Puzzling over inflation in the next 30 yrs.

[samclem]

Quote:

Originally Posted by Earl E Retyre Yes, costs go up. But as I get older, I feel my costs do not get affected as much. Mortgage is paid off, so my primary cost of housing is fixed (other than property taxes). Cost of clothing goes up but I am more than happy with my 5 pairs of jeans and T-shirts. Cost of groceries go up, but we eat mostly chicken which is so cheap it does not matter if the price quadruples. Gasoline goes up, but we fill the cars infrequently and do not really need 2 cars. And so on. It seems like the primary rising costs that affect us in a big way are medical, travel and restaurants/entertainment. Medical costs are out of control but I think that is currently rising independent of high inflation. And I certainly hope it somehow gets under control. Travel and entertainment will increase but those are discretionary and could always be scaled back.

Yes, it is true that if a person doesn't care about the actual worth of their saved dollars because they can just continually buy less or cheaper stuff without a diminution in their standard of living, that inflation should be of no concern. High inflation will be a boon for anyone who cares about the numeral on the bottom of their account statement, rather than what they can buy with that money.

[devans0]

I fully expect inflation to bite into my fixed income sources over time. I don't touch some assets that give returns above inflation just to let them grow more. Hopefully they will continue to outpace inflation.

[Hamlet]

Quote:

Originally Posted by DrRoy The highest two episodes of inflation in the US in the last 65 years were 1974 (11%) and 1980 (13.5%). Both were caused primarily by OPEC oil embargoes. OPEC no longer has the ability to control the price of oil in the way that they did then, and oil is a smaller portion of our overall energy usage then it was then. Ergo, those worst episodes cannot be repeated. The high interest rates of those past times were deliberate actions by the Federal Reserve to crush the inflation, with the resulting dampening of economic activity being part of the effect. It is possible that some other world economic event could generate a new bout of inflation, but we cannot predict that.

Yup. Regular inflation caused by an overheated economy is not all that scary a scenario, because incomes are usually rising with prices, through higher wages, interest rates, and corporate profits.

The scary inflation scenario is a supply-side issue like the oil embargo. A large increase in price for an input that is vital to the economy. As you said, it probably won't be caused by oil these days, since the supply is distributed and oil's impact on the economy is a lot less than it was in the 70s.

I mainly worry about something like a pest/disease/drought destroying our corn and/or soybean production. Our entire food supply depends on ultra cheap corn and soy. Things could get ugly pretty quick if those crops both failed.

[dtbach]

Quote:

Originally Posted by Hamlet I mainly worry about something like a pest/disease/drought destroying our corn and/or soybean production. Our entire food supply depends on ultra cheap corn and soy. Things could get ugly pretty quick if those crops both failed.

Learn to eat rice/potatoes then.

[Totoro]

Potatoes?
https://en.wikipedia.org/wiki/Great_Famine_(Ireland)

Rice?
https://en.wikipedia.org/wiki/Cochliobolus_miyabeanus

We're doomed!

[MRG]

Quote:

Originally Posted by dtbach Quote: Originally Posted by Hamlet I mainly worry about something like a pest/disease/drought destroying our corn and/or soybean production. Our entire food supply depends on ultra cheap corn and soy. Things could get ugly pretty quick if those crops both failed. Learn to eat rice/potatoes then.

Cows are damn picky eaters.

[dtbach]

OK,
then learn to eat quinoa.

[Senator]

I am looking forward to inflation. Property values will go up. My mortgages stay the same. Rents will go up. SS will go up. Dividend yields should go up. My pension stays flat.

I think it will be higher than today, and may crest 8%. I plan on an average of 2.5%, but expect the average over the next 0 years will be closer to 5%.

[Running_Man]

I note there is zero concern for the far bigger danger to any retiree - continued and persistent deflation.

[highlow65]

I think people with non-cola pension and annuities could be hurt a lot over time with inflation, pays to be diversified but some people will suffer.

[NW-Bound]

Quote:

Originally Posted by Totoro Potatoes? https://en.wikipedia.org/wiki/Great_Famine_(Ireland) Rice? https://en.wikipedia.org/wiki/Cochliobolus_miyabeanus We're doomed!

Quote:

Originally Posted by dtbach OK, then learn to eat quinoa.

I am already eating quinoa at lunch every day.

Quinoa is nutritionally superior to potato and rice, and has a much lower glycemic index. And it tastes good too.

[MRG]

Quote:

Originally Posted by NW-Bound I am already eating quinoa at lunch every day. Quinoa is nutritionally superior to potato and rice, and has a much lower glycemic index. And it tastes good too.

Not to cows, pigs, chickens.

[NW-Bound]

Don't know about cows, but pigs and chickens should thrive on quinoa. It may even make the meat better. The problem is quinoa is too expensive to feed them.

[traineeinvestor]

I'm also of the opinion that over the longer term inflation is a bigger threat to my retirement than market fluctuations. This is in the context of needing our savings to last 50+ years (DW was 40 when I FIREd) which might as well be forever.

Consequently most of our savings are in real estate and equities which have at least the potential to generate cash flows which grow over time. Whether they will keep up with inflation is another matter but, unlike bonds, at least they have some chance. The small allocation I have to bonds is primarily to provide additional liquidity.

It's also relevant that inflation means my personal rate of inflation - not the CPI numbers. My personal spending budget is more heavily weighted towards expenses which generally go up by more than the CPI number - medical insurance, rates/property taxes, school fees etc. - so I assume an inflation number higher than CPI.

In about 4.5 years the mortgage on our home and one of our investment properties will be paid off. Plan is to borrow to buy another investment property (subject to market conditions and a bank being willing to lend to us) every few years after that to provide additional inflation protection.

I haven't completely discounted the possibility of a deflationary environment, but given the debt/deficit positions of so many governments and the actions of central banks around the world, I consider that to be a much less likely scenario.

[razztazz]

Quote:

Originally Posted by Senator SS will go up

Will it?

[Running_Man]

Quote:

Originally Posted by traineeinvestor I haven't completely discounted the possibility of a deflationary environment, but given the debt/deficit positions of so many governments and the actions of central banks around the world, I consider that to be a much less likely scenario.

It is precisely because of the level of debt and the impact of current rising rates that has the potential of putting stress on budgets around the globe. Italy is incapable of paying their debt, Deutche Bank is nearly bankrupt. Japan is incapable of paying debt on their interest if their average rate rises above 1.5%. It is possible that all of these moves will cause an increase to inflation, to this point there has never been an escape from ZIRP and if this occurs it will be the first one. There have been many attempts that have given much hope and short term rise in interest rates but the penalty of adding too much debt has always in the past handcuffed Japan the leading example. So we will see, current trends are interesting and near term right at a break out point, but let us see what happens in the real world after the FED starts a problem for the EM countries with a rise in interest rates.

It is far easier to be retired with increasing inflation than be in a circumstance where debt implodes worldwide. It is going to be an interesting two years coming up financially speaking.

[samclem]

It appears to me that the likeliest cause for high inflation in the US will be deliberate action by the government/Fed to devalue the currency. If the debt our government owes becomes unserviceable (due to its size in relation to the government receipts), there will be strong political pressure to "print more money" and make payments with this new money rather than default on debt payments/SS payments, etc. Each new dollar introduced reduces the value of all existing dollars. This is the choice that many governments have made in the past when it is politically impossible to raise taxes further--they introduce a "stealth tax" whereby all existing holding denominated int he national currency are devalued.

[MRG]

Quote:

Originally Posted by NW-Bound Don't know about cows, but pigs and chickens should thrive on quinoa. It may even make the meat better. The problem is quinoa is too expensive to feed them.

I suppose that is correct, at least pigs and chickens. They both eat protein naturally. I'm not sure how cows would manage protein?

You make the point. Quinoa is too expensive to use as animal feed.

While I agree that the most effective way to produce protein may be a plant based diet. How many people would actually eat that way? We were doing one meatless day a week for a long time, I don't want to eat that way full time.

We raised our own food for a while. A 40x60 garden, freezing and canning the leftovers. A few years of raising children for eggs and meat. It's great fun for a while maybe not so much if you have to do while old and sick. Expecially when you get into processing animals larger than chickens or rabbits. I've processed venison and helped with pork, it's a lot of work! Imagine you want a beef steak.

[NW-Bound]

Talking about inflation, any of y'all following what is happening right now in Venezuela? Their bolivar becomes so worthless vendors do not bother to count it. They weigh it!

Ten years ago, the exchange rate was a few bolivars to a dollar. Now, the highest Venezuelan bill of 100 bolivars is worth less than 2c.

[audreyh1]

Don't cows eat grass? If there is no corn they can just all be grass fed beef.