The rate of inflation has subsided. And that’s good news – but not quite as good as the White House would like you to believe. Here’s why…
From Peter Reagan at Birch Gold Group | Reading time: 5 minutes
I regret to inform you, the corporate media is spinning the latest inflation report, again.
The official overall inflation rate (CPI) came in at 3% for June 2024. Even though prices keep rising at an abnormal rate, it has cooled a little bit each month since March.
Admittedly, there is a little bit of good news. The prices on some physical goods are coming down, here’s why:
Deflation measures how quickly prices are falling for a consumer good or service. It’s the opposite of inflation, which gauges how quickly prices are increasing.
Physical goods have accounted for much of the deflation over the past year, according to economists. This is happening as supply and demand dynamics that were thrown out of whack in the pandemic normalize.
But reporter Greg Iacurci also makes a critical error in this report.
He misuses the word “deflation,” using it to describe a slowdown in the annual rate of inflation. This may sound like pointless nit-picking, but it matters.
Deflation is a negative rate of inflation – where your money starts to gain purchasing power.
What Iacurci means is simply that inflation is slowing down. The correct term is disinflation. Prices are still going up, but not as fast.
What’s unusual about this mistake is another article on the same website explains the difference accurately. They should know better!
The specter of deflation, of the dollar actually recovering from the Fed’s deliberate purchasing power destruction, is widely considered by establishment economists to be the worst possible disaster. I won’t try your patience with an explanation of why.
But you can see from the official numbers (which arguably understate inflation after 1980) that there have only been four brief cases of deflation in the last 74 years:
Frankly, after losing nearly 20% of our purchasing power over the last three years, a period of true deflation would be welcome to most Americans.
Don’t hold your breath.
Iacurci even provides a breakdown of the specific categories of products that experienced the biggest price drops. Here are a few, in annualized terms:
- Apples: -12%
- Ham: -4.3%
- Dishes and flatware: -10.2%
- Men’s suits: -9.4%
- Toys: -6%
Now, for most of us, falling prices are a bit of welcome news.
But “Big Savings on Apples and Ham!” is not the sort of economic message that’s going to win Biden many votes. I mean, if you buy a bag of apples every week a sustained 12% price drop might save you $30 a year.
“Men’s Suits Now Affordable!” The typical man buys a new suit every three years.
Suffice to say this is not the price relief American families need.
The good-news spin doctors can cherry-pick the data to find examples of good news.
The bad news is prices, overall, are up 3% (or up 3.3% if we exclude volatile food and energy prices).
Here’s the take-away:
- We’re nowhere near the Fed’s 2% inflation target
- That lost purchasing power (nearly 20% in the last three years alone!) is almost certainly gone forever
Having said all that, who’s to blame? How can we fix it?
Presidents and prices (should we blame Biden?)
The executive branch has a lot of power to spend money, raise taxes and tariffs and regulate markets. Does that mean presidents are responsible for prices?
Well, yes and no. They’re partially responsible:
Global events beyond Trump’s or Biden’s control wreaked havoc on supply and demand dynamics in the U.S. economy, fueling higher prices, economists said. Global events that the U.S. played a part in.
Prices are complicated! Supply and demand, transportation, raw materials prices, shifting demographics, heck even weather can affect prices. But this isn’t really inflation, it’s just the effect of an uncountable number of factors at work in the economy.
Inflation, though, is much simpler:
The Federal Reserve, which acts independently from the Oval Office, was slow to act to contain hot inflation, for example. Some Biden and Trump policies such as pandemic relief packages also likely played a role…
Inflation comes from increasing the money supply. Weather can’t do that!
Only two things can: The Federal Reserve and the federal government.
The Fed was in fact slow to act, and called inflation transitory until it was too late. Chairman Jerome Powell’s constant meddling with monetary policy (combining QE and near-zero interest rates) has kept inflation rates higher longer.
Not only that, but massive government spending devalues dollars short-term and long-term, in the form of higher debt service payments. That exacerbates inflation.
The Fed and the administration can devalue your dollars, and there’s just not much you can do about it.
Preventing purchasing power destruction
Here’s the thing to remember: We can’t control the purchasing power of our dollars. We can decide what to spend our dollars on – and when you’re planning for the future, concerned about your long-term purchasing power, investing your dollars wisely is the best thing you can do.
That’s why we spend so much time talking about diversification. Physical gold is a historically proven hedge against inflation that has ravaged our purchasing power.
Physical precious metals are just about the only financial asset that isn’t subject to the inflationary whims of the Federal Reserve. They aren’t devalued by government spending or deficits (in fact, their price nearly always rises as purchasing power falls). Physical ownership means there’s no risk of default – gold and silver aren’t a promise to pay.
Of course, precious metals aren’t the only form of inflation protection. We’ve devoted an entire education page to gold and other inflation-resistant investments. That way, you can take a few minutes and learn about the benefits of each one.
By making the right moves now, you also have an opportunity to put yourself in a potentially better financial position for the future. And the sooner you take action, the better off you’ll be.