As usual, take headlines about inflation with a grain of salt.
Yes, the year-over-year inflation reached a new peak. But the month-over-month inflation rate has actually been declining since last October: https://www.bls.gov/news.release/cpi.nr0.htm
So when organizations publish a new article every month saying inflation is "accelerating", they're being incredibly misleading.
It's fair to say that inflation has been at an accelerated rate over a time period that makes sense to most folks. Saying that it has decreased month-to-month is more misleading in my opinion. If you were to pick any random period in time, chances are inflation wouldn't be increasing as fast as it has been over those recent "declining" months.
My math might be wrong, but according your source isn't the annualized month-to-month inflation 7.5%?
(1+0.6/100)^12 = 1.0744.
The year-to-year (multiply all seven rates and then power to 12/7) is 7.1% which is pretty close to 7.5% anyway.
(Also, note that the decrease over the last two months is probably due to the Christmas peak ending. Best case scenario, pie in the sky, for inflation is 3.6% which is higher than my mortgage rate)
Thanks for this source, i believe in the last fed meeting JP said he expected us to be on track for 2% this year but i don’t see how that’s possible if we are already at .6 a month in, maybe it will drastically keep going down MoM for this year and average down to 2%?
You want me to take the headlines about inflation with a grain of salt? Fair enough. All headlines should be taken with a grain of salt.
But what do you want me to do about the actual inflation I'm experiencing in day-to-day life, that indicate to me the inflation numbers in the headlines aren't even telling the full story?
This is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years). Around $12 trillion was allocated for covid measures and around $10 trillion disbursed. About half was legislative (income support, state local funding, loans) and another half was Fed mostly benefiting banks (asset purchases and liquidity measures).
So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels). But now we're seeing consumer price inflation. I'm afraid it's not like normal times where you can just "slow down" the economy by tweaking interest rates. You will need to do drastic measures to sop up the trillions in newly generated dollars.
We've been pumping money into the economy with no regard to long term inflation since the Obama administration. We've gotten so use to it, we've even started to come up with financial theroies that debt spending a increasing monetary supply doesn't matter - print what you need.
Modern monetary theory ain't. Ask the Romans, the Spanish and the Germans how well that worked for them.
> This is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years).
Or, it's because supply chain disruptions have caused shortages, and there's more demand post-reopening chasing a smaller base of supply.
Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2]
> So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels).
Repeat after me: an increase in the price of assets is not necessarily asset inflation. If each quantity of asset buys you more CPI basket (i.e. returns outpace inflation) then it's an ROI. A real dollar return.
The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently.
Take Google, for instance. Going into end of 2019, it was trading at $1500/share. Today, $2780. That's 1.85X higher! Crazy right? Well, check their revenues. [3] Just over 1.6X higher (and that's an annual histogram). Google has been trading at the same P/S ratio since 2010, give or take. [4]
Big Tech is reporting some of the best quarterly performance in the history of the world - certainly since the Dutch East India Company, anyways.
Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run.
We are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything.
I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger.
It's a good reason to never let rates get this low in the first place. From zero, any increase is an infinite increase in interest rates, and a corresponding crater of NPVs.
Welcome to the long run, folks. At least Keynes is dead, so, good for him, I guess.
> a good reason to never let rates get this low in the first place
My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people.
You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting one.
Price stability was also fine until about 6 months ago.
The thing I keep coming back to, is how incredibly little asset prices really matter, in the larger scheme of things. What does matter is things like employment, the price of milk, and whether people have a roof over their heads (rental affordability).
In the larger sense, the fed's hands are tied, unless their legal mandate is amended to include "not creating asset bubbles". The distributive and stability effects of today's monetary policy might be the longest-lasting intellectual shift to come out of all this.
I don't think this can be solved by just tweaking interest rates. The fact is there are a lot more dollars in the field chasing the same number of products. Making it marginally more expensive to borrow money won't sop up enough dollars to prevent price inflation.
Don't you love it how banks are not raising their interest rates on savings accounts? I remember in 2007 I was getting 4% on my savings accounts. There's nowhere to park your money and earn a return even approaching inflation. Why not just front-load your future purchases and further drive inflation?
> The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value.
No, it doesn't. Net present value (NPV) of future cashflows is defined [1] as the sum over time periods of the ratio of the cashflow in the k-th period to one plus the discount rate raised to the power of k:
NPV = sum_k r_k / (1 + i)^k
where i is the discount rate. Note that we are dividing by (1+i)^k, not by i^k. Thus, when i=0 the formula above simplifies to
NPV = sum_k r_k
and NPV is just the sum of all future cashflows. No infinity enters the picture.
The fed basically controls the very short end of the curve. The 30 year rate is above 2 (it briefly touched around 1.3 or something during the start of the covid panic). No one is/was discounting cashflows 10 years into the future at 0 so "all cash flows" didn't have infinite net present value.
NPV is discounted by a combination of risk-free interest rate and uncertainty. For most investment/capital allocation decisions, the uncertainty term has been dominant for decades already.
Said another way, holding interest rates below inflation devalues assets relative to cash flows. If the gap is relatively small (e.g. 5-15%) then the economy can adapt to lower asset prices relative to cash. Workers get more margin, businesses invest in cash generating activities, speculative bets get hammered, asset returns are low.
If anything I'd say this exercise shows the limits of Federal Reserve power. Without the tight labor market of the pandemic, low interest rates simply raised asset prices. We should take the lesson that the fed should not be solely responsible for driving the economy.
> The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value.
This is only true for cash flows discounted by the risk-free rate. The discount rate of risk assets comes from the risk-free rate with a risk premium added on top (probably 6% or so today for the average blue chip equity).
I am extraordinarily skeptical of essentially the whole comment except this. Economies are very complicated systems composed of many non-rational actors. All economics is voodoo IMHO. It's akin to try to predict the fluctuations in current on a motherboard's bus without having any conception of what program is running. Total guesswork on top of a system more complicated than human understanding.
We want to understand economies in terms of pipes and pressure and the complexity-equivalent of simple machines, when in reality the future is going to be dominated by black swans: crazy things like cryptocurrencies, cyberattacks, once-in-a-millenium climate/weather events, political revolutions, and fads.
Given the current debt, the Fed simply can't raise rates to the degree Paul Volcker did the last time we had inflation like this. So they're going to play around with rates in the low single digits and then go back to zero when the economy starts sputtering.
There are many competing theories for this inflation:
1. The increase in money supply.
2. Supply chain bottlenecks.
3. Corporate greed & tech monopolies.
4. Fundamental supply constraints. (mostly in the housing sector)
Anybody trying to tell you that it's only or primarily one of them has a political motivation. It's all 4, with the first 2 being primary and both being important.
To effectively solve inflation we need to attack all 4.
"To effectively solve inflation we need to attack all 4."
Why do you think that? You've listed four conceivable reasons for inflation. One could probably list another 20 after a bit more thought. That doesn't mean that these are all plausible. It seems entirely possible that just one of them accounts for just about all of the inflation. You haven't made any argument against this.
Of the four you list, (3) and (4) seem implausible. Why would corporations suddenly have become more greedy? Have fundamental constraints on the housing sector (you mean zoning restrictions, maybe?) suddenly increased?
But arguably one solution - slowing the increase in the money supply - will fix all 4 of them. This isn't like a fire that needs fuel and air to keep going and stopping it can be done by taking either away; One of the two items is technically trivial (raise interest rates) and politically unpopular to do - the other is politically popular and technically challenging (fix supply issues).
If history is any guide we'll try the politically easy one for 10 or 20 years before we finally get around to actually doing what will work.
Does anybody believe that the 7.5% figure is completely accurate and not fudged and massaged to give an answer that won't entirely spook the market?
It feels like their strategy is to avoid making a choice and letting the bubble unwind as slowly as possible to avoid political fallout. Unfortunately, we learned as kids that ripping off a bandaid faster is usually best, so this might prolong pain for a while.
Keep in mind "7.5%" is the aggregate across the entire basket.
This isn't how individual people perceive inflation. What actually happens is that a few things make big jumps (10-15%) and the prices of other things don't increase as quickly.
Maybe not the nicest thing to say, but I'm hardly affected by inflation at all. The four biggest categories to experience inflation recently have been used cars, petroleum, rents, and food. As an urban-dwelling homeowner who doesn't drive much, doesn't rent, and isn't in the market for a car, the only real change has been food, and it's a small enough part of my goods basket that the extra $15-20/week at the grocery store barely registers.
The people really hurting today are the truck-driving renters sucking down 20+ gallons of gas/week driving long distances to their jobs. Those guys are feeling a lot of pain.
This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?
>This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?
Hyperinflation is defined as 50% inflation per month.
If you have hyperinflation then your stock market is going to overheat and bust through the top of your chart over and over again! :))
History books focus on the bread lines, but if you dig deep enough you can find the stock market charts and they are epic! The capital class made so much bank and dipped out, just remember to actually leave because the people come for you.
>I wonder though what happens now, is hyperinflation a real possibility
It will happen if the Dollar loses global reserve currency status. China, Russia, and a few allies could pull the rug out from under the US pretty easily. A lot of countries are tired of the US exporting their inflation
On one hand, after decades of inflation being too low, it's nice to see that the spigot works still.
But it's bizarre that interest rates are being held so low. It's unclear who it's supposed to help. I get that we need to boost the Covid economy, but if feels like the economy is currently running at every possible constraint - except for lack of money.
The Treasury pays over $0.5Trillion in interest every year against a total tax base of around $3.75T. Doubling the interest rate would be directly harmful to the government’s financial position. (They could of course “print” more, but at some point that’s adding to the problem more than alleviating it.)
I would think that the impact of rising prices would be reflected in reduced profits but it seems like most of the major companies are reporting rather large profits.
Could it be some of the inflation is simply companies taking advantage to raise prices not because they need to but simply because they can?
It's exactly as obvious as you think. E.g. Supply and labor input costs go up 5%, and they raise prices 10%. Wherever convenient they will say "We're sorry to raise prices etc." and then during earnings calls the CEO will say "We're expecting upward price adjustments to increase our net margins in Q4". You know, a euphemism for "we're raising prices and that means more profit"
Corporations, especially the the huge conglomerates with adequate pricing power etc. drive inflation, not suffer from it. The elephant in the room today is that the classic economic model that suggests "oh but another company will come with lower prices and re-balance things" is simply unrealistic. Good luck elbowing in on P&G or Unilever for shelf space in supermarkets, commercial contracts, etc..
The other trick everyone is probably about to see is that when the supply chain crisis recedes and inflation comes down, that the consumer prices curiously remain high. Maybe market forces may claw them back over years, but in the meantime it will just be another incremental wealth transfer from mass-market consumers -> concentrated corporate profits.
The corporations will also kick and scream to avoid raising wages for their employees spending more on their own products, while simultaneously giving huge payouts to executives and investors through share buybacks with their newly minted profits.
It's not even interesting to theorize about anymore. It's boring and obvious. Maybe this is what dystopia is?
Absolutely. If cost of goods goes up 7.8%, most companies will round prices up by 10%. Increased costs is a great excuse to not only pass costs on to the consumer, but sneak in some additional "while we're at it" price rises too.
What matters for inflation isn't just money, but the quantity of money and credit (thanks Ray Dalio for explaining this).
The fed correctly predicted in early 2020 that there'd be a massive drop in lending (at least short-term), so eased, hard, so that money+credit would remain relatively constant (much less credit, so much more money was needed). I read last year that something like 26% of then-existing M2 (central bank + bank deposits) was created in 2020/2021. That's insane.
Yet somehow, a year later, after a major pandemic, only a bit of inflation is showing up.
People should give a fed more credit. They managed this thing pretty well. The whole thing feels like trying to adjust the temperature in the shower from 50 feet away with a long stick and a bit of string, and someone yelling "turn it up" or "turn it down". There is so much noise everywhere, it's very difficult.
Can anyone help me understand a seemingly dumb investment choice I made in light of this? I put some money into the Schwabs TIPS ETF (SCHP), back in December. For the most part it's been a minor loser. Even today as the inflation rhetoric picks up the price is down 0.5%. Is it because people bought expecting inflation to be even higher? Or is there some lag or some underlying treasury thing going on.
Nobody will ever make the connection between this, and the lockdowns they imposed on humans. Well, nobody "respectable" so the status followers won't ever hold the opinion where it matters, the court.
"When you are paid not to notice, it is hard to notice" etc.
Supply chain issues is perhaps the most common explanation the experts and laypeople are using for inflation? Aren’t those directly due to lockdowns and restrictions as factories aren’t running full speed.
Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another.
Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing.
EDIT:
I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.
If you want to say wealthy people have more debts, sure in dollar amounts. But I bet dollars to donuts they have way more assets in stock than in their million dollar home mortgages or w/e.
Believe it or not, but wealthy people have more debt relative to income than the poor. For instance, I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income. That's why payday lenders are so popular (ultra short term high interest rate loans)
It also doesn't help if your income doesn't go up. You end up just paying more for everything. And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.
So on net I think the poor are a lot worse off with high inflation.
> Inflation is a good thing for people with a lot of debt but not a lot of money.
The counter to this is inflation is painful to people living on savings or fixed incomes. And the politics here are brutal - young people whom this benefits don't vote, older people whom this hurts do.
It also works out _sort of_ well for homeowners - at this rate, my house payment is going to end up being a minor inconvenience instead of my largest fixed payment. Of course, I'll still have to pay property taxes and insurance on the newly inflated value of the house.
> I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.
Wealthy people have access to lower interest rates, poorer people have to pay a risk premium. The advantage to the wealthy is exacerbated the closer risk free interest rates go to zero. Lower interest rates is hugely advantageous to the wealthy.
> Inflation is a good thing for people with a lot of debt but not a lot of money.
I think it's good for people that can hop from job to job demanding higher wages as inflation comes. But if you're not in a position to do that, how is inflation good?
And probably soon to 90y high. Most workers getting a significant bump to keep them at work, worldwide logistical mess, one must be naive to think these and everything else won't have further repercutions.
It'll be interesting to see how the following dynamics play out over the next few years.
I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.
The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates.
So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this).
The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.
If any of this is due to a tight labor market, or whatever you call it when it's hard to hire, I wonder if it would be better for society for people to negotiate improvements in how they're treated than improvements in how much they're paid.
Like if everyone negotiates a 20% raise, prices of everything probably increase by 20%, meaning nobody gets shit, and their savings are less valuable. So they come out behind, if anything. But if everyone negotiates a four day work week for the same pay, or better safety standards at work, or shit like that, I'd bet prices don't inflate nearly as much, so they actually could come out ahead.
But that seems like a prisoner's dilemma kind of thing. If only you get the raise, you come out ahead. If everyone gets the raise, you come out neutral.
Depends on who is already financed. Likely this will be a lagging indicator and we’ll see further increases in institutional investment. Government at all levels will avoid being involved because citizens have grown used to the liquidity of their homes. The long term consequence to the retail market is going to be a tough pill to swallow. Builders adding to inventory are partnering with institutions already. All of this plays out in favor of expanding the SFR market share.
The price increases at the grocery store whether it be shrinkflation or price jumps, will never come back down. This is going to squeeze a lot of people.
teraflop|4 years ago
Yes, the year-over-year inflation reached a new peak. But the month-over-month inflation rate has actually been declining since last October: https://www.bls.gov/news.release/cpi.nr0.htm
So when organizations publish a new article every month saying inflation is "accelerating", they're being incredibly misleading.
bitshiftfaced|4 years ago
https://fred.stlouisfed.org/series/CPIAUCSL
It's fair to say that inflation has been at an accelerated rate over a time period that makes sense to most folks. Saying that it has decreased month-to-month is more misleading in my opinion. If you were to pick any random period in time, chances are inflation wouldn't be increasing as fast as it has been over those recent "declining" months.
tagoregrtst|4 years ago
(1+0.6/100)^12 = 1.0744.
The year-to-year (multiply all seven rates and then power to 12/7) is 7.1% which is pretty close to 7.5% anyway.
(Also, note that the decrease over the last two months is probably due to the Christmas peak ending. Best case scenario, pie in the sky, for inflation is 3.6% which is higher than my mortgage rate)
unknown|4 years ago
[deleted]
iamricks|4 years ago
jtbayly|4 years ago
But what do you want me to do about the actual inflation I'm experiencing in day-to-day life, that indicate to me the inflation numbers in the headlines aren't even telling the full story?
bko|4 years ago
So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels). But now we're seeing consumer price inflation. I'm afraid it's not like normal times where you can just "slow down" the economy by tweaking interest rates. You will need to do drastic measures to sop up the trillions in newly generated dollars.
https://www.covidmoneytracker.org/
InTheArena|4 years ago
Modern monetary theory ain't. Ask the Romans, the Spanish and the Germans how well that worked for them.
arcticbull|4 years ago
Or, it's because supply chain disruptions have caused shortages, and there's more demand post-reopening chasing a smaller base of supply.
Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2]
> So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels).
Repeat after me: an increase in the price of assets is not necessarily asset inflation. If each quantity of asset buys you more CPI basket (i.e. returns outpace inflation) then it's an ROI. A real dollar return.
The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently.
Take Google, for instance. Going into end of 2019, it was trading at $1500/share. Today, $2780. That's 1.85X higher! Crazy right? Well, check their revenues. [3] Just over 1.6X higher (and that's an annual histogram). Google has been trading at the same P/S ratio since 2010, give or take. [4]
Big Tech is reporting some of the best quarterly performance in the history of the world - certainly since the Dutch East India Company, anyways.
Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run.
[1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
[2] https://tradingeconomics.com/japan/money-supply-m2
[3] https://www.statista.com/statistics/266206/googles-annual-gl...
[4] https://ycharts.com/companies/GOOG/ps_ratio
[5] https://www.macrotrends.net/stocks/charts/NDAQ/nasdaq/pe-rat...
[6] https://www.multpl.com/s-p-500-pe-ratio/table/by-year
[7] https://voxeu.org/article/tale-three-depressions
rwj|4 years ago
I suspect that the causes are more complicated.
recursivedoubts|4 years ago
I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger.
It's a good reason to never let rates get this low in the first place. From zero, any increase is an infinite increase in interest rates, and a corresponding crater of NPVs.
Welcome to the long run, folks. At least Keynes is dead, so, good for him, I guess.
eldavido|4 years ago
My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people.
You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting one.
Price stability was also fine until about 6 months ago.
The thing I keep coming back to, is how incredibly little asset prices really matter, in the larger scheme of things. What does matter is things like employment, the price of milk, and whether people have a roof over their heads (rental affordability).
In the larger sense, the fed's hands are tied, unless their legal mandate is amended to include "not creating asset bubbles". The distributive and stability effects of today's monetary policy might be the longest-lasting intellectual shift to come out of all this.
bko|4 years ago
Don't you love it how banks are not raising their interest rates on savings accounts? I remember in 2007 I was getting 4% on my savings accounts. There's nowhere to park your money and earn a return even approaching inflation. Why not just front-load your future purchases and further drive inflation?
avz|4 years ago
No, it doesn't. Net present value (NPV) of future cashflows is defined [1] as the sum over time periods of the ratio of the cashflow in the k-th period to one plus the discount rate raised to the power of k:
where i is the discount rate. Note that we are dividing by (1+i)^k, not by i^k. Thus, when i=0 the formula above simplifies to and NPV is just the sum of all future cashflows. No infinity enters the picture.[1]: https://www.investopedia.com/terms/n/npv.asp
danielmarkbruce|4 years ago
The fed basically controls the very short end of the curve. The 30 year rate is above 2 (it briefly touched around 1.3 or something during the start of the covid panic). No one is/was discounting cashflows 10 years into the future at 0 so "all cash flows" didn't have infinite net present value.
sokoloff|4 years ago
lumost|4 years ago
If anything I'd say this exercise shows the limits of Federal Reserve power. Without the tight labor market of the pandemic, low interest rates simply raised asset prices. We should take the lesson that the fed should not be solely responsible for driving the economy.
dcolkitt|4 years ago
This is only true for cash flows discounted by the risk-free rate. The discount rate of risk assets comes from the risk-free rate with a risk premium added on top (probably 6% or so today for the average blue chip equity).
titzer|4 years ago
I am extraordinarily skeptical of essentially the whole comment except this. Economies are very complicated systems composed of many non-rational actors. All economics is voodoo IMHO. It's akin to try to predict the fluctuations in current on a motherboard's bus without having any conception of what program is running. Total guesswork on top of a system more complicated than human understanding.
We want to understand economies in terms of pipes and pressure and the complexity-equivalent of simple machines, when in reality the future is going to be dominated by black swans: crazy things like cryptocurrencies, cyberattacks, once-in-a-millenium climate/weather events, political revolutions, and fads.
Chaos, indeed!
jcadam|4 years ago
RC_ITR|4 years ago
>I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger.
So you expect inflation to remain @ the 2-ish percent target but with extreme volatility?
It's an interesting theory, why do you think that?
jbay808|4 years ago
We've also seen that interest rate cuts amd QE are very weak at stimulating inflation, and very strong at stimulating asset values.
I'm coming around to the view that UBI should be used to fight deflation, and interest rates to fight inflation.
naveen99|4 years ago
karmasimida|4 years ago
I don't think this is meant to be a balance act or achieving that is possible at this point.
bryanlarsen|4 years ago
1. The increase in money supply.
2. Supply chain bottlenecks.
3. Corporate greed & tech monopolies.
4. Fundamental supply constraints. (mostly in the housing sector)
Anybody trying to tell you that it's only or primarily one of them has a political motivation. It's all 4, with the first 2 being primary and both being important.
To effectively solve inflation we need to attack all 4.
dcolkitt|4 years ago
radford-neal|4 years ago
Why do you think that? You've listed four conceivable reasons for inflation. One could probably list another 20 after a bit more thought. That doesn't mean that these are all plausible. It seems entirely possible that just one of them accounts for just about all of the inflation. You haven't made any argument against this.
Of the four you list, (3) and (4) seem implausible. Why would corporations suddenly have become more greedy? Have fundamental constraints on the housing sector (you mean zoning restrictions, maybe?) suddenly increased?
hackeraccount|4 years ago
If history is any guide we'll try the politically easy one for 10 or 20 years before we finally get around to actually doing what will work.
logicalmonster|4 years ago
It feels like their strategy is to avoid making a choice and letting the bubble unwind as slowly as possible to avoid political fallout. Unfortunately, we learned as kids that ripping off a bandaid faster is usually best, so this might prolong pain for a while.
eldavido|4 years ago
This isn't how individual people perceive inflation. What actually happens is that a few things make big jumps (10-15%) and the prices of other things don't increase as quickly.
Maybe not the nicest thing to say, but I'm hardly affected by inflation at all. The four biggest categories to experience inflation recently have been used cars, petroleum, rents, and food. As an urban-dwelling homeowner who doesn't drive much, doesn't rent, and isn't in the market for a car, the only real change has been food, and it's a small enough part of my goods basket that the extra $15-20/week at the grocery store barely registers.
The people really hurting today are the truck-driving renters sucking down 20+ gallons of gas/week driving long distances to their jobs. Those guys are feeling a lot of pain.
fuckcensorship|4 years ago
[1]: http://www.shadowstats.com/alternate_data/inflation-charts
newyankee|4 years ago
sleepingadmin|4 years ago
Hyperinflation is defined as 50% inflation per month.
https://tradingeconomics.com/united-states/money-supply-m2
Inflation has roughly 40% locked in; which will push out over a few years. Hyperinflation isn't in the cards.
https://tradingeconomics.com/united-states/money-supply-m1
Then you look at M1 and it's like... well could happen but it's not locked in yet.
vmception|4 years ago
History books focus on the bread lines, but if you dig deep enough you can find the stock market charts and they are epic! The capital class made so much bank and dipped out, just remember to actually leave because the people come for you.
unknown|4 years ago
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mvkel|4 years ago
ren_engineer|4 years ago
It will happen if the Dollar loses global reserve currency status. China, Russia, and a few allies could pull the rug out from under the US pretty easily. A lot of countries are tired of the US exporting their inflation
legitster|4 years ago
But it's bizarre that interest rates are being held so low. It's unclear who it's supposed to help. I get that we need to boost the Covid economy, but if feels like the economy is currently running at every possible constraint - except for lack of money.
sokoloff|4 years ago
https://www.treasurydirect.gov/govt/reports/ir/ir_expense.ht...
JaimeThompson|4 years ago
Could it be some of the inflation is simply companies taking advantage to raise prices not because they need to but simply because they can?
theincredulousk|4 years ago
It's exactly as obvious as you think. E.g. Supply and labor input costs go up 5%, and they raise prices 10%. Wherever convenient they will say "We're sorry to raise prices etc." and then during earnings calls the CEO will say "We're expecting upward price adjustments to increase our net margins in Q4". You know, a euphemism for "we're raising prices and that means more profit"
Corporations, especially the the huge conglomerates with adequate pricing power etc. drive inflation, not suffer from it. The elephant in the room today is that the classic economic model that suggests "oh but another company will come with lower prices and re-balance things" is simply unrealistic. Good luck elbowing in on P&G or Unilever for shelf space in supermarkets, commercial contracts, etc..
The other trick everyone is probably about to see is that when the supply chain crisis recedes and inflation comes down, that the consumer prices curiously remain high. Maybe market forces may claw them back over years, but in the meantime it will just be another incremental wealth transfer from mass-market consumers -> concentrated corporate profits.
The corporations will also kick and scream to avoid raising wages for their employees spending more on their own products, while simultaneously giving huge payouts to executives and investors through share buybacks with their newly minted profits.
It's not even interesting to theorize about anymore. It's boring and obvious. Maybe this is what dystopia is?
jesusthatsgreat|4 years ago
ajsnigrutin|4 years ago
(yes, I know it was not literally printed)
eldavido|4 years ago
The fed correctly predicted in early 2020 that there'd be a massive drop in lending (at least short-term), so eased, hard, so that money+credit would remain relatively constant (much less credit, so much more money was needed). I read last year that something like 26% of then-existing M2 (central bank + bank deposits) was created in 2020/2021. That's insane.
Yet somehow, a year later, after a major pandemic, only a bit of inflation is showing up.
People should give a fed more credit. They managed this thing pretty well. The whole thing feels like trying to adjust the temperature in the shower from 50 feet away with a long stick and a bit of string, and someone yelling "turn it up" or "turn it down". There is so much noise everywhere, it's very difficult.
sporkland|4 years ago
oxff|4 years ago
"When you are paid not to notice, it is hard to notice" etc.
redisman|4 years ago
marricks|4 years ago
Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing.
EDIT:
I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.
If you want to say wealthy people have more debts, sure in dollar amounts. But I bet dollars to donuts they have way more assets in stock than in their million dollar home mortgages or w/e.
[1] https://tradingeconomics.com/united-states/wage-growth
bko|4 years ago
It also doesn't help if your income doesn't go up. You end up just paying more for everything. And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.
So on net I think the poor are a lot worse off with high inflation.
legitster|4 years ago
The counter to this is inflation is painful to people living on savings or fixed incomes. And the politics here are brutal - young people whom this benefits don't vote, older people whom this hurts do.
InTheArena|4 years ago
And it has a historical track record of getting out of control, and wiping out nation states.
Not arguing that inflation doesn't have it's upsides. But it has some serious serious downsides.
commandlinefan|4 years ago
bitshiftfaced|4 years ago
Median real wages have been declining. https://fred.stlouisfed.org/series/LES1252881600Q
scottiebarnes|4 years ago
Its a good thing in the short term for a specific group of people, but generally not good at all for the macro-economy or society in the long run.
You see the consequences of low interest rates in other ways, ie housing prices.
yobbo|4 years ago
Iff their income increases faster than their interest rate.
> I'd like to add, wage growth is outpacing inflation
Only applicable if it refers to median income (not mean income.)
cleancoder0|4 years ago
Because variable interest rates can get quite high due to inflation.
cjbgkagh|4 years ago
infamouscow|4 years ago
I think it's good for people that can hop from job to job demanding higher wages as inflation comes. But if you're not in a position to do that, how is inflation good?
a-dub|4 years ago
ultimately it hurts those who don't have a cash buffer for weathering the lag between price increases and wage increases.
weatherlite|4 years ago
This is based on a few months measurement yes? We have no idea what comes next over the coming 2 decades.
dominotw|4 years ago
_aavaa_|4 years ago
macinjosh|4 years ago
hirako2000|4 years ago
AnimalMuppet|4 years ago
dahfizz|4 years ago
mzs|4 years ago
snake_plissken|4 years ago
I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.
The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates.
So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this).
The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.
6gvONxR4sf7o|4 years ago
Like if everyone negotiates a 20% raise, prices of everything probably increase by 20%, meaning nobody gets shit, and their savings are less valuable. So they come out behind, if anything. But if everyone negotiates a four day work week for the same pay, or better safety standards at work, or shit like that, I'd bet prices don't inflate nearly as much, so they actually could come out ahead.
But that seems like a prisoner's dilemma kind of thing. If only you get the raise, you come out ahead. If everyone gets the raise, you come out neutral.
adflux|4 years ago
mvkel|4 years ago
iknowSFR|4 years ago
beamatronic|4 years ago
alexanderthe-|4 years ago
downrightmike|4 years ago
throwawaymanbot|4 years ago
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ukie|4 years ago
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mcs5280|4 years ago
post_break|4 years ago
ska|4 years ago
That's how inflation works, effectively the currency (and hence debt) is devalued in real terms.