Investor angst concerning inflationary pressures
Tomorrow the U.S. Bureau of Labor Statistics will releasethe most current inflationary data. Two primary metrics are used to revealinflationary pressures. First is the CPI, or Consumer Price Index. According toInvestopedia, "The Consumer Price Index (CPI) is a measure that examines theweighted average of prices of a basket of consumer goods and services, such as transportation,food, and medical care. It is calculated by taking price changes for each itemin the predetermined basket of goods and averaging them. Changes in the CPI areused to assess price changes associated with the cost of living."
Although it is the most widely used measure of inflation,Investopedia explains that the CPI "measures the change in the out-of-pocketexpenditures of all urban households and the PCE index measures the change ingoods and services consumed by all households, and nonprofit institutionsserving households."
The Federal Reserve prefers the PCE (Personal ConsumptionExpenditures) as their go-to inflationary page. The key difference betweenthese two indexes is that the PCE strips out costs for both food and energy.
Regardless of which inflationary index you view, bothindexes have been at their highest levels since 2008. As a direct result of the2008 financial crisis, the average annual inflation rate was nearly double(3.8%) the Federal Reserve's target of 2%. More alarming in that 2008, whichsaw inflation run as high as 5.6% and 5.4%, was the highest level of inflationin 17 years.
Currently, inflationary pressures have reached an alarmingrate, with the annual inflation rate in the United States currently at 5.3% forthe 12 months ending in August 2021. This follows to increases to 5.4%. This isaccording to the U.S. Labor Department data, which was published on September14.
According to the BEA (Bureau of Economic Analysis, U.S.Department of Commerce) the overall PCE inflation rate was 4.3% on a 12-monthbasis.
Although the Federal Reserve maintains that the vastmajority of the inflationary pressures are transitory and will not be sustainedover time. Many analysts disagree with a large part of that assumption.However, they acknowledge that the inflationary pressures from supply chainissues and tepid labor expansion persist. If the Fed is incorrect, therepercussions could be devastating for the economic recovery in the UnitedStates.
It is for that reason that tomorrow's inflationary datawill be so critically important as we get closer to reaching the highs of 2008,coupled with the fact that the Federal Reserve has very little control oninflationary pressures it could derail the current monetary policy changes thatthe Federal Reserve plans to implement such as tapering in November of thisyear.
Today, gold futures gained $4.50 in trading, with the mostactive December contract fixed at $1760.20. Fear of rising inflation has put amomentary pause on risk-on appetite and, in turn, has become highly supportiveof gold as a safe-haven asset and protection against inflationary pressures.
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Wishing you, as always, good trading and goodhealth,
By Gary WagnerContributing tokitco.com
Follow @garyswagner
gary@thegoldforecast.comwww.thegoldforecast.com