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Is this the perfect inflationary storm

As investors inflation can be our friend and increase the value of our properties (if we own the right type of property – high growth properties.)

Recently leading property researcher and CEO of Rismark International suggested we’re in a perfect storm for an inflationary environment.

In a recent blog Joye says- think about it:

  • We have the No. 1 and No. 2 economies in the world growing at above trend;
  • We have the biggest private investment boom in modern history;
  • We have full, and falling, employment;
  • We have a more rigid labour market than pre-2007/08;
  • We have had a sustained fall in productivity;
  • We have reduced immigration creating more skills shortages just when we need more skills;
  • We have irrefutable evidence of accelerating wages growth to inflationary levels;
  • We have an external oil price shock, which will raise inflation expectations;
  • We have an unprecedented commodity price boom, which has been very inflationary in the past;
  • We have imported core trading partner inflation;
  • We have an AUD that has possibly come close to maxing out;
  • Today we learned that in 2012 we will have carbon price inflation; and
  • We have significant internal price shocks care of tragic natural disasters raising headline inflation, and boosting consumer expectations of future inflation.

Joye then asks what are the possible mitigants that could stave off inflation?

  • Maybe the AUD, but unlikely;
  • Maybe prolonged consumer conservatism, but this is unlikely;
  • Maybe China and India blowing up, but unlikely in the near-term;
  • Maybe a much tigher May budget (a possibility);
  • Maybe labour market flexibility, but unlikely;
  • Maybe productivity, but unlikely.

Joye then concluded that you should invest in assets that are:

(a) a good inflation hedge, and

(b) a good hedge against a collapse in commodity prices and the resources boom, and which benefit from a radical reduction in high interest rates, when it comes.

Source: Christopher Joye’s blog 



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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