Inflation has been a topic of concern among economists in the past few months. After more than a year of pandemic-driven economic disruption and government stimuli, we are seeing signs of a potential inflation surge.
Consequently, this leads to questions about whether the past is repeating itself and whether we are heading for a 1970s-like inflation surge. While history does not always repeat itself, it is important to understand the circumstances that led to the 1970s inflation surge. And the implications it could have on investors today.
Causes of 1970s-Inflation Surge
The 1970s inflation surge was caused by a combination of factors. These include rising oil prices, excessive government spending, and loose monetary policies. The oil crisis of 1973 resulted in a sharp increase in oil prices. Consequently, this had a ripple effect throughout the entire economy.
Similarly, the government’s response was to increase spending, which injected more money into the economy and sparked inflation. Plus, the Federal Reserve’s loose monetary policies contributed to the problem. How? Well, it kept interest rates low to encourage borrowing and lending. In turn, this led to more money flowing through the economy.
Potential for Inflation Revival
Fast forward to today, we are seeing similar conditions with rising oil prices and excessive government spending. Though the reasons for the inflation surge in the 1970s are not exactly the same as what we are experiencing now, there are similarities.
In addition, the Federal Reserve has continued its loose monetary policy. Something that has injected more money into the economy and could contribute to inflation.
Impact of Rising Inflation on Investors
The inflation revival could have a significant impact on investors. As inflation rises, interest rates could increase. In turn, this could affect the value of certain assets, including stocks and bonds. Rising inflation could also lead to higher commodity prices, which could impact industries and businesses that rely on commodities for their operations.
As a result, investors may need to adjust their investment strategies to protect their portfolios from potential inflationary pressures.
Potential Investment Strategies
Given the potential for inflation surges, investors may want to consider adding inflation-resistant assets to their portfolios. Precious metals such as gold and silver are a hedge against inflation and could be considered a potential investment.
However, real estate (particularly commercial) could also be an attractive investment opportunity. These assets continue to perform well in times of inflation.
Final Thoughts
Inflation concerns are nothing new. But the potential for a significant inflation surge like what we saw in the 1970s is a real possibility. Investors should stay informed and be aware of the potential impacts of rising inflation on their investments.
Thus, by understanding the causes of past inflationary periods, investors can better prepare themselves and adjust their investment strategies accordingly. While history may not always repeat itself, it is important to learn from it and make informed investment decisions.