Inflation Could Hit 18.6%… Will the U.S. Go That High?

Well, that escalated quickly. 

A headline out of the U.K. this week:  

Bank of England boss Andrew Bailey under fresh pressure as Citi predicts inflation could hit 18.6%—its highest level in 50 years. 

We can now stop attaching the Merry ol’ qualifier to England. Ain’t nothing merry about inflation closing in on 20%.  

Stultifying ol’ England? 

Despondent ol’ England? 

Impoverished ol’ England? 

They’re all much more accurate these days. 

And things are little better over in the U.S. A recent headline from our side of the Atlantic: 

Poll: Americans categorized as “suffering” reaches record high. 

Gallup released a poll a few days ago noting that 5.6% of Americans are “suffering” economically. Those classified as “thriving” are in decline, too. And the percentage of Americans who report experiencing stress is up to 48%. 

To put the struggling category into context, Gallup asked the same question during the 2008 Great Recession, and found 3.8% of Americans fell into that category. A 2 percentage point increase might seem relatively small. But in real numbers that’s another 7 million people dealing with what is effectively financial duress. 

That’s 7 million people who can’t spend the way they normally would…which starts off as a ripple in the economy…and ultimately ends up as lost jobs, waning consumer and business sentiment, and falling profits on Wall Street…which cycles back through lost jobs and waning sentiment that ultimately leads to millions more people “struggling.” 

A big part of this struggling issue goes back to the top of this dispatch: inflation. 

The U.K.’s pending flirtation with consumer prices broadly higher by 20% hints at the real rate of inflation in America. 

America’s problem is that the current inflation rate—8.52%—is a lie.  

That’s not me being provocative. And I don’t mean “I think it’s a lie.”  

It’s legitimately known to be a fabricated number that bears no resemblance to the reality American pocketbooks face. 

Since the 1980s, America has purposefully lied about inflation. It has ushered in a number of adjustments to account for the “substitution affect”—the idea that consumers spend down to buy hamburger meat instead of steak when prices rise. 

The entire Consumer Price Index is now basically a substitution index rather than a reflection of its original intent, to track a “constant level of satisfaction,” which is what the CPI sought to accomplish across the first half of the 20th century. 

Alas, government bureaucrats and ivory tower academicians with zero real-world knowledge started tinkering with reality and created over time an alternate universe where government-reported inflation is magnitudes lower than reality.  

Why would the government do this? 

Well, The New York Times touched on a reason in a 1995 story in which Newt Gingrich suggested that jiggering how the CPI is calculated would lower spending on costly programs such as Social Security, and give lawmakers more ability to spend elsewhere. 

Basically, Washington stole from you by artificially reducing inflation so that it can give tax breaks to businesses and the uber-wealthy.  

So it is, then, that while the U.S. government says inflation is 8.5%, Shadow Stats, a website that tracks inflation based on the government’s old methodologies, says it’s already in the high-teens—just like where it’s headed in Despondent ol’ England. 

Why tell you this? 

Why ruin your day? 

Well, we’ve got a reckoning coming and you might as well be prepared for it before it arrives. (Basically, own gold and bitcoin. Or perhaps consider a new income opportunity. There are tons of those online today, and many are easy and even fun.) 

American consumers cannot absorb much more pain. The Federal Reserve will either accept this reality, or it won’t. 

If it does, then interest rate hikes are basically done, and a risk-on market for stocks, crypto, and real estate reignites. 

If it doesn’t…the Great Recession of 2008-09 could very well look like a preseason game.