Inflation is defined as a sustained increase in the price of goods and services. In an inflationary environment, a gallon of milk that once cost $3 may now costs $4. Over time, inflation erodes the value of a nation’s currency. There are a variety of factors that influence inflation and arguments about its root cause, but for consumers and investors, the end result is the same. Prices rise.
But while rising prices are bad news for consumers, as it takes an ever-increasing amount of money to purchase the same basket of goods and services year after year, inflation can be quite profitable for investors.
The key to making money in an inflationary environment is to hold investments that increase in value at a rate in excess of the rate of inflation.
A number of investments have been historically viewed as hedges against inflation. These include real estate, gold, oil, stocks and inflation-indexed bonds.
Source : Investopedia