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Inflation Running at the Fastest Pace Since 2011
Inflation in the U.S. could become a much bigger problem. If you aren’t feeling it yet, give it some time. Don’t ignore it. Inflation could impact the wealth and buying power of Americans.
Prices in the U.S. economy are already rising at a fast pace.
Consider that in August 2018, the Consumer Price Index (CPI)—the official measure of inflation—increased by 0.2%.
In the first eight months of 2018, CPI has increased by 1.5%, the fastest since 2011.
In the trailing 12 months, inflation in the U.S. economy has amassed to 2.7%. (Source: “CPI-All Urban Consumers (Current Series),” Bureau of Labor Statistics, last accessed September 13, 2018.)
If 2.7% is the final number for inflation in 2018, it would be the fastest pace since 2011.
Keep in mind, the Federal Reserve aims to keep inflation between two percent and three percent. It’s getting awfully close to the upper end of the range.
But Expect Prices to Increase Further
Here’s the thing; it’s really hard to think inflation will remain at 2.7%. It wouldn’t be shocking to see it jump to over three percent in no time.
Why?
Putting it in simple words, there’s too much monetary inflation already. It’s going to impact the general level of prices.
This shouldn’t be new information to long-term Lombardi Letter readers…
We have a lot of money in supply (monetary inflation). It was sitting in the banks for a while because interest rates weren’t attractive enough for banks to actively go out and lend.
Now, interest rates are going higher. And with this, we are seeing money “gaining momentum.” This could create a lot of price inflation going forward.
For some proof, look at the chart below. It plots the velocity of money supply in the U.S. economy. Velocity is essentially an indicator of how much each dollar is used. The faster the velocity, the higher inflation could go.
