Do You Expect High Inflation?

[brewer12345]

I expect inflation in specific prices: fuel, food, ammunition, taxes (cost of gubmint). Generalized inflation I imagine will remain quiescent.

[NW-Bound]

My utility company proposed a 4.8% increase in electricity rate for next year. After the public protested, they revised it down to 3.9%. That's higher than the CPI, I think.

[MichaelB]

Quote:

Originally Posted by MichaelB I think real growth stays at 1% and inflation rises to 3%, our economic growth is mostly inflation and real per capita GDP is flat. Low grade stagnation. Without real growth public revenues will not increase – as needed to reduce deficit and pay for the current financial rescue (well, hopefully a successful rescue). As gov’t income doesn’t increase we will need higher taxes, which reduces income available for personal consumption. To offset the loss in wealth over the past year the savings rate needs to increase, which also which reduces income available for personal consumption. The US will be faced with a falling standard of living, which will keep the inflation rate low. The effects of inflation - a loss in purchasing power - will happen anyway.

Three years later, my views are pretty much unchanged. 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.

[FIREd]

Quote:

Originally Posted by FIREd Yes, I suspect we will have higher inflation, though probably not hyperinflation. I also loaded up on TIPS in November (converted cash and GNMA to TIPS) and I am considering buying some i-bonds this year.

I was wrong on inflation, but right to load up on TIPS - made a killing. Funny how it worked out.

[traineeinvestor]

Defining "high" inflation as 4% or more.

Given that the Fed has promised to mainatin QE until unemployment reaches acceptable levels, the possibility of inflation picking up is very real. How high? How long? When? I have no idea but I expect it to be more likely than not that it will happen so I voted "yes".

That said, a few years of inflation at 4-5% pa at a time when unemployment is falling is not exactly a major problem (IMHO) for the economy as a whole but would be more of an issue for those relying on fixed pension or annuity incomes and/or who have portfolios that are mostly bonds and cash.

As an aside, many countries are already experiencing inflation at or above this threshold -especially where food gets a higher weighting in CPI calculations.

[Helen]

I wish I knew what inflation will be like in the next 6 years. I'm retiring in 2013, but won't receive a COLA on my pension until 2019.

[mathjak107]

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.

[timeasterday]

I don't expect big changes in inflation in the near future. But eventually this country has to deal with the debt somehow. We are going to start building some cash reserves and investments in my wife's home country since we will spend our retirement there. My biggest fear is having reached my number in USD but not being able to retire due to the exchange rate.

[eytonxav]

Quote:

Originally Posted by mathjak107 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.

+1

[audreyh1]

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.

[REWahoo]

Quote:

Originally Posted by audreyh1 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:

Quote:

Originally Posted by ejman 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]

Quote:

Originally Posted by REWahoo 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]

Quote:

Originally Posted by rbmrtn 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]

Quote:

Originally Posted by 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]

Quote:

Originally Posted by mathjak107 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.