“Persistent Inflation” Not the Same as Inflation – Growing Concern

Just about everyone has been excited to hear about the Federal Reserve’s recent interest rate moves, because it means many experts feel inflation is now behind us. However, some analysts point out that “persistent inflation,” which isn’t the same as run-of-the-mill inflation, is still influencing prices for many Americans. 

Persistent inflation produces economic pressures that could compromise Americans' hard-earned retirement savings.

We all waited a long time for the Fed to switch back to accommodative monetary policy and lower interest rates. On September 18, 2024, they lowered interest rates by even more than expected: 50 basis points.[1]

Furthermore, in addition to this supersized rate cut, they suggested there will be even more rates cuts, potentially as much as 200 more basis points through the year 2026.[2]

But some experts say inflation isn't contained…and suggest there’s a real possibility it could flair up again over the next few months. 

CUMULATIVE INFLATION: FROM 2021, PRICES UP NEARLY 20 PERCENT

Jeff Cox with CNBC recently made a case for why persistent inflation “is still a huge problem.” And why its effects could be with us for a long time. 

The issue, he points out, is that certain key measures indicate persistent inflation is alive and well. 

First, here’s  the “good news” most media outlets are publishing and broadcasting:

• The “headline” consumer price index (contains all items in the CPI list) has slowed from a disturbing high of 9.1% in June 2022 to 2.4% in September 2024.[3]

• PCE (personal consumption expenditures price index) was down to 2.2% in August, and it’s most likely even lower now.[4]

Now the bad news for both consumers and central banks (news often neglected by the mainstream media in its reports):

• Key inflation measures other than CPI and PCE are considered to be more accurate right now in underscoring the “stickiness” of price pressures.
• Core inflation metrics don’t look as reassuring as headline measures. Core inflation doesn’t include food and gas prices –usually more volatile than other measures.
• Core inflation in August 2024 jumped 3.3% month-over-month, while headline inflation rose just 2.4%.
• The 3.3% rise in core inflation was higher than the previous two months, which suggests inflation is not only persistent but still has the capacity to intensify.[5]
• The Federal Reserve Bank of Atlanta uses a “sticky-price” CPI measure that focuses on the inflation rate of key goods and services that change price only infrequently. This rate was 4.0% in September.[6]

Cox also said the distinction between disinflation and deflation play into his current concerns that inflation is in fact persistent. 

To make his point, he emphasized that headline CPI is up nearly 19% since March 2021 when inflation first passed 2% in this cycle.

Also, key categories of good and services are up even more: 

• Food: up 22%
• Auto insurance: up 47%
• Gasoline: up 16%

Median house prices also have jumped (see full article for details and more examples.[7]

For most Americans, it’s not so much the inflation rate itself that’s a problem but inflation’s overall effect on prices. People have to figure out a way to pay for everyday items, and in some cases that means borrowing, which in turn further intensifies the challenges of inflation.

“Fighting Inflation with Another Kind of Inflation” 

Another indication of persistent inflation is the level of debt many Americans are experiencing. Household debt through the second quarter of this year was at a record $17.8 trillion.[8] 

Credit card debt specifically surged by a startling 48% over that period.[9] 

Investopedia said paying for inflation with record levels of debt is “like fighting inflation with another kind of inflation.”[10] 

As the National Bureau of Economic Research said: “Consumers, unlike modern economists, consider the cost of money part of their cost of living,” the researchers said.[11] 

In the 12 months before the end of Q2 2024, 9.1% of credit card balances and 8% of auto loan balances went into delinquency – the highest levels since the 2008 financial crisis.[12]    

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IF INFLATION IS CALMING DOWN, WHY ARE INTEREST RATES SO HIGH?   

Cox in his CNBC piece asks two questions that lead him to the conclusion that inflation is likely to remain persistent:

1. If inflation is on the run, why are interest rates still so high?
2. If inflation still hasn’t been beat, why is the Fed cutting at all?[13] 

He answers the questions by citing the Federal Reserve’s position that inflation has fallen off and created an opportunity to lower rates enough to help keep the labor market from tanking. But that could push inflation up again.

Cox analyzes the reasons why some Wall Street firms encourage the Fed to hold off on rate cutting for a while.

Another analyst who supports the thought that inflation will stay intense over time is Edward Chancellor of Reuters. He sees multiple inflation intensifiers, such as pay increases and Donald Trump’s planned tariffs.[14] 

Chancellor also cites the green-energy push [15] and public debt [16] as intensifying factors. 

Furthermore, he says: “Deglobalization, rearmament, de-dollarization, an aging population, climate change, and the energy transition will continue to put upward pressure on inflation over the coming years.”[17]

Chancellor suggests we may be entering a “new era” of inflation. ,

GOLD IRA BENEFITS AS A HEDGE AGAINST PERSISTENT INFLATION

For years now, many American investors have considered adding physical gold and other precious metals to their portfolios to help them navigate the inflationary landscape.

Gold has the potential to provide a stabilizing factor as a store of value.

The World Gold Council’s 2024 Central Bank Gold Reserves Survey confirms that gold’s potential to serve as a “long-term store of value” and “inflation hedge” is the number one reason central bank institutions include gold in their institutional portfolios.[18]  

It’s easy for retail consumers to put this principle in place within their own portfolios through a tax-advantaged retirement account known as a gold IRA (please make sure to discuss the tax implications of IRAs with a qualified advisor). 

With such an asset in your portfolio, at least you will have peace of mind that you’ve taken action against what we don’t have control over: where inflation is and what it’s doing.

For further details from Cox, Chancellor, and others, read the full article, which also includes additional metrics clarifying what’s going on with persistent inflation, so you can make informed decisions.

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Sources:

[1] Jeff Cox, CNBC.com, “Fed slashes interest rates by a half point, an aggressive start to its first easing campaign in four years” (September 18, 2024, accessed 10/24/24). [2] Ibid. [3] Bureau of Labor Statistics, “Consumer Price Index Archived News Releases” (accessed 10/24/24). 

[2] Ibid. 

[3] Bureau of Labor Statistics, “Consumer Price Index Archived News Releases” (accessed 10/24/24).

[4] Bureau of Economic Analysis, “Personal Income and Outlays, August 2024” (September 27, 2024, accessed 10/24/24); Jeff Cox, CNBC.com, “Here’s why inflation may look like it’s easing but is still a huge problem” (October 19, 2024, accessed 10/24/24). 

[5] Cox, “Here’s why inflation may look like it’s easing.” 

[6] Bureau of Labor Statistics, “Consumer Price Index Archived News Releases.” 

[7] Cox, “Here’s why inflation may look like it’s easing.” 

[8] Y Charts, “US Total Household Debt (I:USTHD)” (accessed 10/24/24); Bureau of Labor Statistics, “Consumer Price Index Archived News Releases.”  

[9] Eric Revell, Fox Business, “Americans’ household debt surged in recent years amid challenging consumer environment” (August 15, 2024, accessed 10/24/24). 

[10] Diccon Hyatt, Investopedia, “Why Consumers Are So Glum About An Economy Where Inflation is Down and Jobs Are Plentiful” (February 28, 2024, accessed 10/24/24). 

[11] Ibid. 

[12] Revell, “Americans’ household debt surged in recent years.” 

[13] Cox, “Here’s why inflation may look like it’s easing.” 

[14] Edward Chancellor, Reuters.com, “Inflation is not dead, it’s just resting” (October 18, 2024, accessed 10/24/24). 

[15] Ibid. 

[16] FiscalData.Treasury.gov, “Debt to the Penny” (accessed 10/24/24); Chancellor, “Inflation is not dead.”  

[17] Chancellor, “Inflation is not dead.” 

[18] World Gold Council, “2024 Central Bank Gold Reserves Survey” (June 18, 2024, accessed 10/24/24).