Soaring Inflation Ahead? Pay Attention to the Federal Reserve & Gold Prices

Soaring InflationGovernment data continues to suggest inflation in the U.S. economy isn’t an issue. Consider the Consumer Price Index (CPI), the official measure of U.S. inflation. It says prices in the U.S. economy in the first eight months of 2015 have increased by just 0.5%. (Source: Bureau of Labor Statistics, last accessed October 9, 2015.)

Even the Federal Reserve says there’s no inflation. The most recently released Federal Open Market Committee (FOMC) minutes read, “Participants anticipated that recent global developments would likely put further downward pressure on inflation in the near term; compared with their previous forecasts, more now saw the risks to inflation as tilted to the downside.” (Source: Federal Reserve, October 8, 2015.)

The Hidden Inflation No One’s Talking About

Dear reader, don’t be fooled by the government statistics: inflation in the U.S. economy is real. It’s happening in straight-out higher prices for goods and it’s happening behind the scenes as “the container” just keeps getting smaller.

Here’s just one “container is getting smaller” example: PepsiCo, Inc. (NYSE:PEP) said its snack volume in North America increased by 0.5% in the third quarter, but the sales pushed at four times that rate. How can that be? The company said it has been “increasing options on sizes.” One of the world’s most popular potato chips, which is owned by PepsiCo, is now being offered in eight-ounce containers, 20% smaller than the traditional size of 10 ounces. (Source: ABC News, October 6, 2015.)

Why Inflation in the U.S. Economy Could Skyrocket?

Over the past few years, the Federal Reserve has printed an immense amount of new money. The chart below is of the monetary base in the U.S. economy. This is the amount of currency in circulation plus deposits held by the central bank on behalf of commercial banks.

FRED Chart

The money supply in the U.S. economy has shot up from $800 billion in 2008 to over $4.0 trillion today—an increase of 400%. Historically, any country that has “printed money” in large amounts has later experienced rapid inflation. Why should the U.S. be any different?

And it’s starting to look like a fourth round of quantitative easing (QE4) may be in the books. If this happens, it will increase the money supply again; thus, inflation will run even higher.

As it stands, gold and gold-related investments are selling at very depressed prices. As inflation data starts to become more apparent, don’t be shocked to see solid large upside movements in gold prices.