Let’s face it: the government’s skewed data about consumer prices doesn’t tell the real story when it comes to inflation.
In fact, according to government statistics, prices in the U.S. economy increased by only 0.6% in the first seven months of 2015. (Source: Bureau of Labor Statistics, last accessed September 11, 2015.) But we need to remember that the government measure (the consumer price index) disregards the most basic items like food and energy costs—things that really matter to the average consumer.
Alternative Measures Showing Rampant Inflation
Alternative non-government measures of inflation are telling a very different story.
Take the Chapwood Index, for example. It’s an alternative inflation indicator that looks at the costs of things like TV and Internet service, home repairs, laundry detergent, and school supplies in 50 different cities.
This index for major cities like New York, Los Angeles, Chicago, San Jose, San Diego, and Boston says that for the trailing 12 months through to June of this year, inflation in these cities was running over 10%. (Source: Chapwood Index, last accessed September 11, 2015.) The lowest inflation rate was registered for Tucson, Arizona; it was closer to six percent.
How Much Higher Will Prices Go?
While there has been plenty written about deflation in the U.S. economy, my studies conclude that when an economy increases the amount of money in its system, prices for basic goods rise, not decline.
Below is a chart of the M1 money supply in the U.S. economy; this includes notes, coins, and demand deposits. As the chart shows, since 2008, the money supply in the U.S. economy has more than doubled.
Chart courtesy of www.StockCharts.com
How to Hedge Against Inflation?
Personally, I believe inflation in the U.S. economy is running around five percent. In a survey of our Profit Confidential readers, our readership also thought inflation was running at five percent a year. Sure, depressed oil prices are helping us at the gas station, but food prices and housing affordability are increasing. Rent prices are at their highest levels in years.
Assets like gold are proven hedges against rising prices. But gold is being ignored at this point in the economic cycle, as the U.S. dollar still reigns. Once higher prices make their way into the government figures, how long will it be before gold prices start to rise? This is why I believe all investors should have a small portion of their portfolio in gold-related investments, especially at the bargain-basement prices that prevail for gold bullion today.