Count Chocula feels the pain from increased inflation
Today's Financial News - Posted March 18, 2009
While Washington argues about corporate bonuses and 100% taxes, there is a real threat facing Americans. Today’s CPI report shows inflation is climbing far faster than many experts expected. Take this opportunity to prepare for the threat before it does permanent damage.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): There are few economists that do not believe inflationary pressure will be on the rise as the nation’s economy struggles to pull itself out of a torrid recession. With monetary policy forcing incredible amounts of cash through the economy and the production of goods and services on the decline, inflation is unavoidable. But few experts thought it would show up this quickly.
According to a Labor Department report issued this morning, we have to start our inflation watch earlier than expected. The research shows consumer prices jumped by 0.4% last month, marking the biggest surge since last July when crude prices were driving up the price of just about everything.
Once again, jumping energy prices are the culprit for the uptick in prices. The report reveals two-thirds of February’s increase can be blamed on rising oil prices. Measures of the nation’s core inflation show a 0.2% rise in prices over the month, higher than the anticipated 0.1% increase.
This report helps to illustrate fuel prices are still a concern, even as the economy contracts and prices remain at what are currently considered low prices. As inflation continues to rise and the dollar weakens, look for even more growth in the dollar-denominated oil industry.
Count Chocula feels the pain
Today’s CPI figures may sound relatively tame and minor compared to the economic headlines, but the pain is real. Just ask the folks at General Mills (NYSE:GIS).
Shares of the company are down by over 8% so far today on news that higher production inputs helped lead the company to estimate-missing earnings. Instead of the $0.88 analysts were expecting or the $1.23 recorded a year ago, General Mills told its investors it recorded just $0.85 before one-time expenses and deductions.
Rising input costs have been a common theme in first-quarter earnings reports, but investors have paid little attention. Their economic near-sightedness may come back to haunt them as Wall Street is forced to pay for inflation.
If inflation becomes a continued threat, the nation’s financial leaders will have some very tough choices in the months and years ahead. With the Fed’s target interest rates as low as they can go, Bernanke is running low on so-called “silver” bullets.
The Fed Chief has been hinting about buying Treasuries in an effort to keep interest rates and the nation’s borrowing costs low, but with America’s large bondholders, like China and Japan, already muttering their thoughts on the nation’s creditworthiness, this notion may do more long-term harm than short-term good.
Of course, the easiest solution to tame inflation would be to reign in incredible levels of federal spending, but we might as well hope stem-cell funding has allowed the creation of a money tree. The odds of either happening are incredibly slim.
As an investor, you must be prepared for the potential of soaring inflation. That means hot investments like bonds and cash may become deadly dangerous in the near future. If you want to see your investments rise at levels at least close to inflation rates, turn to equities and especially oil and gold. Over the last couple of months, oil has been a surprisingly good investment. It may stay that way for quite a while now.
Washington may be changing its economic rhetoric and many Americans are claiming a quick turnaround is already in progress. Don’t buy it.
The government has made unprecedented moves and the economy has reached painfully low levels. There are plenty more ramifications on the way. You should take today’s news as a cue to prepare for inflation.
Like it or not, it is coming.
Next Article: Best Stock to Buy: 6 Days to “Judgment Day” for this $2.50 Microcap
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