13th June 2024  - Gary Mead

Good and bad news

Good and bad news

Good and bad news

Good news is rarer than hen’s teeth so when some comes along we should celebrate. Inflation in the US has dropped to 3.3% in May, which helped the world’s major stock exchanges rise; the S&P 500 and the Nasdaq Composite for example closed at all-time records.

But while we might cheer the slow, steady decline in headline inflation, that 3.3% is still a fair distance away from the US Federal Reserve’s target of 2% annualized inflation. Moreover the fact that inflation is slowing is beside the point for many consumers. The rate of inflation only shows how fast prices are going up – 3.3% a year doesn’t sound like much. But in the last decade, between 2013 and 2023, cumulative headline inflation in the US was almost 30%. As inflation rises, fiat money loses purchasing power. The US Dollar in 2023 had 30% less purchasing power than the same banknote had in 2013.

President Biden has in the past blamed corporations for exorbitant price rises, far in excess of the inflation rate. He may have a point. Providers of fast-food, an icon of America and synonymous with speed and convenience, have hiked their menu prices by anything from 39% and 100% between 2014 and 2024 according to the US finance information organisation Finance Buzz. Your medium fries at McDonald’s now cost $3.79 compared to $1.59 a decade ago, while you need more Dollars to buy the same.

Big Mac

More than 80% of American families eat at fast food restaurants at least once a week; more than 30% of American children eat fast food every day. Families might be cutting back on their fries’ intake – but they still need a roof over their head. Bad news on this front too. Rental prices have been rocketing. The first quarter of 2022 saw an average rental price increase in the US of 18% compared to the same period of 2021. Rent inflation is slowing, but at a snail’s pace, an annualized 5.4% in May against 5.5% in April in the US, and in the UK an annualized rate of 8.9% in April versus a record 9.2% in March.

“Cost of living crisis” is a phrase easily trotted out but for many Americans earning an average annual wage of almost $60,000, or for Britons on the national annual average of £35,000, the crisis is a daily reality.

Wages have been growing in the US and Europe but they long have lagged inflation. Consumer anger at the mismanagement of the economy by governments largely explains the results of the recent elections to the Parliament of the European Union. That Parliament is essentially an entity that exists only to rubber-stamp the decisions of the European Commission, so does it matter that 'right-wing' 'populist' parties took a greater share of the vote? The corporatist consensus that has dominated the Commission has been rocked and the French President Emmanuel Macron said that the "rise of nationalists and demagogues is a danger for our nation and for Europe." Whatever; the European Central Bank cut its interest rates with alacrity.

Macron is right - but whose fault is it? Just as Donald Trump is marginally ahead in the polls to become the next US President - to the chagrin of many people - but whose fault is that? Don't we all bear some responsibility for the rise of political figures we regard as unpalatable?

Media pundits like to tell us that the surge of some political parties is due to misinformation, manipulation or some other deceit supposedly perpetrated on a gullible voting public. This is almost impossible either to prove or to refute. A simpler and perhaps more logical explanation is to attribute the shift away from established political parties to those once regarded as 'fringe' to voter frustration. As we get closer to the election in the UK (4 July) and in the US (when the Presidential election is 5 November) than we can expect more empty promises of tax cuts, improved public services, and other thinly disguised bribes.

They may fall on stony ground. What voters want is more competent handling of the economy, and they will not be duped by hot air. They yearn for interest rate cuts, cheaper mortgages, a cheaper way of loading up on fresh debt to fund their otherwise unaffordable style of life. In the US the Federal Reserve chairman, Jerome Powell, may well consider the economy in such good shape that he doesn't need to cut rates more than once before the end of 2024. In the UK interest rate cuts currently seem a distant dream. The good news for those who hold gold, which has risen by some 20% so far this year, is that the current political-economic state of the world is incredibly bullish. Some analysts are now forecasting $3,000 an ounce before the year is out.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.