Inflation-The Price of Money

Authored by: Joel Bowman

Inflation was the watchword this week as the Labor Department released its much-anticipated consumer price index figures. (When did these things become so topical, by the way? That can’t be a good sign) 

In any case, US inflation came in at 6.5% over the 12 months to the end of December, said the feds, down from 7.1% in November. 

That’s the sixth consecutive month that the pace of increase slowed and the smallest price increase in more than a year. Of course, not all prices are created equal. Some are “sticky,” while others are more “flexible.” 

Let’s have a quick recap of the week in the markets. 

America’s Big four banks reported earnings last week. A couple – JPMorgan Chase & Co and Bank of America Corp – beat quarterly estimates. Another couple – Wells Fargo & Co and Citigroup Inc – fell short. All four rose in trading Friday. 

The Dow Jones closed slightly higher for the session, up 0.33%. The S&P 500 gained 0.4%, the Nasdaq 0.7%. The three major indexes were up 2%, 2.7%, and 4.8% for the week, respectively. 

Gold also turned in an intense week. The Midas Metal was last seen trading for around $1,925/oz, up $125 for the month. Meanwhile, oil (WTI) was back over the $80 mark. 

Inflation-''Sneaky Tax''

But back to the “sneaky tax,” inflation. That there’s a lot of confusion over what is going on with consumer prices should not be surprising. After all, inflation is a strategy by which the government – any government – can transfer wealth (measured in purchasing power) from those who earn money to those who create money. 

“The most important thing to remember,” as Ludwig von Mises reminded us in his essay Economic Policy: Thoughts for Today and Tomorrow, “is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”

Rising prices are but a symptom of such a policy. And, as mentioned above, not all prices rise at the same rate or in the same way.

As for what to do in case price inflation hangs around or remains “higher for longer,” as some have suggested? Historically, gold has been seen as the anti-inflation hedge, a way to preserve purchasing power over time while fiat money melts away. Unsurprising, then, that gold should be marching higher.

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