Contact us
CALL US NOW 1-888-GOLD-160

Fed’s Underlying Inflation Measure Close to 12-Year High

  by    0   0

Inflation is low – so we’re told. But this simply isn’t true.

Now, it is true that the consumer price index (CPI) has remained relatively low. But rising prices aren’t in-and-of themselves inflation. In fact, we can have inflation without a corresponding rise in CPI – at least in the short-term. That’s exactly what we’ve had over the last decade. We’ve had rampant inflation, but it hasn’t manifested in broad-based rising prices – yet.

As Ron Paul said on the Liberty Report earlier this year, people are all mixed up about inflation. Liberty Report co-host Chris Rossini pointed out, one of the difficulties in talking about inflation is the fact that the powers-that-be have redefined the term.

Inflation used to mean the creation of new money. So when a central bank would create new money, they were inflating the currency. Today, it means a rise in prices, which is actually the effect of creating new money. So, they have taken away focusing on the cause and now you’re only supposed to focus on the effect. And ironically, you’re supposed to look to the Federal Reserve to fight inflation, even though they are the cause of it.”

This is how after three rounds of quantitative easing – essentially printing money – economists can point and say, “See, look! No inflation. Consumer prices haven’t risen very much at all!” But the quantitative easing is inflation. We just haven’t seen the impact on prices. And we’ve seen plenty of inflation in asset prices. Just look at the stock market.

Now we are actually starting to see the impact of all of this new money more clearly in the form of rising prices.

According to the Federal Reserve’s Underlying Inflation Gauge, 12-month inflation growth in March came in at 3.13%. That’s the highest rate we’ve seen in 140 months – nearly 12 years. The last time the UIG measure was as high was in July 2006.

The CPI growth rate was also hot, coming in at 2.4% in March. This was a 13-month high.

As Ryan McMaken pointed out in a recent Mises Wire post, “The use of consumer prices only in the CPI has long been a problem, in that the cost of living and planning for the future does not involve only the basket of goods used in the CPI calculations. A wide variety of assets affect the American economy as well.”

Peter Schiff has been making a similar point. In a recent podcast, he said he thinks inflation is going to come in a lot hotter than the Fed’s 2% target. Why would anybody assume inflation is going to remain relatively low given all the money that’s been printed over the last decade? Rising commodity prices are a sign that we will likely see higher prices overall in the coming months. Consider the price of oil. It has gone up more than $20 per barrel since last summer.

The UIG does a little bit better job measuring these underlying prices.

As explained by the New York Fed’s summary of the UIG measure:

We use data from the following two broad categories: (1) consumer, producer, and import prices for goods and services and (2) nonprice variables such as labor market measures, money aggregates, producer surveys, and financial variables (short- and long-term government interest rates, corporate and high-yield bonds, consumer credit volumes and real estate loans, stocks, and commodity prices).

But as McMaken said, don’t expect the Fed or the mainstream pundits to abandon their devotion to CPI and the arbitrary 2% inflation goal any time soon.

The fact that the broader measure of inflation is climbing to the highest level seen in more than a decade is apparently not a matter of concern. Today, the president of the Federal Reserve Bank of Chicago, Charles Evans, reiterated that the Fed is holding to its 2-percent inflation goal – and they’re not talking about using the UIG measure.”

As Peter has been saying, inflation is good for gold. A lot of the mainstream thinks rising inflation is a bad sign for precious metals because it will motivate the Fed to keep pushing up rates. But keep in mind, an interest rate is nothing but a price. It’s the price of money. When there is inflation, interest rates go up just like any other price. Contrary to popular belief, this is not bad for gold. Quite the opposite, as Peter said.

 But of course, this is all bullish for gold. Duh! Gold is an inflation hedge. That’s what it’s for!”

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

The Tax Man Cometh! And Not Just for Billionaires

The tax man cometh! And thanks to the Democrats in Congress, there will be more tax enforcers shining their lights into the nooks and crannies of Americans’ finances.


Fed Balance Sheet Reduction Not Delivering as Promised

The Federal Reserve is all-in on the inflation fight. Or is it? While everybody focuses on interest rate cuts, the promised Fed balance sheet reduction isn’t going quite as promised.


Record Consumer Debt Levels Continue to Climb

Consumers continue to add to their record level of debt as higher prices squeeze wallets. Americans added another $40.1 billion to the debt load in June, according to the latest data from the Federal Reserve. That represents a 10.5% year-on-year increase.


Central Banks Added Gold at Faster Pace in June

Central bank gold buying notched up again in June. Central banks globally added 59 tons of gold to their reserves last month and there were no reported sales, according to the latest data compiled by the World Gold Council.


Labor Market Showing Cracks as Job Openings Decline More Than Expected

Despite back-to-back contractions in GDP, President Joe Biden, Fed Chair Jerome Powell, Treasury Secretary Janet Yellen and all of their supporters in the corporate media insist the US economy isn’t in a recession. But the only data they ever point to in order to back up their assertion is the “strong” labor market. The problem […]


Comments are closed.

Call Now