Property and inflation.

My friend, colleague and fellow co-head of research, Kevin White, has spent the past few months quoting Mark Twain and telling me that, “History doesn’t repeat itself, but it often rhymes”. The reason for the quote is to reassure that, even in this period of high inflation, commercial property should continue to be a strongly performing asset class. 

But to which period in history should we look? The most obvious perhaps are the 1970s or the 1990s, but why not others? Despite the overuse of war metaphors during the pandemic, the two world wars are probably not a good reference point, but what about the latter part of the 1940s? 

In 1947, US inflation jumped to 20% as supply shortages, pent-up demand and the elimination of price controls led to a surge in inflation, particularly in food, fuel and consumer durables. After around two years, normalising supply chains and a mild recession saw price growth return to more modest levels.

This sounds somewhat familiar. We didn’t see price controls, but supply-chain problems, pent-up demand, rising fuel and food prices are all issues we’re experiencing today. And, while I know it’s controversial to use the term temporary, I still expect inflation to moderate over the coming year.

I can’t back this up with data from the 1940s, but if this is the outlook for today’s inflationary period, I wouldn’t expect it to have a lasting impact on property performance.