U.S. Consumer Prices Rose Strongly Again in May | Hacker News Reader

U.S. Consumer Prices Rose Strongly Again in May

wsj.com

100 pointssaguntum124 comments

Two words: base effects.

Year-over-year comparisons reflect the abysmal economic conditions during the pandemic. It's like comparing your current net income to one year ago but one year ago you were unemployed and paying off student loans while today you have a job at Google.

The comparisons to watch are month-over-month (MoM). The BLS reports MoM CPI increased 0.6%, after a 0.8% MoM increase in April:

https://www.bls.gov/news.release/cpi.nr0.htm

So the rate of CPI change is negative MoM.

From the same page, BLS reports CPI less food and energy fell MoM from 0.9% in April to 0.7% in May.

The real headline here should be that inflation is slowing on a MoM basis.

It's that rate of change of inflation that matters. If it remains negative (disinflation), then price increases will continue to subside.

But if CPI growth remains negative for long enough, it can translate into deflation. That's not an outcome being discussed widely now, and for that reason (among others) it should be considered seriously.

Policy makers talk and act as if only one of those two outcomes truly terrifies them: deflation. Japan has been in an on-again-off-again deflationary slump for decades, despite the BoJ now owning a good chunk of the Japanese stock market, many years of QE, and substantial deficit spending.

> Year-over-year comparisons reflect the abysmal economic conditions during the pandemic.

We can instead look at the growth over 12 months from May and compare it to that of April. If anything, I'd expect a more pronounced effect for April's YoY because it starts nearer to the bottom of the market. But instead, May's YoY looks slightly higher than April's.

All of these “technical” measures are the work of people trying to explain and come up with clever ways to argue for their jobs and continuous involvement in monetary experiments.

I want deflation to occur. There are enormous sectors where deflation is seen and everyone sees the obvious benefits[0]. But when it runs up against the work of the state printing money to finance the destruction of society, then deflation is seen as dangerous.

The main argument the inflation lovers propose is, “well if the prices keep going down then people won’t buy anything as they’ll just wait longer for the product to get cheaper.”

This is clearly false as the wants/needs are a “now” problem, and the PhDs at the FED have never seen the lines for Black Friday to purchase TVs and other consumer electronics. Why buy an iPhone 12 when in 2 years that same iPhone will be 50% off?

Not only that, there is also an increase in sales by volume which could lead to more profits by lowering the price of a widget. There are huge segments of consumers that would consume at a lower price point!

[0] Electronics/computing is an extremely obvious sign of deflation. Prices lowered, or goods improved and everyone benefits.

deflation is a tax on borrowing which discourages growth, causing more deflation ad nauseam.

Not ad nauseam. There's a floor, an equilibrium where countercyclical forces take over. (Besides: many people agreeing with this sentiment maintain that growth _per se_ is already an existential threat to human existence.)

Inflation is a tax on saving which encourages malinvestment "bubbles" that fail catastrophically.

Monetary policy addresses them by creating ever more money to encourage ever more synthetic growth. Once debt service threatens to consume the sovereign budget, monetary tightening ceases to be politically viable.

Not for nothing, we appear to be living in the Keynesian "long run."

There’s massive deflation in consumer electronics and anything related to software and we’re seeing more consumption not less.

“Hey Joe, I know you like that $1000 machine, but are you willing to buy a better one for $500?”

“Gee, no thanks!”

> The main argument the inflation lovers propose is, “well if the prices keep going down then people won’t buy anything as they’ll just wait longer for the product to get cheaper.”

I'm not sure if I have seen that argument very often. It's not a great one, for sure, because at some point prices kind of just stabilize long enough for people to decide it's time to make a purchase. So sure maybe that happens in the short term, but not the long term. The inverse is true too - people are rushing out to buy cars and things anticipating the prices will continue to go up.

The strongest argument I've seen against strict deflation just comes down to competitiveness of exports.

>I want deflation to occur. There are enormous sectors where deflation is seen and everyone sees the obvious benefits[0]. But when it runs up against the work of the state printing money to finance the destruction of society, then deflation is seen as dangerous.

Greece has deflation and Japan is very close to deflation. Are those countries examples to look up to? I don't think so.

>The main argument the inflation lovers propose is, “well if the prices keep going down then people won’t buy anything as they’ll just wait longer for the product to get cheaper.”

The argument in favor of inflation is that future incomes are greater than past incomes, therefore inflation is a tax on old money and helps new people enter into the economy and encourage them to keep working. The other factor is that inflation is like a bluing dye used in machining. It shows the high spots that you have to scrape off to get a flat surface. It can therefore be used to reallocate limited resources to more productive sectors of the economy. Inflation is an incentive to invest your money, as otherwise it would sit in your bank account and do nothing except cause unemployment, which causes the productivity of the country to go down.

“well if the prices keep going down then people won’t buy anything as they’ll just wait longer for the product to get cheaper.”

We have reached a point where billionaires (and companies) have more money than they could possibly spend in a lifetime. One billionaire doing nothing with his money is equivalent to a million poor people ($1000 in their bank account) not doing something with their money. As inflation is a percentage it affects people proportional to their savings, billionaires lose the most and are forced to invest their money for the benefit of the rest of the economy. Meanwhile poor people lose the least, because they don't have that many savings to begin with and the loss that they experience would be more than recovered by finding a better paying job or by finding a job at all.

>[0] Electronics/computing is an extremely obvious sign of deflation. Prices lowered, or goods improved and everyone benefits.

With inflation incomes go up and prices stay roughly the same. Therefore you benefit from productivity growth but not by hoarding old money earned hundreds of years ago.

Meanwhile deflation works exactly the opposite way. The richer you are, the more you benefit from deflation. The earlier you have earned your money, the better.

> Greece has deflation and Japan is very close to deflation. Are those countries examples to look up to? I don't think so.

As though the defining characteristic of those two countries is near deflation. Under the veil of ignorance I would choose to live in a low/deflationary country than a high inflation country. Every single time

> Inflation is an incentive to invest your money, as otherwise it would sit in your bank account and do nothing except cause unemployment, which causes the productivity of the country to go down.

What about those that are living paycheck to paycheck? What about those that are retired or near retirement?

> As inflation is a percentage it affects people proportional to their savings, billionaires lose the most and are forced to invest their money for the benefit of the rest of the economy.

According to the IMF and world bank this is wrong. Just look at countries that have high inflation. Inflation hurts the poor the most

IMF: High inflation tends to lower the share of the bottom quintile and the real minimum wage -and tends to increase poverty

https://openknowledge.worldbank.org/bitstream/handle/10986/1...

> Under the veil of ignorance I would choose to live in a low/deflationary country than a high inflation country

Well, few people would disagree with you that high inflation is bad.

Between steady low inflation and deflation though, there's problems with deflation related to the fact that it's hard for the interest rate to go below zero (since people can just put money in their mattress to get a zero return).

Basically, the Fed lowers the interest rate to limit recessions (and raises it to fight inflation). But what really matters is the real (inflation adjusted) interest rate.

If the Fed cuts interest rates to zero, but deflation is 3%/yr, that raises the real interest rate to 3%. And raising the interest rate is itself deflationary, so I'm sure you can see the problem with this - it's a positive feedback loop. Deflation raises the real interest rate leading to more deflation, less investment, more loan defaults, etc. That's the classic deflationary depression spiral that often ends in massive, rapid currency debasement and/or political instability.

Because that's so undesirable (and historically the currency ends up debased anyway after a lot of chaos) there's an argument for targeting a small, but positive, amount of inflation every year just to be on the safe side.

The issue with Greece is that they aren’t very productive and live beyond their means against the savings of the Germans and others. So no, you cannot use that as an example. As for Japan, they have had massive population drop and inefficiencies from closed borders that probably reflects a greater reason why there has been a deflationary period.

For a better idea, you could look at say the cost of a loaf of bread from late 18th century to 19th century and it remained flat in the US.

In the late 1800s-1920s, was the greatest growth period for the US and AFAIK the cost of living fell from increased productivity and technological improvements.

Inflation destroys savers, which leads to reduction of investments.

savings = investments

People forget that somehow.

I don't want deflation for one very obvious reason: I have a mortgage and it is much larger than the amount of cash I keep on hand.

Deflation is very bad for average consumers because most average consumers are in debt.

BLS shows extreme inflation in energy prices and used car prices. Those things are not surprising and they certainly are going away once supply shocks in the semiconductor industry have been resolved. Oil didn't disappear from the face of earth either and it's known to be volatile all the time. If anything oil cartels love times like these and will pump more oil.

I feel like I understand a lot of the pandemic and post-pandemic demand spikes, but used cars elude me. Is it just people wanting new cars less, or less new cars being available?

Two factors that I'm aware of:

-- Early in the pandemic, travel was way down. Rental car companies unloaded a lot of their fleet that were sitting idle. Now that demand is back up, they are back on the market for vehicles.

-- Semiconductor shortages: automobile manufacturers cut their orders in early 2020 anticipating a decline in demand. That decline never happened, so they're now now able to obtain sufficient chips for new vehicle manufacturing. Thus a decline in new car availability that might push some car-buyers onto the secondary market.

Part of what's driving the prices in used cars upwards is the inability to manufacture enough new cars to meet demand, which in turn is caused by a global chip shortage / volatile chip supply.

> Is it just people wanting new cars less, or less new cars being available?

Both. New cars are very expensive and most people can't afford them. The used car market is nearly 3x the size of the new car market (in cars sold, not $).

Also, as cars have become more reliable many who would otherwise buy new are buying lightly used off-lease cars (i.e. certified pre-owned). Many people understand the instant depreciation hit that comes with a new car, and want to avoid it.

Add to all that there is currently a supply chain issue for critical parts needed for new cars.

> Year-over-year comparisons reflect the abysmal economic conditions during the pandemic.

Great point, May of 2020 is the valley for the price drop so makes sense to see it much higher since then as we "make up" for lost time.

If we instead look back to February 2020 before the dip, can we annualize including that? If my math is correct, we could determine the average monthly inflation (not including compounding) and then multiply by 12 to annualize it? If so, we're looking at about 2.8% inflation, which is still above the Fed target but not terrible.

268.551(feb20)-258.824(may21) = 9.727

(( 9.727 / 258.824) / 16) * 12 = .0282

https://fred.stlouisfed.org/series/CPIAUCSL#0

The sum is a 2.7% increase and we are 5/12ths of the way through the year. The average monthly increase has been 0.54%.

To keep inflation to only 3% this year we would need to slow to 0.04% per month.

To keep inflation to only 4% this year we would need to slow to 0.18% per month.

Continuing at a 0.54% pace, we will hit 6.48% inflation for the year.

Additionally, deflation shouldn't terrify any central bank, because it's much simpler to remedy. Inflation is much harder to fix.

Inflation is easy to fix, default on your debt and stop printing to service that debt.

You don't have to default on anything. Just raise taxes and service debt with that revenue and stop or slow more borrowing.

Simple reason: money printing by the government. The loss of value of the USD is likely continuing if the aggressive printing goes on.

Often, a simple common-sense understanding of the world produces better results than some complicated official narrative that all the important people profess to believe. It takes a lot of intellectual work to persuade yourself that some theory is right and that your eyes are wrong.

Here's a graph of money supply over time [1]: https://fred.stlouisfed.org/series/M2SL

See the hockey stick on the right? That's going to cause inflation. I'm sick and tired of hearing about base effects, transient demand spikes, and other garbage. All of this complicated analysis amounts to a mixture of wishful thinking, deliberate public deception, and psychological denial of the obvious.

The obvious reality is that there are a now more dollars chasing fewer goods and services, and that's going to increase the general price level. Don't try to bullshit me with some complicated theory that says otherwise.

[1] This is the current up-to-date officially-supported M2 money supply series from the fed. It incorporates M1. Don't bullshit me by talking about the recent change in the definition of M1: it's all incorporated into M2 here.

It has caused inflation. In assets. The stock market has gone through the roof. So have some other assets, like cryptocurrencies and some real estate.

What it hasn't caused is significant inflation in consumer goods. That "hockey stick" has been going on for north of a decade, and the inflation rate for consumer goods has been under target for most of that time.

The increased money supply isn't in the hands of consumers. The only money given directly to consumers was given at a time when enormous numbers of them were out of work, reducing demand. More dollars aren't chasing fewer goods and services. They're chasing the same supply of stocks (and houses and Bitcoins).

It's long past time for the Fed to stop giving money to the asset markets. It's not "trickling down" in the form of business creation, as they hoped. It's just being used to pump up stock prices.

But that also means that this isn't the sky-is-falling inflation monetarists have predicted 97 out of the last 2 times. This really, genuinely is part of all of that "garbage" you're so tired of hearing about but which is actually true.

The inflation you seek really is obvious. It's right there, in the stock market. It doesn't require complicated analysis to see it.

What happens when people sell these appreciated assets and try to obtain real goods and services with the proceeds? Inflation cannot remain isolated in assets!

It can, actually, which is the problem. It's the multi-trillion-dollar question.

Some of it will go to real goods and services, but little of that is consumer goods. The rich don't eat more canned peas than other people. They buy more expensive cars, but that doesn't compete with consumer-grade cars.

They do sometimes try to invest it in housing, and there are indications that that's going on right now. That does potentially raise actual consumer-level inflation, at least temporarily. It's one of those play-stupid-games-win-stupid-prizes, market-remain-irrational-longer-than-you-can-remain-solvent type situations. That's something they're going to need to watch out for.

Some of that money will vanish when they try to cash out. In asset markets, the prices are all fictional, and the money can simply disappear.

And some will go back into government coffers, which was the plan in the first place. The government works counter-cyclically, spending money when others won't and collecting taxes when people are spending freely. It's supposed to keep the market on an even keel.

For most of a decade they've been putting out more and more punch bowl even though the party is going strong. That will be bad in the end. There's a crash coming -- but nobody knows when, and nobody wants to leave the party too early.

The Fed will, probably this year, start taking away the punch, and that will be the signal to start selling assets. And the market will crash, by perhaps 50% -- all the while the government is collecting cap gains.

And the rest of the money goes... gold? Real estate? Bonds?

It's gonna be a mess. And it's likely to cause deflation, since whenever markets crash companies close -- because they were being propped up by fake cash. At which point the whole stupid business cycle starts over again.

It's worth noting that it's 5% annualized, ie. if inflation kept growing at the same rate for a year, it would be 5%. Prices didn't actually rise 5% in one month.

edit: it isn't annualized, but rather YOY

edit2: annualized == YOY, so either statement is correct

Thank you, that was my first question from reading the headline.

I'm not even sure it's that. The stated metric is how much prices have risen since May 2020. So it is the year-over-year change, but the baseline is a very weird covid-May.

A common statement on short-term inflation is that most suppliers have roughly year long contracts which lock in prices.

There have been large liquidity injections since April of 2020, it's possible that we're looking at a very weird covid April/May + inflation.

I didn’t notice pricing being especially weak last year beyond gas in May 2020, quite the opposite actually, at least in my area.

Did you do a lot less shopping in May 2020 than normal? Less shoppers risking it at Best Buy might have led to lower prices, but selection bias means a lot of us good citizens who stayed inside didn't see it.

Not really. But then again, we mostly shop for food, which is where I noticed most of the price increases. I would say our grocery bill is now around 30% higher than it was pre-pandemic.

April-May was the time period when prices across industries collapsed. Businesses were anticipating this massive recession and cut back production / dumped goods onto the market in preparation. When the opposite happened, and demand for goods spiked hard, lots of places were caught with their pants down, having already reduced production and laid off workers.

So there's going to be a lot of economic "whiplash" in comparing YoY metrics over the next few months.

You can see the effect here in cars sales:

https://www.goodcarbadcar.net/usa-auto-industry-total-sales-...

Apr 2020 was the lowest sales month by a healthy margin going back to 2005.

Different industries saw this same effect over the April-May period. You can see the looking at the performance of the total US stock market:

https://www.marketwatch.com/investing/fund/vtsmx

March-April prices collapse, and April-May, its on the upswing, by September, there's a total recovery.

https://www.marketwatch.com/investing/fund/vtsmx

Yep the title should be edited as it's misleading.

It's not even annualized, according to the WSJ title it's 5% from May 2020.

>It's not even annualized, according to the WSJ title it's 5% from May 2020.

Thanks, edited my comment reflect that.

The problem is that people will collectively make this mistake (even if some fraction does pick up on this subtlety). Consequently, markets may react as though it raised 5%.

I wonder if people that trade on headlines would get ruined so fast that no particular, single headline would make much of a difference (i.e. most people who would be fooled by this would already have been weeded out by some set of previous headlines).

It's also worth noting that 1 out of every 4 dollars in circulation has been created in the last year. The money has to go somewhere. So far its gone to assets not measured in inflation (stocks, real estate, etc), so its natural that it will eventually show up in consumer prices.

Personal savings rate jumped to over 30% in mid 2020 and again above 25% recently (lines up w/ stimulus payments). Historically this value has been 3 - 10% for the last 30 years or so. So there's a lot of money on the sidelines

https://tradingeconomics.com/united-states/personal-savings

This is not correct. A dollar get "created" only when it is taken as debt, otherwise does not enter the economy. Actually , the amount of dollars decreased, as people paid down debt, thus destroying the amount of money in the economy.

What you see is a supply side inflation (less goods due to supply chain interruption) and not demand side (more money).

Stimulus checks are not debt - that’s helicopter money. And the “loans” made to businesses do not need to be repaid, or have 0% interest and are automatically forgiven after N years.

PPP loans are not 0%, they are insanely low though at 1% interest. Also they are not automatically forgiven, you have to complete paperwork, and even then it’s likely that 100% of the loan won’t be forgiven.

I see this back and forth, could you help me understand why these dollars shouldn't be considered "created"? My limited understanding is something like this: Congress/President decide US citizens need stim checks. They decide to issue $1T+ in stim checks. The Treasury doesn't have enough money from taxes so it issues debt notes / T-bills. A lot of these T-bills then get purchased by the Fed with dollars they printed out of thin air. So how is it that printed Fed dollars are not ending up in the hands of the average citizen and thus entering the economy?

Interestingly, it's about 5% annualized over the last month, 5% versus May 2020, and 5% growth vs May 2019. Not that any of those three numbers means much because pandemic.

Source: https://fred.stlouisfed.org/series/CPIAUCSL#0

May 2019: 255.371 May 2020: 255.942 Apr 2021: 266.832 May 2021: 268.551

>Interestingly, it's about 5% annualized over the last month, 5% versus May 2020

thanks, edited that in too.

I was confused by your edit which says "annualized == YOY" which isn't generally true, just specifically for May 2021.

> edit2: annualized == YOY, so either statement is correct

edit3: These are not defined as the same, they are coincidentally the same number

Yes, 5% over the last 12 years, which includes a, brief, collapse in spending. But!

Look at chart 1:

Apr2021 had 0.8% month to month May2031 had a 0.6% month to month.

Which annualize ((1+i)^12) to: 10% and 7% respectively.

Or, a better estimate:

((1.008)*(1.06))^6=1.087

Or 8.7%

And, this doesn't include that most of the money printed hasn't been allowed to slosh around yet and instead are being used to prop up financial markets.

It is not annualised, it is annual (price increase from May-2020 to May-2021).

Monthly annualised and and quarterly annualised are a common measure - those both run between 8-9%. Not that that is anything to worry about - it's just the reversal of the -2% quarterly annualised inflation this time last year. (I.e. oil prices are back up at their previous price of $70/bbl after having gone to zero a year ago)

From what baseline? The pandemic dip? Or pre-pandemic levels?

Here's some actual journalism: https://jabberwocking.com/the-price-of-bacon-is-up-8-1/

This is the CPI, it’s measured the same way it always is.

There’s value in watching it, not sensationalizing it.

The 12 month rolling chart straight from BLS [0] I think provides more info. And if you want more trends than just prices against the previous year, you can look at the absolute chart for some of the items they track [1]. Check out how bananas and electricity haven’t changed in 20 years, woot!

[0] https://www.bls.gov/charts/consumer-price-index/consumer-pri... [1] https://www.bls.gov/charts/consumer-price-index/consumer-pri...

Yep remember who owns the WSJ and what their agenda is. Replace WSJ with any news outlet!

[1] should be https://www.bls.gov/charts/consumer-price-index/consumer-pri... I think

Yes, thank you. That’s the right link!

The price of gasoline is incredibly volatile. It regularly hits 50% y/y change!

Thank you. Excellent little piece and yet another lesson in how bad even “gold-standard” news outlets are. It’s actually dangerous to report like this because major decisions are made off headlines like that every day.

The Consumer Price Index (CPI) is a measure of inflation and you should be aware of the adjustments it makes to accurately interpret the measure. It uses "owner equivalent rent" instead of housing prices and makes substitutions for example. Rob Arnott poked fun at the index a few years ago when they substituted chicken for beef.

It's incredible to reflect on how different the macro landscape is now compared to the last time inflation was this high. In 1984, inflation was 4%, the long bond yield was 14%, and the cyclically adjusted priced to earning ratio was 10.

Now, the long bond yield is 2.3% and the CAPE is 37.4.

Real long bond yields (nominal yield minus inflation) have gone from 10% in 1984 to -2.7% now. The yield on Treasury Inflation Protected Securities is negative, see the government website: https://www.treasury.gov/resource-center/data-chart-center/i...

FOMC doesn’t look at CPI.

They use CPE:

https://www.bea.gov/data/personal-consumption-expenditures-p...

It's important to remember that inflation hurts the poor most. The wealthy will have their money in assets that may benefit from inflation (stock market up 30+% since pre-covid seem a little odd to anyone else?). The poor spend a larger percentage of their income on consumer goods that will most likely be affected.

Inflation is a nefarious way to finance spending without hidden consequences and distortions.

Depends on how much debt the poor have.

I don't see your point. I guess you assume inflation will also translate the higher wages so that people would be able to pay off their debt?

Inflation will lead to higher rates so you won't be able to refinance or get a cheap mortgage. This will drive home prices down which may or may not offset the increase in interest expense.

Here's credit card debt based on income. I'm guessing most of this debt is a kind of rolling balance for regular expenses. I doubt wages would be able to keep up w/ consumer prices. I don't think people think inflation will somehow get them out of their debt if they're using it for every day purchases that have now become more expensive

    $290,000 and more – $12,600

    $152,000 to $290,999 – $9,780

    $95,00 to $151,999 – $6,990

    $59,000 to $94,999 – $4,910

    $35,000 to $58,999 – $4,650

    Less than $34,999 – $3,830

https://www.debt.org/faqs/americans-in-debt/demographics/

Inflation erodes the value of debt.

Inflation makes existing debt easier to pay off. It doesn’t make acquiring new debt easier.

>I guess you assume inflation will also translate the higher wages so that people would be able to pay off their debt?

Here is a chart of real, disposable personal income: https://jabberwocking.com/wp-content/uploads/2021/05/blog_di...

Higher rates primarily happen during full employment. I'd want to be poor with a job, rather than poor without.

Most of the poor and middle (spare me the lecture about how someone grossing 200k+ is middle because they're unwilling to suffer a longer commute or live where the schools are slightly worse) don't have a mortgage on a house. Those that do don't tend to have them in the trendy places being pumped full of urban monopoly money. And even then if you need a roof over your head you can't sell because then you'd get screwed right back out of any earnings by having to buy back in. Cashing out and moving to BFE is harder if you're more chained to a particular locale because of support network or a particular job/industry. Also if you're middle class or poor then there's now fewer BFE's within your budget thanks to covid and remote work.

Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical).

Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in.

If you've got credit card debt or a payday loan or something else with a stupid high interest rate then anything short of Venezuela levels of inflation doesn't really help you. You get marginally less screwed but in the bigger picture you get more screwed because your day to day cash-flow is worse making the payments harder even if they're shrinking relatively

The only people being helped by debt being inflated away didn't need the help to begin wit. Everyone else is being screwed because any savings they have will go poof and their standard of living will be knocked down because wages always lag inflation.

A little inflation is fine/good but enough inflation that people are feeling the squeeze in the short term (you'd have to be blind to social media to not see this is the case) is too much.

> Most of the poor and middle (spare me the lecture about how someone grossing 200k+ is middle because they're unwilling to suffer a longer commute or live where the schools are slightly worse) don't have a mortgage on a house.

Please spare us the strawmen you're fighting in your head. Most US households own their own home (65+%). The vast majority of households with incomes above the median own their own home (79.4%) and even the majority of households BELOW the median own their own home (51.8%)[1]. So I'd also like you to spare us your made up evidence.

> Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical).

Average student loan debt for a new grad is ~$30k. Hardly trivial.

> Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in.

Is your belief that inflation is good for debt holders because they can earn money on the assets that back up the debt? The point is that debt is denominated in nominal dollars.

1: https://www.census.gov/housing/hvs/files/currenthvspress.pdf

The story that's being told (I won't comment on whether I think it's true) is that UI benefits are too high, that means workers aren't taking low-wage jobs, and firms are raising prices due to rising labor costs. That type of inflation is good for those at the bottom end of the income distribution.

The cynical side of me thinks this is just wages catching up with asset (especially housing) inflation over the last— well, hell, housing prices never dropped to where they "should" be even after '08, did they, so, two decades—but that higher wages will nonetheless end up being blamed for all of the current and upcoming increase in CPI.

Once you reach full employment interest rates will go up as the economy has to shed less productive jobs in favor of more productive jobs. This could lead to a housing crash precisely because wages are going up.

Sorry, I didn't follow. Why would housing crash because wages go up?

> It's important to remember that inflation hurts the poor most.

Is this actually true? Do you have any articles that could describe this effect in more detail?

As I understand it, inflation by itself doesn't seem sufficient to describe people's bottom lines - in theory, if wages, prices, and stocks all go up by 10% in one year then 10% inflation has been neutral to the poor, neutral to holders assets correlated with the stock market, positive to fixed-rate debt holders, and negative to fixed-rate asset holders (like the lenders for that debt).

Right now we're seeing a major crunch for labor on the low end, like fast food joints offering higher wages than ever with bonuses even for just interviewing in some cases. So it doesn't seem to me that the poor are necessarily being hurt, at least not yet.

World Bank:

> High inflation tends to lower the share of the bottom quintile and the real minimum wage -and tends to increase povertyL

Just look at what its like to be poor in a high inflation country.

https://openknowledge.worldbank.org/bitstream/handle/10986/1...

Thanks for sharing!

Another commenter mentioned that labor shortages on the low end might be related to stimulus payments and pandemic unemployment payments - if so then I suppose what we'd expect is that if inflation remains high over the next year as we go without stimulus and pandemic unemployment payments, any labor shortages (and corresponding boost in wages) will quickly end, and we will proceed to observe the cited effect - that the remaining inflation hits the poor the hardest.

It's important to note that that's "high" inflation, not inflation period. Low inflation also has a negative impact on the poor, while benefiting the wealthy, and for many years at this point inflation has been considered quite low. It is likely a major factor on the increase in inequality seen over the same time frame.

The more you have, the more likely are you to invest, and invest it better.

Those with <= 1y income in the bank (most people) are more likely to just hold cash above what goes into their retirement fund.

One reason it hurts the poor most is because of timing. Prices go up 10% over the course of the year. Then, after prices have gone up, then wages go up to make up for what prices have already done. But that leaves you with a chunk of time when prices have risen but your wages have not. If you're already poor, that really hurts.

"It's important to remember that inflation hurts the poor most"

Actual inflation hurts those who own debt assets and nobody else. Everything else isn't inflation.

If prices go up but don't feed through to income rises then two things happen - one you don't have an inflation, you have a redistribution, and two those price rises are unsustainable because you won't be able to sell your output as there is insufficient overall income to purchase it.

In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected. As are those living off investment earnings (since they just go up as firms earn more). Debts are rotted and debt holders (ie bankers) lose out.

The neoliberal trick has been to blow up a scare about bottleneck inflation as the supply side bat signal goes up but before the increased supply/constrained demand response kicks in and forces prices back down again. All in the hope of getting a policy change that will stop the income changes that would help increase the wage share and start the debt rotting process.

Wealthy people are the debt holders. Don't be their bag carrier.

> In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected.

This is not a given and far from necessarily perfectly correlated. Wage earners can still be hit.

There are several assumptions you make here, and none of them should be taken for granted.

And, well, people who hold cash (unless you classify those as debt-holders, which, sure, yeah, but that should be pointed out) or happen to invest in the wrong thing are also hurt badly.

> In a true inflation income rises along with prices so wage earners

So "true inflation" is no different than a "true scotsman."

Wealthy people invest, buy properties, and have assets that grow in value with inflation.

The poor have cash in a bank or in their closet that becomes increasingly worthless with inflation. Their rent, gas, and bread prices go up by large amounts, but if they're lucky, they might get an extra 2 cents an hour for their work.

If you buy assets, the seller of the asset has cash. It's a hot potato that you have to pass around for this to become true and you are never allowed to pass the hot potato to workers.

If the seller of the asset is a worker, then you have already lost.

If the seller of the asset is a rich person, then you just are back to square one as the second rich person has the inflation problem.

If the seller of the asset is a company, then it has to do something with the money as inflation erodes it, but it cannot do anything with the money because hiring people would give it to workers again, which means you lost the hot potato game again.

> If the seller of the asset is a company, then it has to do something with the money as inflation erodes it

The company does share buybacks and puts it back into the hands of a rich person.

>>Wealthy people are the debt holders. Don't be their bag carrier.

Source for this? Wealthy people invest in assets that also go up with inflation. Sure they may have some debt assets but I bet that is not the large part of their portfolio

however neither of you are really correct. Inflation hurts the middle class the most.

Wealthy have diverse portfolio's that factor in inflation, the poor are most likely debt ridden and live paycheck to paycheck, with inflation your debt becomes less expensive

The middle class however often have the most cash assets in traditional savings accounts, they also are in that sweet spot of not living paycheck to paycheck but not really having enough money to have a large diverse investment portfolio

Inflation is a tax on savings, anyone that has savings is hurt by inflation that normally is the Middle Class

Wouldn't it hurt savers the most?

>The wealthy will have their money in assets that may benefit from inflation (stock market up 30+% since pre-covid seem a little odd to anyone else?).

Who's selling that stock if the rich are buying it? From what I can tell it's mostly companies issuing new stock and leaving the money in their bank account and inflation is eating away at that money. Here is the thing, given a high enough inflation rate that money will be used to hire people. If you want to stick it to the poor that is an extremely ineffective way to do it.

For inelastic essential needs (i.e., food, fuel, electricity, water, transportation, toiletries) and high-MPC existence without a commensurate increase in pay, this is true. (Longterm decline in wages by inflation in the US).

However, the poor cannot buy Ferraris, iRobots, or Toto toilet seats. For discretionary spending portions of high-MPC, there are often bad financial decisions made by the poor to buy overpriced, high-depreciation, low utility, and short lifetime goods and services.

The assertion that inflation hurts the poor is often stated, but I haven't seen data supporting it.

Real wage growth and inflation are linked, of course, but almost certainly not anti-correlated (high inflation => low or negative real wage growth) as you are suggesting. What data I could find that directly compared these actually suggests the opposite, that lower inflation tends to result in lower wage growth.[1]

It's not clear what you mean by the "poor" here, but it's well understood the majority of Americans do not have significant savings (cash or other liquid assets). This federal reserve study[2] puts the percentage of American households that have <$400 at ~24%. 60% of households have <3 months of savings.

When looking at just the bottom half of Americans, however, 40% have less than $400 saved and 76% have less than 3 months of savings.

[1] https://www.stlouisfed.org/on-the-economy/2015/november/rela... [2] https://www.federalreserve.gov/econres/notes/feds-notes/asse...

Thats from May2020 to May2021, and includes a collapse in consumption (for example fuel).

Look at chart 1:

Apr2021 had 0.8% month to month May2031 had a 0.6% month to month.

Which annualize ((1+i)^12) to: 10% and 7% respectively.

Or, a better estimate:

((1.008)*(1.06))^6=1.087

Or 8.7% annualized inflation using the data of the last two months.

I feel like all these numbers are bogus. Housing? Seeing as it's nearly half of people's spending, I feel it should be weighted appropriately. And if so, real prices would be closer to 20% inflated in most markets YOY.

Add education and health care to this and you get some pretty serious numbers.

Half of people certainly are not buying houses in any year.

"Half of peoples' spending" presumably means "roughly half of individual post-tax income goes into housing costs," not "roughly half of individuals buy a new home each year."

I don't know whether that number is true or not, but it doesn't seem implausible given mortgages and rent.

At least half of people are involved in the housing market, not just immediate buyers. Because you’d better believe if residential property prices skyrocket, so will rental rates.

My point is when you own a house your expenses don't skyrocket because your neighbor sold a house for a 30% higher price this year than your other neighbor last year.

Houses may or may not be half of people's spending like the poster above claimed, but homeowners generally do not see prices inflate when a small portion of their neighbors buy or sell homes.

So whether or not housing is 50 percent of people's expenses that doesn't mean 50 percent of expenses have been subject to inflation.

I think archon is referring to the fact that, in the US, there are 82M owner occupied homes, and 42M renter occupied homes, and so adding up total number of people looking to purchase a house plus those affected by (presumed) changes in rental prices due to changed in land prices, you might come to the conclusion that “half of the people are involved in housing market”.

I do not know if I agree with that reasoning, but I would say that if you are looking to purchase a new home at some point in your life (even if you already have one), or you have kids or family that is looking to purchase a home, it is very possible that you are affected by your neighbors’ buying and selling in the event that it causes you to start saving more to meet the goal of purchasing a new home. And I think a large share, maybe a majority of Americans fall into this category.

For example, if I am in a “starter home” and had a goal of upgrading to a bigger home to accommodate growing family, and that bigger home goes from $450k to $750k over the course of 5 years, then that $300k increase is surely felt and dwarfs the effects of any other changes in price in a typical family’s budget. Best case scenario is you live nearby and your starter home has increased from $300k to $400k, but the price increases in lower end homes will never make up for price increases in higher end homes.

64.3 percent of Americans are homeowners. The median duration of homeownership is 13 years.

So we can conclude that 5 percent of Americans might be effected by house sale in a given year, and some might be downgrading a home or moving to a cheaper location.

Housing, building materials, food, even used cars are all up WAY more than 5% vs this time last year.

Actually used cars and trucks are apparently a particularly big spike, almost 30% in the chart in The New York Times. (New vehicles are only about 3%.) Almost as big, and completely unsurprising, is airfares. I recently booked a flight for late September and it was very pricey.

Housing is tricky because most individuals do not pay the marginal rate. There are many individuals who last bought a house decades ago, are locked into rent-control, or have fortunate landlords who don't push the rent to the marginal rate.

Unfortunately this means that if housing is inflating it punishes the portion of the population susceptible to the marginal rates which in the long-run will be everyone. It would be great if there was a "marginal" CPI which highlighted the changing prices of capital assets.

Looking at the cpi doc [0], shelter makes up 32.86% of the expenditures, which at least at first glance appears realistic. There will obviously be outliers (people living in higher cost of living areas, cities, etc), but I'm curious if you see data that supports a different number.

I'd expect anecdotal numbers from hn to trend towards higher CoL, which likely correlates with spending a higher percentage on housing.

[0] https://www.bls.gov/news.release/pdf/cpi.pdf

Housing is also tricky to really account for correctly. One of the reasons house prices are skyrocketing is people are leaving cities in droves, moving everywhere from near suburbs to places like rural Vermont.

One of the main reasons people are doing this is they're realizing the dramatic cost differential between living in the city in a tiny apartment and living in a much larger space outside the city or in a smaller city.

This means many people can pay 20-50% over asking, but still end up paying less per month and having more space. This is in fact part of the reason people are willing to bid so much over asking. It's not because they're desperate, at least for my anecdotes, but because you can bid very aggressively and still pay substantially less than you would for an apartment.

On top of all that, rental costs in most cities are plummeting.

Despite the bizarre housing market right now, I wouldn't be surprised if on average most people were spending less on monthly payments.

> Despite the bizarre housing market right now, I wouldn't be surprised if on average most people were spending less on monthly payments.

To add a supporting anecdote from my recently finished adventure in house hunting, condos in desirable HCOL areas are also on fire but the demand actually dries up at a certain price point - around 1.3-1.4MM where I live. The most expensive downtown areas (where condos regularly go 2MM or higher) seem to have a massive glut of units and sometimes entire buildings on sale.

Personally, I bought a 1MM condo that was originally priced at 1.2MM and had a price decrease. It's not particularly cheap by any means, but it's not significantly more than I would have been paying in 2019, I don't think.

edit: A fun way to see this yourself is to use a search on redfin for "price reduced in 14 days" and see which neighborhoods / price points show up in your city. Where I live, it's the pricy condos. Single families still sell at almost any price point, and more affordable condos sell as well.

Small correction: Rental prices in a few, big cities are falling. On the whole, in most cities, rental prices are through the roof. Almost exactly 20% higher for a SFH rental YOY. I know because I checked what the house I moved out of was relisted for.

Its only the most expensive thing in most people's lives that has doubled in cost in about 10 years... 10 years i'd be able to afford a 150m2 house with my salary. Now a 75m2 house costs the same.

Yes, I can sell the house for more money afterwards, but the inflation is still there, people are getting less whilst paying more. This is an especially rough deal for non-homeowners who want to enter the market, because they have not profited of the apprecation in the past decade.

Its by far the most expensive purchase in peoples lives, vital to our needs just like food and water... And I really dont agree with not tracking it in CPI.

> Its by far the most expensive purchase in peoples lives, vital to our needs just like food and water... And I really dont agree with not tracking it in CPI.

Please stop spreading this false information. CPI absolutely does track housing: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

Now, you might disagree with the methodology used above, in which case it is healthy to discuss alternatives, or where CPI housing calculation has issues.

Rent is not purchasing a house. As the document you linked clearly states in the FAQ

If you were aware that rent was covered by CPI I wonder why you wrote "Its by far the most expensive purchase in peoples lives, vital to our needs just like food and water... And I really dont agree with not tracking it in CPI."

Either you didn't know rent was included in CPI or you are making the very odd claim that homeownership is like food or water, implying you'll drop dead if you rent a home rather than buying one.

The problem with tracking housing is that you end up with an index that may not reflect what people "feel".

If you own your house and aren't intending to sell, and house prices double but food and energy is down, you will feel things are cheaper even if the index shows it rising.

And in the case your house value halves but food and energy double, you'll feel things are more expensive even though the index shows it falling.

The indices are important, but people often misapply them.

FED: The risk of inflation is low CPI rises 5% yoy FED: inflation is transitory CPI only rises 4% next time FED: see, we told you

If only my salary would raise with inflation...

Where I live food and basics have jumped from 20 to 50 percent in the last few months.

The measures just needed one year to go trough the chain.

Meat prices temporarily increased sharply, but will likely subside over time with increased supplies.

the reason wallstreet is poshing this as positive news is because investors react positively to the idea of pandemic recovery. most commenters have already proven this false. even if the 5% were true, it doesnt erase the billions in back-rent debt most americans are saddled with due to the eviction moratoriums. recovery IMO is still 2-5 years out.

The reason you should be seriously concerned about this inflation is because the fed never backed off quantitative easing from 2008, and in doing so has created a corporate credit bubble. To combat inflation in 2021, all they can do is hand-wave and insist this is "transient" inflation. nudging interest rates would cause a corporate debt crash.

https://en.wikipedia.org/wiki/Corporate_debt_bubble

> doesnt erase the billions in back-rent debt most americans are saddled with due to the eviction moratoriums

“Most” Americans? Surely it’s not even close to 50%. Source?

The parent is sensationalizing, to put it mildly, when they say "most." The figure is closer to 3%-5% of US households that are severely upside down on rent payments.

The total sum estimates range widely from around $10 billion to $50 billion. Nobody seems to have a great handle on the figure, landlords don't report this information cleanly to a single source such that we can put it all together easily. You'll see Bloomberg, Reuters, housing organizations, et al. reporting (speculating) in that $10b to $50b range across the past 6-8 months of time (they largely forward speculate based on when the financial hammer has been expected to fall, or begin falling).

There are around 123 million households in the US. 3% of that figure is 3.7 million households. That's $9,459 per household in that group in back rent if the sum is $35 billion. That's in the right universe in terms of making sense.

Oh no! The experts told me that the record April inflation was a one time thing.

The dollar index also shows that the dollar is down ~10% in value since 2018-2020. Which is concerning, because the USA is the strongest economy so you would expect people to flee to the dollar in times of crisis, pushing up its value.

We're in a crisis?

Nah, what could go wrong?

https://www.tradingview.com/symbols/FRED-M1/

The M1 is visually deceptive because how it was calculated changed, leading to the spike. The M2 provides a better overview: https://fred.stlouisfed.org/series/M2SL

Is that supposed to make me feel better? It looks like 10 years of dollars were printed in the last year?

China has grown successfully with inflation ranging from 5-15% over the last 3 decades.

If inflation maintained a persistent 5%+ clip over the next 10 years how would that effect VC funding and startup formation?

No it hasn't.

https://www.macrotrends.net/countries/CHN/china/inflation-ra...

Year Inflation Rate (%) Annual Change

2019 2.90% 0.82%

2018 2.07% 0.48%

2017 1.59% -0.41%

2016 2.00% 0.56%

2015 1.44% -0.48%

2014 1.92% -0.70%

2013 2.62% 0.00%

2012 2.62% -2.93%

2011 5.55% 2.38%

2010 3.18% 3.90%

2009 -0.73% -6.65%

2008 5.93% 1.11%

2007 4.82% 3.17%

2006 1.65% -0.13%

2005 1.78% -2.05%

2004 3.82% 2.70%

2003 1.13% 1.86%

2002 -0.73% -1.45%

2001 0.72% 0.37%

2000 0.35% 1.75%

1999 -1.40% -0.63%

1998 -0.77% -3.56%

1997 2.79% -5.53%

1996 8.31% -8.48%

1995 16.79% -7.47%

1994 24.26% 9.65%

1993 14.61% 8.26%

1992 6.35% 2.80%

1991 3.56% 0.50%

1990 3.05% -15.19%

1989 18.25% -0.57%

1988 18.81% 11.58%

1987 7.23% 11.58%

oof selective memory in action. I apparently recalled the peak years and assumed that was a typical year.

I think you mean GDP growth [0], totally different from inflation [1].

[0] https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locat... [1] https://www.statista.com/statistics/270338/inflation-rate-in...

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