- Phase 1: Raw material prices spike
- Phase 2: Factory gate prices spike
- Phase 3: Retail prices spike
The first stage occurs in the manufacturing segment of the economy when you see producers suddenly paying more for the raw goods and commodities they use to produce finished goods. We first hit this stage several months ago as the chart below illustrates. The price of raw materials such as copper, lumber and even gasoline are all up triple digits in the last 12 months. Now, one or two months of higher commodities or raw goods is no big deal, but once you're talking 6-8 months of steadily rising prices it's significant. At that point manufacturers are forced to start raising the prices of finished goods or face shrinking profit margins. The Markit’s U.S. Manufacturing PMI has confirmed that we are now officially at this point, revealing that the prices managers are paying for goods are rising at unprecedented rates. Put another way, managers at real businesses in the U.S. are seeing the prices they must pay for raw goods and services rise faster than ever before! This explains why gold has suddenly caught a bid, exploding out of a nine-month downtrend. The chart above is telling us that gold was confused as to whether or not the Fed would step in to stop inflation for most of the last year. No longer. Gold is now telling us that the Fed is NOT going to stop inflation. It is telling us that inflation is here and only going to get worse. Best Regards, Graham Summers Editor, Money & Crisis |
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