The financial “moon shot” taken by the Federal Reserve 2 weeks back– in which they devoted to including a historic amount of liquidity to the marketplaces– appears to have actually set the phase for some possibly nasty cost inflation in the coming weeks and years.
In the near term, it appears some food prices are rising dramatically. Robert Wenzel explains why he thinks the first indications are taking place:
The Federal Reserve is pumping huge amounts of brand-new money into the economy and, at the same time, the production of items and services has declined. Less supply and more monetary need is a prescription for greater rates.
The Fed “moon shot”, plus the financial shutdown, sure appear like a one-two punch that could send out prices soaring.
Wenzel adds further that these rate increases “initially may not be shown in federal government rate indexes.” Even when the authorities upgrade for CPI inflation in March finally posts, it may not yet account for these preliminary increases in the price of food.
Looking at the cost of eggs from main data at the Department of Farming, you can see the dive in prices compared to 2019.
Obviously, eggs are only one of numerous food products, but the boost in average rate is staggering.
Sticking with this example, Wenzel also pointed out a prospective longer-term causal sequence of the economic shutdown thanks to COVID-19:
It takes 4 to 5 months to raise a hen to egg-laying age, and couple of farmers up until now plan to build brand-new barns or significantly broaden their flocks in action to the coronavirus-driven need surge.
It is easy to understand that farmers, who are fretted about the present economic conditions in the U.S., would be reluctant to buy growth of their farms.
However another method prices could stay on the rise is through a decrease in discounts.
In this case, the food you normally purchase a reduced price would first go back to normal rates, then increase as time goes on. Analysts at JPMorgan recently shined a light on the trend:
In a normal environment, decreased discounts– that is, higher rates– would lead to lower volumes, however we are not in regular times … We think elasticity will be minimal as long as food-at-home is taking advantage of COVID-19 to this degree.
Discounted rates that go back to regular would typically drive consumers away, but when demand remains the exact same, greater rates suggest more profit for grocery stores.
That pattern might continue as long as the COVID-19 outbreak keeps driving need. The outbreak is already driving rate gouging in some locations.
According to Penn Live, “State authorities have examined roughly 3,300 reports of cost gouging as Pennsylvania residents and merchants alike grapple with supply lacks throughout the coronavirus.”
Ohio, New York City, California, and Amazon all are dealing with cost gouging on grocery items thanks to the virus.
This is Just the Beginning
A USDA report highlights the capacity for food rates to increase into2020 According to the most recent year-over-year summary:
Looking over 2020 so far compared to 2019 (reported as “Year-to-date avg. 2019 to avg. 2020”), food-at-home prices have actually increased 0.7 percent and food-away-from-home have actually increased 1.8 percent. The CPI for all food has increased an average of 1.2 percent … In 2020, food-at-home prices are expected to increase in between 0.5 and 1.5 percent.
Who knows exactly how high the increase in food rates will end up? There is simply as much potential for prices to drop, as there is for those rates to escalate.
However remember, this is simply the start of the inflationary ripple effects from the coronavirus break out– which most likely will not be reported in March’s official inflation rate.
It’s Not Far Too Late to Start to Consider Your Own “Crash Insurance”
These are weird times undoubtedly. With each passing day, the U.S. is going deeper and deeper into uncharted territory while it deals with the inflationary fallout from the COVID-19 outbreak and the resulting lockdowns.
And today, if the Fed (or the Bureau of Labor and Stats) revealed the “real” inflation rate, the market would likely worry. Individuals would begin to see the dollar’s real purchasing power going up in smoke, which could possibly set off a Depression.
So, no matter what comfy story the Fed wishes to inform, make certain to do your own research. And prepare yourself by hedging your bets with physical possessions like gold and silver, before the U.S. becomes an “Inflation Country.”
Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal Individual Retirement Account Specialists, Birch Gold helps Americans secure their retirement cost savings with physical gold and silver. Discover more by clicking here now.
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