Inflation: Is It Really A Problem? – Part 2

| May 8, 2013 | 0 Comments

inflationLet’s pick up right where we left off on Monday…

Many financial experts question the relevancy of the US Government’s core inflation numbers.


Well, in the 12 months ending March 2013, core inflation rose at a rate of 1.47%.

That’s leads many to believe inflation is under control.  But as I mentioned in Part 1 of this series, core inflation excludes food and energy prices- two things everyone buys on a regular basis.  

So you have to ask…

Does the government’s core inflation data give an accurate reflection of inflation at all?

Quite simply… NO.

I don’t know about you, but I’m noticing that prices for nearly everything are going up- and quickly.  Forget about inflation of 1.5% as the government suggests, I’m seeing the cost of everyday goods skyrocket.

And it turns out I’m not just imagining things…

According to the American Institute for Economic Research (AIER), an independent economic research institute, real inflation is currently in the neighborhood of 6-7%. 

The AIER uses their proprietary Everyday Price Index (EPI) to come up with inflation readings that more accurately reflect the average American’s inflation experience.  Gasoline, food, medications, doctor visits, day care, etc.- all these everyday costs are taken into account.

But that’s just the tip of iceberg…

The Bureau of Labor Statistics (BLS) made adjustments to the way they calculate core inflation over the past few decades- once in 1980 and again in 1990.  Using the BLS’s own pre-1990 calculation method, inflation is currently running at just under 6%.

So what’s the takeaway from all this?

Even though the official inflation rate provided by the government -core inflation- is currently quite low, it’s highly likely that real inflation is rather steep.  And that means the purchasing power of every dollar in your bank account is losing value faster than you probably realize.

Is it hyperinflation like so many pundits suggest?

No, not even close.  But it is worrisome that purchasing power is likely dwindling faster than the government is willing to admit.

How do you as an investor counteract this affect?

One way to meet inflation head on is to invest in companies that capture rising prices.  Consumer goods producing companies like Procter & Gamble (PG) and Johnson & Johnson (JNJ) fit this bill.

Another way to counteract inflation is to invest in real things… like commodities.

With the US Dollar being the world’s reserve currency, everything priced in dollars will generally gain value as the greenback weakens. 

As you’re likely aware, gold and silver are the most popular hedges against inflation. 

But ask anybody that’s traded these metals over the past few months… they can be volatile and highly unpredictable.  You either have to be a highly proficient trader, or you have to invest in metals for the long-term at a price that won’t get you in trouble.

What do you do?

You tune into Commodity Trading Research… 

Our sole goal is to help you navigate the commodity markets with the least amount of risk possible.  Over time, we believe appropriate and well-timed investments in hard assets will greatly benefit the average portfolio.

Be sure to tune in for more insight on inflation and commodities in future issues!

Until Next Time,

Justin Bennett

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.