Higher inflation increases rates and my repayments

Inflation is one of the three major topics consistently raised in meetings over the past 5 months.

What’s the big deal about inflation?

Would you prefer deflation?

Well, we have been in a deflationary phase for years, hence interest rates being so low.

Central banks are tying to flog a dead horse into life (it’s a metaphor, activists don’t write in to me) and now the ‘horse’ seems to be showing some life…

mainly due to industrial disruption and bottlenecks and prices are rising and not necessarily from extraordinary demand.

Can the prices be passed through?

Will customers accept them?

Otherwise ‘produced’ inflation can remain on shelves or in warehouses and it may not be converted to ‘paid’ and accepted inflation.

Inflation is a good thing. Asset prices do rise and it doesn’t mean hyperinflation.

If you are concerned about inflation, own gold and oil.

Do something about it in your portfolios rather than shaking a despairing head akin to waiting for the grim reaper.

The real problem with inflation is that interest rates will rise and if they double from here…..many people will be stressed or wiped out due to the leverage and debt accumulated during the period when central banks were fighting off deflation.

May 13, 2021

by Rob Zdravevski

rob@karriasset.com.au