By Swann Collins, investor, writer and consultant in international affairs. Eurasia Business News – March 10, 2022

Times Square, Manhattan, New York City- Photo credit : Swann Collins

U.S. inflation again reached a record, hitting 7.9% in February on annual terms. This is the highest level of inflation never seen in the United States since February 1982 and the dynamic has been here for months. U.S. inflation already reached 7.5% in January after hitting 7% in December 2021, 6.8% in November and 6.2% in October.

These figures raise the likelihood that U.S. Federal Reserve officials would accelerate the increases of key interest rates and the cut in the assets purchase programs in coming weeks.

The U.S. Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in February on a seasonally adjusted basis after rising 0.6 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.9 percent before seasonal adjustment. This is the highest inflation registered in the U.S. economy since January 1982, when the America of Ronald Reagan and the Chairman of the Fed, Paul Volcker, were fighting stagflation.

From month to month, the trend is accelerating: prices rose by 0.8% in February, compared to January, after an increase of 0.6 points in the previous two months

Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all items increase. The gasoline index rose 6.6 percent in February and accounted for almost a third of the all items monthly increase. Other energy component indexes were mixed. The food index rose 1.0 percent as the food at home index rose 1.4 percent. Both were the largest monthly increases since April 2020.

The index for all items less food and energy rose 0.5 percent in February following a 0.6-percent increase the prior month. The shelter index was by far the biggest factor in the increase, with a broad set of indexes also contributing, including those for recreation, household furnishings and operations, motor vehicle insurance, personal care, and airline fares.

The all items index rose 7.9 percent for the 12 months ending February. The 12-month increase has been steadily rising and is now the largest since the period ending January 1982. The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982. The energy index rose 25.6 percent over the last year, and the food index increased 7.9 percent, the largest 12-month increase since the period ending July 1981.

Higher food prices

The U.S. food index increased 1.0 percent in February as the food at home index increased 1.4 percent over the month. All six major grocery store food group indexes increased in February. The index for fruits and vegetables had the largest increase, rising 2.3 percent, its largest monthly increase since March 2010.

The index for fresh fruits increased 3.7 percent over the month, and the index for fresh vegetables rose 1.3 percent. The index for dairy and related products rose 1.9 percent, its largest monthly increase since April 2011. The index for nonalcoholic beverages increased 1.6 percent in February.

Higher energy prices

The energy index rose 3.5 percent in February following a 0.9-percent increase in January. The gasoline index rose sharply in February, increasing 6.6 percent after falling 0.8 percent in January. (Before seasonal adjustment, gasoline prices rose 5.4 percent in February.) The index for natural gas increased in February, rising 1.5 percent after declining 0.5 percent in January. In contrast, the electricity index, which rose sharply in January, declined 1.1 percent in February.

The energy index rose 25.6 percent over the past 12 months with all major energy component indexes increasing. The index for gasoline rose 38.0 percent over the last year and the index for natural gas rose 23.8 percent. The index for electricity rose 9.0 percent for the 12 months ending February.

Gold prices hit records

Facing enduring high inflation, investors and families are seeking hedge to protect their wealth and purchasing power. Gold prices reached today reached record $ 2,010.80 per troy ounce and lowered to $ 2,000.80 at 03:27PM NY Time. Over the past 30 days, the price of the gold troy ounce grew by 9.43%.

Gold prices hit $ 1,827 per troy ounce on February 10, gaining 1.05% in one day, while silver prices reached  $ 23.19 per ounce, gaining 2.98%.

At closure on February 24, gold fix prices at London hit $ 1,936.30 per troy ounce.

On February 10, gold prices hit $ 1,827 per troy ounce today, gaining 1.05% in one day, while silver prices reached  $ 23.19 per ounce, gaining 2.98%.

On February 22, gold prices reached $ 1,913 per troy ounce and stabilized at $ 1,899 at closure time. Silver perices hit $24.14 per ounce, gaining 0.89%.

Since September 2021, each time the U.S. Bureau of Labor Statistics has released the last consumer price index, gold prices jumped. In addition, geopolitical tensions and war in Europe have strengthened the fears of investors and the risk aversion.

Read also : How to invest in gold

In Asia, China and India, traditional big buyers of gold, are very demanding of the yellow metal, while Beijing boosts its economy and India benefits from the ebb of the health crisis.

The yellow metal has always been a great hedge against inflation because it rises in price when the cost of living standards rises. Gold can store value efficiently, when paper currency loses purchasing power because of inflation.

Read also : Gold, Build Your Wealth and Freedom

The U.S. Fed is accountable

How much time will the U.S. Federal Reserve use the covid pandemics as the main explanation for high inflation ? Since the start of the coronavirus crisis in February-March 2020, the Fed has injected the markets with 120 billion US dollars in liquidity each month, through the purchase of 80 billion treasury bills and 40 billion MBS. To briefly say it, the Fed has printed 120 billion of US dollars each month for more than 18 months. High inflation is a logical consequence.

Such large-scale money printing was done on the grounds of further easing credit and supporting the economy constrained by the administrative lockdowns decided by the state authorities. Now that the American economic recovery is on track, the US Central bank will no choice but to start putting away its anti-crisis tools. However, Jerome Powell, Chairman of the Fed, and his team want to progressively implement the tappering, as they fear to breack the economic recovery.

This 7.9% inflation is the results of bottlenecks that hinder the recovery of the U.S. economy after the Covid-19 pandemic, excessive demand for goods at the expense of services, President Joe Biden’s excessive and ill-timed fiscal stimulus plan in March 2021, and the Ultra-accommodative policy of the Fed since 2011, which has kept its key rates at almost zero, favouring the recovery of employment at the expense of prices stability.

Now the war in Ukraine accentuates a pre-existing energy crisis due to the lack of productive investments needed in recent years, mainly because of strong green campaign against oil, gas and nuclear. Energy prices rose by a quarter year-on-year and by 6.6% in February. But this figure will worsen with the increase in pump rates in recent days following the war : on March 10, the average price of gasoline had increased by 28.5% since January 31, according to figures from the American Automobile Association. With petrol accounting for 3.7% of the index, if we add the 20% increase not taken into account, we can estimate that additional inflation of 0.75 points is in the pipeline just on petrol if prices remain at their highest.

The only positive news is that there is no inflation-wage spiral. U.S. wages rose by 5.1% year-on-year, but this increase came to an abrupt halt in February. Catastrophic consequence for American employees: their real wages are falling, after rebounding under President Donald Trump.

Real average hourly earnings for all employees decreased 0.8 percent from January to February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today.

From February 2021 to February 2022, real average hourly earnings decreased 1.9 percent, seasonally adjusted. The change in real average hourly earnings combined with no change in the average workweek resulted in a 1.9-percent decrease in real average weekly earnings over this period.

The Consumer Price Index for March 2022 is scheduled to be released on Thursday, April 10, 2022 at 8:30 a.m. (ET).

Read more about gold and inflation with Gold : Build Your Wealth and Freedom

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© Copyright 2022 – Swann Collins, investor and consultant in international affairs.