Rising Inflation Rates Demand Caution When Investing

Inflation has returned with a vengeance, with a 1.1 percent increase reported during June – courtesy of soaring energy and food prices.  The Federal Reserve reacted to the warning signs on June 25, when it froze the Fed funds rate at two percent – ending nine months of rate cuts that it hoped would revive the shaky economy.  Right now, the Fed believes that rising food and energy costs will negatively impact the economy for several quarters to come.  Consumers agree.  A survey conducted by the University of Michigan’s Year-Ahead Inflation Survey concluded that consumers believe inflation will reach an annual rate of 5.2 next year, the highest level since 1982.  Because they feel so pinched, people will be extremely cautious with their money.

Typically in an inflationary environment, investors look to lock their capital into assets that will protect value over the long term.  However, every time the Fed hikes its overnight fund rates, it becomes more expensive for banks to lend money.  So we have the capital markets acting as a restraint against the natural cycle of surging reinvestment in an inflationary environment.  The best advice for investors seeking a haven is to focus on quality – triple-net-leased, high-credit buildings in strong markets.  These buildings will protect the value of capital and even have good prospects for appreciation.

As consumers, we have the deflationary economy until the dwindling profits hit our businesses.  What’s the best way to ease the slide?