Inflation and Wealth Resilience

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Keeping up with the news is hard, and we have decided to share reading notes of articles we think can be interesting to our clients, or more broadly to anyone thinking about preserving wealth, or wealth resilience.

Google Trends suggests broader interest for inflation increases

While the broader public's interest for "inflation", at least as far the excellent Google Trends suggests has picked up a bit, the topic has been top-of-mind for the financial community.

Inflation is a complicated beast, and while the notion makes intuitive sense a number of different indicators are calculated: the CPI, or Consumer Price Index produced by the U.S. Bureau of Labor Statistics might be the most famous, the PCE or price index for Personal Consumption Expenditures, for example. The calculation of a basket of relevant items, at the core of the CPI, has been a topic of controversy (which the BLS itself mentions).

In the perspective of preserving wealth, of course, the consumer basket index as limited relevance. The real question, in essence, is to know whether one is preserving wealth in real rates. This a question for our clients and readers to answer, but we figured we would share information that we routinely process for our internal consumption. It is not our place to make any form of financial advice, and nothing in this post should be construed as such. Quite simply, we like data and we like charts.

The St Louis Fed's FRED provides very interesting information. These are two data series courtesy of FRED: the 10-Years treasury rate, Constant Maturity and the same serie but inflation indexed (DGS10 and DFII10, respectively).

Board of Governors of the Federal Reserve System (US), 10-Year Treasury Inflation-Indexed Security, Constant Maturity [DFII10] and [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis;

If we simply subtract the two over the last year:

Spread of inflation-indexed and non-indexed 10 Years Constant Maturity
Board of Governors of the Federal Reserve System (US), 10-Year Treasury Inflation-Indexed Security, Constant Maturity, retrieved from FRED, Federal Reserve Bank of St. Louis;

Obviously, these views are for published series and thus only offer an ex-post view. The Cleveland Federal Reserve provides another interesting view with its nowcast: from a variety of indicators more frequently observed, it derives this excellent inflation nowcast.

Outside of the purely financial metrics, Bloomberg has an excellent article about upended supply chains. A number of commodities have seen sharp increases. We have looked at a basket of commodities, and specifically at the "front month" futures contract listed on CME and ICE for the last 12 months,

Basket of commodities, front month (rolled) from CME, ICE and Liffe. Source: Quandl

Outside of the lumber craze, even the "flatter" curves on this chart have seen significant increases:

Percentage increase of select commodities on CME, ICE and Liffe. Source: Quandl

Once again, these elements are simply processed from public information and we share these charts in the hope they can be useful to our community.

Finally, we like to monitor precious metals, and gold specifically, adjusted to real-GDP. This can be an interesting angle, which can be applied to other public financial information, such as CME's S&P500 rolled front month.

S&P 500 and Gold adjusted for real GDP (US)

Should you wish to invest in precious metals, and specifically buy bullion in Singapore, Switzerland or Hong Kong, do get in touch!

Every effort is made to provide accurate and complete information. However, we cannot guarantee that there will be no errors. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this page. Nothing in this page of site shall be construed as financial advice

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