Longer-Term Trends Suggest Inflation Picking Up

If there’s one thing that shouldn’t be overlooked these days, it’s the inflation data. It could really take a toll on the American consumer and impact the U.S. economy severely.

Before going into any details, be very clear about this: don’t pay too much attention to the monthly data. Look at the overall trend.

For example, just recently, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI)—which is the government’s measure of inflation—declined by 0.1% in March 2018. (Source: “CPI-All Urban Consumers (Current Series,”) Bureau of Labor Statistics, last accessed April 11, 2018.)

Looking at the March CPI, one could say, “There’s really no need to worry.” If you look at the longer-term data, however, it tells us that inflation in the U.S. economy is picking up speed.

Consider this: over the past six months (between October 2017 and March 2018), the CPI has increased by 1.2%. Over the past 12 months, inflation has surpassed two percent.


U.S. Inflation Could Spike to 4%–6%

Going forward, don’t be shocked if we see inflation spike much higher in the U.S. economy. Don’t be surprised if even the official indicators, like the CPI, start to show price increases of 4%6% per year.

Why could prices surge in the U.S. economy?

The biggest reason for soaring prices could be the money supply. You see, there’s a lot of money out there in the U.S. economy. This is thanks to the Federal Reserve’s quantitative easing program and its policy of keeping interest rates at zero for several years. One could call this monetary inflation.

The money that was printed wasn’t moving around in the economy. Now, this is changing.

There’s a measure that tracks how many times each dollar is used. Economists refer to as “velocity of money.” In the U.S. economy, the velocity of the money supply is increasing. The chart below shows this happening.

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