How long can this go on? I think we are at a tipping point. Depending on what country you are from and where you live, the effects will vary. For people who are already living on a strained budget, the rising prices have most definitely already been felt. But for people that have a high income, the spending can just be shifted slightly from unnecessary purchases to essential and necessary ones. From my perspective this has mostly been the case. In my country, the discretionary income is so high for a majority of people that the threshold for prices on life essential goods have not yet been reached, and might even have a long way to go.
For example, for someone earning 25 000 in my currency each month probably has about 7 000-10 000 in discretionary income, meaning after having payed their taxes and normal expenses. That leaves a lot of room for an increase in price before it really starts to hurt. Sure, you might have to save for 3 months instead of 2 before you can buy yourself a new flat screen TV or some other toy that you've always wanted but still. Even those with a lower income of say 17 000 probably have 3 000-5 000 left each month due to lower spending habits. So, in these cases it can go on for a while still.
For those who are not as fortunate it is beginning to really be a problem. Since as most of you should know by now, it is the essential goods that are increasing in price. Utilities, transportation and most of all food are precisely the things that are rising in price the most, and they are the things we need the most in order to maintain our standard of living at best and survive at worst. The other "stuff" is actually decreasing in price, partly because people are directing their income away from that "stuff" and towards the more essential things.
Conditions are fragile right now. I don't think we have a lot of time left before it really starts to come down on us. The poorer are getting poorer, the middle class is getting drained, even the upper class will be hit hard. Relatively speaking they are the ones that have the potential to be hit the hardest. Their lifestyle has made them take things like food and shelter for granted unlike others that have had to fight for it. But ultimately they too will have to face the same issues, but for the most part with much less preparation and less experience.
With this being said, I would like to give a little heads up to anyone that has invested in any type of stocks, bonds or even precious metals and other commodities. In June, the FED have announced (unofficially I think) that their QE 2 will be ending, and that they will take a break from further QE (probably until they will have no choice but to continue). The 4 billion dollars of thin-air money that they have been injecting the market with each day will come to an end. To make a simple and probably somewhat inaccurate parable, it would be like having your allowance/salary cut with 4 billion dollars a day from one day to another. The market will have to make due with a lot less liquidity and the result is highly predictable. The artificially created high numbers we have seen will come crashing down. It should be noted that this is from a somewhat short term perspective, and that precious metals are still one of the safest bets.
As usual, it is up to you what you do with this information, but it would be prudent to keep an eye open.
