Money Manager Mirhaydari: Inflation Is Knocking at the Door

by John Morgan

Source: Newsmax’s Money News

Evidence is mounting that inflation – fueled by higher housing and food costs – is heating up again after a two-year reprieve during slow wage growth.

Median full-time inflation-adjusted earnings for a U.S. male adult peaked in the 1970s, and has been stuck in a rut ever since.

"No wonder one in seven Americans are on food stamps," wrote Anthony Mirhaydari, founder of the Edge investment advisory newsletters and Mirhaydari Capital Management, in an article for InvestorPlace.

He suggested that as inflation picks up, it could throw a monkey wrench into the Federal Reserve's fiscal stimulus efforts.

"Price pressures are clearly building. The core Producer Price Index jumped in March over February at the fastest rate since 2011, amid the inflation scare driven by the Arab Spring and its impact on crude oil prices. The increase was broad-based, with services prices rebounding."

Meanwhile, the bellwether Consumer Price Index rose to a 1.5 percent annualized rate in March because of pressure from food prices, as crops like oranges and coffee suffered from low yield, and beef prices rose on the smallest cattle herds in years.

"The problem is poised to get worse as a paralyzing drought in California — a key producer of a variety of fruits, nuts, and vegetables — worsens. Drought conditions are now plaguing Texas as well as high plains states including Kansas and Nebraska," Mirhaydari noted.

Meanwhile, approximately one-third of consumer inflation is driven by housing costs. Housing inflation is more than 2 percent and moving toward 3 percent as the recovery in home prices percolates upward.

"This would all be fine if wages were growing faster than prices, but they aren't," he argued.

Mirhaydari predicted that if inflation keeps going up into the summer, consumers will retrench and stock prices will suffer.

However, Bob McTeer, a former Dallas Fed president, wrote in a column for Forbes that an increase in American wages — presuming it could be engineered at some point — would be unlikely to fuel inflation by itself.

"A rise in wages would be a healthy development, not one to be dreaded. Higher wages would reflect higher productivity relative to the supply of labor and would only be inflationary generally if it triggers massive monetary expansion," McTeer wrote.

At the Milken Institute Global Conference this week, some fund managers said they would embrace a dose of inflation, USA Today reported.

John Calamos, CEO of Calamos Investments, said he also would not fear higher interest rates if that was the medicine the Fed used to keep a lid on inflation.

"A rising interest rate environment would be a positive," he said at the conference.