WHY ARE FEARS OF HIGH INFLATION GETTING WORSE?

USNews,Christopher Rugaber,May 12, 2021

Gas prices are rising. Auto prices are soaring. Consumer goods companies are charging more for household basics like toilet paper, peanut butter and soft drinks. All of which is resurrecting fears of an economic threat that has all but disappeared over the past generation: Runaway Inflation. It occurs when prices for most goods and services not only rise but accelerate, making the cost of living steadily more expensive and shrinking the purchasing power of Americans’ earnings and savings.

On Wednesday, May 5/21 the government reported that consumer prices for goods and services surged 0.8% in April – the largest monthly jump in more than a decade – and that year-over-year inflation reached its fasted rate since 2008. Keep in mind, this increase was attained without actually factoring in oil, food and automobile increases which were removed from the “official” inflation index calculation a decade ago. If these factors were put back into the mix, we could very well be looking at a current inflation rate of 7 – 9%. So anyone with investments in fixed asset vehicles, like Mutual Funds needs a real yearly return of 7 – 9% just to break even!

Growing jitters about inflation have contributed to a sharp sell-off in stock prices this week. Any significant acceleration of inflation would exert a drag on the market and potentially imperil the economic recovery.

In the past, rising inflation has usually led to higher pay as workers have demanded and received raises to keep pace. In fact, inflation can’t really accelerate for long without sizable wage gains. Yet pay raises – if they do occur – typically lag behind price increases, thereby squeezing consumers at least temporarily. And eventually, pay gains themselves will fuel further inflation: Companies raise prices further to offset higher wages for their employees.

Sone companies, including Amazon, have recently raised or said they plan to raise wages.

UNITED STATES CONSUMER INFLATION EXPECTATIONS

www.tradingeconomics.com

Median year-ahead inflation expectations in the US increased to 3.4 percent in April 2021, the highest level since September 2013, amid mounting concerns over rising price pressure as the economy further re-opens. Home and rent price growth expectations increased to 5.5%, new series highs, while households’ year-ahead spending growth outlook remained elevated. Meanwhile, expectations for inflation over the next three years held at 3.1 percent, the highest since July 2014.

INFLATION PROOF ASSETS

Colored Diamonds, gemstones and watches have never really been affected by inflation. These Hard Assets are the poster child for true Supply / Demand economics. Supply is limited always and, as demand increases worldwide, prices go up! With investors in the United States and Canada worried about rampant inflation coming in 2021, more capital demand is building for these inflation proof assets.

With the threat of looming inflation combined with near zero percent interest in Bank Accounts, investors want peace of mind with the investable capital that they have. They welcome the fact that Colored Diamonds, Gemstones and watches can hedge against the currency, stock and bond market volatility and political and economic uncertainty in a post covid North America.

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