Last month, official U.S. price inflation based on the Consumer Price Index for All Urban Consumers (CPI-U) was only 0.84% on a year-over-year basis – the lowest reported U.S. price inflation rate of 2016. Early next year, we will look back at July 2016 as the turning point for U.S. price inflation.
For the last 24 months, the official rate of U.S. price inflation has been artificially low due to negative year-over-year gasoline price comparisons. Gasoline has a weighting in the CPI-U of 5% and was down 19.9% in July on a year-over-year basis. Moving forward, if gasoline remains unchanged at current prices and the rest of the CPI-U maintains current price inflation rates – overall U.S. price inflation will explode higher for the next seven straight months!
NIA estimates that year-over-year gasoline price comparisons will turn positive in November for the first time since July 2014 – causing the official U.S. price inflation rate to reach 1.95% in November and finish 2016 at 2.27%. In February 2017, NIA estimates that gasoline prices will be up 26.32% year-over-year, causing official U.S. price inflation to explode to 3.15%!
Historically, gasoline has had a stronger influence on U.S. price inflation than any other CPI-U component. Since mid-2010, gasoline price inflation and overall U.S. price inflation have had an extremely strong correlation of 92.1%.
If NIA is correct about official U.S. price inflation exploding to 3.15% in February 2017, NIA projects for gold prices to rise simultaneously to $1,700 per oz. Since mid-2010, U.S. price inflation has had a very strong correlation of 72.5% with the price of gold. Between June 2010 and August 2011, as U.S. price inflation soared from 1.05% up to a level of 3.77% – gold prices rallied from $1,245.90 per oz up to a level of $1,829.30 per oz for a short-term gain of 46.83%!