Tuesday, February 19, 2013

Inflation begins to bite harder

That economic tsunami I warned about a few weeks ago?  It's getting closer.

Fuel prices in the USA have increased steadily over the past two months, rising 51 cents a gallon on average since December 20th last year.  They've now risen for 32 days in a row, according to the AA.  This isn't because oil's more expensive - it's because the dollar's weakening against other currencies, or those other currencies are strengthening against the dollar, whichever way you'd like to put it.  See the progression for yourselves by following those links, if you're interested.

Fuel prices affect virtually everything on the consumer market.  For example, Bloomberg reported last year:

Energy and transportation accounts for about 8.2 cents of each dollar spent on food, compared with about 4 cents for farm commodities, according to the U.S. Department of Agriculture. Processing, labor, packaging and other costs dominate the retail and restaurant prices of food, making the cost of corn less important to consumers than the price of the gas needed to transport it, according to USDA data.

There's more at the link.  Bold print is my emphasis.  You can add similar percentages to the retail costs of toys, clothing, tools . . . whatever you buy from stores.  Consumers are not only hit in their wallets every time they fill their vehicles' tanks - they're hit again when they drive those vehicles to and from the supermarket.  Expect delivery charges to go up soon as well, if the fuel price continues to rise;  also, expect fuel surcharges on airline, bus and rail tickets.

All these price pressures mean that overall inflation will continue to worsen.  We've spoken before about John Williams of Shadowstats, whose calculations I accept as far more accurate and authoritative than the politically-influenced and 'massaged' figures provided by the US government.  He claims that overall, US inflation is running at approximately 10% at present, and expects it to worsen significantly over the course of this year.  He warns that hyperinflation is a real possibility by the end of 2014.  I agree with him.  What we're seeing now, sparked by the weaker dollar and increasing fuel costs, is the beginning of that decline.

Nor are we alone in experiencing this.  There's informed speculation that other countries are prepared to accept higher inflation as the only way to deal with their impossibly out-of-balance debt loads.  The most recent indication of this comes from Britain.  The developing 'currency wars' worldwide are likely to exacerbate this problem, whether or not other countries want to do so.  In response, central banks have been turning to something a lot more stable than the US dollar:

Central bank buying [of gold] for 2012 rose by 17% over 2011 to some 534.6 tonnes. As far as central bank gold buying, this was the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter. That is up 9% from the fourth quarter of 2011, and the eighth consecutive quarter in which central banks were net purchasers of gold.

Again, more at the link;  and once more, bold print is my emphasis.  Believe me, central banks can see what's coming down the pike . . . that's why they're putting their money into gold and other hard assets, which provide little or no prospect for growth, but have historically been the best investment to preserve value in an inflationary environment.  Furthermore, the figures cited above may be far too conservative.  Russia alone reportedly added no less than 570 tons of gold to its reserves last year, and there's informed speculation that China has added much more than that.

For the 'little people' like you and I, who can't afford to diversify what investments we have into gold or other hard assets, that's cold comfort.  I'm investing in what hard assets I can afford - things that will hold their value in an inflationary environment, and/or will become unaffordable on my limited income.  Right now, that involves ammunition - selling what I don't need in order to buy what I do need.  As I said earlier, I've found that my existing stocks of ammo have tripled or quadrupled in value in a relatively short time.  That's about the only inflation-beating investment I've got!

I can only repeat my often-given advice;  build up stocks now of what you most need and use, while you can still afford them.  For example, part of the profits I make from selling ammunition I no longer need will go towards doubling my emergency reserve of food - not because I expect TEOTWAWKI to arrive soon, but because I'm not sure I'll be able to afford what I need in future!  If I can draw on stocks I've already built up, instead of having to hand over inflation-ravaged dollars in future, I'll be in a much better position.



Bob in VA said...

Mish's Global Economic Trend Analysis blog today mentions that Wal Mart had a bad January; and February looks even worse. Where are the customers???

Douglas2 said...

Bah. Gas prices increase by 15-50% so regularly every spring semester I've come to count on it.

Looking at the charts at GasBuddy, 2010 was the only outlier year in the last 10. It only went up 10%

Peter said...

@Douglas2: Agreed . . . but this isn't the spring semester.

Ritchie said...

It occurs to me that now you can buy a loaf of bread with a dime-if it's a silver dime. And regular bread. Fancy bread will be 2 dimes.

tweell said...

And how much of our government gold is tungsten? China has gone to drill-through tests on every US gold bar they buy now, after some hushed-up incidents.

Folks, if you really must buy precious metals, get junk silver coins and minimal gold coins. Tungsten doesn't lend itself well to coinage, but there are many other time-honored cheats.