Inflation/Deflation

Most of what passes for explanations of inflation and its causes are convoluted and confusing. It is like looking into a pond of muddy water and trying to ascertain what lurks blow the surface. Below are some facts about inflation that should help clarify things:

There is a difference between inflation and hyperinflation...and there is no gradual path from one to the other. To wind up with true hyperinflation, some very bad things have to happen. The government has to completely lose control... the populace has to completely lose faith in the system... or both at the same time. [Are we there yet? Let's take a look.] Words: 1188

Is gold really is the inflation hedge that it's cracked up to be?...No, not really, and, in fact, we view other high-yielding real assets as much better inflation hedges.

To wind up with true hyperinflation, some very bad things have to happen. The government has to completely lose control and the populace has to completely lose faith in the system - or both at the same time. Will the U.S. go down that path? Let's review the situation.

Since 1996, the Federal Reserve has oriented its monetary policy around maintaining 2% inflation annually and, for the most part, U.S. inflation over the past couple of decades has typically hovered within a percentage point or two of that target but, right now, most price categories are exceeding that, some quite dramatically. Here’s how various categories of consumer spending have fared over the past 12 months:

The PCE price index without food and energy - the lowest lowball inflation measure that the U.S. government releases -  rose by 3.64% in September, compared to a year ago, the hottest inflation reading since May 1991.

Canada and the U.S. are showing significantly higher headline inflation than their peers. Initially it was sold as transitory, but that narrative is falling apart these days. Unbiased organizations are even forecasting the risk is now to the upside for Canada and the U.S..

The lowball core PCE measure of inflation rose by 3.62% compared to a year ago, the hottest inflation reading since May 1991 while the PCE price index with food and energy included jumped by 0.4% for the month (4.8% annualized), and by 4.3% from a year ago. This is the hottest PCE inflation reading since January 1991.

The Organization for Economic Co-operation and Development (OECD) released its 2021 summer outlook which suggests that elevated levels of inflation may stick around longer than central banks have let on.

Investors who want to maintain the purchasing power of their portfolio AND their standard of living through inflationary periods will find this article to be not only fascinating, but possibly provocative.