Did you hear the cheering in the streets? The celebratory gunfire coming from the Federal Reserve? The champagne bottles across Wall Street being uncorked?
What’s got people so excited today is the monthly CPI report— which showed consumer prices increasing by ‘only’ 3.4% year-over-year. And core inflation, which strips out food and energy prices, increased by ‘only’ 3.6%.
That was about 0.1% better than last month, so, of course, both the Fed and the White House are doing a victory lap. Expect Joe Biden to ramble incoherently about his economic prowess any moment now.
This inflation report was all the market needed to jump right back into the fantasy that inflation is licked… and the Fed can quickly and safely start cutting rates again.
But even a quick look at the numbers shows a far less optimistic appraisal.
Month-over-month inflation was 0.3%. Compounded at annualized rate, this means that the current inflation path is HIGHER.
More importantly we can see prices in the real economy… including the prices of some of the most critical commodities and natural resources in the world.
Oil prices remain high. Copper prices are at an all-time high of more than $5 a pound, up over 30% so far in 2024. Neither of these is consistent with falling inflation.
Frankly I don’t really care what the Fed is telling me about inflation. I care a lot more about what copper is telling me. And these all-time high copper prices are telling me that inflation won’t be going down to 2% anytime soon.
Think about it: copper, plus a number of other commodities including energy, are critical inputs. If their prices are surging, then nearly everything we buy, build, and even eat will also rise in price.
Furthermore, think about what really caused inflation to begin with: the Fed printed an absurd quantity of money during the pandemic, and government deficits went through the roof.
What has fundamentally changed since then?
Government deficits are still through the roof. The Fed has barely decreased its balance sheet (and they’re already positioning for another round of quantitative easing).
On top of that, the White House, in keeping with its Marxist traditions, consistently goes out of its way to make things more difficult for people to produce… especially if you happen to be producing some of the most important and critical commodities in the world.
So, the inflation picture still isn’t very pretty.
On top of that, their own recent data including both manufacturing and retail reports, show more economic weakness. Combined with the inflation outlook, signs continue to point to stagflation.
Gold may be trading near an all-time high right now, but I still think it’s the best long-term hedge against inflation (and stagflation), especially for people who are based in US dollars.
And as my business partner James wrote recently, gold will be the most likely replacement for the US dollar as global reserve standard.
That means that central banks around the world will continue to buy it by the metric ton, pushing prices even higher.
I’d also point out the massive disconnect between the price of gold, which is surging higher from central bank buying, versus the price of gold mining stocks.
Central banks buy physical gold bullion. They do not buy mining stocks. As a result, gold prices are surging higher, but gold mining companies have barely moved. So, there’s a lot of good value in that sector right now.
