Yep. Yes sir’ee. Inflation is indeed rearing its ugly head.
Here in Uruguay, the government claims the official rate of inflation is 8.5%. Yeah, sure. The tooth fairy gave them that number. Based on my by gosh and by golly assessment, in January 2008 prices were, on average, at least 15% above December 2007. Food prices up 20%, and other items like medications were up 35%. Building materials skyrocketed 30% from between Spring of 2007 and now. (By the way, inflation is an issue on a planetary level right now; it’s not just Uruguay.) However, this region is legendary for its insane inflation levels, 300%….. the sky has been the limit.
So what does that mean if you’re a prospective real estate investor? In moderation, inflation is very good for hard assets like real estate. When it goes to extremes, like what is happening in Argentina right now (23% so they say, ah huh), it always turns out ugly. The economic crisis of 2001 - 2002 in Uruguay and Argentina is one way the drama could unfold. For those of you that don’t know, the bottom fell out here. It was one nasty mother!
How the story will actually play out in a hyper inflation scenario is impossible to know, but as I said, the ending is never pretty. If you feel this is just a temporary blip, or it won’t get too far out of hand, invest! If you believe hyper inflation is in play, I’d leave my checkbook at home when you come to visit our beautiful coast.
Stay Tuned!
Steve Bowman
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