In recent weeks, not a day has gone by without the economic sections of this republic discussing the major topic of fear: inflation. What does this mean for purchasing power? Will we be able to afford less in the future? And the most important question of all: Will interest rates now rise?

In view of the rise in the inflation rate to 6.8%, moderate interest rate hikes are likely in the US from 2022, and an interest rate hike is not entirely utopian in Europe either. However, this is likely to be limited. This is because in the last phase of high inflation from 1970 onwards, government debt was very low, so rising inflation and thus an increase in interest rates were not a problem at first. However, in view of the growing burden on national budgets in the future due to the ageing population and the need to combat climate change, a drop in the level of debt as seen after 1945 is completely unthinkable; low interest rates are likely to remain with us for many years to come.

This is good news for property owners and buyers. Looking at the relationship between inflation and interest rates, it is currently clear that an increase in inflation of five percent is accompanied by an increase in interest rates of just 0.5 percent. In the long term, we can assume that only half of a sustained rise in inflation will be reflected in interest rates. If we now assume inflation of 2.5% in the coming year and that government bonds will subsequently rise to a yield of +0.1%, this leaves a real interest rate of -2.4%. If we now look at the years 1991 to 2021, we can see that even with a real interest rate of almost two percent, the total return for property owners is almost six percent. If interest rates now slide into negative territory, our forecasting model makes a double-digit return possible in every(!) year.

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