Inflation | timiacono.com - Part 4

Me Again

Another interview with Cory over at the Korelin Economics Report is now available.

This is from last Friday, as gold was finishing out a pretty impressive week of gains due largely to geopolitical concerns about Ukraine and Russia. We talked mostly about the nascent threat of inflation here in the U.S. and how that could affect precious metals.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

That inflation is a threat today is certainly the minority view. I’ve likened what has happened in recent years – since the Fed started printing money with abandon, only to see the government’s official measure of inflation decline – to “the boy who cried wolf” and the only question now is whether the wolf will ever show up.

The combination of demographics and Obamacare have raised the possibility that we may see some wage pressure in the labor market and, combined with what appears to be a resurgence in commodity prices, rising consumer prices could surprise a lot of people this year and precious metals would surely benefit.

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Inflation Tame, Housing Starts Mixed

The Labor Department reported that U.S. consumer prices rose 0.1 percent in February for the second straight month and that the annual rate of inflation dropped from 1.6 percent in January to just 1.1 percent last month, one of the lowest rates since 2009.

Falling energy prices were the primary reason for the overall price decline as this index fell 0.5 percent after a gain of 0.6 percent the month before, but food prices rose in February, up 0.4 percent after gains of 0.2 percent and 0.1 percent in prior months.

Also this morning, the Commerce Department reported(.pdf) that housing starts came in just below expectations, but permits for new construction (a key leading indicator for the home building industry) surged in what was a hopeful sign for the housing market this year.

Housing starts fell from an annual rate of 909,000 in January to 907,000 in February and permits jumped 7.7 percent to a rate of 1.018 million after dropping 4.6 percent in January.

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A Perfect Storm for Inflation?

It should be pretty interesting to see how everyone reacts if and when sharply higher inflation finally does show up here in the U.S. The economic statistic that, since 2008, has been like the boy who cried wolf will probably have many more doubters than believers right up until the point when it’s too late to do anything about it (that was pretty much the story with the boy and the wolf and, of course, the sheep).

Anyway, they talk about the possibility of a tightening labor market playing a role in higher inflation (a key factor to really get broad-based inflation going) in this clip from CNBC.

That surge in agricultural goods last week took a lot of people by surprise and it’s shown in table form below from a data set that is maintained for the investment website.

Like most commodities, there’s a lot of ground to make up from last year’s drubbing for such products as corn, wheat, and soybeans, but they’re off to a great start this year so far.

It might be a good idea to cut out that extra cup of Joe in the morning as coffee prices just reached a two-year high. Now this is interesting … according to my data, the coffee price surged 77 % in 2010 but then fell 6%, 37%, and 23% in 2011, 2012, and 2013, respectively. Now it’s up 78% so far in 2014.

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U.S. Inflation Remains Tame … For Now

The Labor Department reported that inflation was tame in January as consumer prices rose just 0.1 percent, up 1.6 percent from a year ago, as only modest overall energy price increases, due in part to bad winter weather, have been seen so far.

Electricity prices saw their biggest increase since March 2010 and both natural gas and fuel oil were more expensive, but these gains were partially offset by falling gasoline prices that have recently rebounded (the Energy Department said yesterday that gasoline prices are up 0.2 percent from a month ago). Overall, the energy index rose 0.6 percent last month and will likely rise again this month.

Inflation

Shelter costs rose 0.3 percent in January and other services such as transportation and medical care also increased while the price of commodities fell. Apparel prices dropped 0.3 percent while new and used auto prices fell 0.3 percent and 0.5 percent, respectively.

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