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Peak inflation or peak dollar?

By Stefan Gleason
web posted June 6, 2022

Talk of “peak inflation” is helping to drive investor inflows back into stock and bond markets.

As the narrative goes, inflation readings have hit their highs for  the year. The Federal Reserve will hike rates until monetary policy  “normalizes,” then declare victory over the very problem its policies  unleashed.

This rosy scenario gained some traction in late May after the  government reported Personal Consumption Expenditures data. The Fed's  preferred “core” PCE measure came in at 4.9% annually in April, down  from 5.2% in the previous month.

Conveniently for central bankers and Wall Street cheerleaders, the “core” rate excludes volatile food and energy prices.

Unfortunately for those who live in the real world, there are no  signs that food and energy prices are done rising. Per gallon gasoline  costs hit fresh records across the country over Memorial Day weekend.  And officials in Europe are warning of energy shortages and power  blackouts extending into the winter.

Meanwhile, Africa faces a looming famine after critical grain supplies from Russia and Ukraine have been cut off.

Other parts of the world face poor harvests due to drought.

United Nations Secretary General Antonio Guterres said on May 18th  that “the spectre of a global food shortage” haunts the global economy.

Perhaps some Americans will take heart in the fact that any price  spikes in foodstuffs and fuel will be excluded from “core” inflation.  But nobody who feels the impact of these rising costs on their household  budget should be convinced that inflation has peaked.

Even if cost pressures do peak at some point this year, inflation as  measured officially or unofficially will almost certainly remain  elevated above the Fed’s 2% target.

Federal Reserve notes will continue depreciating. And they may even begin to depreciate more rapidly against foreign currencies.

The U.S. Dollar Index hit a multi-year peak of 104.9 on May 11th. The  buck had been rallying, strangely, at the same time as it was losing  purchasing power at the fastest rate in decades.

Over the past couple weeks, though, the Federal Reserve note has slid  against the euro and other major fiat currencies. If phony dollar  strength has indeed peaked, that may help send the message more broadly  to investors that cash is no safe haven.

The safest currency in an environment where fiat currencies are all  depreciating in real terms is hard currency. That means gold and silver,  the ultimate alternative to all paper and digital assets.

We are likely far from a secular peak in gold and silver prices in  terms of U.S. dollars. Silver would need to more than double from here  just to match its previous high. And gold has yet to experience the sort  of parabolic move seen in other commodities this year.

But regardless of where nominal prices head next, owners of physical  bullion can rest comfortably knowing that their form of money will  retain real value over time. ESR

Stefan Gleason is President of Money Metals Exchange, the company recently named "Best Overall Online Precious Metals Dealer" by Investopedia. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC and in hundreds of publications such as the Wall Street Journal, TheStreet, and Seeking Alpha.

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