4 Reasons Inflation Could Surge Soon

Inflation has always been the economic bugbear of ordinary consumers. They might not give much thought to a spike in bond yields, or an essay by, say, economist and former Treasury Secretary Lawrence Summers about a hike in interest rates. But they’ll certainly be stunned, as I was last week, on a trip to the supermarket if they catch a 30% markup in the price of a loaf of bread glaring at them from the shelves.
 
What’s going on here? Is this an isolated price bump in a consumer staple we’d be best off ignoring, and can feel confident will pull back in the next week or two? Or are we looking at the beginning of an economic trend that should give us concern?
 
We’re not trying to come off bleak. But the conditions suggesting an inflationary trend are smack in front of us. Let’s have a look at four reasons why inflation could surge soon.
 
InflationThe Consumer Price Index – according to the February Consumer Price Index report (CPI), overall inflation jumped at a year-over-year rate of 2.7%. While that might not sound alarming, the rate is the highest it’s been in nearly five years. As recently as almost two years ago, the inflation readings were negative.
 
The bounce back in energy prices from their levels in the previous year certainly had an effect. But, as the Fed looked at it, the core measure of CPI minus food and energy maintained an upward pattern of 2.2%. That metric has posted a 2.0% reading for 16 consecutive months.
 
Commodity Prices – On a collective basis, 45 commodities have shown a higher price – the highest they’ve been since April 2012, as compared to only ten that have been down. According to Reuters, “rising prices of commodities from vanilla to oil are stoking inflation expectations and turning investor attention to profit margins at companies, especially in consumption-related industries.” Some of these companies could easily pass on the rising costs to consumers.
 
According to Trevor Greetham, Royal London Asset Management’s head of the multi-asset division, “The closer you are to the consumer, then you are in a real squeeze situation ….The closer you are to the shovels, the closer you are to the commodity end.” In a similar scenario in 1994, observed Greetham, commodity prices surged, and consumers felt the brunt.
 
Trump Slams the Dollar – Last week, Charles Bobrinskoy, head of investment group at Chicago-based Ariel Investments, told CNBC’s Trading Nation that Donald Trump is the first president ever to try to beat down the value of the dollar. As he views the situation, the United States would be able to restore its competitive edge with a dollar that’s lower against competitive currencies.
 
A debased dollar also means you get less bang for the buck, and that’s precisely what inflation is all about.
 
A Spike in the Price of Gold – If there’s one formula you can frequently rely on, it’s the negative correlation between the U.S. dollar and the price of gold. When the greenback moves up, the price of gold moves down, and vice versa. And with the recent pummeling of the dollar, gold has experienced a sharp spike up. And such a spike is a clear signal that inflation is at hand.
 
While most investors don’t see the global financial system collapsing, many are diverting their investment funds into gold as a hedge against the uncertainty surrounding the current administration.
 
Doesn’t it make sense for you to do the same thing – to balance your portfolio against the fortunes of the dollar and the paper assets derived from it by owning at least some physical gold?
 
Request more information now or call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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