Warren Buffett is right, inflation is running rampant | Hacker News Reader

Warren Buffett is right, inflation is running rampant

currently.att.yahoo.com

64 pointsping_pong123 comments

So much consensus out there on inflation, quite remarkable. Haven't seen this much consensus since the fear bottom in March 2020 when many of mine "long term index fund investor" friends told me they liquidated (some of) their holdings.

Almost as if this was the (local) inflation top. As usual, time will tell. The CPI and PPI are indeed hot, the tbond and stock markets are still calm (both will be massively damaged if inflation really is to come, and frankly even gold and Bitcoin are likely to suffer, due to the resulting liquidity drain).

Inflation dynamics are not like stock-market dynamics.

Widespread stock-market optimism is a self-denying belief. Investors reach peak optimism, fully invest, and then the market can only go down.

Widespread inflation expectations is a self-fulfilling belief. People dump dollars for physical goods, increasing the price of those goods. This causes more inflation, leading to further dumping of the dollar, and further price increases.

This is why runwaway inflation / hyperinflation occurs.

You're right but people aren't dumping their "dollars", vast majority of which aren't the base money that the Fed prints but are financial assets (it's like a 1:100 ratio[1]). Look at all asset classes, there's no selling going on.

[1] yes it's not exactly 1:100, if you feel like correcting a stranger on the internet please go on and pull the data from Fed datasets; i only meant to be accurate up to the order of magnitude.

Financial assets going up is precisely a sign of inflation. Argentina has 40% inflation and the best performing stock market (if you denominate in Argentinian currency)

How does it do priced in some basket of goods that people actually consume?

Bad. That’s why you don’t hold equities during hyperinflation. You hold physical assets, like gold and real estate.

Yeah but this doesn't necessarily work. I actually investigated Argentinian real estate not long ago and it's declining (in real terms, let's say in USD which experiences very low inflation), quite obviously due to it being overvalued and the real GDP decline + deleveraging.

What about gold?

Holding gold is less useful that you may think:

> Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a “golden constant”, with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore “this time is different” rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that “those who cannot remember the past are condemned to repeat it”, there is a “golden constant” and the purchasing power of gold is likely to fall or 2) embrace a view that “this time is different” and the “golden constant” is dead.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2078535

> Financial assets going up is precisely a sign of inflation.

No, it is not. Inflation is the costs of goods and services that roughly correspond to cost of living.

When you start talking about asset prices rising there is another term that we already have to cover that:

* https://en.wikipedia.org/wiki/Economic_bubble

Then why inflation in the 70’s hammered stocks?

https://ritholtz.com/wp-content/uploads/1979/08/Death-of-Equ...

Aren't dollars and assets fundamentally different things? Land would keep up with inflation, while dollars wouldn't for example.

> financial assets

Also, many real assets are very dependent on real rates, for example real estate or gold. Imagine the mortgage rate tripling from today's levels (definitely possible), what do you think this will do to prices? I.e. what would happen if all mortgage payments increased 3x for new mortgages?

With gold the story is actually similar, because gold is like an very long duration ultra high quality bond.

Real rates become more negative with inflation though. US can’t afford high real rates, debt is 130% of GDP and Social Security is unfunded by $35T

This could actually happen (deep negative real rates), but by no means is guaranteed. There are far, far more indebted large governments out there.

If it happens yeah pretty likely getting real estate and preferably on mortgage will do splendidly.

That isn't what is happening, and it says right in the article that this is a commodities boom. Those are absolutely cyclical and act as a brake on the economy similar to rising interest rates. They don't runaway.

I swear everyone has turned into a 2003-era Gold Bug blogger and sees Zimbabwe everywhere.

Eventually the average person and the average business gets overleveraged and spending contracts, then the bubble pops and deflation rips through the economy again. What we're seeing here is a lot of pent up demand due to the pandemic being unleashed. This is not runaway hyperinflation.

And eventually bitcoin is going to pop and Millennials that have been using a basketfull of cryptocurrencies as their retirement 401(k) are going to be desperate for cash.

How does increased inflation lead to liquidity drain?

This is the second inflation story to make the HN front page in the last two days, yet I remain unimpressed by the "running rampant" claim. According to the latest CPI inflation data (https://www.bls.gov/cpi/), inflation was 2.6 percent over the last 12 months (as of April 13). This aligns with the Fed's 12-month target of 2 percent average inflation if we check historical trends (which implies that sometimes it will be over 2 percent).

The linked story looks like cherry-picked data. Of course if average prices rise 2.6% percent, some outliers will rise more. But this hardly seems like a reason to panic.

Month-on-month inflation was 0.6% last month, with much of the economy still closed (which should be deflationary).

That’s a 7.5% annualized rate.

Sure, I agree that if the trend continues for a year, then we should start being concerned.

But inflation has been below 2% since December 2018, and interest rates are at zero (which gives the Fed considerable latitude for implementing inflation control). The panic here seems a bit premature to me.

Here’s the personal savings rate:

https://fred.stlouisfed.org/series/PSAVERT

And here’s the money velocity:

https://fred.stlouisfed.org/series/M2V

When the economy actually reopens and people start spending again, prices will go boom.

To clarify, the claim I object to is that inflation is currently, at the present moment, "running rampant." I agree that if the Fed does not handle things carefully then there may be problems in the future.

> When the economy actually reopens and people start spending again, prices will go boom.

Yes, this has actually been predicted. See also 2010-11:

> Then came a few months when inflation seemed to be rising after all. Consumer price inflation reached almost 4 percent; wholesale inflation went into double digits; the average price of commodities like oil and soybeans rose almost 40 percent in a year. Soon Republicans were haranguing Ben Bernanke, the Fed chairman, suggesting that his efforts might “debase the currency.”

> But the Fed stayed its course, arguing correctly that rising prices were a temporary blip, not a harbinger of ’70s-style stagflation. Inflation soon subsided, and it has stayed low ever since.

[…]

> So what’s going to happen in the months ahead? We’ll probably see a number of transitory price increases, not just because the economy is booming, but also because the lingering effects of the pandemic have produced some unusual disruptions — for example, a global shortage of shipping containers.

> The question will be whether these price increases are a 2010-2011-type blip or something more dangerous. Smart observers will look past the headlines to measures of underlying inflation — not just the Fed’s standard “core” measure but things like the Atlanta Fed’s sticky price index as well.

* https://www.nytimes.com/2021/03/22/opinion/us-inflation-stim...

* https://archive.is/Vxj5h

We heard the same thing about printing money during the QE years. Still waiting for inflation after ~10 years.

There is some weird inflation going on over the last decade here in the US. The price of the "basket of goods and services" in total has remained relatively constant - but the university student that needs housing and has heart attack would do well to search out a time-machine.

I agree there have been weird relative price increases. See for example this graphic: https://cdn.howmuch.net/articles/price-changes-in-usa-in-pas....

But this is not inflation. It's a completely different issue, with different causes and possible solutions.

> I agree there have been weird relative price increases. See for example this graphic: https://cdn.howmuch.net/articles/price-changes-in-usa-in-pas...

> But this is not inflation. It's a completely different issue, with different causes and possible solutions.

https://en.wikipedia.org/wiki/Baumol%27s_cost_disease

Housing, Health Care and Education as profit seeking enterprises seem to expand to the point where they confiscate all the wealth of the average person. So we work in order to feed those enterprises. That kind of "inflation" is driven by the necessity of the product.

There's also another kind of inflation which comes from the 1% having too much wealth and the shift in the Gini coefficient. That makes all the things that wealthy people buy much more expensive and leads to asset bubbles. So Housing (again) along with stocks, bonds (driving the evaporation of risk premiums), the whole financial sector and art and baseball cards.

Interesting, why does profit seeking work for other necessities, like food (or pretty much anything really) but not in these 3 in particular (I would argue it also works fine in housing, if you take a median house). And how much housing do rich people really consume?

What's special about housing, health care and education compared to say food, cosmetic surgery or tech is immense amount of govt meddling that both restricts supply and boosts demand. Everything from general regulatory burden to explicit things like zoning, certificates of need and healthcare subsidies, housing subsidies, etc. The results are predictable. Nothing whatsoever to do with profit seeking.

>but not in these 3 in particular

I think barriers to entry. In other markets profits like in these 3 industries would lead to an influx of new entrants which would put compete away excess profits. But try opening a new hospital or school - years of work and regulations to fight, and new schools have a long uphill climb to achieve reputability. Housing is constructed by bullshit restrictive zoning.

CPI is the very definition of cherry picking data.

The Fed downplays inflation, using CPI to lie with statistics.

It's actually the BLS that published the CPI numbers that the Fed uses:

* https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...

And if you don't believe the BLS's basket of goods, you can confirm it for yourself:

* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project

Past studies have generally shown the official numbers to be pretty good.

You should consider if the CPI is the best indicator or just the most popular

https://www.investopedia.com/articles/07/consumerpriceindex....

Do you have a suggestion for what we ought to use instead, and why it might be preferable to CPI? As your link notes, "It is the most widely watched and used measure of the U.S. inflation rate." I have not seen a reputable measure that suggests we are seeing "rampant" inflation somehow not captured by the CPI.

Inflation has probably been double digits for a while now.

StatsCan recently responded to complaints that its inflation metric _doesn't account for housing_ and attempted to meet critics half-way; even though the new metric still didn't account for the cost of housing, the adjustment to inflation was _so alarming_ that StatsCan took the rare step of _reverting_ its change. [0]

And CNBC reported that the real inflation, using old accounting, is around 10%. [1]

0: https://www.theglobeandmail.com/business/article-statscan-re...

1: https://www.cnbc.com/id/42551209

Your CNBC article is from over a decade ago.

The Statscan numbers (reverted or not) were all under 2%, which is certainly not anywhere near record levels.

Do you think the factors have improved in the last decade?

And yes, StatsCan made a minor adjustment, and yet it was such a shock that they rolled back.

Accounting for the true increased cost of housing, market and rental, would cause Canada's inflation metric to jump considerably.

If you really think inflation has been double digits annually since the last recession, you have no idea what you are talking about, sorry. Let's take the most charitable interpretation of what you said and assume it was 10% since the last recession. (Do the math with something like 15% or 20% if you want to laugh.) 10% annually would be a price increase of about 3.5x since 2008, so if bananas cost $0.63/lb now they would cost $2.20/lb, or if an average home cost $205k it would now cost $718k.

What actually happened was that time, basic goods generally got cheaper or stayed fairly similar to their 2008 prices. Bananas are actually around 10% cheaper. Bread is 1.19x its 2008 price. The median new home is $300k versus $205k, or 1.46x - one of the largest increases! That's around 3% annually. The median new car is 1.08x more expensive (and far superior to its 2008 competition.)

No, sorry, there is absolutely no way whatsoever that inflation was double digits for the last decade.

> if an average home cost $205k it would now cost $718k.

That's completely within the realm of reason in many places across Canada.

I'm not being pithy, it really is.

[edit: OP edited their comment to remove some things, so now this comment looks strange]

315k to 800k is 2.53x, not 3.5x. That would represent a 7.1% annual increase in 13 years. If housing is 33% of the average person's budget, and all other costs increased by 3% annually, that'd be 4.3% annual inflation. Nowhere near double digits.

(That's of course assuming a very large home price increase like you see in a few Canadian metro areas, which is way out of line with the vast majority of the US)

4.3% is still a shocking number; it's roughly double the number the BoC declares.

4.3%, like I said is making two huge overestimates: one, that home prices increased nationwide by far more than what they actually did, and two, that all other things inflated by an average of 3%. Plenty of things even saw negative year over year changes. TVs have gotten incredibly cheap. Software is basically free (whether you pay for it with your privacy or go with FOSS.) Furniture, clothes, lights, toys have gotten far cheaper than they were even a few decades ago.

Shelter is 27% of Statcan's CPI, with Owned accommodation being 17%:

* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...

However what you're talking about is asset prices, which has nothing to do with inflation. There's a term for rising asset pricing:

* https://en.wikipedia.org/wiki/Economic_bubble

Going to US numbers, inflation-adjusted monthly mortgage payments are the lowest they've been in quite a while:

* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...

Purchase price would effect downtime amounts though.

Right, I agree with you entirely - higher home prices over a decade are not an indicator of "record inflation". I was just making that point in a somewhat different way to someone who does not understand the math behind inflation.

>However what you're talking about is asset prices, which has nothing to do with inflation. There's a term for rising asset pricing: asset bubble.

I would agree with your view if the bubble was isolated but when most/all scarce assets bubble simultaneously, it is the first sign that your explanation is inadequate..

I guess median numbers are a terrible metric to use since house prices on the east/west coast have ~2-3x'd since 2008.

Michael Saylor says there is now at least a 15-20% annual inflation hurdle that he has to overcome (~2019-2021). He uses 10 year treasury bond yields, house prices, healthcare, education and a few other metrics to come to his number. My calculations (~20-25%) roughly line up with his.

All things considered, I trust his calculation method more than plebs that have little real exposure to markets, very few assets under management, and no shareholders to answer to.

How Michael Saylor Defines Inflation, Risk Premiums and Hurdle Rates - https://youtube.com/watch?v=sw3kVeE1Pxg

> Inflation has probably been double digits for a while now.

Inflation that high does not make mathematical sense:

> But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year.

> If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years.

> And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year[2], that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value.

* https://awealthofcommonsense.com/2021/01/inflation-truthers/

The numbers for Canada would be similar: if economic growth was "only" ~2-3%, then any inflation higher than that would be that we've been experiencing contraction. And if inflation was "double digits" as you claim, with 'low' (<5%) GDP growth, where's the Depression?

I'd like to see some of the pandemic driven supply chain disruptions get worked out before I make a firm judgement on inflation.

When I think inflation, I'm thinking wage inflation. It seems like stimulus checks have just temporarily increased demand, and supply chains have been disrupted by covid, so some manufacturers are struggling to keep up and have to raise prices. The offer a variety of anecdotes, but no solid indicators. How does one decide whether a market is inflated?

Wage inflation lags price inflation, sometimes by years.

That might be, but extrapolating a few anecdotes about demand pressure (e.g., increased purchases of beds) all of which seem to be related to short term disruption caused by the pandemic, into a story about inflation seems a little sensational.

Well, housing prices are moving up faster than appraisers can keep track of in Silicon Valley. That’s for real.

Isn't this strongly explained by the likelihood that Valley companies will start expecting everyone to come in to the office again this year?

Not just Silicon Valley.

How do we know if it is inflation/devaluation or simply a temporary rise in prices due to a hike in demand due to the economy reopening?

I think this would be called inflation either way

No, it's a demand shock and it's a very different thing. Inflation has a specific meaning and that ain't it.

What’s the best way to protect your money and your young kids savings account from inflation?

Put it in index funds. If possible, put it in tax-advantaged accounts.

This is the only correct answer. The only strategy that works though tough times is diversification and holding. With low-cost ETFs and municipal funds that pay tax free dividends, there is enough to be safe and smart. People recommending bonds, gold, penny stocks, and now crypto are the same armchair investors I've been hearing squwak useless tips from the sidelines for almost four decade.

So selling stocks in order to have more cash in anticipation of a market correction is the wrong strategy??

You don’t want cash during inflation. You want hard assets. Precious metals and real estate.

When do you know that the market correction has happened?

> in anticipation of a market correction is the wrong strategy

You still don't quite get it: you're playing the market with this statement. Unless you're a "Big Swinging Dick" (the Salomon Brother's term in Liar's Poker for people that did a million or more a day, which is peanuts today) or on the NYSE trade-floor it ain't gonna happen. The vast majority of people I've known who believed this failed to anticipate and should have just held. But don't let me stop you, go right ahead and gamble away.

Sitting on the sidelines is a good way to lose money:

* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

The (US) market goes up around 70% of the time, so by being in cash you're missing a rising tide. Every day/week/month/quarter you're not in the market is a time period that you'll have to Buy High/er (instead of Buy Low/er) eventually compared to jumping in and staying in earlier.

If you want, you can perhaps hold 20% bonds to (a) reduce volatility and (b) have something you can liquidate generate cash to Buy Low on the dip.

Buy a house? Or I suppose any appreciating assets.

Houses and land don't really appreciate unless there's some factor constraining supply in the face of stable high demand for example waterfront property within reasonable distance of major cities, land in a city that's full of morons who vote for regressive policies that limit development, the land has an industrial facility on it that couldn't be built today but is grandfathered in, etc. etc.

Also, housing is highly inflated right now. By buying you're buying into a bubble and betting that the inflation will outrun the pop.

I think it's less "things that appreciate" than "things you buy at today's prices and pay for over the next 30 years" that makes real estate attractive when there's inflation.

They do during inflation. Inflation is just dollars being worth less so any asset with value (typically ones that appreciate) will increase roughly in track with inflation. So the value stays the same but the number of dollars go up.

This is separate from housing prices being higher and in a bubble, etx

Housing is madness right now.

I’m in a neighborhood under construction. It cost about $5xxk to build one a year and a half ago. One of those homes went on the market this weekend for $750k. One day bidding war and it sold for $820k.

I have no idea what to make of this

I don't know who or how they have enough money.

Free money from next to nothing interest rates?

You still need enough cash flow to qualify...

For an 850K home at 15% down which is 127K, you need to have about 170K saved to comfortably buy the home. Even on a relatively modest tech industry salary or with a 2-income household at a salary of 60K (120K joint) without children this is a very attainable amount of savings over say 5 years. Obviously not everyone makes this much money but it is an attainable amount, But just realize that almost nobody buys for cash and buyers are usually saddled with the debt for the rest of their lives. This is how home buying has worked in high income areas for 30 years at least.

Last year within 5 months a house sold for 750,000 USD more then it was bought for adding 60% to its price. Housing is broken in a lot of places atm.

There isn’t one.

The government decided to loot the middle class and hand it to the elite, with trillions stolen in the past year.

Your children’s future was destroyed using the COVID lockdown as a pretense for the theft.

At this point, the only fix is wiping out a lot of current, ill-gotten wealth/debt.

I don't know about the best way, but one way to protect against inflation, without concerning yourself with outpacing it, is to purchase TIPS.

https://www.treasurydirect.gov/indiv/products/prod_tips_glan...

Bear in mind that TIPS can go negative too: https://www.thebalance.com/why-are-tips-yields-negative-4168...

This means you will still lose money relative to inflation, just with tigher bounds.

While it certainly provides some hedge inflation adjusted bonds don't seem that helpful when the government can pick and choose what's in the basket of goods the government uses to calculate inflation to get the number it wants.

That’s putting a lot of faith on the gov’t to correctly report CPI, when they have every incentive to underreport it.

In fact, they’ve changed the CPI methodology twice in order to report lower average inflation (under the premise that the old measures “overstated” inflation).

>In fact, they’ve changed the CPI methodology twice in order to report lower average inflation (under the premise that the old measures “overstated” inflation).

Source?

There are numerous. Google search “hedonic adjustment CPI”

On the surface the adjustments seem pretty reasonable to me. As a thought experiment, would you want to live in the 70s just to earn 5x more? I wouldn't. https://www.youtube.com/watch?v=3dL5G4QYEhc

As a software engineer, I think I'd take that deal.

It'd be nice to be able to afford a home in Vancouver.

Plus no smart phones, good riddance.

https://www.investopedia.com/articles/07/consumerpriceindex....

>Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket.2 The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI.

But adjusting the basket totally makes sense from a reporting point of view. Consider the reverse. As countries have gotten richer/industrialized, so have their consumption of meats. If a country is undergoing development, should their CPI basket continue to assume that people eat meat once a week, even though most people eat meat multiple times per week?

> the gov’t

Can you please define what/who you mean by "the government"? The CPI changed in the 1990s after a Senate Finance Committee report said it was over-estimated (i.e., too high):

* https://en.wikipedia.org/wiki/Boskin_Commission

* https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...

If you don't like how BLS (Executive Branch) reports the CPI, perhaps talk to the Senate (Legislative Branch)?

IMHO this is one of the worst ways to deal with inflation. As I understand it, bond yield rates rise with inflation and so a current low interest yielding bond will drop in value when higher yielding coupons hit the market. But I’m not an expert.

It probably won't be popular here, but allocating a small % to Bitcoin. And assets, stocks, real estate.

Gold.

bitcoin

Have you compared the change between Bitcoin and Ethereum in the past 12 months?

I actively trade these assets, what are you trying to say? Are you talking about relative outperformance?

[“As someone who made money off GameStop, Dogecoin, and a lottery ticket this year, the best financial advice I can give you is to just be a f-ing idiot.”](https://www.instagram.com/p/COdE0p1Lh6H/?utm_source=ig_embed...)

Is there a non instagram link for this?

I can't view it without being logged in.

Buy the most expensive house/s you can get a mortgage for. Put the rest of your savings into a mix of equities.

What about keeping your primary residence's mortgage to something low enough that you could reasonably cover with an easily obtainable emergency fund. Then include unimproved (or improved) land with no buildings on them in your asset mix. The main thing that increases with housing is the land that the house sits on. With no house, you can hold the land without any maintenance costs. Unimproved land has lower taxes. Of course, in this case you are using land as a store of value. What is better is an asset that returns value without having to sell off pieces of it. So land with a rent-able building on it can be both a store of value and a true investment (that returns monthly dividends). But it also comes with upkeep costs and risk.

Almost impossible to get a mortgage for unimproved land.

This works until the interest rates rise resulting in falling house prices and possible negative equity.

To a point, stocks and other liquid dollar-denominated assets.

After that point, who knows. Precious metals? Depends on how bad things get.

The biggest winners in hyper-inflation are those holding the biggest debts

Don't store wealth in USD. Store it in scarce things.

It would be better if you invested it in a way that made scarce things less scarce.

This article seems to imply that people purchasing more things, and especially willing to pay more than they're worth is causing inflation. If that follows, what would be the reasons for that? Being at home, stimulus checks, or something else?

Once you're used to a certain lifestyle, it's hard to go back. My guess is that people are just willing to pay more to maintain their lifestyles... but everything has a limit.

So it’s not due to the fed printing massive amounts of money? I feel they are conveniently forgetting how we just shrank the dollars value merely months ago. The toll comes due.

We're been hearing that since 2008. "Hyperinflation is just around the corner trust me!"

The broken clock is gonna be right eventually.

First, what does "willing to pay more than they're worth" mean? (If something can be sold for $X, then it's worth $X.)

Stimulus checks is one option. Another is the end of pandemic-related uncertainty. A third is increased employment with the winding down of the pandemic. I haven't seen any numbers on any of those.

He's citing year-over-year? Seems to me that for some reason the economy was in the toilet this time last year but it had reason to be an aberration. I don't know, it's a real mystery.

Is inflation bad if you have debt (assuming non-usury rates like those of credit cards) ?

From a let's say personal pov, let's say I have a mortgage and student loans and those are my only debts and their interest rate is fixed. If inflation is indeed rampant but wages track inflation (I assume) - isn't this an effective debt reduction as long as you don't incur new debt? Or do the down sides of inflation outweigh any of the benefits I assumed above?

It's all relative, but if you have assets that are keeping up with inflation like land, real estate, crypto, or anything scarce really, you're better off. I think wages don't really keep up with rapid inflation in the short term.

If you consider debt in isolation (so assume your income increases with inflation or faster so your quality of life/buying power doesn't take a hit with inflation) then yes you are correct, inflation does away with debt.

The concern comes in when your cash compensation doesn't keep pace with inflation and your effective buying power decreases. Also other general macro effects that may indirectly impact you, and I'm sure there's a whole lot more to it than that, but yeah simplistically: inflation make debt go bye bye.

> isn't this an effective debt reduction as long as you don't incur new debt?

That's right, debt gets inflated away.

In normal inflation that’s exactly what happens. The problem is that inflation, if unchecked, can increase to a point that there are meaningful month over month, or week over week, or in some historical cases, minute over minute changes in value of the currency. How quickly can wages realistically keep up?

The biggest winners during high inflation periods are those holding the largest debts.

Yes. Inflation generally favors debt holders because their debt isn't worth as much by the end of repayment as it was when the debt was first incurred.

> if inflation is indeed rampant but wages track inflation (I assume)

There's no direct mechanism that ratchets wages as a result of inflation.

Average wages increase when the labour market is tight and there is demand for workers. However that generally applies to new applicants, not people in existing posts. For them, static wages lead to purchasing-power reduction.

It seems intuitive. The government has been printing massive amounts of money, there has been a direct-cash-to-taxpayers program, and material shortages have driven prices skyward for many materials. Couple all that with increases in minimum wages.

So who gets hurt? - Poor people, who have little money to begin with. A few dollars will buy even less. - Older people and people on fixed incomes.

Who doesn't get hurt? - People invested in equities, generally.

They gave three individual datapoints, which is a classic feature of all these "we're seeing record inflation" articles. Does anyone have any broad measures? Everyone always rallies against CPI in these threads but never provides an alternative, which is unfortunate - I imagine there must be some that support this narrative of record inflation.

https://fred.stlouisfed.org/series/PPIACO

Commodity index up 12% year-on-year

The commodity index is only up 12% in the exact last 12mo because it fell sharply before that, and is up 3.99% total in the 6.76 years since July 2014. Do you really believe inflation since then has been a half a percent annually?

This article is about "mentions" of inflation, and not actual inflation. Isn't that like CPM vs actual visitors?

From what I've read this is almost entirely attributable to supply chain disruptions caused by the pandemic. Meaning it will clear up on its own once vaccinations are rolled out and won't require any drastic changes in monetary policy.

(Jerome Powell)

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