Is Inflation On Its Way Back?

There are several ways to define inflation. Investopedia defines it simply – as a “sustained increase in the price of goods and services.” Online you’ll find the definition, a “general increase in prices and fall in the purchasing value of money”.
 
Readers of classical economics literature will be familiar with this definition: “The concept of “too much money chasing too few goods”. These are all variations on a single theme, and in their own special way, each definition is correct.
 
You won’t need a dictionary or the help of an economist if, while at the supermarket, you discover the same bag of groceries you paid a $100 for last year now costs you $125. You’ll especially realize you’ve been pummeled by inflation if your income this year has remained the same as it did last year.
 
While we’re not in the same boat as 2008 residents of Zimbabwe or current residents of Venezuela, we shouldn’t discount the possibility of a run-up in prices. Back in the 1950s, popular writers would refer to a slow, less detectable rate of inflation as “creeping,” and illustrators would frequently depict the phenomenon as a snake.
 
In the previous blog, we suggested that President-elect Trump could very well introduce a more accelerated version of inflation if he remains true to his promises to lower taxes and spend billions on repairing the U.S. infrastructure. With more available dollars, in other words, we could easily wind up chasing fewer goods and services.
 
We don’t need a presidential effort that ambitious to bring back at least some inflation. According to Fed Chair Janet Yellen, we’re already beginning to see some evidence of it. Back in May of this year, she told the Economic Club of New York she fully expected inflation to reach the Fed’s target rate of 2% by the end of the year.
 
More recently, Yellen suggested we’re on a track for modest inflation, and could expect the Fed to approve an interest-rate hike in December. Regardless of what the Fed decides to do next month, if you’ve been to the pump or the supermarket recently, it’s safe to assume we’re currently somewhere between the rate of inflation Yellen envisions and the one Trump could conceivably jump start. Our accelerating Consumer Price Index (CPI) bears this out.
 
The Investopedia piece mentioned above suggests that a savvy investor should hedge a portfolio with “inflation-sensitive” investments like real estate and gold. We agree. With rare exception, real estate automatically moves up in price over time. Also, as the value of the dollar erodes, the value of gold will automatically increase.
 
At Friday’s closing spot price of $1,185.30 per ounce, the yellow metal is strategically priced for a strong upside move. Markets have memory, and gold could easily return to its $1,350 level and beyond in the next several months.
 
For more information, call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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