Inflation, gold, and the dollar

Food prices at the retail level are rising at a faster clip -- more than 3% over the past twelve months as shown in the above chart (click on the chart to enlarge). This is bad news because it is going to hurt the purchasing power of most of us.

An important feature of inflation is that it peaks after a serious economic slowdown or a recession are underway. See above chart.

Another big jump took place in medical care costs. They are now up 4.3% over the previous year and 6% over the previous three months.

Headline inflation is up only 2.4% in the past twelve months.

Energy had no impact on inflation in the same period.

We are witnessing a rotation in how inflation is reducing our purchasing power. First energy. Now food and medical care.

These developments cannot be good news for the consumer. Rising inflation, incidentally, is bearish for the dollar and bullish for gold.

Add the subprime scare facing the economy and you cannot believe business activity is on a sound footing.

The lesson of history is that the higher inflation goes, the more severe the slowdown will be.

This is the bad news. The good news is that the Fed will eventually be forced to lower short-term interest rates to place a cushion under the economic slowdown.

Thank you for visiting my blog.

George Dagnino, PhD

Editor, The Peter Dag Portfolio on https://www.peterdag.com/

Since 1977