Hey guys,

I've been spending a lot of time talking about inflation and the effect it will have on the economic downturn that the world is presently experiencing.

Firstly let me say that all of my property contacts around the world; Aussie, South Africa, Kiwi (that's New Zealand), Dubai, Spain, US and Singapore are all saying the same things. Things are 'off the boil' but all of them including the US are saying that things are not as bad as they thought they could have gotten and all are predicting recovery in the next 18 months - 2 years.

OK so onto Inflation because I had one of the investors that I was chatting to yesterday saying that it doesn't matter that inflation was high because it is only food and fuel and not the consumer spending on the high street. So that won't mean interest rates need to increase.

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I hate to say but this is a very limited view of the effects of inflation. You see the fear is that if fuel and food prices are increasing this in turn means that the delivery companies will need to increase prices to keep profit margins. Of course they will pass this onto say the prices on the High St who are ordering their stock (which has also gone up because of the costs of the raw food product.)

This means that you and I are going to pay more of our wages into the High St thereby causing inflation on the High St.

In the medium term this will put pressure on wages (wage inflation) which will further add to the inflation rate and mean that the Bank of England will have no choice but to put up interest rates.

Personally, I think the long term prospects are very positive, we simply are not building enough properties to meet the demand. The target was around 250,000 per year (Barker Report 2002) but this year they are saying about 110,000 and next year 100,000. This point above all else will prohibit prices dropping massively.

So if people are telling you that inflation is not an issue, well I can see their perspective but I also think there are huge risks of inflation getting out of control.

Live with passion,

Brett Alegre-Wood

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