Long Term Inflation Expectations Reach 12-Year High

Long Term Inflation Expectations Reach 12-Year High

Long Term Inflation Expectations Reach 12-Year High

According to the University of Michigan, inflation expectations index for 5-30 years reached a 12-year high of 3.2 percent.

At the same time, the consumer sentiment index declined to 63.5, compared to a pre-pandemic high of 300. The deterioration in the situation of consumers is evident.

The official narrative is that inflation is under control. However, many tend to forget that reducing inflation from 9 to 5 percent is relatively easy. The challenge is to bring it back to 2 percent.

Inflation is a hidden tax. Governments always try to hide the loss of purchasing power or blame anyone but the only reason that causes most prices to rise at once: printing money well above the actual demand for it.

In April, the U.S. Consumer Price Index increased 0.4 percent, seasonally adjusted, and rose 4.9 percent over the last 12 months. Core inflation increased 0.4 percent; up 5.5 percent over the year, all according to the Bureau of Labor Statistics. This means that the loss of purchasing power of the US dollar has been 14 percent since 2019 and 35 percent since 2008.

The government’s failure to contain inflation is evident. Government spending has not been reduced at all and that means a higher consumption of newly created units of currency. Rate hikes and money supply slump are only weakening the private sector while the government continues to spend way above the levels of 2019. That is why the narrative is switching to try to make citizens accept a 3 percent annual inflation instead of 2 percent. The message is that it is virtually the same, but it is not. It means a faster rate of impoverishment.

Many politicians try to convince us that now we must choose between inflation and growth, but it is a false dilemma. Inflation is generalized impoverishment, and, of course, it does not imply that there is growth. In fact, the evidence in most developed economies is closer to stagflation.

United States GDP recovered to the pre-pandemic level in 2022. However, public debt continues to rise faster than GDP, and the accumulated inflation in that period is 15 percent. It may not be technically stagflation, but it is strikingly close. The United States is a more dynamic economy than most developed countries, so the situation is not as dire as in those nations where government spending is now more than 40 percent of GDP.

Inflation is the evidence of a dangerous imbalance that impoverishes everyone. It is the evidence of an excess of currency in the economy that creates a widespread loss of the purchasing power of salaries and deposits savings. Inflation is a transfer of wealth from the productive sectors and families to the government, which is the only one benefiting from rising prices since it collects more tax receipts and dilutes part of its indebtedness. However, the voracious deficit-addicted state is not even capable of reducing its fiscal imbalances with inflation. In inflation periods, the state embarks on even more spending, assumes that extraordinary tax receipts are permanent, and instead of reducing debt, it continues to increase it.

Those who defend inflationism to reduce debt forget that the first inflationist, the government, always has the incentive to increase its fiscal imbalances even when it has record tax receipts. A government that utilizes all the tools of so-called Keynesianism always leaves a massive trail of debt and economic weakness. All the “stimuli” consumed in periods of recovery create a boomerang effect and make the inevitable recession worse.

Growth does not come from indebtedness, public spending, or inflation. Growth comes with prudent savings and investments.

What we are experiencing these days is a slow expropriation of the wealth created by the productive sector with the sole objective of massively inflating political spending with an extractive and confiscatory strategy. Inflation is robbery.

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Daniel Lacalle

Global Economy Expert

Daniel Lacalle is one the most influential economists in the world. He is Chief Economist at Tressis SV, Fund Manager at Adriza International Opportunities, Member of the advisory board of the Rafael del Pino foundation, Commissioner of the Community of Madrid in London, President of Instituto Mises Hispano and Professor at IE Business School, London School of Economics, IEB and UNED. Mr. Lacalle has presented and given keynote speeches at the most prestigious forums globally including the Federal Reserve in Houston, the Heritage Foundation in Washington, London School of EconomicsFunds Society Forum in Miami, World Economic ForumForecast Summit in Peru, Mining Show in Dubai, Our Crowd in Jerusalem, Nordea Investor Summit in Oslo, and many others. Mr Lacalle has more than 24 years of experience in the energy and finance sectors, including experience in North Africa, Latin America and the Middle East. He is currently a fund manager overseeing equities, bonds and commodities. He was voted Top 3 Generalist and Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters’ Extel Survey in 2011, the leading survey among companies and financial institutions. He is also author of the best-selling books: “Life In The Financial Markets” (Wiley, 2014), translated to Portuguese and Spanish ; The Energy World Is Flat” (Wiley, 2014, with Diego Parrilla), translated to Portuguese and Chinese ; “Escape from the Central Bank Trap” (2017, BEP), translated to Spanish. Mr Lacalle also contributes at CNBCWorld Economic ForumEpoch TimesMises InstituteHedgeyeZero HedgeFocus Economics, Seeking Alpha, El EspañolThe Commentator, and The Wall Street Journal. He holds a PhD in Economics, CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).


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