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The Inflation Beat
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January 2020 US Inflation Rate: 2.49%
      The inflation rate in January of 2020 continued to spike higher to 2.49% year over year Vs. December's 2.29%.  The overall trend in inflation is now moving higher since bottoming in early 2019 at an annual rate of 1.50%.  

     Below is a 1 year chart of US inflation year over year.  Inflation held steady for the first 3 quarters of 2019 before breaking out in the 4th quarter.  Now moving into 2020, inflation is running hot.

     The good news is, wages have continued to out perform the rate of inflation and that means that this infllation is well under control as workers are continuing to see stronger purchasing power in the pay checks.

     That is, so long as their hours worked are not being cut.  December's job numbers did show a marked decline in hours worked, so even though wages handily beat the rate of inflation, coming in at a gain 2.87%  year  over year Vs. inflation's rate of 2.29%, average weekly earnings were up just bearly inline with inflation, coming in at a gain of 2.27% year over year.

     We'll have to see if this proves to be the point when weekly earnings pay checks are no longer supporting family's purchasing power relative to inflation. 
   

     The rate of inflation in 2020 will prove to be contingent on the very factors that influence the rate of inflation.  How the dollar performs .  How much credit will be issued per capita .  What the overall rate of productivity will be.  How commodity prices perform and lastly, how the balance of trade will impact the cost of goods in America.

    The point of this website is to try to make judgement on these factors to best manage the risk of forecasting the rate of inflation.  From there, make investment decisions that are more likely to at least BEAT the rate of inflation.  Or even in some case, loss the least amount of money relative to inflation.

     I'll start with my inflation forecasting array.  Here, I can make a judgement on these very factors to help determine my bias about where inflation will be heading relative to both wages and what investors should demand for a minimum return on their capital.

     


     I foresee credit growth per capita slowing down in 2020.  This is based on the slowing global economy coupled with a slowing down US economy.  Loan demand survey's, which are my biggest tell, are showing lower loan demand so that is also playing a role in my forecast for slowing credit growth.

     The US dollar is at around the same level it was a year ago and has been getting weaker of late.  This trend could continue in the near term.  There could be some inflation from the dollar becoming weaker Vs. a year ago.  I do expect that the dollar will continue being strong so long that Donald Trump remains President as he is a major factor is contributing to confidence in our dollar at this time relative to the rest of the world's currency's and leaderships.

     Commodity prices have come down so low, that perhaps they stall around here for now.  My bias is that they become an inflationary force.

See this article here.

     There is a trend toward less and less globalization and less globalization means making more goods and service at home.  Overseas labor costs are simply pennies to the dollar in many cases, so making goods home is going to be an inflationary force. However, the long terms gains for rebuilding our industrial base will prove to be in our best interest lest our net international investment position become so oversold to forengners.

     All said and done, the lack of credit growth coupled with not enough deflationary forces means workers weekly paychecks may not keep up with inflation.  Wages will likley slow down in 2020 and be less than the rate of inflation.  This should also contribute to slower economic growth.

     My conclustion here about inflation running higher than wages in 2020 and that the economy should see slower growth, stocks may be the riskist investment class in 2020.  

     High risk debt may prove to be even higher risk debt as the economy slows and credit growth slows with it.  Investors may begin to demand higher rates of return and thus, bonds might go down in price, especially longer term bonds to bring their interest rates higher.

     Gold has had a good run in 2019 so it could stall in 2020.  If the dollar manages to stay steady and even strengthen, gold's time might not be just yet.  It's when the dollar starts to weaken and we see strong gains in inflationary forces and wages have no hope of keeping up, that is when gold will rally and you'll proably want to own some.  

     Hustle in the meantime as there are plenty of jobs and money to be made out there!