It hasn’t been straight up – it almost never is – but we’ve grown accustomed to writing about continually higher rates of inflation almost every month for the last two years.
In May 2020, with businesses in suspended animation from the COVID shutdown, the Consumer Price Index (CPI) showed a 0.1% increase over the prior 12 months. However, with the monetary and fiscal floodgates open, inflation rose to 5% by May 2021.
From there, the CPI quickly marched higher. By October, we were living with annual inflation greater than 6%. We finished last year at 7%. It was 8.5% in March and 8.3% in April.
Let’s be clear about what that means. It means that slice by slice, the value of your dollar is being carved away. If you had $100,000 in savings a year ago, its current purchasing power has fallen to less than $92,000.
You have lost more than $8,000 in purchasing power. Over the last two years, you have lost more than $12,000!
It’s simply gone. And it’s not coming back!
Americans grilling in their backyards over the holiday weekend were all too aware of their lost purchasing power. Hamburger and chicken breast prices have never been higher. Expect more of the same. Cattle ranchers are already shrinking their herds due to rising feed prices.
For those who took to the road, it was an all-time high in gas prices. According to the Wall Street Journal, U.S. households are now spending an annual average of $4,800 on gasoline, compared to $2,800 a year ago. That’s $2,000 that can’t be used to pay for your family’s education, to go on vacation, or to save for retirement. It’s simply gone. And it is not coming back.
Now we confess that we aren’t persuaded by the government’s inflation statistics, which seem designed to understate reality. Contrivances like so-called “core inflation” strip out food and energy prices and are among PR stunts designed to moderate reports of inflation’s reach. Likewise, the cost of housing, which constitutes 31% of the CPI, is calculated by methodologies that clearly understate people’s experience of buying and renting homes.
With this viewpoint, skeptical but born of experience, we aren’t overly impressed with the ebb and flow of the official inflation numbers. If shell-shocked consumers moderate their demand, it stands to reason that price inflation will dip. But ebb and flow have always been the name of the inflation game. If next month comes in somewhat lower than the month before, the administration will issue a statement claiming a partial victory. But few people are a great deal happier to learn that they are bleeding away only $6,000 in purchasing power instead of $8,000.
Indeed, throughout the highest peacetime inflation in American history, the 1970s, the inflation rate rose and fell and rose and fell. Still, stock prices were brutalized, and dollar holders were victimized throughout the stagflation decade. Gold and silver were the best performing assets, outperforming energy and raw materials.
Today, consumer price inflation is running red hot far and wide, even outpacing our own crisis inflation rates in some places. Just this week Germany reported that consumer prices are up 8.7% over the past year.
History makes clear that this will eventually ignite a prairie fire of gold buying around the world. We don’t know exactly when gold prices will break out again, but as we watch the purchasing power of paper money go up in flames, we note that central banks, those who know the inflation fraud best, continue to turn to gold. For example, the incoming head of the Czech Republic’s central bank intends to increase its gold reserves from 11 tons to 100 tons or more.
That move is part of a megatrend. It parallels Poland’s plan to add another 110 tons of gold this year. The head of the National Bank of Poland explained, “Gold is free from credit risk and cannot be devalued by any country’s economic policy. In addition, it is extremely durable, virtually indestructible…. gold is treated as the so-called a safe haven asset, which means that its price usually increases in conditions of increased risk, financial and political crises or other turmoil in the global markets.”
We wouldn’t have said any differently. In these times, we think wise people everywhere should increase their personal gold reserves.
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The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.
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