Based on my anecdotal experience this seems to very much understate inflation.
How is housing up only 3.8%? This site says over 17% rent increase nationally over the last year: https://www.apartmentlist.com/research/national-rent-data which seems to be more accurate. Anyone with a web browser knows that home prices have experienced a monumental increase.
Also a trip to the grocery store appears to cost me 50% more now for essentially the same goods. Every trip to the store pre-covid cost me around $100, now its $150. I do buy primarily proteins so that is the source of the increase but to ignore that seems ill advised.
Not generally a conspiracy theorist but unless the people that built this report are using some accepted formula that is very different than the real world this report seems to be intentionally underselling inflation.
The BLS has a very well-documented method [1] of measuring core consumer inflation. The basket of goods they track likely does not reflect your personal consumption patterns.
You're noticing what's gone up. I just did a Home Depot run and everything there was the same price it was last year.
A 7% inflation rate is not everything going up 7%, it's a small number of things going up a lot. The human mind is a lot better at noticing things that change rather than things that don't, so inflation always seems larger than it is.
I'm not sure if this is the case with these data sets, but one common difference that causes confusion are current advertised rates vs total inventory. It could both be true that apartments on the market cost 17% more, but all rents (including those not marketed or not renewing) are only up 3.8.
Another methodological difference might be mix of goods. For example, you probably can afford to pay 150/grocery-visit, but someone else might have just cut their meat intake, or switch to cheaper cuts, or have otherwise substituted such that maybe they pay $120. If you measure by the visit, or gross store receipts then the numbers will seem lower than they would comparing the same exact goods.
It's because they measure the item to an equivalent item from 1970. Take a car for example. Modern cars have various electronic contraptions that didn't exist in cars in 1970. A car today will have electronic control of windows, rather than the mechanical control from 1970. So, the BLS considers inflation by replacing a modern car's electronic control of windows and replaces it with what you can buy with a mechanical window today. It does this for all parts of the modern car to make it an equivalent product of 1970. Only when all parts are equal, they will calculate inflation.
You should look into how they calculate the numbers haha, it’s comical. They send letters to homeowners and ask them “How much do you think you could rent your house for?”
There’s no need for this idiocy I’m sure one of you could scrape the Zillow website in an afternoon and come up with something better.
I live in Berlin Germany. I've been manually tracking all my grocery costs over 2 years now in an Google Spreadsheet. I'm a single person and I buy organic food. I work from home and I don't eat a lot outside. I cook probably on average 1.5 times a day. My general monthly bill on food is 600€. My methodology has been this:
- I pay all my groceries with my debit card
- Then, to get the cost for a month; I take all debit card entries in my online banking and sum them up
- I then compare the finding to older findings.
Last time I checked, the costs of my groceries hasn't gone up. So far, it has never gone up in any significant form over the last two years. Maybe by 5% but by no means +50% like the parent post suggests.
I sometimes also get anxious about "inflation" when the cashier quotes an unexpected price. And it's why I've started double checking my intuition with the above-outlined process.
Indeed, some times the shopping ends up more expensive as e.g. I bought an extra pack of coffee or meat.
"Anyone with a web browser knows that home prices have experienced a monumental increase."
An asset cannot experience inflation. The word inflation suggests something that loses values. A home that gains in value is clearly not suffering inflation, rather, that is the opposite of inflation.
If you earn $200k a year, and there is 5% consumer inflation, and a year later you still make $200k, then in a sense you are 5% poorer.
If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier.
We might joking and informally refer to "asset inflation" but please remember, under any formal model, there is no such thing; it would be a contradiction in terms.
Define "housing". When it comes to shelter, that is taken into account.
> Anyone with a web browser knows that home prices have experienced a monumental increase.
Because the "C" in CPI stands for consumer. Home prices reflect asset prices. They are not counted in the CPI just like stock and bond prices are not counted: these are all asset classes.
> House prices are an interesting case. Houses are considered capital investment by the [US] BLS. So, when the value of your home increases that's a good thing as you didn't consume the house. In other words, you don't need to replace the house. Consumption goods are different in that you need to replace the thing you bought. Inflation is very bad for consumption goods because it costs you more to replace that thing each time you need it (food, for instance).
> The BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...]
>
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
I remember reading somewhere that only accounts for new contracts. Rents usually only increase when negotiating new leases or extending existing ones close to expiration. So the majority of renters are not paying that much more.
Lots of good replies here. One other thing to be conscious of is that inflation expectations play a large role in determining how actual inflation will pan out, so to raise the alarm on it in earnest is to the play a very dangerous game.
This is in part because they changed how CPI is calculated in the 80s and 90s, which, as luck would have it, lowered the rates. You can see what CPI looks like with the older formulas here to compare:
I also make trips to the store to buy proteins, maybe just not your kind of proteins. I usually get chickpeas, beans, edamame, lentils, etc) and I haven't noticed a change in price.
The Fed was initially saying the inflation was transitory, but have recently dropped the "transitory" label.
Back in July, Siegel pointed out that the M2 money supply is 30% over pre-pandemic levels and predicted that would translate into 20% cumulative inflation over the next 3 years. Here are my talk notes / video links if you're interested: https://neapowers.com/investing/jeremy-siegel/
In July Siegel said "There is zero need for the Fed to be buying $120 billion in bonds every month given market conditions." I don't know why the Fed is buying mortgage backed securities in the midst of an apparent housing bubble.
There's also an element here people don't talk: Covid created insane amounts of hard-to-repay debts. If interest rates go up quickly, the Govrermnent will suddently have to spend a lot of its budget on interest - expected, of course, but not something they are used to.
In NYC, many restaurants and property owners survived thanks to debt which will eat into their profits for years to come and may even bankrupt them down the road.
What is the answer to overwhelming debt? Inflation. Inflation makes the principle that you owe a lot cheaper and if you have borrowed in fixed interest rates, it makes the interest payments cheaper as well.
It would help both the government and the businesses mostly affected by Covid to run high inflation for a few years. This may or may not be part of the Fed calculation but I don't understand why nobody talks about it.
I don't know if you were being rhetorical, but the Fed's motivation doesn't seem like that big of a mystery. They're succumbing to political pressure not to induce a recession or allow asset prices to drop.
If the bubble pops, those securities are generally worthless. If I didn't know better, I'd say this is a move to bankrupt the US government. As it stands, it is idiocy and will bankrupt the government if things go sideways in the housing market.
Though, given the rate of inflation, the housing market may not pop as land is a secure asset that the wealthy are getting into.
It was obvious to anyone with an iota of critical thinking that it was not transitory. The way the government just printed billions of dollars was bound to result in inflation.
A lot of this is due to fuel prices. The price of fuel affects the price of everything else. It's a benchmark since everything requires fuel. Manufacturing, transportation, agriculture, etc. It all requires fuel. It doesn't help that OPEC refuses to increase production in order to make up for their budget shortfalls last year. Also doesn't help that the US government is sending signals that it is no longer on board with fossil fuels. The shutting down of pipelines, ending of fossil fuel leasing, etc. sends a market signal to producers and traders that the US is hostile towards the industry, leading the producers to cut production and maintain their profits.
Best option would be to have a diverse portfolio of energy production: oil, natural gas, solar, wind, hydroelectric, and nuclear. Don't go all in on one, that's how you arrive at the situation we are currently in.
Crude prices have been a lot higher in the past, 2007-2008. The production is fairly in line with the demand.
US actually needs higher crude prices to make sure the incentives exist for shale production to get back to pre covid levels.
The supply chain sluggishness (worldwide) combined with excessive, irresponsible spending (although I hear it "costs nothing"...) explain these figures.
Euro area has higher inflation than pre covid but nowhere near these levels.
It would help a lot of people, but it also hurts a lot of people with mortgage.
Liberalizing zoning and implementing LVT would help, but it would means massive structural change in our society. It's a true fix, but that true fix requires that we have important and difficult conversations about said structural changes.
People that advocate this are advocating for lowering the quality of life. Long term it raises the price per square foot and makes it harder to have the space you want and need.
Spot check, if I'm not mistaken the benchmark year was a pretty crazy low price year for certain assets classes (gas was absurdly low). Not saying this isn't an issue but just putting some cold water on the media hype storm.
The mortgage rate may be 3%, but the cost of your home increases at a much higher number causing the value you have in mortgage rate to be offset by the higher up front cost of a home.
People 'buy' a mortgage payment, not a home. Its why home appreciation 'slows' when rates are high, and we have had record increases in home values with mortgage rates super low.
Yes they are, in a sense that the outstanding mortgage debt grows at a slower pace than inflation.
However the 3% is guaranteed for ~30 years, so it's likely the bank would still come out ahead in the long run if inflation settles down. It's also not an infinite money slot machine -- you can only qualify for so many mortgages (which require large down payments) and houses are pretty illiquid assets.
This gets into a vicious cycle. Given that lots of people are effectively paid to borrow money, that boosts the money people can bid on a house, and so that itself pushes up the prices.
Low-interest rates on mortgages are a huge boon for sellers since the buyers have access to more money, and thus they can pay more. So, for the buyers, the "get paid" part only works if they flip a house and become sellers before the cycle bubbles and bursts.
Meanwhile, buyers who want to get a house just to live in it for the rest of their lives are having to pay much higher prices, and it has nothing to do with real supply and demand. Cut out all the speculators/investors/flippers and the situation would be very different.
Maybe we shouldn't even continue the premise that a person who doesn't live at a property can "own" it.
all items ............ 6.8%
food ................. 6.1%
all less food & energy 4.9%
energy ............... 33.3%
energy commodities ... 57.5%
energy services ...... 10.7%
Thanks. Another number to watch is core inflation in the last 2 years. From a few months before covid to the latest number: Nov 2019: 265427, Nov 2021: 283201
Annualized Core CPI is 3.29%. +1.3% higher than the target.
My first order guess is that Fed will decrease asset purchases gradually and an interest rate hike in the next summer might happen if the long-term core inflation is higher than normal. This seems to be what they are communicating.
I think the increase (over a $1/gallon since last year) in gas prices is doing a number on not only shipping but a large group of low income folks. For a lot of the country, public transportation is either limited or non-existent. Higher gas prices not only affect the cost of goods but increase the cost of going to a job.
There's one cause of this inflation that the Fed doesn't like to talk about. It's the clampdown on immigration that started during the previous administration and is continuing with the current one. Wage inflation is then a logical outcome, and people should be celebrating it.
How do you guys normally handle pay reviews? Curious how each company operates..
I know the saying is that if you don't get a raise AT LEAST on par with inflation, you are taking a cut, but at what point do you take this to employer?
There are a lot of opinions on what this means and its effects on our individual lives, but it should be noted that it usually has no effect on people's view of a ruling US party so long as there has been strong economic growth, and there has been extremely strong growth. If you didn't get that raise you want to offset inflation, there has never been a better time in many sectors to find a higher paying job.
Meanwhile, in Brazil: 10.74%. Now, the pandemic first made consumption decrease and it created deflation in the beginning. As people start buying again, and employment still hasn't fully recovered, it is normal for inflation to become stronger.
The next year pandemic will hopefully be over, but if employment still hasn't fully recovered, we can see even more inflation.
We've also seen a lot of "shadow inflation" in my country.
Pre-Covid I could send a parcel with two-day delivery for $X or next-day delivery for $1.5X
Now, I can still buy "next-day delivery" for $1.5X but the parcel takes two days to arrive. On paper, the service's price hasn't changed - but in reality, it's 50% more expensive.
This suggests to me if you don't get at least a 6.8% raise as an employee per year, you should start looking for another job. That isn't really a raise mind you. It should be added to whatever % raise they give you IMO.
Nearly all of the inflation is coming from energy prices (driven by the post-covid recovery in demand and petrostates declining to raise prices to protect their revenues) and cars (used and new; driven by chip shortages and the increase in demand for consumer durables as spending moved away from experiences out of the house). To reduce energy prices, the US will need to increase domestic production or pressure petrostates into increasing production. Biden has a testy relationship with MBS, so the latter is being a bit harder than it would be otherwise. Still, Saudi Arabia is one of several large producers, all of which depend on oil for government revenues. The government can't do too much about reducing demand for cars or reallocating chip producers abroad to make prioritize making chips for car makers. I suppose we'll have to wait it out, and it'll probably take a while for these underlying factors to settle.
If you're not driving or buying a car, it doesn't look as bad, though energy prices affect everything else, too.
[+] [-] wonderwonder|4 years ago|reply
Also a trip to the grocery store appears to cost me 50% more now for essentially the same goods. Every trip to the store pre-covid cost me around $100, now its $150. I do buy primarily proteins so that is the source of the increase but to ignore that seems ill advised.
Not generally a conspiracy theorist but unless the people that built this report are using some accepted formula that is very different than the real world this report seems to be intentionally underselling inflation.
[+] [-] boc|4 years ago|reply
[1] https://www.bls.gov/opub/hom/cpi/
[+] [-] bryanlarsen|4 years ago|reply
A 7% inflation rate is not everything going up 7%, it's a small number of things going up a lot. The human mind is a lot better at noticing things that change rather than things that don't, so inflation always seems larger than it is.
[+] [-] jacobr1|4 years ago|reply
Another methodological difference might be mix of goods. For example, you probably can afford to pay 150/grocery-visit, but someone else might have just cut their meat intake, or switch to cheaper cuts, or have otherwise substituted such that maybe they pay $120. If you measure by the visit, or gross store receipts then the numbers will seem lower than they would comparing the same exact goods.
[+] [-] thehumanmeat|4 years ago|reply
It is an incredibly flawed metric.
[+] [-] JohnJamesRambo|4 years ago|reply
There’s no need for this idiocy I’m sure one of you could scrape the Zillow website in an afternoon and come up with something better.
[+] [-] timdaub|4 years ago|reply
- I pay all my groceries with my debit card
- Then, to get the cost for a month; I take all debit card entries in my online banking and sum them up
- I then compare the finding to older findings.
Last time I checked, the costs of my groceries hasn't gone up. So far, it has never gone up in any significant form over the last two years. Maybe by 5% but by no means +50% like the parent post suggests.
I sometimes also get anxious about "inflation" when the cashier quotes an unexpected price. And it's why I've started double checking my intuition with the above-outlined process.
Indeed, some times the shopping ends up more expensive as e.g. I bought an extra pack of coffee or meat.
[+] [-] lkrubner|4 years ago|reply
An asset cannot experience inflation. The word inflation suggests something that loses values. A home that gains in value is clearly not suffering inflation, rather, that is the opposite of inflation.
If you earn $200k a year, and there is 5% consumer inflation, and a year later you still make $200k, then in a sense you are 5% poorer.
If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier.
We might joking and informally refer to "asset inflation" but please remember, under any formal model, there is no such thing; it would be a contradiction in terms.
[+] [-] throw0101a|4 years ago|reply
Define "housing". When it comes to shelter, that is taken into account.
> Anyone with a web browser knows that home prices have experienced a monumental increase.
Because the "C" in CPI stands for consumer. Home prices reflect asset prices. They are not counted in the CPI just like stock and bond prices are not counted: these are all asset classes.
> House prices are an interesting case. Houses are considered capital investment by the [US] BLS. So, when the value of your home increases that's a good thing as you didn't consume the house. In other words, you don't need to replace the house. Consumption goods are different in that you need to replace the thing you bought. Inflation is very bad for consumption goods because it costs you more to replace that thing each time you need it (food, for instance).
* https://www.pragcap.com/forum/topic/assflation/#postid-2165
> The BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. [...] > > Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
* https://www.pragcap.com/should-house-prices-be-in-the-cpi/
[+] [-] hobo_mark|4 years ago|reply
[+] [-] kahrl|4 years ago|reply
[+] [-] gangaputra|4 years ago|reply
[+] [-] evergrande|4 years ago|reply
http://www.shadowstats.com/alternate_data/inflation-charts
[+] [-] mitigating|4 years ago|reply
[+] [-] pacomerh|4 years ago|reply
[+] [-] MrPowers|4 years ago|reply
Back in July, Siegel pointed out that the M2 money supply is 30% over pre-pandemic levels and predicted that would translate into 20% cumulative inflation over the next 3 years. Here are my talk notes / video links if you're interested: https://neapowers.com/investing/jeremy-siegel/
In July Siegel said "There is zero need for the Fed to be buying $120 billion in bonds every month given market conditions." I don't know why the Fed is buying mortgage backed securities in the midst of an apparent housing bubble.
Larry Summers was voicing inflation concerns back in March: https://www.youtube.com/watch?v=PBnaahSe7JU&ab_channel=Bloom...
The main macroeconomists I follow (Siegel, Gundlach, Summers) are all puzzled by the Feds actions recently.
[+] [-] gofigure|4 years ago|reply
In NYC, many restaurants and property owners survived thanks to debt which will eat into their profits for years to come and may even bankrupt them down the road.
What is the answer to overwhelming debt? Inflation. Inflation makes the principle that you owe a lot cheaper and if you have borrowed in fixed interest rates, it makes the interest payments cheaper as well.
It would help both the government and the businesses mostly affected by Covid to run high inflation for a few years. This may or may not be part of the Fed calculation but I don't understand why nobody talks about it.
[+] [-] magila|4 years ago|reply
[+] [-] all2|4 years ago|reply
Though, given the rate of inflation, the housing market may not pop as land is a secure asset that the wealthy are getting into.
[+] [-] azth|4 years ago|reply
[+] [-] JavaBatman|4 years ago|reply
Best option would be to have a diverse portfolio of energy production: oil, natural gas, solar, wind, hydroelectric, and nuclear. Don't go all in on one, that's how you arrive at the situation we are currently in.
[+] [-] mikaeluman|4 years ago|reply
US actually needs higher crude prices to make sure the incentives exist for shale production to get back to pre covid levels.
The supply chain sluggishness (worldwide) combined with excessive, irresponsible spending (although I hear it "costs nothing"...) explain these figures.
Euro area has higher inflation than pre covid but nowhere near these levels.
It's not transitory, and it's not good.
[+] [-] davidw|4 years ago|reply
[+] [-] dragontamer|4 years ago|reply
Gasoline is like 5% per month. This is almost entirely an energy problem
Gasoline up over 50% over the year, increasing delivery costs and the price of damn near everything else.
[+] [-] kiba|4 years ago|reply
Liberalizing zoning and implementing LVT would help, but it would means massive structural change in our society. It's a true fix, but that true fix requires that we have important and difficult conversations about said structural changes.
[+] [-] dominotw|4 years ago|reply
[+] [-] anm89|4 years ago|reply
[+] [-] colechristensen|4 years ago|reply
[+] [-] boringg|4 years ago|reply
[+] [-] seanalltogether|4 years ago|reply
https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were...
[+] [-] someuser54541|4 years ago|reply
Someone please correct me if I am wrong.
[+] [-] OrangeMonkey|4 years ago|reply
The mortgage rate may be 3%, but the cost of your home increases at a much higher number causing the value you have in mortgage rate to be offset by the higher up front cost of a home.
People 'buy' a mortgage payment, not a home. Its why home appreciation 'slows' when rates are high, and we have had record increases in home values with mortgage rates super low.
[+] [-] xxbondsxx|4 years ago|reply
However the 3% is guaranteed for ~30 years, so it's likely the bank would still come out ahead in the long run if inflation settles down. It's also not an infinite money slot machine -- you can only qualify for so many mortgages (which require large down payments) and houses are pretty illiquid assets.
[+] [-] quadrangle|4 years ago|reply
Low-interest rates on mortgages are a huge boon for sellers since the buyers have access to more money, and thus they can pay more. So, for the buyers, the "get paid" part only works if they flip a house and become sellers before the cycle bubbles and bursts.
Meanwhile, buyers who want to get a house just to live in it for the rest of their lives are having to pay much higher prices, and it has nothing to do with real supply and demand. Cut out all the speculators/investors/flippers and the situation would be very different.
Maybe we shouldn't even continue the premise that a person who doesn't live at a property can "own" it.
[+] [-] chaorace|4 years ago|reply
A 3% APR mortgage comes out to about 4% APY, which is a little more directly comparable to an annualized inflation figure.
[+] [-] xiphias2|4 years ago|reply
[+] [-] nabla9|4 years ago|reply
[+] [-] INGELRII|4 years ago|reply
Annualized Core CPI is 3.29%. +1.3% higher than the target.
My first order guess is that Fed will decrease asset purchases gradually and an interest rate hike in the next summer might happen if the long-term core inflation is higher than normal. This seems to be what they are communicating.
[+] [-] nathancahill|4 years ago|reply
[+] [-] protomyth|4 years ago|reply
[+] [-] credit_guy|4 years ago|reply
[+] [-] JohnWhigham|4 years ago|reply
[+] [-] chrisacky|4 years ago|reply
[+] [-] kilbuz|4 years ago|reply
[+] [-] declnz|4 years ago|reply
I'm in no doubt that HN readership is mostly US-based, but it's definitely global...
[+] [-] th0ma5|4 years ago|reply
[+] [-] marcodiego|4 years ago|reply
The next year pandemic will hopefully be over, but if employment still hasn't fully recovered, we can see even more inflation.
[+] [-] michaelt|4 years ago|reply
Pre-Covid I could send a parcel with two-day delivery for $X or next-day delivery for $1.5X
Now, I can still buy "next-day delivery" for $1.5X but the parcel takes two days to arrive. On paper, the service's price hasn't changed - but in reality, it's 50% more expensive.
[+] [-] sebringj|4 years ago|reply
[+] [-] pradn|4 years ago|reply
If you're not driving or buying a car, it doesn't look as bad, though energy prices affect everything else, too.