The Runaway Inflation Train

Nothing has more impact on the dollar price of gold than dollar inflation.  Now the new runaway inflation freight train is headed our way so fast that, despite our having described the new government price indices last week, we are absolutely duty-bound to underscore our prior warning.

Here are a couple of the points we made in that warning.

The Consumer Price Index rose 0.5 percent in May.  What would that rate of inflation produce over 12 months?

Serious inflation.  6.17 percent! That is higher than the rate of consumer price increases in August 1971, when President Nixon abandoned the gold standard and imposed wage and price controls.

The Producer Price Index climbed 1.1 percent in May.  The May PPI inflation rate annualizes to over 16 percent. Those are basically wholesale prices.  They are head to consumers.

The Federal Reserve Board’s new chairman, Kevin Warsh, announced (6/17) that the Fed would neither lower nor raise interest rates at this time.  He uttered familiar words about opposing inflation, and retained the Fed’s two percent inflation target, a target it has failed to meet for some 60 consecutive months.

This is what the American consumers have gotten from the Fed’s entirely arbitrary two percent inflation target over the past five years:

 “The coming storm of renewed inflation is already baked into the cake and will surge again toward 5-6% or higher in the run-up to the November elections.” That’s the conclusion of David Stockman, the US Budget Director under President Reagan, after reviewing the government numbers.

Stockman:

“These wholesale level cost increases are now busy filtering their way through the nooks and crannies of America $30 trillion economy in the form of rising energy, materials and labor cost inputs, thereby working their way to end products and the CPI indices to be reported from July through October.”

Stock markets, always hoping to be juiced by cheaper money (lower rates) tumbled on the Fed’s failure to cut rates at its recent meeting.  Oh, and by the way, forget the Pollyannas who say we will grow our way out of our debt problem.  The Fed lowered its estimate of median 2026 US GDP growth from 2.4 percent to 2.2 percent.  That is well below the inflation rate.  

One more note.  There is nothing developing on the horizon to cut government spending.  So whatever the Fed thinks it should do or would like to do, it will continue to accommodate Washington’s debt bomb.

All in all, we are seeing an advance warning of more inflation.