December 10, 2022

Peter Schiff: We’re in the Eyesight of the Inflation Hurricane

“Here is the irony of what’s going on. The more it appears to be the Federal Reserve can be making progress on bringing inflation back down, the less strong the US dollar gets. It is the weak US buck that’s going to be instrumental in raising the pumpiing rate back up. So , put simply, the Fed is the sufferer of its own success. inch

Markets have rallied since we got cooler-than-expected  CPI data for October . But in his podcasting, Peter Schiff said we are in the eye of the pumpiing hurricane, and investors happen to be lulled into a false feeling of security.

On Tuesday (Nov. 15) producer price data came out, and like CPI, it was below expectations. PPI was up just 0. 2% versus expectations of the 0. 4% increase. Core PPI charted no month-to-month increase in October.

“ Now, of course , all of these are still strong figures, with the exception of the x-food and energy month-over-month, which was flat. But just looking at the increases, we still have a huge inflation problem even if these types of numbers seem to indicate the inflation problem is going away. It’s not. ”

Nevertheless, the markets are keying in on this data. The fact that PPI came in under projections  nourishes into the perception   that inflation is cooling. That has led to a broad stock market rally due to the expectation that cooling inflation will give the particular Federal Reserve cover in order to pivot and ease from its monetary tightening.

But Peter said any apparent progress the fact that Fed has made in its pumpiing fight is only temporary.

“ It will not last. ”

He said one of the ways you know this is the fact that the dollar has tanked since the CPI data release. The particular dollar index has dropped by about 8% since its highs eight weeks back.

“ Here is the irony of what’s going on. The more it looks like the particular Federal Reserve is producing progress on bringing inflation back down, the weaker the united states dollar gets. It’s the poor US dollar that’s going to become instrumental in raising the inflation rate back up. Therefore , in other words, the Fed may be the victim of its own success. Even though it’s not real success, to the extent that the market perceives that there is success, which is sowing the seeds of failure. ”

Peter has been arguing that the relative strength of the dollar has kept prices from rising even higher. A strong dollar holds lower import costs. Europeans skilled the flip side from the equation. Euro weakness amplified rising prices.

“ Now that the particular tables have turned as well as the dollar is now falling, today we’re going to have to get a taste of our own medicine. We will start seeing this impact the consumer prices. ”

Peter stressed that this won’t happen right away. There will be a bit of a lag.

“ Yet by some point — maybe early to mid-2023 — the weaker money is going to start to show up in higher consumer prices. Primary, it’s going to immediately increase our own import bill because today we’re going to have to pay a lot more to import those products. It’s also going to increase the cost of transporting those products to the United states of america because the weaker dollar will drive up both energy costs and other shipping prices. ”

This will also impact GDP. Keep in mind the only reason there were GDP growth in Q3 was due to the shrinking business deficit. That already  appears to have reversed .

“ Once the dollar really begins to fall, that process gets reversed when it comes to cheaper imports. We’re going to have to be paying through the nose for those imports, and that is going to subtract from GROSS DOMESTIC PRODUCT. But it’s also going to apply more downward pressure in the economy because of the upward stress on consumer prices. ”

Philip brought up the surging level of household debt. Thanks to quickly increasing mortgage costs plus credit card use, total  household debt grew in the fastest rate in fifteen years   throughout the third quarter. Peter mentioned this is a sign that the Fed is not winning the war on inflation.

“ You can’t fight inflation if consumers keep going more into debt to purchase stuff. Because that means that will prices are going to keep increasing because the demand is still there. People are just making up for their reduction in real income by going into debt. They’re not cutting back their spending. They may borrowing so they can keep spending. ”

The Fed has to increase interest rates high enough to ensure that people stop borrowing and prevent spending and save instead.

“ What this proves will be the Fed is losing the particular fight against inflation. The people who are watching the noise of the Customer Price Index or the Producer Price Index don’t actually understand inflation. They have no idea where it came from. They have no idea why it’s so bad. And now they think it’s going to come down. They’re going to be completely shocked when pumpiing hits new highs. ”

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