Inflation is a common fear in the here and now. Even people living from paycheck to paycheck are aware that, sooner or later, they will have to fork over more of their money to pay for more of the things they want and need to survive. The problem, for most of us, is that we don’t really understand just how bad things are going to get.
Inflation is a global problem and, even more so, a global problem we all share in one form or another. One thing that many people don’t realize is just how bad the outlook is for the average person in the next decade. Because inflation rates are basically determined by the rate of growth of the economy, a lot of economists predict that the economy will grow. This will cause more inflation, and the good news is that almost everything will get more expensive, eventually.
Think about what happened to cars and restaurants in the 1970s. At the time, you were lucky if it cost $10,000 to buy a brand new car, with gas at $1.50 a gallon. Now, as the boom in the auto industry slowly dies down, it’s impossible to believe that $10,000 worth of vehicles would last as long as it did in the 1970s. That’s one example of the very significant generational impact inflation has had on our economy.
But even those of us who aren’t driving cars in the future will be paying more for food and gasoline just as soon as some kind of “recession” sets in. How bad? All it will take is a large swing in interest rates to change the expectation for inflation. Eventually, companies and consumers are going to expect inflation to be much higher than it is, and they’re going to start grabbing bargains when they’re on sale. Some of that will be accomplished by growth in consumer credit, but also a rise in debt service costs as interest rates rise. Companies will have to invest more in the future, like they did during the dot com boom, and that means higher prices for other goods and services.
My point here is that, inflation can and will affect everyone, even if we don’t feel the sticker shock today.
However, what people may not realize is that we don’t have to worry about inflation right now, because we’re living in a country where prices are actually falling for a lot of items.
Oil has plummeted, and it’s expected to stay low for the foreseeable future, which means our petro-money is suddenly cheaper. The price of coal, corn, soybeans, rice, sugar, pork, coffee, dairy, cheese, silver, and nearly all other common goods and services are significantly lower today than they were last year.
All of this is good news, but it’s also the first step on a very long journey.
While there is plenty of inflation that we’re all enjoying right now, it won’t be that way forever. Eventually, we’re going to face some very serious economic headwinds that may well turn what’s happening today into a grinding decline. To avoid that scenario, I recommend that you be well prepared.
Like last summer, you may want to start buying gold in preparation for that happening. So far, we haven’t heard about inflation; but, things can change very quickly in the stock market, and could start getting ugly pretty quickly if companies get stuck in a deep economic slowdown.
I will be providing some much more detailed advice on how to prepare for inflation during a webinar on Thursday, July 12th at 2pm Eastern. I hope you will take a moment to come to this important webinar so you can know what to expect for the next few years.
Larry Edelson is a regular contributor to TheStreet. You can email him directly at [email protected]