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U.S. inflation sped up to 5.4 percent in June and reached 2.5 percent in the U.K, a pace not seen three in three years, the Financial Times reported, causing a growing number of economists to fear a return to 1970s-style runaway inflation.
Inflation in Britain has mirrored that in the U.S. but with a few months’ delay.
However, “the gap between the two will shrink as inflation in the U.K. climbs to about 4 percent by the end of the year,” chief U.K economist Paul Dales at Capital Economics told the FT.
Inflation in the Eurozone was only 1.9 percent in June, but that is likely due to the region’s relatively slower pace of vaccinations and economic revival, the FT said.
For example, inflation in Germany is likely to reach 4 percent later this year, according to the country’s central bank, the fastest clip in more than ten years.
TREND FORECAST: As we have noted, while inflation is spiking, real wages are falling. For example, with the consumer price index increasing 5.4 percent from a year earlier in the United States, real average hourly earnings fell 0.5% for the month of June despite 0.3 percent increase in average hourly earnings. Thus, inflation will spike much higher when demand for higher wages increase.
And while retail sales are rising, it is more about increases in prices than consumers buying more products.
However, the Bank of England, the European Central Bank, Germany’s Bundesbank, and the U.S. Federal Reserve all continue to insist that current high rates of inflation are transitory and do not yet require higher interest rates, although all have said they will tighten rates if further data shows the need.
Also, the sentiment on The Street is that the danger of a long term inflation spiral remains low.
There are too many wild cards to make a long term call at this time. Indeed, when the markets crash, so too will many prices. However, to re-inflate failing economies, central banks and governments will re-flood the markets with cheap money, which will in turn lower the value of their currencies. And the lower the value of the currency, the more it costs to buy products... thus higher inflation.
For Gregory Mannarino’s inflation assessment, read “Expect Inflation to Rise Rapidly, Along with A New Feudal System.”