ECRI Says Inflation Pressure Low But Increasing - How To Profit

Includes: GLD, SCHH, SLV, VNQ
by: Kirk Lindstrom

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released its latest readings for its proprietary monthly Future Inflation Gauges this morning, Friday October 5, 2012.

The value of the various FIGs lie in their ability to measure underlying inflationary pressures and thereby predict turning points in the various inflation cycles around the globe. ECRI released separate reports for the United States, eurozone (Germany, France, Italy & Spain), the United Kingdom, Japan, Korea, Canada and Australia.

Five of the seven regions covered show increasing inflationary pressure with Korea and Australia flat and still near multi month lows.



Eurozone (Germany, France, Italy & Spain)


United Kingdom










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United States - UP: ECRI's U.S. Future Inflation Gauge (USFIG) surged in September. The value of the USFIG lies in its ability to measure underlying inflationary pressures and thereby predict turning points in the U.S. inflation cycle. The USFIG advanced to 103.4 (1992=100) in September from 101.0 in August.

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Commenting on the USFIG report, Lakshman Achuthan, co-founder and chief operations officer of ECRI, said, "The USFIG jumped in September to an 18-month high. Thus, U.S. inflation pressures have moved up a notch."

Below are the summary comments for the other areas covered by ECRI.

Eurozone (Germany, France, Italy & Spain) - UP: "While the EZFIG increased in August, it stayed well below last year's highs, and remains near June's 27-month low. Thus, Eurozone inflation pressures are still quite weak."

United Kingdom - UP: "While ticking up in August, the UKFIG stayed near June's 35-month low. Thus, U.K. inflation pressures are still subdued. "

Japan - Up: "In line with the earlier weakness in the JAFIG, the Japanese inflation rate sank further into negative territory in August. Meanwhile, the JAFIG remains below the highs seen earlier this year. Thus, Japanese deflation is poised to persist in the coming months."

Korea - Flat: "The KOFIG has fallen considerably since April 2011, and was unchanged in August from July's 29-month low. Thus, Korean inflation pressures are still fairly weak."

Canada - UP: "While the CAFIG edged up in its latest reading, it stayed near July's 37-month low. Thus, Canadian inflation pressures remain weak."

Australia - Flat: "The AUFIG continues to be in a steep cyclical downswing, staying at July's 31-month low in its latest reading. Thus, Australian inflation pressures are still in retreat."

How to Profit with Higher Inflation

Obviously, you can buy gold silver and other commodities if you want to speculate on high inflation.

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Unless you expect Armageddon, owning gold through the exchanged traded funds GLD for gold and SLV for silver is the way to go. Just beware that these can lose money if inflation turns out to be less than some think. If you expect Armageddon, then you should buy gold bars or gold in some form where you can keep it close to you in a local safe deposit box.

REITs, real estate investment trusts, are another asset class that should do well with moderate to high inflation. Owners of commercial and property REITs can raise rents to match inflation, which should give an income stream from the investment that should match inflation. Due to its wide diversity and 0.10% expense ratio, my favorite REITs fund is Vanguard's Admiral shares index fund (VGSLX) and its ETF (VNQ ) that you can buy and sell like a stock. Now Schwab's REIT (SCHH) has a new, lower expense ratio of 0.07% and Schwab clients can buy and sell it without commission. I will give SCHH consideration for my next purchase or rebalance.

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Safe Investments that Will Do Well With Moderate to High Inflation

If you want safety with a 100% guarantee you will get your investment back, then TIPS and Series I-Bonds bought directly from the US Treasury are the way to go.

For the rest of this month, you can lock up six months at 2.20% with Series I Bonds. Learn how to buy these in my Seeking Alpha article, "New 2.2% Tax-Deferred Rate For Low-Risk Series I Bonds."

Most brokers allow you to buy TIPS directly from the government as a service. This made it easy for me to put them in both my regular and ROTH IRAs. The next TIPS auction is scheduled for October 18, 2012, for 30-year TIPS. You can read more about TIPS in my Feb. 13, 2011, article "How to Play Expected Inflation from the TIPS Spread."

Bottom line, gold and silver can continue to soar but they can also crash like they did after peaking after the Arab Oil Embargo of the 1970s. If you want a SAFE investment that will keep up with inflation, then individual TIPS and Series I Bonds are your tickets.


Gold: I own a small amount of physical gold just for emergencies.

REITs: I own VNQ and VGSLX plus a REIT fund offered in Vanguard's variable annuity program. I also recommend these as core investments in "Kirk Lindstrom's Investment Letter."

I-Bonds: I have a significant amount of Series I bonds with base rates as high as 3.0%. I also recommend them in both my newsletters for some time. For more information, see Current I Bond Rates and iBond Base Rate History.

TIPS: I also own individual TIPS in both my regular and ROTH IRAs. I also recommend them for my "explore portfolio" in "Kirk Lindstrom's Investment Letter." I also recommended the mutual fund versions, VIPSX and VAIPX, in my "Retirement Advisor" newsletter back in 2007 where I continue to hold them.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.