As inflation takes hold, generations that have never witnessed inflation will experience its destructive power, says NAI chief economist Dr. Peter Linneman. In his new white paper, Dr. Linneman discusses the potential effects inflation will have on the commercial real estate industry.  The following is an excerpt:

No one deserves less forecasting credibility than the Fed. Over the last two decades, their macroeconomic forecasts have been among the poorest of any forecasters, despite the fact that they are the only forecasters who know macro policy decisions before they are announced. The Fed’s abysmal forecasting record makes our record look extraordinary, as at least we forecasted a 2009 recession in early 2006. Even as the recession was well under way, the Fed was saying there was no recession. Yet the Fed’s forecasts continue to gain respect.

Most notable in this regard is the Fed’s assurance that there is no danger of inflation. Bear in mind that this is the same Fed that worried about deflation a decade ago, subsequently flooding the market with liquidity that ultimately led to disastrous asset pricing bubbles (which they assured us did not exist), particularly for housing. Simply stated, the Fed’s assurances about inflation ring hollow.

Let’s look at some facts. We recently received notification from our healthcare insurer that healthcare costs for our company are rising by 24%. We were shocked, and discussed this increase with many other owners of small and mid-sized firms, only to find that their increases were even higher than ours.

This raises a very simple question: How is it possible to have 25% increases in healthcare costs, which account for roughly 17% of GDP, and not have serious inflation? Even if all other prices in the economy remain unchanged, this healthcare increase alone would generate an aggregate inflation rate of 3.75%. Also in the past year, education has risen by 4.4%, food prices have risen by 0.44%, and anyone in the business knows that apartment rents (supposedly 40% of CPI) have risen by at least 3% (and in some markets by as much as 8%). These basic truths suggest that there is already serious inflation in the U.S.

Read the entire article here.

And if you like what you read, stay tuned to the NAI DESCO website for information on Dr. Linneman’s next webinar.