The government’s official inflation figures surged in January, with the producer price index (PPI) rising by 0.4% and the consumer price index (CPI) rising by 0.5%. If those trends continue throughout the year, that could be dangerous for consumers and investors. Combined with newfound uncertainty in stock markets, it makes it all the more important for investors to keep an eye on financial markets and protect their investments.
The members of the Federal Open Market Committee (FOMC) have complained for years that inflation in the United States is too low. Never mind that official inflation figures dramatically under-report the actual rises in prices that affect most people. The FOMC and other Federal Reserve policymakers are dead set on an official inflation rate of at least two percent. And with official inflation figures having been below that for years, the Fed is now welcoming higher inflation, raising the possibility that official inflation figures of 4-6% wouldn’t be seen as a cause for alarm.
What we’re seeing with these latest inflation figures is perhaps the final effect of the Fed’s financial crisis-era monetary policy. As with any government policy, the effects of monetary policy take time to make their way through markets. The first quantitative easing (QE) programs were intended to prop up the price of housing, keeping them from sinking to levels that would have cleared all the excess debt from the market. That initial shot of money kept the housing bubble inflated.
Subsequent bouts of money creation through QE2 and QE3 continued to prop up markets, and eventually found their way to stock markets, resulting in the bull market in stocks we have seen over the past two years. But the Fed was always puzzled that continued high housing prices and high stock prices didn’t result in higher consumer prices. Now with the latest increases in PPI and CPI we’re finally starting to see those higher prices. And those increases may get even bigger as the year progresses.
As prices get higher, the purchasing power of the dollar decreases. That’s bad news for everyone, from retirees on fixed incomes to workers whose wages have remained largely stagnant over the past decade. For investors saving for retirement and for those hoping to retire soon, it makes it all the more important to protect their assets, keep them from losing value to inflation, and ensure that their retirement assets will continue to work for them into retirement.
That’s where gold comes into the picture, as gold acts as a hedge against inflation. As consumer prices rise and the dollar weakens, gold’s price will continue to rise, which will protect investors who have gold holdings. Investors who are serious about protecting their retirement assets owe it to themselves to look into gold to protect their hard-earned savings from rising inflation.