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Inflation Messaging Isn't the Problem

If you’re in the market to buy gold today, you’re probably concerned with inflation. You’re certainly not alone.

As Reuters recently reported,economists are saying inflation won’t last. CEOs disagree. We’ve definitely heard arguments like this: “Who are you going to believe, the theory or your lying eyes?” Why would CEOs, you know, people who actually run companies in the real world, possibly disagree with ivory tower theorists and academics? 

"We are raising prices everywhere."

CEOs are seeing their input costs rising across the board. Mostly because commodities, everything from copper to crude oil, is just more expensive. When costs go up, a company has to make a choice: pass the cost onto customers? (Sometimes that means charging the same price for a smaller product, also known as “shrinkflation.”) Or reduce costs somehow, maybe by laying off workers?

Here are a few relevant quotes

  • General Electric said it is raising prices "across the board."
  • 3M simply said, "We are raising prices everywhere."
  • Sherwin Williams said, “We are prepared to implement additional increases should they become necessary."

Layoffs aren’t likely right now, considering all the trouble companies are having filling job openings. CEOs are paying more (average hourly wages rose 3.6% in June year over year) to keep the folks they have, and to hire new staff. That’s raising company production costs, too.

Despite that rise in pay, real income (after-inflation pay) dropped 2%.

In other words, you’re right to be concerned about inflation. Even if others aren’t…

“All bets are off if the Fed and White House are wrong about inflation”

“Transitory” inflation is what Federal Reserve Chairman Jerome Powell promised us. And a lot of Wall Street types seem to believe it. For example: after-inflation interest rates on 10-year Treasury bonds are -1.17% today. They’ve been below zero for 20 months now.

That means anyone who buys a U.S. bond right now is either:

  1. Expecting inflation will ease significantly (an optimist)
  2. Enthusiastic about guaranteed loss of purchasing power (an idiot)

This is a problem! In normal times you could put your money in a savings account or a CD. Today, with a 5.39% inflation rate, this sort of “safe haven” actually costs you money.

Fortunately, the government has a plan to fix this. Guess what it is?

White House shifts messaging on inflation

Oh thank goodness

If you’re concerned about inflation, you should be relieved, because it won’t be referred to as “transitory” any more by our officials, elected or unelected. That’s all the difference in the world, isn’t it?

Note, too, the Bloomberg article points out this little detail:

White House aides insist that the rhetorical change does not reflect any real change in their view of inflation.

This statement alone would be worth an epic eye-roll or two in other circumstances. This is serious. Inflation destroys your savings in a slow, insidious way. The number of dollars in your bank account stays the same. What those dollars buy? That’s what changes, only for the worse.

Gold is just a little bit different. You can’t inflate it away. You can’t make more with the flourish of a pen, or by proclaiming, “Let there be gold!” You can’t pretend it into existence.

One other thing about gold? It lasts centuries. Gold has been an international store of value throughout recorded history. So whether or not inflation is transitory,gold is the opposite.

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