It's easy to get lost in data releases. Media is eager to read as much into them as possible, hoping that it will give some insight into what is actually going on. Often the news is just about the latest numbers or the expectations for the economic measures.
We will show you how some of the statistics that are regularly released (CPI, employment, etc.) can be misleading. It doesn't matter what the inputs are or how they are presented, these numbers rarely provide enough information to reveal the full extent and depth of the real story. These are snapshots of a very limited time period, with very specific inputs.
This is why gold is so popular. It is a constant. It is tangible and finite, and it exists even without central banks or government policies.
Instead of taking the CPI number from payroll data as an indication of the state of the economy, instead of accepting it as a given, why not take a look at gold and its price across different currencies to see what it tells you about the current and long-term state of the economy. That's ultimately what matters.
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On Tuesday, equity markets plunged. This was due to the systematic correlation of equity market, which meant that U.S. equity markets declined sharply and many international equity markets also fell sharply.
S&P500 (-4.3%) and NASDAQ (-5.2%) were the main U.S. indexes that plunged. International indices suffered a similar decline, with the FTSE (-2.3%) and DAX (+2.7%) respectively.
The U.S. CPI August report showed that inflation remains a major concern for the U.S. Economy. This increased the likelihood of the Fed raising the Fed funds rate next week and increases the possibility of future increases.
CPI is the most important indicator of inflation in the U.S.
The market was split on Tuesday between increasing interest rates by 50 basis points or 75 basis points. However, the conversation has changed after the release of CPI data. Now the question is whether the Fed will raise its rate by 75 or 100 basis points.
The stopping point for the current tightening cycle appears higher than ever – some call for the Fed funds to rise above 4.5% before the Fed pauses.
Already, the US economy is showing signs of economic weakness (negative GDP for the first two quarters). The Fed raising rates could lead to a deeper recession.
Since 1971, the Fed has tightened its belt nine times. Only two cycles have led to the recession.
This systematic failure extends to data that the markets react to and on which central banks base their rate increases.
The Consumer Price Index (CPI) is one of the most important indicators of inflation in the U.S. The U.S. Bureau of Labour Statistics releases this data each month. It shows the change in the prices of a basket of goods or services over a previous period, usually the prior month or the previous year.
CPI consists of two main components
Two main components of CPI are frequently highlighted by the media: Total CPI (also known as Headline CPI) or Core CPI. This removes the energy and food components.
The August data showed that the Total CPI rose by 8.3% compared to August 2021, which was slightly less than the 8.5% increase in July. Core CPI rose by 6.3% compared with August 2021, which was a greater increase than the 5.9% recorded in July.
US Consumer Price Inflation Chart
Core CPI is a measure of how the economy's price pressures are going over the long-term. It removes energy and food components that can be volatile and can change quickly depending on economic or political conditions. Core CPI measures the price differences in goods and services, such as shelter, clothing, medical care, and vehicles (new cars and used). Shelter is the largest component of Core CPI. It accounts for approximately one third of the total. This is not measured by rising housing costs or mortgage payments, but rather by "owner's equivalent rent of dwelling", according to the Bureau of Labour Statistics. This measure has a problem. It lags house prices increases by 12-18 months. CPI data is only now picking up the 2020 and 2021 house prices increases.
CPI data is a slow indicator. It is historical data, and the actual components don't reflect the real rising prices of the economy.
Inflation is a major problem in today's economy. Official CPI data has not accurately measured rising prices for years. Our point is that the Federal Reserve and other central bankers are relying on outdated data sets to make their interest rate decisions. This will lead to high unemployment and a significant slowdown of the economy.
Do not let low unemployment rates fool your mind. The unemployment rate doesn't usually start to increase until there is a recession and it does not peak at the middle of a recession.
This is just one example of the discussion that took place in our podcast, What Problem Does Gold Solve?
The gold option can help protect our portfolio against financial system risk. It is unlikely that the rapid rise of interest rates in an economy that is dependent on cheap money and is addicted to it will end well. These systematic risks are just beginning to show their ugly heads. It is likely that it will get ugly before central bank retreats to lower rates again – possibly by the middle next year.
Two charts are the end of this article:
Below is the first chart, which shows relative performance of various equity market indexes and gold over the past 2022 years.
The second chart displays the gold price in different currencies. The returns for gold held in currencies other than the U.S. dollar have been even higher this year.
Gold Price and Various Equity Market Indices Chart
Gold price In various currencies
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GOLD PRICES (USD. GBP. & EUR – AM/ PM LBMA Fix).
13-09-2022 1727.05 1704.85 1474.38 1474.35 1699.94 1699.56
12-09-2022 1726.50 1726.40 1478.23 1477.28 1698.01 1705.51
09-09-2022 1726.95 1713.40 1485.87 1479.52 1711.58 1705.18
08-09-2022 1720.25 1709.35 1498.17 1488.33 1720.42 1716.19
07-09-2022 1705.05 1702.65 1486.63 1492.54 1722.10 1719.34
06-09-2022 1712.50 1702.60 1477.89 1480.41 1721.23 1724.73
05-09-2022 1711.95 1710.95 1488.54 1486.13 1727.02 1723.44
02-09-2022 1706.90 1712.50 1476.30 1484.05 1709.46 1711.82
01-09-2022 1706.00 1694.30 1471.08 1469.64 1701.74 1702.26
31-08-2022 1712.40 1715.90 1472.15 1478.08 1713.60 1715.21
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GoldCore News published the post US CPI Data Release Update.
By: Stephen Flood
Title: US CPI Data Release Update
Sourced From: news.goldcore.com/us-cpi-data-release-update/
Published Date: Wed, 14 Sep 2022 15:59:01 +0000