investment amount won’t be sufficient to buy even the current model.