For months, Federal Reserve Chairman Jerome Powell has insisted that inflation is “transitory.” Instead of laying out a plan to taper quantitative easing, Powell used his Jackson Hole speech to double down on that narrative. Looking at the bigger picture, the US government has created a CPI calculation that intentionally understates rising prices.
This raises a question: why is the government and the Fed so desperate to hide price inflation?
The government CPI data for August came in slightly under expectations. Nevertheless, a 0.3% month-on-month increase in prices is significant. And a dig into the numbers reveals something wonky. The way the government calculates housing costs drastically understates rising prices and skews overall CPI to the downside.
A couple of years ago, CNBC commentator Jim Leventhal made a pretty astounding comment. When asked about gold, Leventhal said he had no interest in it because gold has no uses as a metal.
Of course, this is nonsense. Gold has a wide range of uses in sectors ranging from jewelry to high-tech electronics. And gold is becoming increasingly important in the healthcare industry.
For the first time in nine months, the government CPI data came in under expectations. Prices rose by 0.3% last month, just below the 0.4% projection. Year on year, the CPI was up 5.3%. Core inflation, stripping out more volatile food and energy (for those of you who don’t eat or use energy) was up 0.1%. Core inflation is up 4% on the year.
In his podcast, Peter Schiff took a deeper dive into the numbers and explained why this doesn’t prove inflation is “transitory.” He also drilled down to the root cause of rising prices – too much money chasing not enough stuff. Given the current monetary policy, that doesn’t appear set to change anytime soon.
The latest seasonally adjusted month-over-month inflation rate was 0.3% (vs. .4% expected), with a non-seasonally adjusted annual rate of 5.3% (vs 5.4% expected). The reason for the fall from July’s .47% pace was spread across multiple categories, specifically Commodities, Food, Shelter, and Transportation.
While the CPI drop-off since the June peak appears to prove the Fed narrative of “transitory” inflation, a deep dive into the numbers shows why the Eccles building should keep the champagne on ice for the moment. Much of the recent pullback can be explained by the economy shutting down again in response to Delta. (more on this below).
The Federal Budget Deficit for August 2021 was $171B which was down from the $302B in July. The chart below shows the Federal Budget for the previous 18 months.
The US government ran a $170.64 billion budget deficit in August, pushing the total fiscal 2021 budget shortfall to $2.71 trillion with one month to go, according to the latest Monthly Treasury Statement.
The mainstream media spun this as good news, noting that the August deficit was 15% lower than the $200 billion spending gap a year ago. This was primarily a function of higher revenues in August 2021 compared to last year. But digging deeper into the numbers reveals the US government hasn’t exactly slowed down its out-of-control spending spree, with spending last month also up compared to last year.
Both Janet Yellen and Joe Biden insisted “enhanced” unemployment benefits weren’t incentivizing people not to work. The numbers prove them wrong.
Producer prices came in hot again in August, charting the bigger annual gain in nearly 11 years. This indicates “transitory” inflation isn’t going away any time soon.
The PPI for August rose 0.7% month-on-month. Economists were forecasting a 0.6% rise. This follows on the heels of two straight months with producer prices increasing 1.0%.
A lot of investors are disappointed in gold. After all, many buy gold because of inflation. Even with rapidly rising prices, the yellow metal hasn’t delivered as you might expect.
During his virtual speech for the Money Show, Peter Schiff explains exactly what is going on. He said in the end, gold will be vindicated because inflation will win in a knockout.
