Comments on: Investing in a period of high inflation http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/ Helping you invest and prosper Sun, 14 Mar 2010 20:52:53 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: CanadianInvestor http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-191854 CanadianInvestor Wed, 20 May 2009 08:11:13 +0000 http://www.canadiancapitalist.com/?p=1896#comment-191854 I checked with the Bank of Canada and the inflation measure used by the RRBs is Total Inflation not Core Inflation. The terminology the info sheet pdf uses is "All-items" CPI. I checked with the Bank of Canada and the inflation measure used by the RRBs is Total Inflation not Core Inflation. The terminology the info sheet pdf uses is “All-items” CPI.

]]> By: Mike Stewart Downtown Vancouver Realtor http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-187798 Mike Stewart Downtown Vancouver Realtor Fri, 03 Apr 2009 15:47:59 +0000 http://www.canadiancapitalist.com/?p=1896#comment-187798 I'm a Realtor, so obviously I will be pro-real estate. That said, this blog post mirrors my thoughts exactly over the last 3-4 months. National gov'ts and central banks around the world pumping huge demand into economies will have an effect. Its going to reflate our economies, but inflation is going to come too. To prepare for inflation, I am locking into 5yr fixed mortgages (who ever thought we'd see 3.85% 5yr fixed mortgages!!) and saving as much as possible to buy more real estate. Inflation will affect rents first I think and then prices. With locked in 5yr mortgages under 4%, the cost of money goes to nothing while rents get pushed up by inflation. Prices will be affected next. I just hope we don't see interest rates at or near 2-% as we did in '81-'82 I’m a Realtor, so obviously I will be pro-real estate.

That said, this blog post mirrors my thoughts exactly over the last 3-4 months.

National gov’ts and central banks around the world pumping huge demand into economies will have an effect. Its going to reflate our economies, but inflation is going to come too.

To prepare for inflation, I am locking into 5yr fixed mortgages (who ever thought we’d see 3.85% 5yr fixed mortgages!!) and saving as much as possible to buy more real estate.

Inflation will affect rents first I think and then prices. With locked in 5yr mortgages under 4%, the cost of money goes to nothing while rents get pushed up by inflation. Prices will be affected next.

I just hope we don’t see interest rates at or near 2-% as we did in ‘81-’82

]]> By: Weekly Blog Review-Follow me on Twitter | Financial Highway http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186857 Weekly Blog Review-Follow me on Twitter | Financial Highway Fri, 27 Mar 2009 04:01:22 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186857 [...] Canadian Capitalist looks at Investing in period of high inflation [...] [...] Canadian Capitalist looks at Investing in period of high inflation [...]

]]> By: Thicken My Wallet » Blog Archive » Are we heading back to $100 barrel of oil? http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186443 Thicken My Wallet » Blog Archive » Are we heading back to $100 barrel of oil? Tue, 24 Mar 2009 09:00:21 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186443 [...] Inflation: commodity prices tend to rise in anticipation or in reaction to inflation and the consensus is forming that the stimulus packages are solving one issue (the credit crisis) by creating another (inflation caused by the printing of money). [...] [...] Inflation: commodity prices tend to rise in anticipation or in reaction to inflation and the consensus is forming that the stimulus packages are solving one issue (the credit crisis) by creating another (inflation caused by the printing of money). [...]

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186350 Canadian Capitalist Mon, 23 Mar 2009 17:43:11 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186350 NN: Great memory. I myself forgot all about this post: http://www.canadiancapitalist.com/2008/09/01/investing-in-an-inflationary-world NN: Great memory. I myself forgot all about this post:

http://www.canadiancapitalist.com/2008/09/01/investing-in-an-inflationary-world

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186345 Canadian Capitalist Mon, 23 Mar 2009 17:38:51 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186345 rm: I think maintaining and growing wealth in real terms is the main challenge for the long-term investor. I don't think inflation risk is a myth at all. Inflation is especially a huge risk for traditional bonds which payout a nominal coupon. If actual inflation is materially different from expected inflation, the real returns from fixed income will suffer. Phil: Agreed. Esp. since we are talking about an annualized difference of 10%. rm: I think maintaining and growing wealth in real terms is the main challenge for the long-term investor. I don’t think inflation risk is a myth at all. Inflation is especially a huge risk for traditional bonds which payout a nominal coupon. If actual inflation is materially different from expected inflation, the real returns from fixed income will suffer.

Phil: Agreed. Esp. since we are talking about an annualized difference of 10%.

]]> By: NN http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186333 NN Mon, 23 Mar 2009 17:04:09 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186333 rm - you seem to argue that, if wages increase by inflation, your personal earnings power is a hedge against inflation. This seems accurate. However, inflation will definitely erode the purchasing power of the portion of your past wages you saved, unless your return after taxes and costs is equal to the inflation rate. The argument about improved technology does not apply to all elements of the inflation basket, certainly not food and energy (but perhaps refridgerators, plasma screens and laptops... I guess that over the long term the difference between core and total CPI is determined by the weighting and inflation of the components excluded from core CPI, which becomes a problem of predicting the future. In truth, every person experience a slightly different personal inflation, based on their lifestyle. CPI is just a measure of the average. Some time ago, CC did a post on US market data available from some professor. I can't remember his name, but did have a look at it back then, and remember that there was a systematic pattern in the correlation of real equity returns and the inflation rate. In the short term, inflation decreased the real return, but the correlation between inflation and future real return increases systematicaly as the time period increases, and is strongly positive for 10 year periods, which was the horizon I stopped at. For a long term inflation hedge, my bet is equities then. In the short term - who knows? rm – you seem to argue that, if wages increase by inflation, your personal earnings power is a hedge against inflation. This seems accurate. However, inflation will definitely erode the purchasing power of the portion of your past wages you saved, unless your return after taxes and costs is equal to the inflation rate.

The argument about improved technology does not apply to all elements of the inflation basket, certainly not food and energy (but perhaps refridgerators, plasma screens and laptops…

I guess that over the long term the difference between core and total CPI is determined by the weighting and inflation of the components excluded from core CPI, which becomes a problem of predicting the future. In truth, every person experience a slightly different personal inflation, based on their lifestyle. CPI is just a measure of the average.

Some time ago, CC did a post on US market data available from some professor. I can’t remember his name, but did have a look at it back then, and remember that there was a systematic pattern in the correlation of real equity returns and the inflation rate. In the short term, inflation decreased the real return, but the correlation between inflation and future real return increases systematicaly as the time period increases, and is strongly positive for 10 year periods, which was the horizon I stopped at. For a long term inflation hedge, my bet is equities then. In the short term – who knows?

]]> By: Phil S http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186332 Phil S Mon, 23 Mar 2009 16:59:11 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186332 Hi CC. Although the overall numbers look small, 1.97% is bigger than 1.8% by about 9.4%. So, investment-wise in terms of real return bonds using core CPI, that's quite a big difference! You're ripped off by 9.4% off the "real" inflation rate... Hi CC. Although the overall numbers look small, 1.97% is bigger than 1.8% by about 9.4%. So, investment-wise in terms of real return bonds using core CPI, that’s quite a big difference! You’re ripped off by 9.4% off the “real” inflation rate…

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186295 Canadian Capitalist Mon, 23 Mar 2009 15:01:18 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186295 Phil: Here's what I found on the BoC page: http://www.bankofcanada.ca/en/cpi.html Core CPI = 87.9 in 1995; 112.8 today. Roughly 1.8% per year. Total CPI = 86.6 in 1995; 113.8 today. Roughly 1.97% per year. It does appear that total CPI is slightly higher than core CPI. Perhaps, good topic for a post. Phil: Here’s what I found on the BoC page:

http://www.bankofcanada.ca/en/cpi.html

Core CPI = 87.9 in 1995; 112.8 today. Roughly 1.8% per year.
Total CPI = 86.6 in 1995; 113.8 today. Roughly 1.97% per year.

It does appear that total CPI is slightly higher than core CPI. Perhaps, good topic for a post.

]]> By: rm http://www.canadiancapitalist.com/investing-in-a-period-of-high-inflation/#comment-186291 rm Mon, 23 Mar 2009 14:57:33 +0000 http://www.canadiancapitalist.com/?p=1896#comment-186291 There seems to be no way to edit...I meant so say BUY, not "by" when talking about what labor can purchase. There seems to be no way to edit…I meant so say BUY, not “by” when talking about what labor can purchase.

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