It's certainly worth considering the prospect of lower inflation...

It's certainly worth considering the prospect of lower inflation levels and or deflation, particularly given the increased interlinkages in the global economy and flow through between countries. Wages growth in Australia is subdued, reductions in commodity prices will reduce national income (i.e. the federal governments tax take will have an impact on the government deficit and this will flow through to higher debt costs and thereby lower government spending). Reductions in commodity prices feed through to lower inflation on outputs (for example the price of steel due to lower iron ore) and oil has an impact on a wide range of goods in the global economy, due to it being an input to transport costs. Irrespective of whether you have a bull or bear outlook on this, it seems that at the very least the outlook is for lower than historical levels of inflation, over the long run, which is negative for capital growth in assets such as property. Real assets, such as property to provide an inflation hedge, however if you are paying high holding costs relative to income and relying on capital growth to make up the gap, then you may still go backwards. In a deflationary environment the value of property will reduce over time, so there would be no incentive for prospective purchasers to buy now (wait for the future when prices are relatively lower).