If the price keeps dropping at this rate lumber will be free by December! /s
Seriously, this is a welcome correction, and another sign that runaway inflation fears were based on hyperbole.
Seriously, this is a welcome correction, and another sign that runaway inflation fears were based on hyperbole.
Maybe I'm ignorant of the inflation argument more than anything else but it doesn't even pass the sniff test in my opinion.
Just because QE doesn't create inflation doesn't mean it is a free lunch though. QE purchases treasury bonds and effectively takes them out of the market. The government is paying interest to itself. There are institutions that need those treasury bonds which results in a collateral shortage. These institutions will continue buying treasury bonds driving interest rates slightly negative leading to a "technical" form of deflation however it is quite insignificant.
https://fred.stlouisfed.org/graph/?g=GOR4
(Both indexed to 100 as of the beginning of the 2007 recession)
QE and stimulus can certainly contribute, but "as much" is a pretty big overstatement. If anyone thinks inflation was a notable fraction of the price quadrupling, they're being ridiculous. Even a huge amount of inflation would only be 2-4% of the lumber price increase.
The TLDR is this. I borrow a million dollars, and give it to you for a house. You deposit it, and your bank loans 97% of it to someone else. They deposit that, and loan 97% of that out again... ad infinitum.
Commonly this is called the "money multiplier."
This is how it's taught in school. The more-accurate version is that "whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money" [1].
Interest rates make borrowing cheaper. That spurs demand for loans which lets banks create deposits. To have the capacity to make those loans, the banks need sufficient reserve margin to meet the reserve requirement. This is usually a non-issue. They also need enough risk-adjusted capital. This is usually the issue. But if a bank needs more of this, and interest rates are low, it can buy the reserves through borrowing or equity issuance. Lower interest rates make both cheaper.
[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Decrease in interest rate increases money supply (increase in lending -> new deposits).
If there are plenty of investments then limited resources won't allow you to do all of them, otherwise we would have grown our economy all at once in a single year. The interest rate is compensation for deferring consumption. i.e. you are being compensated for the opportunity cost of not spending money on consumption. The interest rate goes up in response to the profitability of investments. If I can earn a 8% every year then I am willing to take a 5% loan. Inflation makes investments appear more profitable than they are so the interest rate has to be raised according to inflation.
Well, ignoring 2020 and 2021 inflation was really really low to begin with. It's been at 2% at most. When inflation is low, interest rates can't go much higher. The fact that interest rates have gone down all the way to 0% (especially in Europe and Japan) without causing any meaningful inflation tells us that the interest rate is still too high to attract borrowers.
If one really wants to know whether interest rates drive inflation one must precisely define the term "low interest rate" because it's all relative. It's relative to inflation, it's relative to investment profitability and relative to how many people are deferring consumption (aka saving). Just because 0% is a really low number doesn't mean it's low enough to cause inflation.
From what I have heard (i.e. I don't know if it's true), large businesses are being overfunded and small businesses underfunded with loans. It's entirely possible that some structural reason is preventing lending that is completely inelastic to the interest rate.
That being said, taking out the "runaway" adjective, inflation should be expected as a logical consequence of the monetary policy at least in US and Europe, and as a matter of fact, consumer price index are already up all across the board and both Fed and ECB had already adjusted their inflation target up. This should surprise no one, you just cannot increase the monetary mass by trillions in the year where the global economy shutted down due a global pandemic and not expect an inflationary spike. The global public debt won't be "paid" without an increase on inflation.
And this is not a criticism on the political behind this. The decision was made to ease the economic impact of the pandemic both in the general public and the private sector and in most cases this was achieved, but that doesn't mean the impact does not exist, is just that is being spread out in 20 years, and part of that would be on inflation.
Just a minor caveat I would have with your answer is that inflation cause price increase, when for me the price increase is just an indicator of inflation, not a cause or consequence of it.
https://www.wsj.com/articles/high-steel-prices-have-manufact...
We had to design this thing twice due to fluctuations in metal pricing. The original design was all aluminum. Then came all steel, because aluminum became far more expensive than steel. Then a hybrid and now steel only. There are other factors, such as the relative cost of TIG vs. MIG welding, yet, when your material costs increase nearly four-fold you can't ignore it.
By the time we finished a reduced scope prototype materials pricing and availability was just insane. This has affected other components, like fasteners.
At this time, any quote we provide for product development --be it electronics, mechanical or both-- includes language to say that we cannot hold pricing on anything for more than one week. It's got to be that crazy. If you are not very careful you can easily end-up being very busy while losing money.
Tl;dr...Meh?
It's up but historically it's not that high, it just cratered for most of the teens.
Rather than clear timber and plant new trees, you can get paid for the carbon they sequester: https://www.wsj.com/articles/new-carbon-market-pays-southern...
Aren't these inflationary?
I think the main problem is how people use "runaway inflation" and "hyperinflation".
It seems like most people using these words are imagining a world in which prices go up 5-15% (max) every year for years.
That is very abnormal for the US. But not hyperinflation. Even the 15%. Hyperinflation is reserved for situations like Venezuela and Zimbabwe (and, of course, Germany long ago).
I don't think hardly anyone sees inflation in the US to be as bad as it has been in Argentina. One might describe that as "runaway". But it is not hyper. And there is almost nothing in the US that has inflated at that level - let alone any indication that general inflation will get that bad.