The Current State of US Inflation

After COVID-19 disrupted the global economy for the better part of a year, US markets are experiencing a unique (and sometimes paradoxical) phenomena. Unemployment skyrocketed in April 2020, hovering around 15% after months of sub-4% lows. Although the Bureau of Labor Statistics suggests that unemployment is slowly going back closer to 2019 lows, there are still major uncertainties about long-term consumer demand. The stock market, on the other hand, was a rollercoaster—even during the depths of the pandemic.

In 2020, 25 companies gained market capitalization so broadly that they added a collective $5.8 trillion in value. The overall market rose by $14 trillion during this period, which means these companies accounted for 40 percent of market gains in 2020. US markets observed a crash on February 20th that lasted until the early days of April. But by the end of that month, global markets re-entered positive territory. By November, the markets reached pre-pandemic levels for the first time since the virus began affecting the global economy.

Advances in vaccination efforts have made it possible for states to relax public health mandates, which has resulted in more consumer activity. But, at the same time, global supply chains remain disjointed due to a worldwide decline in manufacturing. This means that the current state of US inflation might be set to change in the coming months—even if consumer confidence is high and businesses are getting back on track.

Economic Signs Point to Inflation

The unprecedented nature of the COVID-19 pandemic and its impact on global markets means it’s harder than ever to predict economic trends. For every expert that predicts a prolonged recession, there’s another who argues that the recovery will be swift and relatively easy to endure for most investors—some even argue it’s already over.

Predicting what kind of inflation we’re in for is a much harder exercise. The Federal Reserve’s liquidity injection has created near-zero interest rates, meaning that money is cheap. There’s also plenty of it due to Washington’s stimulus efforts, which could indicate that the value of a dollar may not keep pace with the cost of many goods and services.

There’s also the issue of supply chain disruptions that began as the global economy started a synchronized shutdown. Production and distribution is struggling to keep up with demand across a host of industries, which may result in higher prices. Lumber prices, for example, hit an all-time in May, marking an increase of 323% versus benchmark. This comes just as industry experts expected price increases to slow down or even reverse course.

Why Washington Might Be Slow to Curb Inflation

Inflation is usually synonymous with economic trouble, especially for retail consumers who feel the pinch at checkout. The economic impacts of COVID-19 and the policies that followed suit have created prime conditions for ongoing inflation. Yet policymakers may be inclined to leave inflation alone—at least for the short-term.

The Consumer Price Index jumped this May by 4.2%, which is the largest 12-month increase seen since the summer of 2008. The CPI serves as a major benchmark for inflation as it reflects the cost of common household goods. When CPI increases, you can expect consumer prices to jump as well. And yet the Fed and Washington want to do whatever they can to stimulate economic growth and job creation, given how fragile the current recovery might be.

Investors should brace themselves for the possibility of sustained inflation, particularly if employment figures begin to stagnate or current recovery efforts fall short of expectations. Should this happen, your portfolio might be at risk of lost value—especially if you haven’t hedged against inflation thoroughly.

How Alternative Investments Help Hedge Against Inflation

If inflation really is here to stay, investors might find it hard to avoid. Ultra-low interest rates make bonds unappealing: increasing inflation means your return may not be as high as you expected when you bought the bond.

Alternative investments can play an increasingly important role in your average investor’s portfolio, particularly when it comes to inflation hedging. Farmland investing provides perhaps the best opportunity for hedging and creating value within the world of alternatives. When you invest in farmland, you get to enjoy many of the inflation-busting benefits of commodities as well as the value of owning a real asset.

What makes farmland even more appealing is its resistance to some of the challenges that come with commodities and other kinds of real estate investments. For example, the commodities market may prove to be a resilient inflation hedge, depending on where you invest. Precious metals are a perennial favorite for investors looking to avoid inflation, but may come with some major sticker-shock. Gold prices are astronomical, meaning you won’t get much for your investing dollar.

Real estate is another investor favorite when inflation makes stocks, bonds, and investment funds less attractive. Real estate provides an opportunity to turn cash into a physical asset that can even benefit from inflation in terms of sale price. On the other hand, competition is cutthroat in the world of residential real estate right now: buying a new home is a challenge and pursuing investment properties may be even harder.

Farmland has a proven history of gaining in value ever since the 1980s. Plus, farmland is a real asset, which helps shield it from the diminished purchasing power of a dollar when inflation is on the rise. You also get more bang for your buck with farmland: the average acre of US farmland costs $3,160, whereas gold currently trades for just over $1,900 as of May 2021.

The alternative investing landscape offers the best possible hedges against inflation, and some alternatives are a better value proposition than others. If you’re looking to beat the average rate of return for long-term, inflation-proof investments, then farmland offers you a unique advantage.

How to Help Beat Inflation through Farmland Investing

In today's economic climate, predicting market movements has become increasingly difficult. Traditional market indicators are behaving unpredictably, and many are no longer seen as reliable. This creates additional challenges for investors looking to hedge against inflation. Conventional inflation hedges, such as bonds and gold, are not performing as they have in the past, making it crucial for investors to explore new strategies. Among these, farmland investing stands out as a strong option for mitigating inflationary risks.