By Stefan Gleason – Re-Blogged From Money Metals Exchange
Investors are under-estimating inflation risk. As a consequence, they are under-pricing inflation protecting assets including precious metals.
The Federal Reserve has given itself the objective of engineering an inflation rate of around 2%. However, there are many ways in which real-world inflation can potentially outpace the Fed’s 2% target.
Firstly, the Fed’s preferred inflation gauges are flawed. The so-called “core” rate of consumer price inflation strips out food and energy costs. The core Personal Consumption Expenditures (PCE) index has also been criticized for underweighting housing and medical costs.
The PCE number for March, which came out on May 1st, shows the Fed’s favored inflation gauge running at 1.6% year over year. That’s down slightly from the previous month’s reading of 1.8% (2.1% for the headline unadjusted PCE).