Uh Oh: Consumer Price Inflation Heating Up Fast

March’s half a percent inflation monthly means 6% annually. That’s sufficient to rob savers of nearly half their purchasing power in just 1 decade. And it gets worse…

Anna Shvets

From Birch Gold Group

Back in September 2020, we reported on Fed Chairman Jerome Powell’s inability to see a “hidden” inflation offset in energy that camouflaged the rise in overall inflation.

That “hidden” inflation offset has now vanished, and inflation appears to be heating up quickly. Anyone can see it.

Robert Wenzel wrote that price inflation is coming in hot, and in his second update he put a spotlight on gas prices:

The gasoline index continued to increase, rising 9.1-percent in March. For the last 12-months gasoline prices are up by 22-percent.

That's a pretty big difference. See for yourself! All you have to do is go to the gas station. Alternately, take a look at the AAA National Average Gas Prices chart:

AAA National Average Gas Prices chart April 16 2021

Data from AAA as of 4/16/2021

Here's a quick summary of the CPI report:

The consumer price index rose 0.6% from the previous month but 2.6% from the same period a year ago. The year-over-year gain is the highest since August 2018 and was well above the 1.7% recorded in February. The index was projected to rise 0.5% on a monthly basis and 2.5% from March 2020, according to Dow Jones estimates. [emphasis added]

Only 0.5% inflation per month? That's 6% per year. Retirement savers take note: at 6% annual inflation, today's saved dollar loses about half its value in 10 years.

Over at TheStreet, Mike Shedlock says inflation is rampant and obvious. Why can't the Fed see it? Wolf Richter shows how the inflation spike would be twice as bad if home prices and durable goods prices were properly measured.

Even Steve Hanke, a notable economist from Johns Hopkins, had something to say on Twitter about Federal Reserve Chairman Powell’s apparent inability to acknowledge the dramatic rise in inflation already taking shape:

You can also see the massive increase in energy price inflation for yourself thanks to the Bureau of Labor and Statistics:

To put things in a broader perspective, food price inflation has been running consistently high, between 3.5% and 4.5% since April 2020 (when the effects of state authorized economic shutdowns began to be felt).

Until now, however, energy price inflation still had yet to catch up with other rising prices. Now that it has, you might expect Powell to change his tune?

Powell in denial, dollar strength at risk

It’s possible to picture Fed executives with their fingers in their ears, not wanting to hear anything about the recent jump in energy and overall inflation. Especially when you read Powell’s response:

Fed officials have said they won’t adjust policy based on short-term jumps in inflation readings. Chairman Jerome Powell told CBS’ “60 Minutes” in an interview that aired Sunday evening that he does not expect any interest rate hikes this year.

As usual, time will tell if Powell has the correct expectation. But based on his track record, you could potentially make a case against his reaction.

Furthermore, as expected with increasing inflation, the dollar’s purchasing power continues to tumble since the start of the Great Recession:

14-Year Loss of U.S. Dollar Purchasing Power

Chart via WolfStreet.com

Here's why this matters: we've discussed before that, even though hyperinflation is scary, the real threat to your savings is plain old, garden-variety inflation.

Powell might “have his head in the sand,” as Hanke mentioned. But you don’t have to follow Powell’s lead...

Hedge against “white-hot” inflation while you still can

As the discussion about increasing price inflation continues, it’s a good idea to take a few minutes to assess your own situation. And it's smart to remember what Jim Rickards said about who wins and who loses when inflation bites:

Hyperinflation doesn’t affect everyone in a society equally. There are distinct sets of winners and losers. The winners are those with gold, foreign currency, land and other hard assets. The losers are those with fixed income claims such as savings, pensions, insurance policies and annuities.

Ask yourself: “Are my retirement savings prepared to weather the storm? Will my purchasing power melt away under inflation?” Then examine your assets. Assess your risk profile. Double check your asset allocation, and diversify as you feel necessary. Consider whether your current savings plan would put you on the side of Rickards's "winners" or "losers."

While you're doing that, consider whether or not to add some precious metals like gold and silver. They have a long and proven history of providing a hedge against inflation.

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