You Can’t Count Inflation Out Just Yet

US dollar inflation

While much of the mainstream media has been urging the Fed to declare victory over inflation and just get on with rate cuts already, inflation itself is being stubbornly persistent. And two recent inflation reports show that inflation could actually be rising once again.

This unexpected rise in inflation isn’t just bad for the Fed’s potential plans to cut rates. It’s bad for the economy, and it could end up further stressing American households that are already struggling to make ends meet.

CPI: One Part of the Equation

When most people think of inflation, they think of the consumer price index (CPI), the index that is supposed to measure the amount of inflation the average consumer faces. That’s the headline inflation number you’ll see published every month.

While inflation isn’t as high today as it was in 2022, it’s still problematic, and having trouble pushing down towards the Federal Reserve’s 2% target. After last month’s 3.4% year on year and 0.2% month on month increase, this month’s inflation report showed a 3.1% year on year on year increase but an 0.3% month on month increase.

Those numbers were higher than expected by economists and analysts, and would indicate that inflation could end up running between 3% and 4% this year. Core inflation, that is, inflation minus food and energy, rose 0.4% month on month and 3.9% year on year, also not a great indicator that inflation is getting any nearer to the Fed’s 2% target.

PPI: Another Part of the Equation

CPI isn’t the only part of the inflation equation, however. There’s also PPI, the producer price index, to take into account.

PPI measures the costs of goods and services to producers of goods, and trends there aren’t any better. Overall PPI was up 0.3% month on month, while core PPI was up 0.6% month on month, to the highest level it’s ever been.

Both of these were also far higher than consensus expectations. So if the narrative is supposed to be that the Fed is somehow winning the fight against inflation, that narrative should consider itself well and truly debunked.

How Bad Could Inflation Get?

What seems to be clear is that inflation is going to have a hard time getting back to 2%. And, despite the Fed’s best efforts to keep interest rates elevated and reduce the size of its balance sheet, it’s not having an impact on inflation.

Part of the reason for that is stagnation in the decline of the money supply. After declining significantly in early 2023, the money supply rebounded slightly, fell again, but is now once again on the upswing.

If the Fed is winding down its quantitative tightening, then whatever tightening we have right now is all we’re going to get. And we may just have to see where inflation ends up.

There has been some speculation that the reason we haven’t seen inflation subside significantly is that we still haven’t felt the full effects of the Fed’s 2020 balance sheet expansion. If inflation ends up rebounding in the coming months, it would give credence to those arguments.

But that puts the Fed in a real bind. Ever since December markets have been waiting, hoping for a Fed rate cut.

Each piece of economic data that has come out since then seems to put the certainty of a Fed rate cut further into doubt. With inflation still high and the unemployment rate still low, there’s nothing pressing that would seem to push the Fed to cut rates.

What started as near certainty that the Fed would cut rates in March has now evolved into wondering whether the Fed will even cut rates in June or July. And much of any potential rate cut calculus will depend on what inflation ends up doing in the meantime.

Are You Protected Against Inflation?

Inflation can be problematic, but fear of inflation can feed into how damaging inflation can be. And it appears that inflation expectations are starting to pick up once again, as more and more people realize that inflation hasn’t been whipped.

But more importantly, people are beginning to realized that falling inflation won’t bring prices back to what they used to be. The higher prices we’re seeing at the grocery store, at the pump, or for schools, medical care, and housing are all here to stay.

To households whose budgets are being stretched thin, who may have to resort to credit cards to make ends meet, the new reality is an unwelcome one. And it’s led many people to rethink their finances, develop stricter budgets, and try to protect their financial well-being.

While higher interest rates have been a boon for savers and investors over the past couple of years, the prospect of Federal Reserve rate cuts could slash the returns that people have been getting in savings accounts and money market funds. And it could leave them scrambling to find something to protect their assets against inflation.

One popular inflation hedge is gold, which has a reputation for maintaining its value and purchasing power over time. While the US dollar has lost 87% of its purchasing power since 1971, the gold price has gained over 5,000% since that time.

With inflation once again rising to levels that are problematic for American households, more and more people are turning to gold to help protect themselves against the devastating financial impact of inflation.

While many people have taken advantage of gold IRAs to help protect their tax-advantaged retirement savings, many too are buying gold directly with direct cash sales. That allows them not only to own physical gold coins or bars, but also to have direct access to their gold if they choose to store their gold at home.

Although gold held at home carries with it some risk of theft, for many people a bird in the hand is worth two in the bush. And especially for those who don’t have 401(k) or IRA accounts to protect, or who don’t want to place those funds into gold, buying gold directly can be one way to diversify their financial holdings and hedge against future inflation.

With over $2 billion in precious metals placements and over 5,000 5-star reviews, Goldco prides itself on quality precious metals products and exemplary customer service. We’ve worked hard to make ourselves one of the best gold IRA companies in the industry, and we’ve helped thousands of customers benefit from owning gold.

If you worry about how inflation might impact your finances, don’t wait any longer to protect them. Call Goldco today to learn more about how you can help safeguard your financial future with gold.

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