Inflation climbs higher than expected in June as price index rises 5.4% | Hacker News Reader

Inflation climbs higher than expected in June as price index rises 5.4%

cnbc.com

96 pointsHappyTypist86 comments

>A separate report from the department’s Bureau of Labor Statistics noted that the big monthly hike in consumer prices translated into negative real wages for workers. Real average hourly earnings fell 0.5% for the month, as a 0.3% increase in average hourly earnings was more than negated by the CPI increase.

Wow, multiple stimulus checks, unemployment benefits and employees still have no bargaining power? What is going to happen to wages once all those people come back to work? Wages are not going to grow...

Okay, this is a clear case of stagflation. Meaning inflation isn't driven by wages, which is generally where a conventional inflation spiral begins. It is driven by the inability to increase production of certain goods, primarily cars and the inability to import goods. Cutting stimulus or raising interest rates won't make this go away because the underlying reason isn't monetary at all. The $50 billion subsidies for semiconductors do make sense in this context (even if they are a net loss from a tax perspective) and they address the problem at its root.

I agree with your points but want to add that higher wages don't lead to high inflation directly. Higher spending does. If you have high wages and high savings it wouldn't lead to inflation in the same way that high wages and high spending would.

Higher costs for any inputs, not just wages, can drive it as well, no? Even if spending remains flat, that is, prices go up and people just buy less stuff while spending about the same amount of money, or even spending less?

If people buy less stuff that's a drop in demand and an increase in supply translating to lower prices.

If input costs like energy go up, which affect virtually every item, then that can lead to higher inflation because the aggregate spending across everything can't drop.

Yes, I'm saying that rising input costs can cause inflation even in the face of falling spending, let alone flat spending. It's not just wages or spending that can cause inflation, right? Any inputs, including wages, can cause it, independent of spending.

[EDIT] that is, yes, falling spending would have a "cooling" effect, but if costs for, say, productive land, go up fast enough, you can still see inflation in the face of falling spending.

> Wow, multiple stimulus checks, unemployment benefits and employees still have no bargaining power? What is going to happen to wages once all those people come back to work? Wages are not going to grow...

I live in a country that tried to ignore the problem but then came to the realization that you have to do stimulus checks (though they only sent money to the lower 10-25% tier of society).

I'd guess most countries did stimulus one way or the other; or avoided lockdown and relied less on the global economy (ie: Africa). Countries that will try to ignore it will probably collapse especially that the coronavirus is still on-going.

The Americans (and developed world) re ally did get off easy on this one. Less developed countries and those relying on Tourism did get ravaged.

> Cutting stimulus or raising interest rates won't make this go away

I am going to disagree. The last round of stimulus by Biden the $1.9 trillion was completely unneeded and not smart. It really tipped the inflation scales. It was a political gesture as Biden wanted to appeal to his base early, but economically and financially a very poor decision and what may end up going down as the smoking gun.

Unneeded except by the people that you know... needed it.

A purely emotional justification is not correct without looking at the data, economics, and financial health. You are the exact type of person it was intended to appease.

Point taken.

Your statement is equally factually unsupported and I have apparently taken the bait.

But only a small amount of that $1.9T goes to people who need it.

No offense, but having lived through stagflation in the late 1970's, the current environment is nothing close to stagflation. And from a quantitative point of view, there is no decline in real GDP, thus it's not stagflation. It's like seeing a campfire and then warning that it's a clear case of a forest fire. Sure they're both fires (both inflation) but that's about it.

Are you saying that in the 70s, there was 7-10% real inflation on everything from gas prices to groceries to home prices, yet wages just stagnated (e.g. here's your 1.5% raise for the year!)?

Due to exponential growth, that would become brutal after just a few years, and you'd easily notice a diminishing standard of living as most Americans spend close to all of their paychecks on a monthly basis, without much wiggle room.

I think that's actually what we've been living through in the US for a while now, though not nearly as high 7% and real inflation has technically been limited to a subset of goods and services. Which means that it's low enough that people don't really notice things getting worse and worse, until they're shocked into realization when buying a large ticket item like a new car or a home, and they see just how much purchasing power they've lost compared to even a decade before.

>until they're shocked into realization when buying a large ticket item like a new car or a home

Education and healthcare.

The late 70s were brutal. Worse than the late 2000s IMHO. It was so bad, that there was a recession in 1983, and the incumbent President that oversaw that recession - Reagan - won the 1984 election by a landslide because it was way better than the stagflation of the 70s.

Also, I wish it was as low as 7-10% inflation :( https://www.investopedia.com/articles/economics/08/1970-stag...

I think the greatest damage was done in the state of mind of regular workers. Nobody wants to work for cash that depreciates that fast. While passive asset holders are seeing gains exceeding normal wages for no work at all.

Watching bankers and policymakers ignore this, everybody is gambling to try to get into the unproductive game of sitting and waiting central banks to inflate their asset prices and retire as early as possible.

Inevitably, you end up with no workforce and learned helplessness, waiting for the government to step in and guarantee jobs/UBI in exchange for everything else you got.

Somehow all of what we got just magically creates itself if the government is paying people?

Houses will build themselves!

Food will magically fill your fridge!

Can we get over the old wives tales?

Scientifically people will work to support biological survival.

What they don’t want is a job for another human who has nothing more than artificial political advantage keeping them from real work.

They don’t want a job that elevates Bezos and Gates to ungodly levels of wealth, while their friends and family struggle to pay rent and buy insulin.

Our current economic reality has nothing to do with willingness to work.

It’s an emotional Ponzi scheme, properly groomed for TV and emotional manipulation: “Chase the dream.”

People will work to survive. They won’t work to help aristocrats who don’t work thrive.

Stop coddling the minority and the majority will snap to.

> Inflation has been escalating due to several factors, including supply-chain bottlenecks, extraordinarily high demand as the Covid-19 pandemic eases and year-over-year comparisons to a time when the economy was struggling to reopen in the early months of the crisis.

While this isn't surprising, it does feel that this is largely due to supply chains still dragging behind and those with jobs having more discretionary income due to not spending on other things. It also wouldn't surprise me if businesses are taking liberty with bumping prices to claw back a bit of what was lost last year, and to put pressure on demand as they struggle bringing workers back into retail focused positions.

I think if we're still seeing these y-o-y figures by the end of the year, then we've got something far more serious on our hands.

Agreed, there will always be a lot of doom and gloomers predicting massive inflation but I think a lot of people just don't realize how much of our goods are dependent on international cheap labor (to keep prices low) and supply chains. That seems to me to be much more a factor at the moment than "money printing". We had a massive economic shock, it doesn't seem worrying to me that we'd have some rebound effects.

> there will always be a lot of doom and gloomers predicting massive inflation

Clearly if all the actually essential things like education, housing and healthcare are manifestly unaffordable - it's not a matter of prediction - it's already here.

Conveniently these things are generally left out of the CPI that people use to claim whether inflation is happening.

I think we don't talk enough about income gaps when discussing pricing for supply-constrained products.

75th percentile households have at least twice the income as a median household. And the 90th percentile nearly doubles in income again.

25th percentile households have half the income as a median.

If you live in an average household, and you get into a bidding war with three other households, it's pretty likely that one of those households can afford to pay at least twice what you can. Bump that up to 10 households in competition, and it's likely that someone in that group can afford to pay at least four times as much as you can.

This isn't even getting into the fact that household spending doesn't scale with income, so a doubling of income often results in more than a doubling in disposable income.

>This isn't even getting into the fact that household spending doesn't scale with income, so a doubling of income often results in more than a doubling in disposable income.

It's a little more nuanced than that.

The 75th and 90th percentiles are pissing away money sending their kids to expensive daycare.

The median and 25th are sending their kids to the lady down the street who takes cash.

The 75th and 90th care about what school district they can afford a house in. The median and 25th (if the 25th is even buying a house) know they can't afford to live in those neighborhoods so they shop elsewhere.

These are just two examples but the point is that except for some very basic necessities these groups are often not competing with each other for big ticket items and the higher income demographics spend tons more on these big ticket items eating up more of their discretionary income.

Of course they the high percentiles on average have more discretionary income than the low percentiles but you can't just look at the median car price and the median mortgage payment and use that to infer much of anything about the discretionary income at any given level because it varies so much by whether you're acting like everyone else at your income level or above/below on the big ticket items.

Percentiles aren't very helpful here because discretionary income is generally very small compared to these big ticket items that vary a ton based on social factors.

It's a scary top-line number, but it should be kept in mind that inflation last June was 0.6% [0], exceptionally low, as a side effect of the pandemic and quarantine.

So I think a lot of this supposed inflation is a transient effect of the statistics re-equilibrating after an extraordinary and unprecedented year of economic numbers in 2020.

[0] https://www.usinflationcalculator.com/inflation/current-infl...

One quick thought that just occurred to me is that we are pinning this "transitory" narrative on the idea that the situation will probably improve in the particular industries with currently exploding increases in inflation. E.g. used cars. But perhaps there will be a series of surprises where once the problem is solved in one industry, a new problem pops up in another industry. I.e. perhaps we get a series of rolling inflation explosions in different industries. E.g. I'm hearing a lot of macro investors going long on oil because they believe there is likely to be simultaneous increasing demand (China) and decreasing supply (ESG investors forcing oil companies to wind down). It seems like that could start to pick up steam once the used car situation is resolved.

It's entirely possible that we'll have a series of supply chain crises in the future, and nobody can rule that out. The question is whether blunt central bank interventions (raising interest rates, reducing the money supply) are the right solution to those problems. Typically the "do we need to worry about inflation?" question is actually (implicitly) a question about whether we need to change central bank policy.

used car and truck prices leaped 10.5%, accounting for more than one-third of all the price index’s gains

I read just this morning[1] that used car prices are trending down. The leading indicator there is wholesale dealer auctions, and the the average price dropped 10% in June. So I think this aspect of inflation is starting to get itself under control.

[1]https://www.npr.org/2021/07/13/1014697915/inflation-is-still...

Oh no. No no no.

Used cars prices are turbofucked for a good 5-6 years. You can't just magically poof into existence all the cars that weren't produced in 2020, 2021, and beyond.

In 2009, new car production halved and it wasn't until 2015 that new car production finally matched the 2007 peak. Meaning the USA lost out on about 45 million cars which would have been produced during those six years. As a result, used car prices were elevated for quite a while. I bought two new cars in 2014 and a new 2014 model was priced at the same as a used 2012 model, and 2010 models were barely discounted.

The USA has a strong "used cars = better deals" culture. So people don't generally buy cheaper cars new, they buy more expensive used cars for a similar price. This has lead to a nearly complete removal of the cheap car segment, meaning that there very few cheap new cars that people can purchase. Which means we need a 3-4 years of good new car sales in order to start really driving down used car prices.

Higher than expected by government agencies, obvious to everyone else.

Weren't "everyone else" expecting rampant inflation since last year, when the fed started printing money? I guess if you make that prediction long enough it'll eventually come true.

Inflation doesn't happen overnight.

I don’t think a few years is really very long when dealing with an economy of this size. I never expected hyperinflation, just runaway inflation.

It is, in fact, a very long time. Because economic cycles these days are 5 to 10 years long (which is pretty long historically). Being a bit off on your inflation call by just 2 or 3 years is essentially the same as being completely wrong.

Last year? People complained about QE as soon as it appeared in the press more than 8 years ago.

People thought the USD was going to hyper-inflate in 2008-2009 and took huge bets against it... it ended up deflating.

Government agencies don’t predict inflation. The “expectation” mentioned is a survey of economists. No info on who they ask, and there’s no reason to think those surveyed have any special insight beyond their academic training.

As long as wages continue to rise, this is great news for the vast majority of Americans that are in debt. Congratulations, your mortgage and student loans aren’t as a big relative to your income.

But then future loans will be at a higher interest rate?

Which puts downward pressure on prices for things you buy with credit. And then you can refinance later so it's a wash.

The problem you hit along the way is that people get screwed out of any ability to save money toward a down payment on anything as their wages lag the increased price of everything that they need to spend those wages on.

that assumes peoples incomes are increasing

No idea why this is downvoted. Its true - inflation can be good for those who carry large debts.

You better have fixed rates. It isn’t going to help lower income people who are more likely to have credit card debt or variable rate mortgages.

Most low income people are already paying near their maximum legal rate on credit cards.

Fixed rates are the standard for mortgages and car loans.

An outcome of the Great Financial Crisis was a move away from ARMs through a rise in rates and in income levels necessary to qualify for them. Plus, banks prefer fixed rates in a declining rate environment (basically the past 10 or so years.).

But yeah, credit card debt is never good.

Inflation is usually accompanied by increased interest rates.

But wages haven't risen. It's the exact reason why so many places are "struggling" to find people: the fucking people don't want to work at the same wage from 5 years ago.

Wages are rising at the fastest rate that's been seen since measurement began in the 50s. Yes, it is offset by the decline in wages from last year, but there is continuing upward pressure on wages.

https://tradingeconomics.com/united-states/wage-growth

sure. they wont though.

My kids bank account just got taxed 5.4%. My pay went down 5.4%.

Maybe it's not quite exactly like that, but I genuinely feel bad for anyone with USD.

It's not like that at all.

I don't.

Your purchasing power for the goods in the index changed by that much over a year. It didn't "just" happen. And you aren't necessarily affected to the tune of 5.4% - could be more or less depending on how you use your money.

>It didn't "just" happen

Doesn't change the reality of it.

And yeah it's savings for college, so it's just a wake up call to get out of USD and into diversified investments.

If you keep all your money in cash, sure. That should be a surprise to no one. If you have real estate, stocks, other assets, you're doing fine. My stock account went up 20% just in the last 6 months.

Yeah guess I need to manage my toddlers money.

Why do you keep a cash account in your toddler's name? If you are saving for college, etc, that should be in something that grows over time, like stocks, not cash.

Money needs to be periodically invested and I don't want to make a stupid tax blunder.

Also, it's nice that me and you both know to invest. When I grew up my parents did not invest. You bet the less affluent are losing 5.4% of their money.

That’s true, and I’ll bet a lot of people know they should be investing, but don’t have the savings to do it. Employers should at minimum raise wages to keep up with inflation automatically but sadly I’m sure most just don’t care enough.

I'm curious, what did you investment portfolio do this past year? I bet it did better than 5.4%.

> but I genuinely feel bad for anyone with USD.

Why just USD? Isn't everyone affected, including holders of Euro, GBP, etc.?

So important question, where should we be storing money that we need in the short term (down payment) and long term (retirement savings)?

Short term: mattress, Long term: still in index funds

Warning, I am an internet rando and not an accountant.

Regardless of whether or not we are indeed in an inflationary environment, mattress (physical cash) is the opposite of what you'd want to do in an inflationary scenario. Read up on the experiences of any one who relied on a fixed income pension or salary during one of the really intense inflation episodes throughout history. E.g. you get $1000 a month and suddenly just a single loaf of bread is worth $5000.

Agree, but with savings essentially zero interest the difference is in the noise. OP mentioned downpayment, which I (probably mistakenly) took to mean cash needed very soon.

Honestly I have no idea what to do with cash needed a year out. Bear the brunt of pain that is inflation, I guess? I mean, sure, buy gold, a traditional hedge against inflation, but for just a year? And it still seems speculative at best.

Some percentage of allocation in cryptocurrencies (BTC, ETH, maybe one or two more if you invest more time in reading up) may not be a bad idea.

(I'm not implying to invest or speculate with what you can't afford to lose and this is not financial advise.)

Not that it is an unimportant question, but HN is not a finance forum. If you need advice about this, please consult a qualified professional instead of asking essentially random people on the internet.

From the HN guidelines

> On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups. If you had to reduce it to a sentence, the answer might be: anything that gratifies one's intellectual curiosity.

> In Comments

> Be kind. Don't be snarky. Have curious conversation; don't cross-examine. Please don't fulminate. Please don't sneer, including at the rest of the community.

We are in an active period of economic and societal uncertainty. Hence the original post gratifies my intellectual curiosity and my comment expresses my curiosity about how to navigate the situation. If you want to be pedantic, I'm curious about how to hack this intellectually curious time to protect or grow my wealth. I appreciate your concern, but I'm not going to take some stranger's advice and follow it to a T. I'm curious to see what people's thoughts on the matter are and use that to adjust my own research.

Alright, perhaps I've been exposed to a few too many overenthusiastic colleagues who hype a new shitcoin every day. At least a few of those have already lost large-ish sums due to this and it has given them significant worry that I would not wish on anyone else. OTOH, finance is indeed an interesting topic so why not.

FWIW, my short term obligations (mortgage, food, etc for the upcoming few months) will be met with cash since I work as a freelancer and income is "lumpy". For the long term, stocks in companies with a long term competitive advantage (strong brand, technological know-how, etc) is where I think it is at. They will be able to raise their prices in the face of inflation and maintain profitability. Investments that I would stay away from are most forms of fixed-rate bonds and companies with capital-intensive/low margin activities because the rising costs of inventory and depreciation will eat up a significant chunk of their free cash flow.

As you can probably tell from the previous paragraph, I am personally a firm believer in investing in economic activity of some sort, either purchasing a share of (the earnings of) a company or lending out money to a company or government and therefore I stay away from "inert" investments that don't generate income by themselves like currencies, gold, commodities and/or crypto. That's just my preference though, and plenty of people would advise gold or bitcoin as an inflation hedge. Some of them have even done well, though a similar amount of people have done poorly in gold or BTC so buyer beware.

> please consult a qualified professional instead of asking essentially random people on the internet.

I guess that worked out really well for lots of people?

I'd be very surprised if, in a careful study into people taking advice from either random internet people and people taking advice from qualified financial professionals, the people taking advice from financial advisors did worse overall. Take into account that the "random internet people" group not only invested in bitcoin and Amazon but also in MtGox and the Titan stablecoin.

EDIT: see the ["Cryptocurrency traders struggle to sue Binance"](https://www.theverge.com/2021/7/12/22573812/binance-crash-cr...) for an example of what I mean. Treasuries and (unleveraged) diversified stock portfolios may not make you a billionaire overnight but they also won't make you lose everything overnight.

Why discuss anything outside of one's domain at all then? There are many examples of intelligent cross-disciplinary contributors throughout history and you've probably met some in your life (especially if you're in software engineering, where many enter the field without relevant degrees). How many people spend 5-10 years in a career and then switch? It's more common than you think. And I'd consider 5-10 years of experience enough to make someone an expert (that's 1-2 PhDs worth of experience!).

Many HNers have lots of experience with finance, both as professionals and as affluent people who have received excellent advice from finance professionals, good educations, and private study.

Obviously you shouldn't ONLY listen to uncredentialed randos on the internet when making important life decisions, but randos on the internet can certainly contribute positively to discussion and spark thought.

Gold is and historically has been one of the best stores of value.

Couldn't be more wrong: https://www.macrotrends.net/1333/historical-gold-prices-100-...

Gold is quite volatile. The chart shows how inflation-adjusted gold can lose %70-80 in a very short period of time; and how it can take a really long time for the price to recover.

The volatility is in the currency.

The chart that you provided actually shows that gold is often a strong investment in an inflationary environment. Notice the price action in the 1970s. Artemis Capital's Dragon Portfolio [1] idea explains the concept well. From my understanding the best explanation of gold's general behavior is real interest rates [2].

[1] https://artemiscm.docsend.com/view/taygkbn

[2] https://en.m.wikipedia.org/wiki/Real_interest_rate

Short term: medium/low risk bonds, TIPS. Long term: equities.

My understanding is that traditional bonds (even high quality / low risk ones) frequently sell off (lose value) in inflationary environments. As mentioned elsewhere it's debatable whether we are actually in an inflationary environment currently.

Depending on how hard you want to manage your money.

1. Short term: instead of CD ladder, you can do TIPS ladder.

2. Long term: correctly allocated index based portfolio.

If you are using CPI as the input to savings decisions, then you should be buying used cars.

Short-term TIPS or maybe I-bonds? They are pretty solid.

Long term has always been stocks.

In a calendar year, you can only acquire $10k in I bonds [0] What do you do with the other couple million you're stuck with?

[0] https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

I recently took my short term cash and dumped it into some high yield dividend ETFs which are generally the safest stocks out there.

It's not complicated, bank account for short term, stock index fund for long term. Short term crypto or stocks if you don't mind gambling and possibly not having the money when you need it.

We should make a measure, as a form of protest, of Actual Revenue Per Median Household.

How it would work is we'd take your typical, family household in the median (not the average to be less skewed by extreme results). We'd take the income, then subtract Income Tax, the median Property Tax, the median Sales Tax paid on all purchases that month, the median State Income Taxes paid, the cost of Tax Preparation software, and basically all other essentially-necessary government expenditures for the median American family and their lifestyle.

The result would be a percentage of how much tax ultimately is paid to the government every month. Then, we adjust it every month for inflation caused by government expenditure, which has effects similar to a tax on your savings.

The result of this measure, I expect, would grab headlines everywhere. I expect the actual percentage of money paid to the government every month or lost from inflation would shock people.

obligatory reminder that prices didn't increase 5.4% in june as the headline might suggest, the 5.4% figure is only year-over-year. The BLS summary describes it better:

>In June, the Consumer Price Index for All Urban Consumers rose 0.9 percent on a seasonally adjusted basis; rising 5.4 percent over the last 12 months, not seasonally adjusted.

Also:

>Used car and truck prices comprised about one-third of the total CPI increase, lending support to the notion that the rise in inflation could abate in coming months.

As long as you didn't buy a car...

Or had to hire new employees.

Cancels my 5% raise, doh!

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