May 30, 2018
Donald Trump’s decision to pull out of the Iran nuclear deal could reverberate around the globe. The President may be taking a hardline with his new foreign policy but the consequences could impact the cost of living in the US.
Pulling out of the Iran deal and imposing secondary sanctions on European companies will create a price hike in oil and the effect will be felt everytime you hit the pump and fill up with gas for your daily commute.
And there is no telling how high prices will get. Gas prices in New York hit $5 last week!
Signs of inflation
Trump has given companies dealing with Iran 3-6 months to wind down their contracts. Businesses that continue to deal with Iran will be blocked from accessing the entire US banking and financial system. That will weaken the dollar.
Whilst China and North Korea are taking advantage of cheap fuel prices from Iran, US businesses appear to be bolstering their inventories for a counter-offensive.
A financial report published by CNBC recently indicated the US is bracing itself for a rise in inflation.
However, there are anomalies in key growth indicators. The core gauges, consumer and producer price indexes, are lower than expected for the second month running which means consumers are not spending as much as the Federal Reserve predicted.
However, according to CNBC, DAT, a market analyst, say the demand for delivery trucks across the States is at an almost historical high right now – which indicates businesses are stockpiling their inventories.
If history is anything to go by, when price pressures builds in supply chains, it’s an early sign the cost of oil will rise and the cost consumer goods and services will follow the upward trend.
Cost of living in the US
In preparation of the financial decline, the Fed has said it will raise interest rates at least two more times this year. Some experts predict the rates could be raised three times if inflation continues to show signs of picking up.
At the time of writing, the FEDs benchmark interest rate is still historically low at 1.5% to 1.75%. However, policy makers have signaled an intention to raise rates on two more occasions this year.
The truth is that the FED needs to bolster the strength of the US dollar following disappointing results in a range of asset prices.
High inflation is detrimental to the overall balance of the economy. The cost of everyday expenses continues to grow but the rise in salaries fall short of price hikes across the year.
Some average daily living expenses already look bleak.
Inflation eats your savings
Inflation not only increases the cost of living, it also erodes your savings. By the time most Americans retire, your purchasing power will be limited because your dollar-backed assets have not accrued an equal amount of value.
In the 1920’s, a one ounce gold coin had the same value as a $20 bill. Today the $20 is still worth $20. The ounce of gold is worth $1300. As you can see, the dollar, and subsequently assets paper money is tethered to, are more likely to depreciate over time!
You can learn more about how inflation eats your savings here. One of the few economic solutions to avoid losing money when saving for retirement is to diversify your portfolio by investing in precious metals. A raft of financial experts are predicting gold prices could reach as high as $5000 an ounce!
Gold IRAs are proven to perform better than equities and bonds over the long-term because gold prices nearly always go up – which is why precious metals are used as a hedge against inflation.
Smart investors buy gold to diversify their portfolio. It’s the only way to beat inflation. Because there is no stopping an uptick in prices!