There is a statistic on real interest rates on the Bundesbank's website, which shows the impact of inflation on savings. If you take the interest rates on overnight deposits at the banks as a reference, then the real interest rate, i.e. the interest rate minus the current inflation rate, is almost minus 8 percent. The good news: With declining inflation and positive interest rates on bank deposits, the real interest rate on bank deposits has risen again since its record low of minus 8.0758 percent last October.

Markus Frühauf

Editor in business.

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But inflation continues to eat away at the value of the bank account at a pace never seen before in the Bundesbank's statistics dating back to June 1967. The interim conclusion is more than sobering, because if you want to beat the inflation rate, which was 7.2 percent in Germany in April, you have to take a big risk with the risk of a total loss.

Around the zero percent mark

However, professional investors only use actual inflation to measure past asset performance. Rather, inflation expectations in the market are decisive for the investment decision. Over a ten-year period, market expectations for annual inflation average 2.38 percent. The yield on the ten-year German government bond is also at this level. The inflation-linked German government bond with a ten-year term is currently hovering around the zero percent mark. The picture is better than in the ex-post view on the basis of actual inflation, but you won't be really happy.

But this approach can be misleading. "Comparing a nominal future interest rate with historically realised inflation is like comparing apples and oranges," says Michael Muck, senior bond strategist at Meag, Munich Re's asset manager. In an interview with the F.A.Z., he says that for a forward-looking real return expectation of investors, the expected and not the realized historical inflation must be considered. And then it also depends on the maturities: If you want to invest ten years, you have to look at inflation expectations for the next ten years. If you opt for a five-year term, you have to look at inflation expectations over the five-year period.

Looking in the rearview mirror

Looking in the rear-view mirror, Bernhard Matthes, portfolio manager in asset management at the Bank für Kirche und Caritas (BKC), compares the view of the real interest rate on the basis of currently published inflation rates. "Current inflation rates measure damage that has already occurred and therefore have little relevance as a benchmark for assessing whether risk premiums that can be purchased today are sufficient to compensate for the prospective inflation risk," he said in response to a request from this newspaper. Rather, it is relevant for bond investors whether the loss of purchasing power suffered over the remaining term of a bond is compensated. This would require a forecast of future inflation rates with the same maturity. For Matthes, the best possible data point available for this is market-based inflation expectations.

Only stocks with inflation protection are really risk-free

Benjamin Dietrich, Portfolio Manager at Lazard Asset Management, looks at the inflation-linked bond market. The market for inflation-linked bonds looks ahead and tries to estimate the average inflation rate over the entire life of a bond. This estimate is reflected in the so-called breakeven inflation rates. According to Dietrich, who works for Lazard in New York, the market is currently anticipating an average inflation of 2.26 percent over the entire term of ten-year inflation-protected bonds issued by the American government, so-called tips. If this expectation were to materialize, investors would achieve the same return on both inflation bonds and normal bonds, as the example with German government bonds mentioned at the beginning has already shown.

Dietrich currently sees inflation-protected bonds as a risk-free asset. In general, inflation bonds are chosen if one thinks that actual inflation over the term is higher than the inflation currently expected by the market. Since the expected inflation is currently quite low compared to the de facto pronounced inflation rates, the bond strategists at Lazard Asset Management consider inflation-linked bonds to be attractive. "They secure an attractive interest rate and offer additional hedging potential against significantly higher inflation rates," says Dietrich.