Attack of the Killer Inflation
Liz Pulliam Weston at MSN Money is exploring the possible scenario in which inflation takes off in a manner like the period from 1979 to 1981. Even if inflation isn’t as high as 13.58% in one year, like it was in 1980 according to the Bureau of Labor Statistics, the picture Liz draws can come to be.
Basically, purchases will get significantly more expensive and it’s unlikley income will keep up. Liz gives the example of buying a computer — the general philosophy has been to wait six months and the price for the same piece of equipment will have gone down. It’s possible in periods of high inflation for that not to be the case, in which it might be better to buy now (with cash, not with variable-rate debt like a credit card) than to wait.
The article lists those who will suffer in periods of high inflation: people on fixed incomes, the poor, holders of long-term bonds, and people with variable-rate debt.
Here’s her suggest game plan:
* Don’t rush to pay off your fixed-rate debt. Payments will seem easier and less expensive as the cost of everything else increases.
* Push harder for that raise. Most of the time, this means working harder. Income is an equal part of the net worth equation, though for those people other than the poor, it’s harder to manipulate than one’s expenses.
* Get ready to substitute. Find cheaper options. Vacation in Hawaii rather than southern France? Or, probably a better thought, skip the vacation this year.
* Buy now, but don’t charge it.
* Invest in “real assets.” This includes real estate, natural resources and commodities. These include inflation as part of the price, so you’ll be riding the wave instead of drowning.
* Stay invested in stocks. Inflation may scare people initially, but stocks should provide a good return.
* Don’t eschew bonds. Eh.
So, are you ready for inflation? Once you are ready, make sure you’re also aware that it was only recently people were warning of deflation.