Is Out-of-Control Inflation on the Horizon? Watch These Two Indicators
Inflation, which measures general price trends across the economy, is complicated. Many factors contribute and today the rate is at 40-year highs. What does the future hold? Will inflation continue on its current path?
“Our nation faces a high risk of rampant inflation due to our high national debt,” says Mike Walsten, contributing editor to LandOwner. “Our total debt now exceeds $30 trillion — that is $30 with 12 zeros!”
This high level of debt, he says, is why many prefer land as an investment choice because it preserves wealth relative to paper assets.
Walsten expands this point by highlighting two key financial metrics. First is labor productivity.
“High productivity keeps a lid on inflation,” he says. “The relative favorable levels of productivity have offset the potentially inflationary impact of rising debt since 2010.”
Another key metric is the velocity of money, defined as the speed the dollar turns over in the economy.
Source: Federal Bank of St. Louis
“The velocity of money has been on the decline since the late 1990s,” Walsten says. “That decline has kept inflation at a very low level, even flirting with disinflation and deflation at times.”
Together, these two metrics can be indicative of the overall financial situation.
“Productivity has suddenly plunged due to higher wage rates, and inflation has jumped in concert,” he says. “What happens when money velocity heats up again? That could happen if consumers and businesses conclude they should buy now rather than face higher prices later. That will speed velocity and could result in embedded inflation at a rate much higher than currently seen.”
Find more farmland news is LandOwner.
Read More
How to Anchor Your Farm's Profits From Inflation’s Pull
Inflation Nation: The Long Road Ahead
The Farm Economy Explained in 3 Charts
