Dear Reader,
The inflation report came in on Wednesday.
Hot.
And I’ve had a couple of days to sit with it.
Here’s what I think you need to know heading into the weekend.
The Numbers
Consumer prices rose 3.7% year over year.
Economists expected 3.6%.
Energy is the big culprit.
Gas prices rose 9.1% from the prior month alone.
Up 74% since last September.
Now here’s something worth understanding about that gas number.
Presidents of both parties — Biden, Obama, Trump — have historically flooded the market with strategic petroleum reserves right before an election to artificially suppress gas prices.
That lever has been pulled.
It’s been used up.
There’s nothing left to soften the blow.
So what you’re seeing at the pump right now is the real price.
Food prices were flat for the month, which is good news.
But keep an eye on that.
Energy costs filter into food through transportation.
The higher gas goes, the more you’ll eventually feel it in the grocery store.
Other things that rose: airfare up 22%, used cars up 0.7%, apparel, toys, streaming services, hospital services.
The reason this caught people off guard is that it was broader than energy.
That’s the sign of inflation that’s starting to move through the whole economy, not just the gas station.
The Bigger Picture
Here’s the number that really got my attention.
Inflation has now been above 2% for 66 consecutive months.
That is the third-longest run since 1948.
The longest was February 1966 to March 1986 — 242 months.
That was America inflating its way out of the enormous debt it took on after World War II.
A candy bar cost a nickel when my parents were kids.
By the time I was growing up, it cost 60 or 75 cents.
That’s what a 20-year inflation run does to your purchasing power.
We’re 66 months into our current run.
The Part That Worries Me Most
Fifty-three percent of consumers now say higher prices are responsible for their worst financial situation.
That number tells you something important.
Inflation is bad.
But inflation where wages don’t keep up with prices?
That causes political instability.
Every single time.
It doesn’t matter which party is in power.
Whoever sits in the White House gets blamed.
I’ve spent years studying revolutions — the French Revolution, the Russian Revolution, the Chinese Revolution, the American Revolution.
The fingerprints of inflation are in all of them.
The Founding Fathers started shooting people over a tax on their breakfast tea.
And it’s always young people who want to tear the current system down.
Young people who are idealistic, and in pain, and willing to listen to anyone who promises to take that pain away.
That’s how socialism keeps coming back.
Not because it works.
Because inflation makes people desperate enough to try anything.
Where I Land
Inflation this month came in one-tenth of one percent above expectations.
In isolation, that’s not a crisis.
I genuinely believe Warsh is on top of this, and I think that’s a good thing.
But the political instability that sustained inflation drives — that’s what concerns me most heading into next week’s election.
That’s the bigger story underneath the CPI number.
66 months of inflation above 2%.
The third-longest run since 1948.
And here’s what history tells you about long inflation runs.
They don’t just eat your purchasing power.
They reward the people who own real things.
Gold has been the answer to that problem for five thousand years.
Central banks around the world know it — they’ve been buying at record pace precisely because they see the same numbers I just walked you through.
The miners sitting on gold in the ground move several times more than the metal when it reprices.
I found one that I think is the best positioned name in this space right now.
Have a wonderful weekend.
I’ll see you Monday.
“The Buck Stops Here,”
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Written by Dylan Jovine