Stagflation and Inflation! What are they and can we invest to make money from them?

Stagflation?! Ugh! What an ugly word...

Stagflation…Ugh! Even the word sounds terrible. Stagflation is a condition in the economy where inflation is reducing the value of your money while, at the same time, economic activity is slowing. OMG!


We all know now what inflation looks like. The price of food, gas, plane tickets and everything else we buy has significantly gone up in the last year or so. This has been the result of too much money in the economy chasing too few goods and services. The pandemic-induced supply chain problems and the war in Ukraine have been culprits as well.


While the economy has been moving along briskly, a lot of demand for goods has been pulled forward and people don’t have to buy as much as they did during the pandemic. This can produce a slowdown in economic activity going forward.


Now, our Federal Reserve Bank must also work to restrain the inflation the economy is experiencing. To do this they must raise interest rates and reduce the size of the Fed’s balance sheet (the balance sheet is the securities held by the Fed). 


They must also raise rates to produce demand destruction. Yikes! This is where the interest rates people are charged to buy things increases to make those purchases less attractive. This can slow the economy as well.


Another unfortunate Fed option is to raise interest rates to slow general economic activity–including employment. This is to interrupt any developing wage-price spiral.


The Fed may do these things but be hesitant to aggressively go after inflation because those policies can cause an economic recession. Technically, a recession is two consecutive financial quarters of negative economic growth. Please note we had negative growth already last quarter. This negative growth causes real financial hardship for many people.


Anyway, sometimes the net result of this is that the Fed induces a real slowdown in economic activity while at the same time not reigning in inflation and, viola, stagflation!


This is what stagflation is: a slowdown in economic growth combined with inflation.


How do we invest during stagflation? Stock markets tend to not like the activity the Fed does to combat inflation. It can be a good thing to invest in substantial, dividend or rent-paying assets.


RealyInvest offers share interests in properties long-term leased to companies you know and use everyday, like Starbucks, Chick-fil-A and Chase Bank. These properties are not correlated to the stock market and can, potentially, increase in value over time, especially in an inflationary or stagflationary economy.


If we experience a slowdown and inflation, it can be beneficial to focus on substantial investments that pay steady, rising income and can increase in value over time…like real estate.


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