Inflation Comes Roaring Back In!

US consumer price inflation has spiked to 3.8 percent, its highest level since 2023, while wage growth has fallen behind inflation for the first time in 3 years. 

Michael Shedlock calls this inflation report “a scorcher,” and “a genuine disaster.”  David Stockman says “You ain’t seen nothing yet!”

Note that 3.8 percent means that inflation is higher than the Federal Reserve’s policy interest rate, the Fed funds rate, which is 3.5 – 3.75 percent. Below inflation, the Fed lending rate is actually negative in real- or constant-dollar purchasing power terms.  Negative rates spur even more inflation.

Specifically, the Consumer Price Index rose by 0.64 percent in the month of April.  That’s 8 percent annualized.

Wholesale prices, the Producer Price Index, exploded by 1.4 percent in April, almost three times the consensus forecast.  Annualizing that rate over 12 months would produce an 18 percent rate of wholesale price inflation.  You can see that illustrated by the light blue line on the far-right side of this chart:

We are early in environment of prices rising due to the Iran war, so annualizing the impact of early price increases, those from only the second month of the war, is hardly an act of exaggeration.  

The Federal Reserve’s own inflation target is 2 percent annually.  That target is entirely arbitrary.  Candidly, it is the equivalent of the Fed empowering itself to reach into your dollar savings, your bank account, the balance in your checking account or money market funds, the cash you may have stashed, the future value of payments you will receive from Social Security benefits or other pension payments, or even the money in your kids’ piggy bank, and helping itself to 2 percent.

Like drilling into a bank vault and stealing 2 percent with impunity!  Heisting that much each and every year going forward! 

This is wrong on so many levels, but most basically it is wrong because it is theft.  It takes your money without your knowledge or approval because it can!  Its apologists say that it is money used for public purposes, but America and its Constitution make no allowance for this kind of theft by a quasi-private entity  There are Constitutional, statutory means by which the government is allowed to fund public purposes: it has provisions to raise taxes, which involves the consent of the public through their elective representatives.  

The Fed’s money-printing inflation end runs those Constitutional provisions.  It is in essence a counterfeiting scheme, bypassing defined, established means of taxation.

The Fed’s targeted 2 percent rate reflects the Fed’s view that it can steal the people’s wealth at an annual rate that is low enough that it won’t meet much resistance. 

Nevertheless, the Fed has been helping itself to the people’s money at a rate above that target each and every month for five consecutive years.  Indeed, there is persistent talk in Fed circles of raising its target to 3 percent.  Can it steal 3 percent from your wallet or purse each year without provoking a backlash?  

But 4, 5, and 6 percent inflation gets noticed without question.  It makes price inflation top-of-mind and a lead story everywhere.  

Yet April’s consumer price inflation rate annualizes at 8 percent!  The wholesale rate annualizes at 18 percent!

That pretty much kills Washington’s hopes that it can goose the economy but cutting interest rates.

Some get what is going on earlier than others.  Yet when inflation reaches elevated rates, few people need anyone to discuss monetary policy or Fed liquidity operations with them.  They begin to turn to gold! 

And that appears to be where we are once again.  The next stampede to gold is in development now.  Call or stop by Republic Monetary Exchange.  

Avoid the rush.