The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released its latest readings for its proprietary monthly Future Inflation Gauges this morning. (More about ECRI)
ECRI released separate reports for the United States, Eurozone (Germany, France, Italy & Spain), the United Kingdom, Japan, Korea, Canada and Australia.
Five of the seven regions covered show increasing inflationary pressure with Japan and Australia going against the global trend.
United States - UP: ECRI’s U.S. Future Inflation Gauge (USFIG) rose again in February. The value of the USFIG lies in its ability to measure underlying inflationary pressures and thereby predict turning points in the U.S. inflation cycle. The USFIG advanced to 102.1 (1992=100) in February from 101.9 in January.
(Click to enlarge)
Commenting on the report, Lakshman Achuthan, co-founder and Chief Operations Officer of ECRI, said, "With the USFIG rising to a 29-month high, underlying inflation pressures remain in a cyclical upswing."
Below are the summary comments for the other areas covered by ECRI.
Eurozone (Germany, France, Italy & Spain) - UP: "Eurozone inflation remains in a rising trend, as anticipated by the earlier upturn in the EZFIG, which hit a 28-month high in its latest reading. Thus, Eurozone inflationary pressures are in a clear cyclical upswing."
United Kingdom - UP: "Despite its latest dip, the UKFIG remains well above its 2009 cycle lows. Thus, inflation pressures in the U.K. remain somewhat elevated."
Japan - DOWN: "The JAFIG has been edging up from its mid-2010 lows and now stands at a 27-month high. Thus, Japanese deflation risks continue to recede."
Korea - UP: "After a brief retreat, the KOFIG has risen sharply since last fall, and reached a 30-month high in January. Thus, Korean inflation is likely to remain in a cyclical upswing."
Canada - UP: With the CAFIG increasing further, Canadian inflation pressures are on the rise."
Australia - DOWN: "The AUFIG remained in a cyclical downswing, falling to a ten-month low in its latest reading. Thus, Australian inflation pressures are easing further."
How to Profit With Higher Inflation
Obviously, you can buy gold (GLD), silver (SLV) and other commodities if you want to speculate on high inflation but these can lose money if inflation turns out to be less than some think. If you want safety with a 100% guarantee you will get your investment back, then TIPS bought directly from the US Treasury are the way to go.
You can read more about TIPS in my Feb. 13, 2011, article "How to Play Expected Inflation From the TIPS Spread." In that article I wrote I planned to buy the 30-year individual TIPS for my "explore portfolio" and my own personal ROTH and regular IRAs.
"Unless something major changes with the markets, I plan to buy the 30-year TIPS with the 2/15/2041, maturity date on the auction that closes on 2/17/2011, directly through my broker for my regular and ROTH IRAs."
This morning, my online broker says those TIPS are up 4.4% already!
I also own the "treasury inflation protected securities" managed mutual funds FINPX, VIPSX and Series I-Bonds (Current I Bond Rates) as well as other individual TIPS. The mutual funds can lose money if rates soar without inflation but the individual TIPS and Series I Bonds will not lose money if you buy directly from the US Treasury.
Currently, I am considering reducing or eliminating my positions in FINPX and VIPSX to replace them with more individual TIPS and/or the exchange traded fund TIP which has lower annual expenses. With interest rates so low, cutting expenses with an ETF could more than offset any advantage an active manager gives.
Bottom line, gold and silver can continue to soar but they can also crash like they did after peaking after the Arab Oil Embargo of the 1970s. If you want a SAFE investment that will keep up with inflation, then individual TIPS are your ticket.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TIP over the next 72 hours.
Additional disclosure: I also have Individual TIPS and Series I Bonds.
