Inflation Seems to Be Creeping In

When fiscal and monetary policy is loose or expansionary, there is always the possibility of inflation creeping into the economy. There are some indications already that we may be headed towards inflationary conditions. While some amount of inflation is not a problem, too much inflation can hurt savers and the economy.

Inflationary conditions are harmful for those who keep their money in a bank or fixed income securities. Retirees are especially vulnerable because a large part of their savings are in fixed income securities.

As an individual, a saver, it is very important to deploy money in asset classes which can resist inflationary pressures. These tend to be “real” assets, with the possible exception of the short-term hedge – gold. Real assets are those that will increase in price if the general level of prices increases. A farm that produces crops, or companies that produce goods and services that are useful and of value to buyers will increase in price with inflation. While high levels of inflation will be disruptive to everyone and everything, good companies (with pricing power) and their stocks will do far better than cash or bonds during inflationary years.