Inflation is a macro-economic indicator that impacts your finances and investments directly. While it curtails your spending power, inflation also eats into real returns. In the current situation, fixed income instruments such as fixed deposits are particularly affected as the rate on inflation is higher than the returns these instruments give. This means that you are actually losing money. Savings accounts, government bonds, and other fixed return instruments provide lower returns. As the inflation rate spikes, returns should also ideally increase to match the soaring prices. “For fixed income, as interest rates go up, the value of existing fixed income instruments comes down,” says Prasant Bhansaali, director, Mehta Equities.