Consumer Prices in U.S. Increase by Most Since 2009

> what doesn't get reported is what the lion share of the money actually went to, buying up financial assets from banks

Fiscal stimulus is more powerful than the monetary kind. When the Fed buys a bond, at the end of the day, it’s buying up bonds. Someone must give up 80 to 99.99999¢ of wealth for $1 of liquidity. When Congress spends $1, it’s creating money. It may have to tax or borrow down the road, but that’s then, not now.

Also, not sure how one can say monetary policy isn’t reported. It receives nearly weekly attention on even non-financial forums like Hacker News, and features far more prominently in financial, economic and crackpot rags.

> I still have issue with the characterization. It's "against the backdrop of ... trillions of dollars" as though increased price levels and increasing the money supply by 25% are unrelated.

No, its explicitly providing relevant context, which is the polar opposite in every respect to implying that they are umrelated.

I agree. The economy is complex. You can’t tie 12 trillion of spending directly to inflation. Negative side effects manifest in ways we don’t expect. In this case, drastically increasing wealth inequality.

It’s interesting to me that software developers don’t intrinsically realize this more than your average person. Nobody knows better than us that making changes to a complex system can have catastrophic downstream effects and has to be extensively tested first.

"The FAAMGs reported aggregate 1Q sales of $321 billion, some $24 billion or 8% above consensus, for year/year growth of 41%." (zerohedge)

What if the stock market is up because revenue and growth are up?

Money has to go somewhere. When the economy is shut down, there are few places to put money outside of the stock market. In short, people are willing to pay more for stocks, because the alternatives are not there at the same levels they used to be. Supply & Demand, basically.

Don’t forget about real estate prices. They’ve skyrocketed as well and are a very common way to park money.

A monetary expansion of similar magnitude happened after the GFC, and inflation didn't rise above this level for a decade... There just isn't that much of a relationship between base money and CPI as Friedman imagined 50 years ago.

(Because banks also control credit supply and only give it to creditworthy borrowers... The Fed can drop rates to zero and give banks limitless money and they still won't lend it out to deadbeats.)

I could go for absolute worst case 5, maybe 6 by this time next year? By which point the central bank will have raised interest rates.

Absolutely. I studied applied economics.

It's been maddening watching economists whom I respect making proclamations (one way or the other) with high degrees of confidence that inflation is or isn't a problem. They have no idea, because anyone who actually knows what they are doing knows that there isn't enough data yet.

Yep, not long before that it when plants were shutting down temporary or reducing output. Then summer always pushes the prices up a bit too.

They may have lowered prices back down due to lack of customers with COVID precautions still in place.

However beef prices can be somewhat regional. Where I am anything other than ground beef is mostly still at least $2/lb more than usual. Ground beef is it a little more than usual.

Inflation reduces wealth inequality. inflation is good.

At a high level I agree, but monetary policy isn't the only way to affect wealth inequality either. And the question I'm wrestling with is not, "Was/is two decades of relatively easy money a bad policy?" but "Why hasn't the last year or two of very easy money caused huge problems?".

And for bonus points, the follow-up question is: could we have done this anytime? Did the Covid economic downturn necessitate these drastic measures, or could we have adopted 2020 monetary policies in, say, 2018 or 2014 with the same results (skyrocketing stock market, skyrocketing inequality, but relatively stable inflation) and we never did it before because we never had a good excuse?

The problem with the usual more money = more inflation argument is that you would have to restrict yourself to a certain subset of the monetary supply that is relevant to inflation but everyone wants to talk about the broadest definition of monetary supply that also encompasses a subset that is completely irrelevant to inflation.

When a company in 2021 reports revenue growth of 30%, it's not really 30% growth, with all the conclusions about the company you'd normally come to based on that data, and calling "base effect!" on it is reasonable. The number has no real use.

This inflation is real. The base effect doesn't make it less real. Prices have really gone up, in the relevant time period. Your choice to average it out across a particular two year window isn't invalid on its own terms, but it starts raising a lot of other questions about which years you pick and how much data massaging you can do by picking your choice of start and end and all that other sort of stuff, and it produces numbers that may also be real, but are different numbers.

By contrast, if the company reports absolute revenue in 2021, the base effect does nothing to that number. The revenue is the revenue.

Likewise, the inflation measurement is perfectly valid. Inflation, as defined by the measure (since by no means would I claim that it's somehow the only option or the objectively best option) really is what it is.

What conclusions you come to based on that, well, we'd be arguing about that regardless of whether there's a "base effect" or not anyhow. But I'm generally underwhelmed by argumentation that appears to be trying to explain away, rather than explain. Start with the brute facts and move out from there, rather than immediately cutting to trying to argue away the brute facts.

(To be clear, I'm not making any particular implicit argument. I don't currently have a solid opinion on this matter; it is still a fairly large range of possibilities to me. In general, usually some space and time is needed to even begin to "explain" any economic fact.)

From what I've been reading (disclaimer - over the past few hours) the types of stocks you target during periods of inflation changes. You're also playing a bit of a guessing game, because your return will be less than other investments if an inflationary period does not actually realize.

Buy real property if you can.

Yes. And they generally appear to worry over inflation more. Perhaps because inflation tends to favor debtors rather than creditors.

Yea, but let's metaphor the boogey man issue to driving a car. When you drive, you're often avoiding collisions. Mostly passively. If you drive faster than the car in front of you, you will crash. If you dont brake at a red light, you will crash. Most people dont crash most of the time because they respect the threat. You cant just go, "you know, I haven't crashed in 5 years. I dont have to brake at this red light." Sure, inflation issues aren't that prevalent in the past few decades. Doesn't mean you stop assuming it's not a possibility. You do things to avoid it. The longer you do that, the longer you avoid problems. You cant stop your precautions just because it's been a while, then whine why the problem reemerged.

The reason it is so feared is because it's next to impossible to contain once it starts without causing massive economic hardship.

In fact, the Fed could likely do next to nothing about inflation with our country's current debt levels.

Even at a historically average rate of 8%, our federal government would either go bankrupt, cut most spending, or massively raise taxes, causing a severe economic retraction. (Our $26T in debt would require half of the entire federal budget to service our debt at such rates.)

Many of our largest corporations would also fold, unable to service their massive debts. It'd be a disaster.

That's why people fear runaway inflation, even if it hasn't been a problem for several decades. Once you can identify it as a problem, it's too late.

QE and the repo operations the Fed does are “providing liquidity” to activity that would (presumably) normally happen anyway. I’d assume this would be the reason. You can argue the activity wouldn’t happen if interest rates weren’t kept artificially low.

Another thing is these security purchases are largely insulated from what is used to calculate inflation. These are exchanges between banks and funds and similar.

Historical: Except in those cases most printed money went to banks, buying their bad loans. Which had already affected house prices by 2008, and only affected asset and commodity prices, which did rise in price since 2008.

This time round you have more and more stimulus going to ordinary people, who will spend it on ordinary goods like food. That will create a different type of inflation.

(I’m not endorsing either type of bailout/stimulus btw)

> It’s like people think monetary policy either only happens in the past or only happens in one direction.

You can make a very strong argument that monetary policy for the last 20 years has has little effect on CPI and strong effects on asset prices.

You can't take the official inflation numbers at face value. If you look at real inflation it's been closer to 4-5% a year since 2009.

Which means if you had $100,000 in cash under your mattress in 2009, you can now generally buy half as much with it. Less in education, healthcare. More in consumer tech. About half in Big Macs or housing.

Source: https://www.lynalden.com/inflation/

To back up the commenter's statement: most well informed economists kept pushing that China would sell US Treasury Bonds pennies on the dollar to "ruin" the US economy.

Anyone with a half a brain and some real world business knowledge would realize: Do you really want to be the guy who mentions, let alone put into motion, that losing hundreds of billions of dollars worth of receipts to make a negotiation situation worse, is a good idea? At that, selling bonds at a discount helps open up for allied nations to suck up those bonds to make more future money themselves. Thus powering the US negotiation side even more.

And did they play the bond game? Obviously not. They're not stupid. "I'm going to burn my money just to piss you guys off!"

Seriously, many public figure economists are idiots. Not all. The good one's public discourse gets reserved to small press geopolitical publications. Even then, they always acknowledge how fickle an economy can be and how easy it is to be blindsided.

So yea, high inflation in the next 5-10 years is a real possibility, especially as the stimulus bond payments start to mount.

Don't forget the counter argument:

* The largest annual increase of the money supply in the history of the US, far larger than even WWII, with no end in sight.

Used cars and gasoline? Maybe a year or so ... flights not quite sure.

The lack of new cars is driving up demand for used cars. Supply chain issues in new products increases used product value if demand is there.

New cars aren’t available due to chip shortages, which enhances demand for used cars.

That being said, if you happen to have an extra car, now is probably the best time to sell it in recent history.

The USA needs to sell roughly 15 million new cars a year to maintain an adequate supply of used cars. Falling below that target will cause used car prices to rise in the following years.

What happened 12 years ago? 2008 happened, and resulted in a decade of incredibly low new-vehicle output. Add in the Cash for Clunkers program, and used inventory levels are about as low as they’ve ever been. This is the same as the housing market, the result of a decade of underbuilding.

Couple that with stimulus money making down payments easy, and low interest rates keeping monthly payments low, and you have a recipe for prices to take off like a rocket, from both ends of the supply-demand curve.

Did you see the article/comment from Chipotle's CEO about the impact of increasing wages? Going up to $15/hour would increase menu prices between 2-3%.

Labor prices have been low forever. Businesses have been taking advantage of low labor costs for service jobs literally for decades, pocketing the profits while expecting the government to fill the gaps with welfare/SNAP/EITC etc. And a good portion of this labor segment has decided (after experiencing the COVID lockdowns) that they don't need to put up with crap wages for a crap job.

I worked in the restaurant biz for over two decades, and it disgusts me how much it (and other service jobs) take advantage of employees. I was repeatedly told that every time the minimum wage went up, we'd have to lay off employees, or cut benefits etc. And every time, net income went up for every place I worked. It's just BS.

https://www.restaurantdive.com/news/chipotle-cfo-15-minimum-...

Yes but the treatment is potentially very different. Having the Fed use its blunt monetary tools to control a price increase might not make sense if that increase is caused by a specific supply-chain issue.

“Inflation is still inflation” is like a doctor saying “a headache is still a headache” and ignoring the fact that one patient’s headache is caused by an operable brain tumor, while the other drank too much the night before.

> Yes, 4.2% is high inflation, but it has been lower then target for years now, so you might consider this "reflation"

That’s not really an argument that it factually is transitory, and I don’t think there is any real good reason to think “catch-up” inflation is any better than the regular kind.

(OTOH, the context of the COVID rebound is a strong reason to think it is likely transitory.)

>I can only recall 3 forced upgrades, passive passenger restraints, which turned out to be airbags. Minimum MPG, across all cars sold (SUVs could be worse as long as other models improved). and crash survival, which turned out to be crumple zones.

This is a bad way to frame it. All of those things have dozens to hundreds of downstream effects on the rest of the system. Large components (say nothing of sub assemblies) of a 1990 car could not be used in any practical way to build a road legal 2021 car (without comically inefficient workarounds) because the design revisions needed for modern regulatory compliance between then and now are so extensive.

Heck, the physical dimensions of a typical 1990 car probably preclude compliance with current pedestrian safety requirements.

There were also dozens of minor revisions to the regulatory standards cars must meet in that time (headlight performance, noise emissions, etc).

Maybe illegal is too strong of a word, but in practice "the market" demands much safer cars than it did 3 decades ago, and that costs money.

If you build cheaper cars but nobody can insure them economically, for example, you're not gonna get a lot of takers.

That's true but misses an important factor: competition from other assets.

The cash flow stream from most tech companies usually looks like 5 years of large cash infusions (often from VCs); a decade or two of zero cash spun off as the company reinvests all profits in growth; and then a few years to a decade of massive cash being spun off for investors. For a historical example, see Apple - didn't pay a dividend for about 15 years from Steve Jobs's return until 2012, and now regularly returns tens of billions to investors in buybacks. For a current example, see Salesforce, which makes effectively zero GAAP profit but is growing massively as they reinvest that into product development and sales.

If competing investments - say Treasuries - are yielding zero now, there's no reason why you wouldn't buy Salesforce stock now and lock in those future dividends even though they're 15 years off. But if the 10-year Treasury is going to go up to 15% in 2 years - why wouldn't you sell your Salesforce stock when rates go up, buy a 10-year Treasury, quadruple your money over those 10 years, then buy 4x as much Salesforce stock right before they actually start spinning off cash as a dividend?

The 1970s actually looked like this. There was a big stock run-up in the late 60s, and then a very large stock market crash (~50%) in 1973 when the Fed started raising interest rates to combat inflation. Stocks continued to trade sideways during the high-inflation, high-interest period of the 1970s, and then they really took off in the late 80s once inflation was under control and rates started dropping.

Well, this is sort of what the fed is trying to get away from because it is mostly true when inflation is too low and interest rates are stuck at zero which causes gridlocks in the private markets. In the current situation, signs of these gridlocks worsening or improving cause large swings.

Once inflation is high enough that we can get away from the zero lower bound, government paper becomes less of a desirable asset and stops being hoarded and displacing and blocking investment in the private markets. It's a return to markets having room to breath instead of being dominated by monetary actions.

As long as it doesn't go too far the other way...

That’s just the media trying to explain stock movements. Doesn’t mean they are right.

lumber and cement are goods. The contractor I pay to convert them into home improvements is a service. Stimulus checks increase demand for both.

Sure, but that’s the Fed. It’s odd to pin this in the Biden administration when it’s a Trump appointee running the Fed while a Biden Treasurer (and former Obama Fed chairwoman) raises and retracts the spectre of rate increases.