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Inflation could reach 12% in 2023 with 'V-shaped recovery' next year - Michael Wilkerson

Kitco News

(Kitco News) - Although U.S. inflation peaked at 9.1 percent in June of last year and has cooled down for 7 months in a row with January's CPI reading of 6.4 percent, prices will reverse course and rise in 2023 according to Michael Wilkerson, Founder of Stormwall Advisors and Author of Why America Matters: The Case for a New Exceptionalism, who sees inflation reaching between 8 and 12 percent later this year.

Wilkerson, who has three decades of experience as an emerging markets investor, M&A expert, and business leader, including as managing director at M&A firm Lazard, said that inflation has yet to catch up to M2 money growth.

"The money supply increased by 40 percent just from the year 2000," he observed. "You've never had a time in history where the money supply increased by that much without it resulting in inflation… price inflation always catches up with money supply inflation."

Speaking with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News, Wilkerson observed that since 2008 the M2 money supply has tripled, going from $7 trillion to almost $22 trillion. He suggested that this was due to the government's attempt to dampen the shock from the financial crisis of 2008, and the COVID-19 lockdowns in 2020.

In an effort to reduce inflation, the Federal Reserve has raised its policy rate by 475 basis points over the course of a year and started to sell off its assets. However, Wilkerson claimed that this is "too little, too late," and suggested that the Fed would not raise rates to a high enough level to dampen prices.

"The Fed is going to run out of firepower," he stated. "This always becomes a tradeoff, ultimately, between tamping down on inflation, slaying the inflationary dragon, and allowing recession and unemployment to rise. And governments, always and everywhere… choose inflation."

Wilkerson claimed that the risk of social and political unrest in case of a recession are "too great" for the government to handle, and that inflation is the "lesser of two evils," from a policymaker's perspective.

To find out how Wilkerson forecasts supply chains to play into inflation, watch the video above.

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Overheated Energy Markets

In the latest CPI reading from January of 2023, energy rose by an annualized rate of 8.7 percent. Wilkerson noted that energy prices are one of the major drivers of inflation, and that the situation would get worse as energy firms renegotiate prices.

Wilkerson pointed to the example of electricity companies, which have applied to raise their prices between "15 and 20 percent" as natural gas, coal, and oil prices have risen.

He said that rising energy costs had already impacted prices of food and beverage items like eggs and bottled water, the latter of which has risen in price by 35 percent since January of 2020.

"Let's presume the water itself hasn't gone up [in price]," he said. "So there is something underlying [the rise in bottled water prices], either in the packaging or transportation, all of which goes back to energy."

Because of these pressures, and the fact that energy markets tend to be demand-inelastic, Wilkerson said that he is "bullish" on oil, as well as other fossil fuels.

"I continue to be bullish on oil," he confirmed. "I do not believe the oil boom is done… In this environment, I like things that are going to do well in inflation."

To find out which energy stocks Wilkerson is investing in, watch the video above.

Follow Michelle Makori on Twitter: @MichelleMakori

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