Investments for Inflation

"What investments for inflation are going to be effective today?" That's a question I get asked on a regular basis these days. I have to say this is a question that is of great concern to me as a person living in America.

Investments for Inflation: Is It Time to Jump Ship?

The economic picture in the US may be deteriorating again, and I have been struggling to find the right answer to the age old question: "are we seeing inflation or deflation." It's pretty clear that in terms of consumable necessities (food and energy), we are definitely seeing price inflation. Similarly we have seen big gains in metals - gold, silver, copper, and rare earth metals. Given that energy prices have increased greatly over the last 12 months it would be very hard to argue that costs have done anything but go up.

But that's not the honest truth, is it? We have also seen price deflation in long-term assets such as housing / real estate and perhaps consumer electronics. We can attribute the relative drop in price of electronics due to improved quality and productivity in that industry. Basically innovation. But what about the drop in prices of long-term assets like real estate?

A simple answer would tell us that investments for inflation would be tied to the near term price swings we are seeing in short term consumables and commodities.

The Problem with Short Term Volatiles as Investments for Inflation

The problem with using these current "hot items" as investments for inflation eras is that these commodities are highly subject to short term supply issues and can be easily manipulated by traders. The prices of these investments do not necessarily reflect the true nature of the present inflationary environment. So how does a prudent trader find a true balance between the short term pricing pain seen at the gas pump and the grocery store and the long-term reality that the economy stinks and prices of high ticket, long-term assets are falling?

The answer should be coming to you. That last sentence has a secret in it. Did you catch it?

See more information about gold price inflation and other ways to protect against inflation