How We Know Inflation Is Here
Over the last two days, I’ve been outlining how policymakers’ responses to the COVID-19 pandemic have finally ignited inflation.
By way of review:
- Their recent monetary policies have been MUCH more aggressive than they were in response to the 2008 crisis ($15 trillion in six months vs. $12 trillion in eight years).
- This time around, a large portion of this money is actually making its way into the real economy via stimulus payments and direct lending from central banks.
As a result, inflation is beginning to appear throughout the financial system.
Telltale Signs of Inflation
The biggest sign of this is the $USD, which is breaking down.
The $USD has lost 4% of its value thus far this year. However, that number is somewhat misleading since the $USD spiked during the March COVID-19 crisis. In reality, peak to trough, the $USD is down a whopping 12%.
During weak $USD/higher inflation regimes, real assets outperform. So, it’s no surprise that inflation hedges are breaking out to the upside.
Gold was the first.
Now Copper is joining in.
Energy might be next.
In simple terms, higher inflation will mean real assets soaring. I’m talking about things like gold, copper, oil, real estate and the like.
Tomorrow, I’ll detail a specific inflation hedge that looks poised to explode higher.
Editor, Money & Crisis