Friday 21 October 2011
Posted by
Admin Hijrah Dinar
Today's inflation figure stands at 0.5 percent. And, although there was negative inflation in June, the 12-month figures are all alarmingly high, topping out at 3.6 percent.
Does that mean it's really and finally back, for sure? We're afraid so.
The Fed has one time-tested way of doing this, which is to strip out food and energy prices: if you do that, inflation was just 0.2% last month, and 1.8% over the past year. Meanwhile, energy costs have gone haywire:
It’s very hard to know what to make of a series like this, where you can have 37.2% annual inflation in fuel oil even when it’s fallen in price for three successive months, and where price volatility in fuel is closely connected to price volatility in the markets generally. Gasoline alone, with its 4.7% rise in July, accounts for fully half the headline 0.5% inflation rate — and although no one can know where gas prices are going to head going forwards, it seems improbable that they’re going to continue to rise at that kind of pace. In that sense, gas-price inflation, although certainly painful now, is not something self-perpetuating which the Fed can or should worry about when setting monetary policy.
Another thing you may want to pay attention to is the correlation between the price of food and the price of energy. As they are the two primary focuses (where the most money is spent) in the average American household, there is a strong connection between the two. For example, 97 percent of fertilizer used to grow our food-crops is made from natural gas and a great deal of energy is used to transport those food-products to grocery stores. Take a look at this:
Any upward trend here that deviates away from normal volatility (coming from the stock markets, mostly) would represent a poor outlook for the near future of inflation rates.
High inflation translates to a lot of confusion and uncertainty, leading to a decline in investing. As food prices climb, more of your income will be spent on that as well as other basic necessities. Unfortunately, inflation also creates a sort of stagnation within the work-force.
With stagnant wages combined with the rising costs of everday-living, your income will inevitably suffer.
So, keep that in mind. Find smarter ways to hedge against inflation. For many others in similar predicaments, gold is an ideal solution. If you're interested in other top-investment choices, especially now that the U.S. credit-rating has been downgraded, take a look at this...
Category:
Gold Saving / Investment
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