Inflation is the slow erosion of buying power over time. A dollar buys less “stuff” than it did in 1950. If you’re trying to save money, it can be a strong headwind.
But, are things changing? We could, possibly, begin an era when the erosion power of inflation is slowing down. While with us since the Great Recession, it has started to behave differently than what we are accustomed to. This should not be. The Economy is humming along, unemployment is at 4.5% (considered full employment) which should push inflation above what we would expect.
The impact of technology may be a key reason we haven’t seen normal behavior for inflation. According to a study by Vanguard, it could be responsible for shaving about ½ of a percent off of the annual inflation rate. That is significant on a year over year basis. We could be entering a period where deflation could be the greater risk to investments.
The approach you take for investing assets for potential inflation is very different than deflation or disinflation.