To say that the last two years contained extreme hardship beginning with the pandemic that led to a recession and massive expenditures by governments and central banks would be an understatement. The pandemic created one of the deepest recessions in history. This led to governments and central banks allocating enormous amounts of capital to reignite the economies that had been devastated. This led to the increased global national debt and the devaluation of currencies worldwide. The result was inflation growing to levels not seen in 40 years. Just as it seemed as though we were finally arriving at a new normalcy a geopolitical crisis developed when Russia invaded Ukraine.
Today the Commerce Department released the most recent inflationary data which showed that consumer spending rose by 0.2% last month. It reported that the PCE price index (personal consumption expenditures) which is the preferred inflationary index of the Federal Reserve and omits both energy and food rose 0.4%, which follows the rise of 0.5% in January. The net result is that the PCE price index jumped 5.4% year-over-year in February which is the largest gain since April 1983.
Recent estimates by the Federal Reserve Bank of Cleveland are revealing a more detailed estimate of inflation levels than the Commerce Department’s report released today. Their forecasts have concluded that inflation including estimates for March will take inflation to the highest level since 1981.
The Federal Reserve Bank of Cleveland released forecasts that go far beyond the numbers released by the Commerce Department today showing that inflation because of the recession and the additional inflationary pressure created by Russia’s invasion of Ukraine will take inflation to the highest level since 1981.
Their forecast indicates an increase in the PCE of 0.62% year-over-year. They also have made a prediction on the CPI index for March, which will be released next month. Their forecast is based upon data from the Bureau of Labor Statistics, Bureau of Economic Analysis, Energy Information Administration, Financial Times, and Haver Analytics. Based on their analysis they are forecasting that the CPI index for March will come in at 8.41% year-over-year and that the March PCE will increase by 0.75% year-over-year. However, the most alarming prediction is for the inflation level for the first quarter of 2022, which they estimate will indicate the rate of inflation will come in at 9.01% when compared to the first quarter of 2021.
In 1981 the average percentage change of inflation year-over-year came in at 10.3%. The last time the United States had an annual percentage change of 9.1% occurred in 1975. This number matches the estimates for the inflationary percentage change for the first quarter of 2022 over the first quarter of 2022.
Based on these exceedingly high levels of inflation it is logical that gold prices have climbed substantially not only this quarter but since 2020. Gold closed on the first trading day of January at $1800.31 and today is currently fixed at $1942.40. That is an increase of approximately $142, or a percentage gain of 7.58% during the first quarter of 2022.
However, if you compare the closing price during the first month of January 2020 to the current price of gold it has increased by 18.1%. Inflation pressures are out of control, but more alarmingly have a high likelihood that they will not diminish any time soon.
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