“Persistent inflation” is not the same as inflation – Growing concern

Almost everyone was excited to hear about the Federal Reserve’s recent interest rate changes because it means many experts believe inflation is now behind us. However, some analysts point out that “persistent inflation,” which is not the same as regular inflation, still affects prices for many Americans.

Persistent inflation is producing economic pressures that could compromise Americans’ hard-earned retirement savings.

We’ve all been waiting a long time for the Fed to return to accommodative monetary policy and lower interest rates. On September 18, 2024, they cut interest rates even more than expected: 50 basis points.(1)

Furthermore, in addition to this outsized rate cut, they suggested that there would be more rate cuts, potentially as much as 200 basis points more by 2026.(2)

But some experts say inflation is not contained…and suggest there is a real possibility it will backfire in the next few months.

CUMULATIVE INFLATION: PRICES TO RISE ALMOST 20% FROM 2021

CNBC’s Jeff Cox recently argued why persistent inflation “is still a huge problem.” And why its effects could be with us for a long time.

The problem, he points out, is that certain key measures indicate that persistent inflation is alive and well.

First, here’s the “good news” that most media outlets publish and broadcast:

The “headline” consumer price index (contains all items in the CPI list) slowed from a disruptive high of 9.1% in June 2022 to 2.4% in September 2024.(3)

PCE (price index of personal consumption expenditures) fell to 2.2% in August and is likely even lower now.(4)

Now the bad news for both consumers and central banks (news often neglected by the media in its reporting):

Key measures of inflation other than CPI and PCE are considered to be more accurate at this time to highlight the “resilience” of price pressures.
Core measures of inflation do not look as reassuring as headline measures. Core inflation does not include food and gas prices – typically more volatile than other measures.
Core inflation in August 2024 rose 3.3% month-on-month, while headline inflation rose just 2.4%.
The 3.3% increase in core inflation was higher than in the past two months, suggesting that inflation is not only persistent, but still has the capacity to intensify.(5)
The Federal Reserve Bank of Atlanta uses a “sticky price” measure of CPI that focuses on the inflation rate of key goods and services that change price only infrequently. This rate was 4.0% in September.(6)

Cox also said that the distinction between disinflation and deflation plays into his current concerns that inflation is actually persistent.

To make his point, he pointed out that headline CPI has risen nearly 19% since March 2021, when inflation topped 2% for the first time this cycle.

Key categories of goods and services also grew further:

Food: Up 22%
Car insurance: up 47%
Petrol: up 16%

Median home prices have also increased (see full article for details and more examples.(7)

For most Americans, it is not so much the rate of inflation itself that is a problem, but the general effect of inflation on prices. People have to find a way to pay for everyday items, and in some cases that means borrowing, which in turn exacerbates the challenges of inflation.

“Fighting inflation with a different kind of inflation”

Another indication of persistent inflation is the level of debt many Americans are facing. Household debt in the second quarter of this year was at a record $17.8 trillion.(8)

Credit card debt in particular increased by 48% during that period.(9)

Investopedia said that paying for inflation with record levels of debt is “like fighting inflation with a different kind of inflation.”(10)

As the National Bureau of Economic Research put it: “Consumers, unlike modern economists, consider the cost of money part of the cost of living,” the researchers said.(11)

In the 12 months before the end of Q2 2024, 9.1% of credit card balances and 8% of auto loan balances went into delinquency – the highest levels since the 2008 financial crisis.(12)

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IF INFLATION IS CALMING, WHY ARE INTEREST RATES SO HIGH?

Cox, in his CNBC article, asks two questions that lead him to conclude that inflation is likely to remain persistent:

If inflation is running high, why are interest rates still so high?
If inflation has not yet been overcome, why is the Fed cutting at all?(13)

He answers questions by citing the Federal Reserve’s position that inflation has fallen and created an opportunity to lower rates enough to help cushion the labor market. But that could push inflation up again.

Cox looks at why some Wall Street firms are encouraging the Fed to hold off on rate cuts for a while.

Another analyst who supports the idea that inflation will remain high over time is Edward Chancellor of Reuters. He sees multiple inflation boosters, such as Donald Trump’s planned wage increases and tariffs.(14)

The chancellor also cites the green energy push (15) and public debt (16) as intensifying factors.

Furthermore, he says: “Deglobalisation, rearmament, de-dollarisation, an aging population, climate change and the energy transition. will continue to exert upward pressure on inflation in the coming years.”(17)

Chancellor suggests we may be entering a ‘new era’ of inflation. ,

GOLD IRA BENEFITS AS AN ASPECT AGAINST PERSISTING INFLATION

For years, many American investors have considered adding physical gold and other precious metals to their portfolios to help them navigate the inflationary landscape.

Gold has the potential to provide a stabilizing factor as a store of value.

World Gold Council 2024 Survey of Central Bank Gold Reserves confirms that gold’s potential to serve as a “long-term store of value” and “hedge against inflation” is the main reason central bank institutions include gold in their institutional portfolios.(18)

It’s easy for retail consumers to implement this principle in their own portfolios through a tax-advantaged retirement account known as Golden IRA (please be sure to discuss the tax implications of your IRA with a qualified advisor).

With such an asset in your portfolio, you’ll at least have the peace of mind that you’ve taken action against what we have no control over: where inflation is and what it’s doing.

For more from Cox, Chancellor and others, read the full articlewhich also includes additional metrics that clarify what’s happening with persistent inflation so you can make informed decisions.

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Sources:

(1) Jeff Cox, CNBC.com, “Fed cuts interest rates by half a point, aggressive start to its first easing campaign in four years” (September 18, 2024, accessed 10/24/24). (2) Ibid. (3) Bureau of Labor Statistics, “Consumer Price Index Archived News Releases” (accessed 10/24/24).

(2) Ibid.

(3) Bureau of Labor Statistics, “Consumer Price Index Archived News Releases” (accessed 10/24/24).

(4) Bureau of Economic Analysis, “Personal Income and Expenditure, August 2024” (September 27, 2024, accessed 10/24/24); Jeff Cox, CNBC.com, “Here’s Why Inflation May Look Like It’s Coming Down, But It’s Still a Huge Problem” (October 19, 2024, accessed 10/24/24).

(5) Cox, “Here’s Why Inflation May Look Like It’s Loosening.”

(6) Bureau of Labor Statistics, “Consumer Price Index Archived News Releases.”

(7) Cox, “Here’s Why Inflation May Look Like It’s Loosening.”

(8) Y Charts, “US Total Household Debt (I:USTHD)” (accessed 10/24/24); Bureau of Labor Statistics, “Consumer Price Index Archived News Releases.”

(9) Eric Revell, Fox Business, “US household debt has risen in recent years amid a challenging consumer environment” (15 Aug 2024, accessed 10/24/24).

(10) Diccon Hyatt, Investopedia, “Why Consumers Are So Glum About An Economy Where Inflation is Down and Jobs Are Plentiful” (February 28, 2024, accessed 10/24/24).

(11) Ibid.

(12) Revell, “U.S. Household Debt Has Soared in Recent Years.”

(13) Cox, “Here’s Why Inflation May Look Like It’s Loosening.”

(14) Edward Chancellor, Reuters.com, “Inflation Not Dead, Just Resting” (October 18, 2024, accessed 10/24/24).

(15) Ibid.

(16) FiscalData.Treasury.gov, “Debt to the Penny” (accessed 10/24/24); Chancellor, ‘Inflation is not dead’.

(17) Chancellor, “Inflation is not dead.”

(18) World Gold Council, “2024 Central Bank Gold Reserves Survey” (June 18, 2024, accessed 10/24/24).

This article is for informational purposes only. The opinions and analysis herein are those of the author and are not financial advice. The Jerusalem Post (JPost.com) does not endorse or recommend investments based on this information. Investors should consider their financial situation, investment objectives and risk tolerance before making any decisions. Consultation with a qualified financial advisor is recommended. JPost.com is not responsible for investment losses from the use of this information. The information provided is for educational purposes only and should not be considered trading or investment advice.