Do You Expect High Inflation?

[REWahoo]

Too bad the poll [from 3.5 years ago!] wasn't closed, because it's already changed quite a bit. Originally, I think well over 80% were expecting high inflation, and only around 17% not.

Actually it was 85/15 according to ejman when resurrecting the poll:

While searching for something else, I ran into this ancient thread. It's interesting that back in March of 2009 85% of respondents thought that high inflation was right around the corner.

 

[MichaelB]

The power of hindsight.

 

[audreyh1]

Actually it was 85/15 according to ejman when resurrecting the poll:

OK, great, at least we have that documented for posterity!

March 2009 - 85% voted yes, 15% voted no.

 

[copyright1997reloaded]

Fed money printing should generate inflation but it seems most of it is sitting in bank vaults to make their balance sheets look good. I think we'll have to see some large uptick in employment and the economy before inflation kicks in. The 70's was driven mostly by commodities and oil shortage/embargo.

Bingo. This is what I was referring to in terms of velocity of money. If the money isn't chasing goods and services, then we don't get inflation, well, except for inflation in bond and other financial assets.

 

[copyright1997reloaded]

We've made some of the same mistakes as Japan which has and will prolong the pain. For years after the bubble collapse Japan has had a loose monetary policy, a high debt to GDP ratio, and prompting up of institutions that should have been left to fail. This along with an aging population has led to stagnant growth there for a long, long time.

Has anyone thought to ask themselves (and go against conventional wisdom) about why the great depression was so great and so prolonged? It certainly wasn't the first true depression in the country.

While your thinking about that, also ponder why the "rising prices are needed for economic growth" statements from the fed and many others don't reflect the economic history of the USA prior to 1900, where we had long periods of stable to slightly falling prices and great economic growth. This actually makes sense, because increasing productivity SHOULD result in lower prices.

 

[rescueme]

As I'm at an "advanced age", I look upon any inflation (especially in the morning) as a advantage/plus ...

Back to the OP's question (seriously), even if it occurs, we are ready for it. Unlike those that are in the accumulation stage and often count on their employer to take care in their PROI (Personal Rate of Inflation), we've already accounted for it in our pesonal retirement income plans.

If it dosen't happen? Great. If not? We're prepared (heck, I still have my "WIN" button )...

 

[EvrClrx311]

For the decade between 2015-2025 I would not at all be surprised to see an average inflation rate of 4-6%. Government may continue to artificially thwart it, but IMO the more they do that the longer the inevitable correction will be. It's like holding back water by building the dam higher and higher...

 

[FUEGO]

I see more of the potential for 4-5% average inflation over the next 5-10 years, maybe a bit more for the first year or two of the recovery.

My strategy? Same as always. ~100% equities portfolio plus a few hundred thousand in fixed rate debt (student loans at 1-2% and mortgage sub-5%). 5% inflation would mean my student loans return 3% real, and my mortgage costs me nothing in real terms.

I voted no, and also put forward the prediction I quoted back in March 2009 (the time of the OP's poll). In the 3.5 years since March 2009, inflation has averaged 2.3% annualized, or 8.3% cumulative total CPI increase.

With the benefit of hindsight, I see I was off a little on my guess. We would have to see an average inflation of 4.9% or more the next 6.5 years to get me just to the edge of my guess (4% avg inflation over next 10 years starting March 2009). Eh, could happen, but it probably won't average quite that high.

The good news is that my 100% equities allocation has done well since March 2009 (87% cumulative return since Mar 31 2009, or 19.6% annualized). And interest rates on my long term debt range from 0.75% to 1.99%. Even this moderate inflation (2.3%) means I have a net decrease in debt (in real terms) due to inflation.

I just checked, and gold did pretty well these last 3.5 years (as measured by GLD, a fairly efficient way to own gold). 99% up from Mar 31 2009. So if I thought inflation would really take off, I could have gone into a major inflation hedge like gold and done slightly better than the results I obtained from staying in a diversified equities allocation. I'm ok with that.

 

[John Galt III]

short term i see more signs of deflation . seems to me more eyes and the media are on the printing of money and inflation.

the world is deleveraging and that by definition is deflating .

longer term i see moderate inflation , nothing to write home about.

with 70% of gdp coming from consumer spending and housing stalled which creates the most spending and jobs i see only slow growth for quite a while ahead.

all we are doing is taking what ever money we all have and giving more to sectors like food ,energy and healthcare at the expense of all the others.

in fact years ago when home ownership was part of the cpi it over stated inflation so they changed it to we all rent instead.

well now renting instead is over stating inflation and if the shiller home index is mixed in we are actually in deflation slightly right now.

what freaked me out is im a wholesaler of over 15,000 different items. i was updating pricing discs for some big accounts and i was blown away how many items fell so much in price over the last 2 years.

Mathjak107, Very interesting post. Thanks. What sorts of items fell in price? JG3

 

[web_diva]

I am employing the asset allocation in Harry Browne's Permanent Portfolio.

 

[mathjak107]

Mathjak107, Very interesting post. Thanks. What sorts of items fell in price? JG3

im a wholesaler in the electrical industry and our products cover everything from wire to fittings to electrical controls and lighting.

almost all manufacturers have increased discounts or reduced pricing to spur more business. we are finding the market has no bottom when it comes to purchasing today.

 

[mathjak107]

I am employing the asset allocation in Harry Browne's Permanent Portfolio.

going on 25 years now that at least a portion of my nest egg stays put in it.

i have averaged over 9% for 25 years with little volatility. may be rough sledding a head with bonds peaking out but like i said negative rates seem to be coming more and more common and with them more capital gains for us.

 

[jebmke]

im a wholesaler in the electrical industry and our products cover everything from wire to fittings to electrical controls and lighting.

almost all manufacturers have increased discounts or reduced pricing to spur more business. we are finding the market has no bottom when it comes to purchasing today.

Not surprising. I used to work for A-B and times like this the discounting was heavy. We offset the pricing by moving more production to Mexico and Asia. When the contractor market dries up, even the industrial side gets hammered - especially in the commodity type goods. This on top of a shift from NEMA to IEC which tended to also drive pricing down.

 

[Alan]

I voted Yes in the original poll, and I'm glad that I was wrong as my pension is not COLA'ed.

 

[mathjak107]

Not surprising. I used to work for A-B and times like this the discounting was heavy. We offset the pricing by moving more production to Mexico and Asia. When the contractor market dries up, even the industrial side gets hammered - especially in the commodity type goods. This on top of a shift from NEMA to IEC which tended to also drive pricing down.

i was an allen bradley distributor for 25 years in new york city. now i switched hats and am a siemens distributor..

 

[obgyn65]

This is my view also.

Low real growth, moderate inflation. The US continues to see an overall decline in standard of living. Perhaps by the second half of the decade things start to pick up.