Listen to the mainstream media and they will have you convinced there is no inflation in the U.S. economy. The recent decline in gas prices has some saying deflation will prevail in the U.S. Their arguments are rather naïve; they say lower gas prices will eventually result in lower costs for producers and so on and so forth…
The logic makes sense, but this is not what’s really happening in the U.S. economy. Prices are rising. Inflation is affecting American consumers in full force. Don’t rely too much on the government’s inflation data; it’s misleading.
According to “official” inflation figures, prices in the U.S. economy fell 0.3% in November and 0.4% in December. (Source: Bureau of Labor Statistics, last accessed January 23, 2015.) 2014 had the slowest price increase since 2008.
But Why Do My Super Bowl Snacks Cost More?
In times of deflation you would expect prices across the board to slide. But this year, Super Bowl snacks are going to cost Americans more. The price of chicken wings has increased 8.3% this month alone. (Source: Bloomberg, January 23, 2015.)
And chicken isn’t the only meat type witnessing an increase in prices. According to data from the U.S. Department of Agriculture, Americans paid 8.5% more for meat in 2014 than they did in 2013.
The latest trend for companies is to pass on their higher costs to consumers, keeping the prices the same, but reducing the size of the container serving, so consumers think they are paying the same. (American ingenuity at work: If public companies that sell food to consumers are not buying back their stock to prop up per-share earnings, they are reducing their container size, but keeping prices about the same.)
Money Supply Continues to Grow
As I have written extensively in these pages, the amount of money in the U.S. economy has skyrocketed. And the more money in circulation, the less it is worth. The chart below illustrates the U.S. M1 money supply—paper money notes, coins, and on-demand deposits in the U.S. economy.
Chart courtesy of www.StockCharts.com
Since the financial crisis, the money supply in the U.S. economy has exploded. In 2014, it grew at an average of about one percent per month. (Source: StockCharts.com, January 23, 2015.)
Gold Looking Solid Here in 2015
When I look at rising prices in the U.S. economy and the increasing money supply, I see gold severely undervalued here in early 2015. While a vast number of investors are buying into the theory that there will be deflation in the U.S. economy, the amount of new money already printed, or being printed elsewhere in the world, is extremely inflationary.
In my studies, I cannot find a period in history when a country printed massive amounts of its currency (without the backing of gold) and when prices for goods/services in that country didn’t skyrocket in subsequent years.
Gold provides a hedge against inflation. While the “official” data undermine the inflation picture, that game can only go on for so long. Take out lower gas prices and I’m hard pressed to even name five other items that are decreasing in price. But I can give you a whole bunch of items that have cost me more in 2014 than they did in 2013 and 2012.
Remember, great investment returns are made when you buy low and sell high. Right now, the price of gold-related investments still have a “for sale” sign on them.