What will trigger the second wave of inflation?

When will the second wave of inflation come? Gold warns us that we are on the verge of another monetary policy mistake by the US Federal Reserve.

From Laurent Maurel

Revised economic data

Two months ago, I wrote that the onset of a recession in the United States was difficult to predict: “If one relies solely on employment data, the onset of a new recession in the United States seems difficult to predict.”

At the time, I did not expect that these labor market data would later be revised significantly!

In March, when most economists still trusted the accuracy of the data released by the Biden administration's Bureau of Labor Statistics, analyses revealed that actual employment numbers had been overestimated by at least 800,000 jobs. Recent revisions to the numbers confirm this overstatement, particularly in sectors with good downsides, such as professional services, leisure and manufacturing.

The goal of this data manipulation was to make the economy appear more robust than it actually is and to mislead public perception. In fact, job growth in 2023 was much lower than initially announced. This post-hoc revision is the second largest in US history in terms of its size!

The inaccurate employment figures make it even more difficult to analyze the actual economic situation in the United States.

US inflation

Under these circumstances, how much credibility should we give to the new labour market report, which is due to be published this week? Can we expect the figures to be revised again at a later date?

Inflation data could also be manipulated a few months before a crucial election in the USA.

All indicators pointing to the beginning of a new phase of inflation are now green.

The increase in sea transport tariffs heralds an impending increase in manufacturer prices in the USA:

In 2020, the spectacular rise in freight tariffs preceded the abrupt awakening of inflation by six months.

The fight against inflation is far from being won!

Prices on the real estate market

The latest sales figures for single-family homes on the American real estate market also show an extremely significant drop in prices:

Privately owned residential property prices in the United States are higher than ever, while access to property ownership has never been more difficult:

The latest survey by the Fed in Dallas shows that the construction sector is still under pressure. There is no sign of a fall in prices; in fact, prices in this sector are continuing to rise. For example, a door that cost $3,000 a year ago now sells for $10,000. Competition in the market is decreasing. There are fewer local companies, as many have had to close because they had difficulty retaining their workforce or because the owners were about to retire. Others have been bought out. At the same time, delivery times for products such as power converters and generators remain long.

Some agricultural commodities are also continuing their dizzying price rise. This applies, for example, to coffee, the price of which has increased fivefold since 2020:

Money market

Inflation remains at its highest level in 40 years, but the market is currently expecting a cut in US key interest rates at the next Fed meeting.

The era of high interest rates seems to be over, at least if you believe the bets of many investors. The American monetary funds recorded inflows of around $90 billion in the first half of August, the highest since November 2023:

The total assets of the monetary funds thus reached a new historic high of around $6.2 billion.

Never before has so much money been invested in these funds. The returns from the currency funds should bring their holders several hundred billion dollars this year, thereby increasing the total liquidity available even further. The long-standing efforts of central banks to remove liquidity from the markets may soon be undone by a self-perpetuating liquidity bubble.

Gold and inflation

The supply of liquidity is increasing while the amount of available real assets is increasing. We have all the ingredients for a resurgence of inflation. The conditions are already in place – all that is missing is a spark to reignite the powder keg. The first wave of inflation was triggered by the Corona crisis.

What will trigger the second wave of inflation? Is it really reasonable to consider such a rate cut in the face of inflation risk?

The gold price, which has set one record after another, indicates that the trigger for the new phase of inflation will not be long in coming. The yellow metal warns us that we are on the verge of another monetary policy mistake by the US Federal Reserve.

Source: Goldbroker

LAURENT MAUREL in precious metals and mining analyst. An engineer by training, he has worked in various sectors (telecommunications, software engineering, astrophysics …) in Canada, the United States, Germany and France.

Note: Opinions or recommendations in guest contributions reflect the assessment of the respective author. They do not necessarily represent the opinion of Gold Reporter represents.