The Experts

Is this the perfect inflationary storm?

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Think about it:
  • We have the number one and number two 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.
  • We have significant internal price shocks care of tragic natural disasters raising headline inflation, and boosting consumer expectations of future inflation.

So what are the mitigants?

  • 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 tighter May budget (a possibility).
  • Maybe labour market flexibility, but unlikely.
  • Maybe productivity, but unlikely.
So you want to 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.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published: Friday, February 25, 2011

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