Peter Schiff: real inflation rate ‘closer to 20%’

The US inflation reading for May came in at 8.6% year-on-year, its highest pace since 1981, to send markets plummeting.

Peter Schiff, Chief Executive Officer at Euro Pacific Capital, says the real consumer price index (CPI) is not at the government’s reported figures but a lot higher. In his view, a proper measurement of inflation would show that real CPI year-on-year is “closer to 20%.”

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Noting that the US Federal Reserve is not doing enough to combat inflation, the stock broker added:

Clearly inflation didn’t peak. The CPI spiked 1% in May and rose 8.6% YoY, a new cycle high. But if measured properly the real YoY rate is closer to 20%, the highest ever. Since the Fed continues to fuel the inflation fire, consumers will feel the heat as it gets much hotter.

The impact of high inflation on consumers, the strategist said, is a collapse in consumer confidence. In June, it fell to 50.2, a level he says is the “lowest ever.” He notes that currently, the reading is “lower than during the 2008 Financial Crisis and lower than during the Covid lockdowns.”

And he thinks that consumer confidence will fall even lower should the Fed go on to take the steps needed to fight inflation. 

According to the strategistt, a proper response from the Fed in relation to the pandemic – a better monetary policy – would have been to reduce money supply, not increase it. The central bank didn’t do that and the one paying is the consumer.

The Fed will hike rates…. to “cause a recession”

In a Twitter thread on Friday, Schiff also commented on gold prices and why it’s difficult to be bearish at the moment.

To be bearish on #gold one must believe the #Fed will raise interest rates high enough to vanquish #inflation, but not high enough to cause a #recession. In reality, the reverse is true. The Fed will hike rates enough to cause a recession, but not nearly enough to beat inflation!

All US stock indexes are down in late morning trades on Friday , with the Dow Jones Industrial shedding more than 750 points and the S&P 500 down 2.7%. The Nasdaq Composite has fallen by 3.4%.