photo © 2005 J | more info (via: Wylio)The earthquake, tsunami, and nuclear meltdowns that have happened in Japan have left quite a path of physical destruction. Aside from the tragedy associated with property and human tolls, the impact to global markets is an interesting one to consider. We’ve discussed in the past how surprise events can affect markets, and natural disasters fall into that category.
Paul Kasriel, economist with Northern Trust, writes some of my favorite perspectives on economics. In a recent essay, he discussed the facets of this event and how they’d likely impact markets. Japan is a nation with relatively few natural resources. He raises the issue that if government spending in Japan is boosted to rebuild infrastructure, an increasing demand on imports of raw materials can help to fan the inflationary flames of an already hot commodity market, pushing prices higher. Similarly, demand for products formerly produced in Japan, now on hold due to factory shutdowns, will increase in other economies as global demand persists across a shortened supply.
Kasriel uses the example of demand for hybrid Fords increasing as the supply and availability of Japan’s Toyota Prius reduces. Increasing demand leads to increasing price, and there you have a component of the data showing inflation.
What To Do About Your Mortgage
It doesn’t matter where it comes from; inflation, or fear of inflation will drive interest rates higher, and this pertains specifically to long term instruments like mortgages. There’s an increasing buzz about inflation in the economy, with many consumers confused by reports of low to moderate inflation when they feel it in their day to day living costs, particularly in food and energy costs. Food and energy are excluded from the core inflation data, but for reasons that really only matter in the short term view, not the long term.
Inflation can sneak up on you, sometimes through a string of events that are difficult to connect. It’s best not to be left exposed, and locking in long term financing on your real estate now will help you avoid some of the uncertainty headed our way. You can gain quite an advantage by setting a long term cost (such as a 30 year fixed mortgage) before markets turn on short term trajectories. Don’t sit idle here.