- Two measures of inflation hit record highs in March
- Major banks claim that inflation is at its peak is met with skepticism
- Even if this is peak inflation, expect a long, slow descent to normal
March Data Reveals More Record Setting Inflation
More record-breaking inflation was reported this month. Wholesale prices surged again in March. Strong consumer demand, pandemic-related supply chain snarls and the Ukraine war continued to fuel the highest inflation in decades.
The Producer Price Index is the latest data point showing the price pressure. PPI is considered a forward-looking inflation measure. It tracks prices in the pipeline for goods and services that eventually reach consumers. The PPI hit a new all-time high as it rose 11.2%. It was the biggest jump in prices since the data series began in November 2010.1
Just yesterday, the Consumer Price Index showed that the cost of consumer goods and services surged by 8.5% year over year. That’s the highest recorded level since 1981. Consumers are paying more for everyday necessities, including groceries, gasoline and cars.2
Swelling inflation has prompted the Federal Reserve to begin aggressively raising interest rates. They aim to lower inflation without causing a recession.
Peak Inflation
Analysts at Bank of America, Morgan Stanley and UBS said Tuesday that they think inflation has hit its peak.
“Barring further severe disruptions, the March release is likely to be the peak in terms of year-over-year rates,” analysts at Deutsche Bank predicted earlier this week.3
The predictions of “peak inflation” could comfort the White House. Democrats face a potential loss of Congress in this year’s elections because of inflation. Voters have consistently told pollsters that price increases are a top concern. They give President Joe Biden low marks for his handling of the economy.
The banks are optimistic for a couple of reasons. They see supply chain snags unwinding as we move past Covid. According to them, lower used car prices are an indicator of this. Another reason is that the Fed is strongly tackling the issue with high interest rates.4
Skeptics say we’ve seen this movie before. When inflation started raging last year, both Fed Chair Jerome Powell and Biden played down the phenomenon as “transitory.” That wasn’t the case.
There are serious concerns about inflation lingering. The prices of services are beginning to rise. They are taking the place of goods as the primary driver of price increases.
“We have been at this juncture before where subtle shifts within the data make it appear that the level of inflation has reached its peak for the cycle only to keep marching higher,” Charlie Ripley, senior investment strategist for Allianz Investment Management.5
ING Bank stated that US inflation may near its peak, but it will be a long slow descent. This is due to lingering supply chain issues, significant tightness in the labor market and ongoing corporate pricing power. They predict inflation won’t come down to 3% until deep into 2023. At the same time, expect the economy to shrink.6
The bank’s peak inflation prediction may be correct. But they also may be hoping for the best, fearing the effects of unchecked inflation. Investors should heed the expression, hope for the best, prepare for the worst. One of the best ways to prepare for lingering inflation is to open a Gold IRA. Contact AHG to learn how you can easily open one today.
