The Inflation Reduction Act is a “set of taxes and expenses” that will not reduce inflation; Investors should diversify into “real” assets

With U.S. inflation remaining high at 8.5% in July, Phil Magness, director of research and education at the American Institute for Economic Research, called the inflation-reduction law “just a set of taxes and expenses”, arguing that it would not reduce inflation.

“[The Inflation Reduction Act] is another exercise in Orwellian language,” Magness said. “They are redefining the terms… [it’s] just a tax and expense package.

President Biden is expected to sign the law tomorrow. The law includes $430 billion in new spending, including more than $300 billion allocated to climate-related programs. The bill also tightens tax loopholes on the wealthiest Americans and allocates more funds to the Internal Revenue Service.

Michael Ashton, managing director at Enduring Investment LLC, said that in times of high inflation, investors should diversify away from stock markets and hold “real things” such as farmland, commodities and precious metals.

“Diversify away from stocks,” Ashton said. “They don’t do well in times of inflation… More importantly, broaden your exposure to real things like the earth.”

Magness and Ashton spoke with Michelle Makori, editor and main anchor of Kitco News.

Peak inflation?

Magness and Ashton agreed that the United States had not seen an end to inflation, despite a slight drop in year-on-year CPI inflation in July.

“[Analysts] read a month of numbers, which showed inflation stabilizing, in an overly optimistic way without addressing a deeper structural problem that stems from more than a year, possibly even a decade, of mismanagement of the Federal Reserve,” Magness said. “The Fed is still catching up with policies it should have considered a year ago.”

In particular, Magness berated the Fed for not raising rates and embarking on tighter monetary policy.

Ashton agreed with Magness’ assessment.

“We’ve seen the money supply increase 40-50% and prices only 15%, so there’s a lot of catching up to do,” Ashton said. “Our forecast is for inflation this year to be in the mid-sixes, but to remain in the mid-fives for 2023…While the market seems to think inflation will quickly drop back down to two and a half for cent, he will be disappointed.

Zero percent inflation?

When the CPI figures were released on Wednesday, President Joe Biden held a press conference, proclaiming “zero” inflation in July, despite inflation rising 8.5% year-on-year. Biden was referring to month-over-month inflation, which was 0% in July.

“This White House is intent on coining words around economic issues,” Magness explained. “What we saw in the CPI numbers was actually just a lag. Fuel, for example, has fallen very rapidly over the past month. At the same time, food and some and other sectors of what is measured in CPI continued to rise.

According to the Bureau of Labor Statistics, energy prices fell 7.6% from June to July, while grocery bills rose 1.4%.

Commenting on Biden’s remarks, Ashton said, “If your team hasn’t won a game all season, then you consider scoring anything to be positive. I think that’s kind of what’s going on here. We had a zero in the title…I would expect nothing more from a politician than to focus on part of [CPI] which makes it look the best.

To find out which assets can best protect against inflation, watch the video above.

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Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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