Land prices should now outperform other asset classes, especially when compared to their underperformance during the previous period of deflation, argues this writer.
In November I suggested that inflation would continue, rather than being merely transitory. Since then, we have seen US inflation rise to 7% (for the year to December 2021, US Bureau of Labor Statistics). The Federal Reserve has now retired the term transitory and accepted that we are seeing persistent inflation. This short commentary looks at the likely returns to landowners in an inflationary environment.
Prices of commodities, including farm produce, rose more than 40% in the past year, well ahead of equities at 20% (see the graph below). I believe rural land prices are likely to capitalise these commodity price gains. More generally, I think it is likely that land may out-perform other asset classes over the next 5 to 10 years, as some types of land have under-performed over the past 10 years.
Real total returns on US asset classes amid higher inflation rate
