Experts attribute the current high inflation rate to several different factors. Some of these are:
The COVID-19 pandemic.
Supply chain shortages.
Increase in household demand.
Strong labor markets.
The war in Ukraine.
As inflation looms, financial institutions and central banks find themselves stuck between a rock and a hard place. The coronavirus pandemic forced financial institutions to adopt extraordinary stimulus policies. They pumped money into the economy at unprecedented levels. That likely prevented a catastrophic financial and epidemiological crisis from occurring.
Unfortunately, the move failed to lower the risk of a financial crisis. It just delayed it for one or two years. Economies are opening up, and vaccines are becoming increasingly available. Unfortunately, labor shortages and a global shipping crisis accompany the pent-up demand. These and more factors combine to create the ideal conditions for rampant inflation.
Inflation occurs when money loses its purchasing power over time. Often expressed as a percentage, it means that a unit of currency buys less than it did. Deflation occurs when purchasing power increases due to a decline in prices.
Money is losing value as populations and economies continue to grow. Retail investors and financial institutions are scrambling to find the best investments. They are looking for investments that maintain value even as prices continue increasing.
Central banks increase interest rates to prevent inflation from getting out of hand. Unfortunately, they are having difficulty dealing with the current inflation. They cannot continue increasing interest rates due to the following reasons:
The economy is still recovering from the COVID-19 pandemic.
There is a labor shortage.
The shipping crisis.
Agriculture as an Inflation Hedge
Investors are trying to deal with inflation in different ways. Some are investing in equities they believe will generate high returns. Others focus on commodities, gold, and cryptocurrencies to beat inflation.
The most intelligent investors are investing their money in real estate and agriculture. After all, real estate value tends to rise faster than inflation. More specifically, the value of agriculture usually increases when the economy is suffering.
Agricultural investments usually carry attractive benefits. The residential and office real estate sectors do not offer some of these benefits. The office real estate sector, in particular, was among the hardest hit by the pandemic.
Residential real estate continues to be a popular option for many investors. That said, the memory of the housing crash is still fresh. Furthermore, all non-agriculture real estate investments depend on location.
Agriculture investments are unique because they are pretty resilient to location pressure. Also, they do not depend on development, tourism, and even economic growth. That makes a compelling case for agriculture as a powerful hedge against inflation.
All investors want to avoid the looming inflationary crisis. Unfortunately, very few know how to do that. Talk to an investment expert if you are looking for the best investment strategies.
For more investment tips, welcome to Calturas Capital. Call (925) 744-7400 to schedule an appointment today.