February 2025 – Week 3 Edition
Inflation Remains Elevated in January
This week, we will wrap up the Joe Biden years with the details of his last month in office, January 2025, with the lofty inflation figures for that month, his runaway spending and deficit numbers.
On February 12th, the U.S. Department of Labor announced the Consumer Price Index (CPI) for January rose by a higher-than-expected 0.5% (a 6% annual rate) vs. an expected 0.3% increase. The surprisingly high inflation numbers for January might be blamed on the bird flu, which the Biden team will claim was out of their control but the last-month spending spree was completely within their control.
Egg prices surged 15.2% in January due to avian flu, accounting for much of the increase in the food component but beef prices also rose substantially since cattle herds dropped to their lowest levels in 73 years. The core CPI, excluding food and energy, rose 3.3% in the past 12 months. For the past four years under Biden, the CPI rose 21.4%, vs. only 7.7% during Trump’s first four years. More importantly to the average American worker, real (after-inflation) wages rose 7.4% in the four Trump years while workers actually lost ground in the four Biden years when wages after inflation fell by 1.6% in Biden’s four years.
Then, on Thursday, February 13th, the Labor Department announced the Producer Price Index (PPI) rose by 0.4% in January and 3.5% in the past 12 months, far above the Fed’s 2% target rate. The core PPI, excluding food and energy, rose 0.3% in January and 3.6% in the past 12 months. Egg prices rose much faster on the wholesale level, up 44% in January, implying high inflation figures in next month’s CPI.
In addition to these popular inflation indexes, the CRB Commodity Price Index has been skyrocketing lately, up 7% so far this year and up 21% since early September 2024. The CRB is an index of 19 commodities divided into four groups: 41% agriculture, 39% energy, 13% industrial and base metals and 7% precious metals. As the building blocks of business, the CRB is an advance indicator of inflation.
Deficits Remained Stratospheric During Biden’s Last Months in Office
On February 10th, the Congressional Budget Office (CBO) announced the federal budget deficit for the first four months of fiscal year 2025 (starting October 1, 2024) totaled $838 billion, a $2.5 trillion annual rate. That amounted to $306 billion more red ink than in the same four months the previous fiscal year, reflecting the huge amount of lame-duck spending by the Biden Administration since October.
For those four months, revenues were $11 billion higher than fiscal 2024 but spending was a horrendous $317 billion (+15%) higher than the previous fiscal year. How can the Biden team excuse such excesses?
With Elon Musk and the DOGE (Department of Government Efficiency) team revealing unnecessary spending, many Democrats oppose their “radical” spending cuts, saying they are either unconstitutional or excessive and this is the “wrong way” to cut spending. It’s a pity the Biden team never showed us the “right way” to cut spending in four years.
If you look at the past five years, since fiscal year 2019 – the last “normal” Trump year before COVID – tax revenues are way up, +42% since 2019 but federal spending is up more, +52% in those same five years. Cumulatively, over that five-year period, deficits reached $10.8 trillion for an average of $2.16 trillion per year.
The latest deficit, at 6.4% of GDP, could rise to 8% of GDP unless the DOGE team can cut wasteful spending very quickly. The U.S. deficit is twice that of the eurozone, at 3.2% of GDP. This is partially because the EU (European Union) doesn’t pay much toward its own defense in NATO. Additionally, Canada’s deficit is only 2.3% of its GDP but that debt is growing at about $100 million a day and interest on servicing that debt is costing about $1,200 per second, according to financial reports.
The problem is spending, not tax revenue income. The Trump Tax Cuts, passed in late 2017, took effect in 2018. Since President Biden did not repeal or change the Trump tax cuts, we now have six years of prosperity under Trump’s tax cuts, plus more than a year of COVID shutdowns in 2020 and part of 2021. It’s understandable that spending rose during COVID, since the federal government and several states forced shutdowns on many businesses but why did spending stay well over $6 trillion every year thereafter? Inflation rose 21.4% in Biden’s four years but tax revenues rose twice that fast (42%) and spending rose even faster.
We’re obviously overdue for some “radical” cuts in federal spending after so many years of unsustainable spending increases under the Biden-Harris team and runaway spending of $2 trillion in red ink per year.
It’s also obvious the dollar will decrease in value with high inflation and high deficits and that’s why gold is already closing in on our minimum goal for 2025, at $3,000 and may reach $3,500 by year’s end. I urge you to contact one of our professional account representatives to discuss your options for buying gold and also to routinely increase your investments in rare gold coins as gold prices continue to rise.
Gold rose $58 (+2%) the day after Presidents’ Day, reaching an all-time high of $2,955 in the futures market on Tuesday, February 18th. The prime cause was a weaker dollar based on President Trump’s threatened “reciprocal tariffs” against several trading partners that have charged much higher tariffs against American exports than we have charged against their exports to us. President Trump is also using tariffs as a bargaining chip against their current policies on immigration, illegal trade and the Middle East. It was also a good day for silver as it rose 2% (+$0.67) to reach $33.46 on the futures market.