- James Surowiecki, a widely-read behavioral economist who writes regularly for The New Yorker, notes that while economists and governments usually fear inflation, within moderate limits it serves the useful purpose of encouraging both individuals and businesses to put their money to work, because as time goes on the money declines in value. A parallel inflation benefit consists of lowering the real value of debt. In an economy such as the U.S. economy in 2011, where many mortgage holders are "underwater" -- stuck with mortgages that exceed the value of their houses -- inflation would mean they could pay off the debt in dollars of declining constant value, and also that the value of these houses would rise toward the amount of the outstanding mortgage. These developments would likely encourage the residential building market, which would make residential construction exchange-traded funds (ETFs) an investment area of interest.
- Traditional economic theory has held that even in an inflationary economy, consumer goods and real assets, gold among them, will eventually attain equilibrium. A change in the general inflation rate will produce a parallel change in the inflation rate of any particular asset. But, as economist Martin Feldstein has pointed out, in any economy with an income tax, an increase in the general inflation rate causes an increase greater than the general inflation rate in "store of value" assets, gold being a particularly effective store-of-value asset, being both well-recognized and easily liquidated. Inflation, one would therefore expect, would particularly benefit gold-mining companies. ETFs representing a range of gold production and distribution companies constitute another promising area for investors in a time of inflation.
- Feldstein points to land as another promising investment in an inflationary economy. It has a recognized value, is widely marketed and therefore reasonably liquid. In the post-meltdown economy of the second decade of the 21st century, land prices will particularly appreciate as inflation stimulates the recovery of real estate from the depressed market of the mortgage meltdown era. Investments in large U.S. agricultural companies play this two ways: per Feldstein, the underlying land will increase in value faster than inflation, as will food, a basic commodity, and fertilizer. Companies in all three areas hold promise for inflation-conscious investors.
- In April 2011, Bank of America picked 10 stocks that will particularly benefit from food inflation (see Resources). In addition to fertilizer and agricultural companies, the bank also recommends manufacturers that specialize in farm equipment.