Inflation on Goods Hits Highest Percentage Since 1982

The surge in consumer prices in the United States is likely to continue into 2023, after reaching record highs just last year. This surge is burdening Americans, placing pressure on policymakers to decide what to do to fix the problems.

According to the Labor Department in a recent data release, consumer prices rose 7% in 2021, marking the most significant 12-month increase since June 1982. The widely watched inflation gauge rose 0.5% faster than anticipated. The Coronavirus variants have been discussed as possibly playing a role in worsening labor shortages as well as with the decline in the flow of goods to store shelves. Even if inflation were to dip to the anticipated 3% by the end of 2022, consumers would still be months away from a meaningful respite.

Hard To Keep Up With Inflation

It is likely that the Federal Reserve will again respond to continued signs of inflation. They will embark on a steeper path of interest-rate hikes and balance-sheet reduction. The wages of workers are simply not keeping up. According to Bloomberg, even with pay raises and adjustments to minimum wage to keep people in jobs during the pandemic, inflation-adjusted wages were 2.4% lower in December than a year earlier.

Supply chains will have to normalize, and energy prices must level off before inflation falls as predicted. However, higher rents, robust wage growth, subsequent waves of Covid-19 variants, and lingering supply constraints all pose upside risks.

Rising Interest Rates

Officials at the Federal Reserve are keeping a close eye on inflation data this year, and it is widely expected that those rates will be raised yet again to combat rising prices and unemployment. Although the central bank’s primary inflation measure is the personal consumption expenditures price index, policymakers consider several factors when making investment decisions.

“This morning’s CPI read really only solidifies what we already know: Consumer wallets are feeling pricing pressures and in turn, the Fed has signaled a more hawkish approach. But the question remains if the Fed will pick up the pace given inflation is seemingly here to stay, at least in the medium-term,” said Mike L., Managing Director for Investment Strategy at E-Trade. “With Covid cases continuing to rise, the impact on the supply chain and labor shortages could persist, which only fuels higher prices.”

The rise in borrowing costs reduces demand by making purchases such as cars more expensive. “Overall, this is every bit as bad as we expected” said Paul Ashworth, Chief Economist at Capital Economics, regarding the December inflation report.

Long-Term High Inflation Rates Are a Bigger Threat Than Hyperinflation for the US

Maintaining high inflation will have mixed effects on debt levels. Moderate inflation above the target could help wipe out some of the record government debt burdens and allow countries to consolidate. However, if inflation soars, the central banks would be forced to slam on the brakes by raising rates sharply, causing the debt levels to rise even more. Furthermore, suppressing economic activity too sharply could spark an additional recession, leaving inflation to linger for a long time.

Gold Can Help You Hedge Against Inflation

Investors have been pitching yellow metal to hedge against rising prices throughout the years. The concept of inflation seems intuitively simple: When the value of the dollar or another currency declines, it typically means governments have printed too much money. In contrast, gold has been considered valuable for thousands of years. Its supply is determined by miners’ ability to pull it from the ground, and it is rarely impacted by government acts.

In the long term, gold serves as a strong strategic component in many portfolios, not only for its diversification benefits but also for its returns. If you are looking to invest in gold, The Reagan Gold Group (RGG) is the perfect answer for you. A Los Angeles-based, privately held company, RGG assists clients with diversifying their portfolios by purchasing physical gold and silver coins/bars or adding gold and silver to an existing IRA account. Get in touch with one of our agents today and start hedging against the rising consumer prices.

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China’s Evergrande Property Developer Faces Liquidation

Last week marked the collapse of China’s second-largest property developer as a Hong Kong court ordered its liquidation. This real estate giant had defaulted on its debt in 2021, amassing total liabilities exceeding $300 billion. Evergrande’s reckless borrowing transformed it into a colossal real estate player, a sector often credited for propelling the Chinese economy. 

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BRICS Gains New Members: The Push Away From The Dollar​

This week, five additional nations have confirmed their intent to join the BRICS alliance, a grouping that includes Brazil, Russia, India, China, and South Africa. Originally formed to bolster economic growth and influence, BRICS has now expanded its ranks to include Saudi Arabia, the UAE, Ethiopia, Iran, and Egypt, with an additional 34 countries expressing interest in “joining the club”. 

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