NEWS | August 3, 2023
For months, we have been experiencing a significant decline in inflation rates in both Europe and the USA. However, those who interpret this as a sign of relief may be in for a sobering surprise next summer. According to some analysts, the second inflation wave could be on the horizon.
Rising real wages leading to increased inflation rates
Prices tend to rise when demand grows faster than supply. Financial analyst Clemens Schmale points out that this is especially true when real wages increase. Inflation typically follows wage growth with a lag of about 18 months. Therefore, inflation is expected to rise again from the spring of next year—provided that we do not slip into a recession before that. In a recession, many people hold back their wages, which does not contribute to economic growth, and the price level remains stagnant or falls.
Second wave more destructive than the first?
Financial advisor Simon Hunt also warns of a second inflation wave. He believes that we can learn from the 1970s, where second inflations were often more destructive than the initial wave. According to him, Germany is already in a technical recession. He predicts that stock markets will plunge by 30% to 35% in the fall, followed by the second inflation wave. This wave would be so severe that even central banks would be unable to contain it with their interventions.
BRICS countries relying on gold for a reason
The BRICS countries have positioned themselves with their gold-backed currency (as previously reported). Gold retains its value during times of currency devaluation and can also serve as a safe haven during a recession. Therefore, it is a secure investment regardless of whether the second inflation wave occurs or not. The same applies to metals essential to a country’s core industries. Sectors like healthcare, energy transition, and defense cannot simply pause during an economic downturn. Technology metals and rare earths will continue to be in high demand by these industries, making them crisis-resistant metals. Moreover, they offer the potential for attractive returns along with tax-free purchases and tax-free gains after one year of holding.