In recent months, inflation expectations in the United States have risen, driving up gold and silver prices. Yesterday, the US consumer price index (CPI) came in higher than expected, reinforcing concerns about inflation and raising the possibility of stagflation, a situation in which inflation is high while economic growth slows and unemployment rises. This environment is favorable for precious metals.
The report showed that the CPI rose at an annual rate of 3.0% in January, exceeding the expected 2.9%, while the core CPI, which excludes volatile food and energy prices, rose 3.3% annually, higher than the anticipated 3.1%. The Federal Reserve generally targets an inflation rate of 2%, but the annual growth rate of core CPI remains elevated, sitting 62% above its pre-pandemic average. Furthermore, this data was recorded before President Trump's tariffs took effect, suggesting that inflationary pressures could intensify.
Although the CPI is the most widely recognized measure of inflation, the Federal Reserve prefers the personal consumption expenditure (PCE) price index. In December, the PCE rose at an annual rate of 2.6%, reinforcing the message that inflation remains high and has been trending in the wrong direction in recent months.
Several indicators of inflation expectations, such as the 5-year break-even inflation rate, have anticipated this increase. This rate, calculated as the difference between the yield on a 5-year nominal US Treasury bond and a 5-year Treasury Inflation-Protected Security (TIPS), reflects the market's forecast for average annual inflation over the next five years. The increase since the end of January reflects the market's anticipation of the inflationary impact of upcoming tariffs.
Another key indicator is the ProShares Inflation Expectations ETF (RINF), which has risen in recent trading sessions, building on its steady rise since August.