February 21, 2023
The January CPI report threw cold water on the idea that the Federal Reserve has inflation under control. While the headline annual CPI came down a tick to 6.4%, month-on-month prices rose by 0.5%. After the data came out, Peter Schiff appeared on NTD News to explain why inflation is going to get even worse.
Peter said the January data was bad news for anybody hoping that the Fed had won the inflation fight.
Powell has been talking about disinflation, and from that perspective, we have had numbers that have improved sequentially on a year-over-year basis. But that was bound to happen when you had a rate as high as 9.1, or wherever we peaked out so far.”
But the small 0.1% drop in the annual CPI number wasn’t much of an improvement.
In fact, maybe this is the trough for improvement. Maybe in February, we’re going to see an uptick in the year-over-year inflation number.”
And of course, the 0.5% month-on-month gain was still a pretty big number. Meanwhile, the prior month was revised from -0.1 to +0.1.
So, inflation is starting to turn back up, and I think we’re going to start to see hotter numbers in future months, and that’s going to throw cold water on the idea that the Fed is finished and can start cutting rates based on victory over inflation.”
The host asked Peter if we are going to get to 2% inflation. Peter emphatically said, No!”
Even if they strip out food and energy, you’re still nowhere near 2%.”
Peter brought up the new buzzword – supercore inflation – noting that it excludes shelter. He said that is even more irrational than excluding food and energy.
But even if you exclude shelter, the year-over-year increase is still 4%. So, that’s double the Fed’s 2% target. So, I don’t think they’re going to get anywhere close to 2% before they start stimulating again. I think we’re going to be in a very severe recession, and we may even be in the midst of another financial crisis. With that backdrop, the Fed is going to start creating inflation, not fighting it.”
Peter pointed out that the central bank and the US government have been creating inflation for more than a decade.
The Fed has barely withdrawn that liquidity. I think we’re still seeing the impact of that and especially the inflation that it unleashed during the COVID pandemic. So, I still think we have a way to go before we catch up. Meanwhile, government policy is still inflationary. We have very expansionary fiscal policy. The government is running enormous budget deficits. That’s highly inflationary. And even though the Fed has raised rates, you still have negative real rates and we’re not encouraging people to save. People are still borrowing as much as they can. The savings rate is near lows. The credit card debt is near record highs. So, the Fed’s rate hikes have not really altered the spending and savings decisions, which I think are key to bringing the inflation rate down. As long as people keep spending, I don’t see any way we’re going to get down to 2%.”
The host asked Peter if the CPI actually reflects what Americans are experiencing. Peter pointed out that inflation is the expansion of the money supply. Rising prices are a consequence of inflation. Does the CPI capture the extent that aggregate prices are rising?
I don’t think so. And I think that’s deliberate. I think the CPI was designed to give you a low reading because of the politics of the number. The government made it up. It’s like a scorecard on government policy, and obviously, the government wants to get a good grade.”
Peter said doubling the official number probably gets you close to accurate. That means the real CPI is closer to 12% than 6%.
Peter went on to explain how the government changed the CPI formula in the 1990s to understate rising prices and prop up Social Security.
The idea was if we can just make the CPI lower, then we won’t have to raise Social Security payments as much. And so, that’s a way to cut Social Security — pretend that we have lower inflation than we actually do.”
Peter pointed out that if you run the current data through the old CPI formula, price inflation was worse last year than any year in the 1970s or 1980s. And it’s not getting any better.
I think this improvement is transitory. We’re going to see higher numbers, probably by mid-year.”
Meanwhile, President Joe Biden seems to want an unlimited debt ceiling. Peter said the best way to tackle price inflation would be to not raise the debt ceiling at all.
Just leave it in place. Pay our bills. Cut spending. But nobody in Washington has a stomach for paying the bills. That’s why they want to avoid that by raising the debt ceiling. But raising the debt ceiling will permit more debt, more spending, and more inflation. And that’s where we’re headed.”
The host asked Peter about the “wage-price spiral.” Peter said that was a concept made up by Keynesians.
If you think about it, wages are a price. Wages are the price of labor. It’s how much I have to pay somebody to get them to work for me. … You can’t say the reason prices are going up is because prices are going up. The question is why are all prices going up? Why are wages going up and why are other prices going up? And that’s because of inflation. Who creates the inflation? The government.”
Peter said the reason they came up with this “wage-price spiral” concept is to blame workers for inflation or to claim inflation is the price we pay for prosperity.
That’s BS! It’s the same thing as the cost-price push — saying inflation is caused by rising costs. No, it’s not. And again, costs are prices. One person’s cost is somebody else’s price. There’s no difference. You can’t say prices are going up because costs are going up. Costs are prices. So, prices don’t go up because prices go up. They go up because the money supply is expanded.”
How should people invest in this environment? Peter said in order to avoid the inflation tax, you need to avoid what’s being taxed. That’s the US dollar. One way to do that is own gold and silver.
They’re monetary metals. When you have a lot of inflation and you have negative real interest rates, which is what we do, people are looking for an alternative store of value, a hedge against inflation. You’ll find that in gold and silver.”
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