Watch out: Inflation is headed this way
Middle-class consumers face a summer of discontent as higher prices are poised to pinch pocketbooks.
By Anthony Mirhaydari
Economists can talk about annualized inflation rate or month-over-month changes in the Producer Price Index all they want. But these are merely abstract measurements of what every regular American experiences every day: the pain of higher prices.
Most of the time, it's a slow, creeping erosion of the purchasing power of the U.S. dollar that only becomes shocking across the long arc of time. Like when the suits in "Mad Men" get jealous over a $300-a-month salary. But sometimes, like when an ongoing orange crop failure pushed the price of an 89-ounce jug of Tropicana at my local grocery store to nearly $9 this week, the pain is quick and acute.
Especially when you consider that the median full-time inflation-adjusted earnings for a man peaked in the 1970s and have been stagnant ever since.
No wonder one in seven Americans are on food stamps.
But here's the problem: The evidence suggests the pinch on pocketbooks is about to get worse as inflation -- led by food prices and housing costs -- heats up again after a two year reprieve amid a lack of wage growth. Not only will that cause problems for consumers, but it will complicate the Federal Reserve's stimulus efforts as well.
Price pressures are clearly building. The core Producer Price Index jumped in March over February at the fastest rate since 2011, amid the inflation scare driven by the Arab Spring and its impact on crude oil prices. The increase was broad-based, with services prices rebounding.
The Consumer Price Index jumped to a 1.5 percent annualized rate in March -- nearing the Fed's 2 percent target -- due to a big jump in food prices as crops from oranges to coffee suffer from low yields while beef prices are rising on the smallest cattle herd in generations. The problem is poised to get worse as a paralyzing drought in California -- a key producer of a variety of fruits, nuts, and vegetables -- worsens. Drought conditions are now plaguing Texas as well as high plains states including Kansas and Nebraska.
Moreover, one-third of consumer inflation is driven by shelter costs. A drop in the measure back in 2010 is what spurred the Fed to launch another round of bond buying stimulus, dubbed "QE2" at the time. And after holding near a 2 percent annual inflation rate (which is where the Fed wants it), the measure is pushing toward the 3 percent level as the recovery in home prices filters into the government's inflation calculations.
This would all be fine if wages were growing faster than prices, but they aren't: The average hourly earnings of production and non-supervisory employees is expanding at around a 2.5 percent annual rate, well below the 4 percent-plus level seen at the peak of the last bull market and economic expansion in 2006 and 2007.
Should inflation continue to rise into the summer, the economy will suffer as consumers are forced to pull back. And the stock market will suffer with all eyes still on the flow of cheap-money stimulus from the Federal Reserve. Higher prices will limit Fed chairman Janet Yellen's ability to hold off on short-term interest rate hikes until the tail end of 2015, as she desires.
The specter of higher prices could be why investors are starting to move into downtrodden gold and silver mining stocks, such as Newmont Mining (NEM). I've recommended call option positions in NEM to my Edge Letter Pro clients.
More from InvestorPlace
- The top 10 Dow dividend stocks for April
- 3 huge problems dragging down 3D Systems (DDD)
- AAPL: Is new debt good for Apple stock?
Gasoline prices have jumped at least 40cents per gallon in spite of increasing Supply and dwindling Demand. Consumers are facing the inflation of paying more for less. Smaller packages of lesser quality but higher price. This has been going on for YEARS.
Workers are being stressed out on their Jobs without any added benefits. Eventually this will led to a major change in the way we do Business. The Elite have been parasites on the Backs of the Working Poor and Fading Middle-Class for Decades. The End Result will be Epic Fail for everyone.
All it does is weaken the dollar for everyone else. But obama is rich, so he doesn't care, he still has plenty and doesn't buy his own food.
Yet those that actually work probably won't see much of an increase, because the economy is also in the tank.
Too easy for Uncle Sam to print paper money. It's that simple.
They have been at it forever. Nothing we can do about it. Most people want a free handout.
prices of things are not going up, it is the buying power of your dollar going down, caused by the Fed printing dollars and injecting them into the economy
Steel, you do understand that the Government has a Balance Sheet of over $4Trillion specifically done so that Companies can borrow at almost Zero Percent while also taking advantage of Slave Waged Labor overseas. Meanwhile Workers here are asked to do Far More for Far Less.
Cost cutting is done to punish American Workers while transferring those same job OVERSEAS. The Global Push of this Right to Work Harder for Less in destroying Consumers Globally. The Result is Record Global Poverty while at the same time Record Global Wealth. Yet we continually hear Folks crying about how bad the Elite have it. Really?
Did someone at InvestorPlace (Anthony again) really post this without examining the demographics of the entire American population before daring to make this statement? We might have been better served by a columnist such as he by suggesting a solution to the situation rather than simply creating another headline! Anthony, can you use your talent to tell the six out of seven remaining "Americans" as you put it, how to stay off food stamps? I realize this will be a tougher task but maybe you might consider this. I await your next InvestoPlace column. Regards!
Copyright © 2014 Microsoft. All rights reserved.
The S&P 500 manages to keep a deathgrip on 2,000, but key areas of the market are already buckling under pressure.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.