> A significant portion of consumer inflation is still being driven by pandemic-driven mismatches between demand and supply.
Or maybe printing 40% more dollars is the main driver here? This feels like a very dishonest take.
Or maybe printing 40% more dollars is the main driver here? This feels like a very dishonest take.
I run a business. For years I held off on price increases (or kept them to a minimum) because my competitors and vendors weren't raising theirs and the labor market wasn't insanely competitive.
Now, all my vendors are raising prices, all my competitors are raising prices, and all my employees can easily command big raises due to the power they wield in the job market, so I'm raising mine. And all my clients are raising their prices for the exact same reason as me, so I don't have to worry about losing them as clients, I know they can absorb my costs.
This is the viscous-cycle of inflation as it's actually experienced.
Now, that being said, we agree that the "corporate greed" storyline is lame. You see this also in places like Reddit r/antiwork where all companies and bosses are perceived as greedy, malicious labor exploiters. I just feel that behavioral economics is more a cause here than the money-supply forces you're describing.
It does seem kind of disingenuous to blame inflation on a something we've been doing for over a decade rather than the major black-swan event that happened two years ago. Especially since pandemic inflation was nearly instant: lockdowns -> shortages -> price gouging.
That said, you did see asset prices reach questionable levels even before COVID. I pulled most of my money out of the market in late 2019 for that exact reason. I was convinced we were due for a correction then.
This is new. Somehow stimulus/asset inflation is causing this (lower labour market participation).
Are you aware of the degree to which is ramped up?
The better graph to look at is the money base. https://fred.stlouisfed.org/series/BOGMBASE
No one's ignoring the last 13 years of furious money printing. What you point out is the exact problem with money printing. When you dump a ton of new money into an economy everything seems fine for a while, until it doesn't. It's kind of like Wily Coyote running off the cliff. Everything is fine at first, but at some point he notices that there's no ground under his feet anymore.
It's only when you slow down or reverse the printing can the inflation 'catch-up' and over-whelm, and the more you slow the higher the wave will be, and the longer you've been printing the more volume the wave will be.
The best way to avoid inflation is to only print currency equal to actual productivity increases, the second best way is to continue to print more and more - if you ever let up you'll run into the other end of the cycle. As the second option produces wealth inequality that centralizes decision making and drains efficiency from the market-economy, we should try the former again.
If the wealthy know that the Fed is going to raise rates, and the wealthy know that raising rates will trigger a recession, and the wealthy know that a recession will result is lower asset values, then they will, before this all goes down, start to hoard currency and consumption items that last for ~3 years. Why are used cars prices so high? Used cars will last throughout this recession. The wealthy are already hedging this exact scenario.
Hedging that we are at the end of the cycle creates inflation in the hedged items, and the Fed think that raising rates will slow down inflation, when the only thing that slows inflation is the job loss that comes when they have risen rates to much. In fact, by raising rates they will only invite more inflation, as it will cause the wealthy to hedge ever more.
[1] https://tradingeconomics.com/united-states/money-supply-m1
The other misconception I often see is that if prices aren't increasing, then that means inflation is not occurring. Inflation in the sense that money is losing purchasing power, is always happening. It often doesn't perfectly reflect in consumer prices because business are hopefully becoming more efficient at some rate.
Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.
Now look at the M2, which didn’t change.
Exactly. This article is about consumer prices, and yet this discussion became about inflation. Even I conflated the two. I should have said "perceived inflation" or just "prices". Regardless, we're saying the same thing. As I illustrated with my own example from my business, I'm raising prices right now because:
1. I need to: all my vendors are raising their prices and I need to pay my employees more.
2. I am able to do so without consequences. My clients are all raising their prices too, in order to cover rising costs from their vendors (including me) and employees.
I'm perfectly willing to concede that inflation's always been happening (I'm not much of an economist) but that it took COVID to bring about a chain reaction of price increases that ordinary folks experience as "inflation".
How is money losing purchasing power if prices aren't changing? If prices aren't changing, then money will buy what it bought before. Isn't that exactly "purchasing power"?
Inflation is an increase in price level. Who sets the prices? Corporations (or landlords). They may increase the prices either because their inputs are more expensive, or to pad their profits. But all the inputs, in the end, derive from someone's labor. There might genuinely be situations when more labor is required to achieve the same output (e.g. drought for agriculture, or mineral extraction got more difficult), but most of the time, the opposite is true - less labor is required to achieve the same output. If wages do not rise at the same pace as prices, somebody is pocketing that extra money
But we never see that inconvenient fact being mentioned...anywhere. Newspapers run headlines like "beef prices up X%", without the corollary - "and the price increase is pocketed by meat packing plant cartel". And it turns out, empirically, that's pretty much what's happening: Corporate profits drive 60% of inflation increases:
https://mattstoller.substack.com/p/corporate-profits-drive-6...
When only the rich guys got free moneys and "invested" it into stocks and buybacks, it didn't make any sense to raise prices.
Now that the little guys (potentially) have money in their greedy little hands, it is time to raise prices. You can't have ordinary people with money to save, right?
There are expectations built into economy all around. Once enough people expect that the money printing will continue and increase, the change in collective behavior may be fairly sudden.
But yes, inflating the USD is the elephant in the room. I am not surprised either.
Why? Because, whether one agrees with the economic decisions of the last 2 years, we have fiat currency for a reason. The whole point of being able to stretch the dollar, or not having the dollar be based on anything tangible, is so that all holders of USD are effectively taxable.
That being true, is anyone from the IMF to the Federal Reserve to the US Treasury and Congress going to be upfront about the implicit taxability of the dollar? Most Americans are completely oblivious to this; although even Gen Z and Alpha are privy to price increases, most people don't conceptualize inflation as a devaluing of the dollar itself, but rather as the increase of prices of items in isolation. They don't realize that these price increases are effectively planned and that they occur to the benefit of someone else, as opposed to being the result of some force of nature or incompetence of leadership. Even those who have a sense that they are being robbed might not put two and two together, in part because of articles like these that blame easy things, like corporate fat cats or, worse, the people themselves buying "too much" at the behest of the advertising industry.
If mainstream economists and politicians came out and openly said that inflation is a tax and that they're just going to keep printing more currency when they feel like it and keep raising the debt ceiling, the narrative would collapse because too many people would gradually lose faith in the system. The Soviet Union still appeared more powerful than it really was for many years, but the true reason it came crashing down was that the Russian people lost faith in it. You can keep a failing system going indefinitely if everyone believes in it and plays along with the game of charades. If people stop playing the game, all of a sudden it's apparent that everything they valued was imaginary all along.
So yeah, expect more rhetorical gymnastics from DC. The incentive structure is not there to have them speak otherwise.
Yep.
"Power resides where men believe it resides. It's a trick..." -- Varys from Game Of Thrones.
Yes. It would have been a very different conversation if the fed was taking 40% of all checking/saving account cash. Which is technically not different in term of transfer of wealth.
1) Increased leverage of labor to increase salary raises prices.
2) Increased money printing has increased demand faster than production can respond, raising prices.
3) Lack of aggressive anti-trust prosecution has led to effective monopolies. This was recently reported in the meat industry, buts it's everywhere
4) pandemic related disruptions have impacted the supply chain.
Now, depending on your political leanings pick one of these and ignore the others, and that's how the discourse goes.
(and media)
We just suffered through 4 years of everything as little as a cute firefly in your backyard dying being the President’s fault. I guess last January they finally had a change of heart and now the President can’t possibly be responsible for almost anything bad that happens.
the corporate greed angle is justifiable because some part of the inflation can absolutely be attributed to the maxing out of the global supply chain.
our supply chain is optimized to perfection, it means companies consciously made the decision to ship US grown cotton overseas to Asia for processing and manufacturing into clothing to reduce cost. This back-and-forth takes time and eats up supply-chain resources.
There is also a big labor shortage. If you're in the U.S a lot of your basket is coming from California. In 2020 H2A visa holders (farm workers) were payed $14.77/hr. In 2022 its $17.51/hr
What happens when you can't even get the Visas? You start approaching American locals, who want much more per hour than a Visa holder. They actually want a living wage
This whole labor shortage +inflation thing to me just means - people are figuring out how much it actually costs to make what you consume, when employees aren't treated like garbage
edit: My bill went from ~$600 to ~$650 using a 4 month window rolling average.
Personally I have noticed I now alter the foods I choose to buy because of the high prices. I am buying more staples and trying to cut costs because the price of seemingly everything besides dairy and chicken(when you can find wings that is) has gone up.
I expect this disruption is driving a lot of the spike in grocery prices.
What the heck are you talking about? I've seen heavy cream in literally every grocery store I've gone into. Supply chains for food are not screwed there.
New Seasons was better, so maybe just an Amazon thing. But that’s at least one screwed up supply chain
>In October, a cyberattack against the largest US cheese manufacturer contributed to a nationwide cream cheese shortage shortly before the holidays, Bloomberg News reported, endangering holiday treats for millions. Bloomberg reported the attack targeted plants and distribution centers. As a result, Wisconsin-based Schreiber Foods was unable to fully operate for several days — just as it was heading into its peak busy period before the Thanksgiving, Hanukkah and Christmas holidays. The company is one of the country's largest marketers for dairy products, including cheese slices, yogurt and the all-important cream cheese, with annual sales of more than $5 billion.
https://www.cnn.com/2021/12/18/business/cream-cheese-cyberat...
https://www.nytimes.com/2021/12/27/business/beef-prices-catt...
In this example the price paid to ranchers for beef hasn't risen all that much but the end user price has increased drastically. That the meat processing industry has 4? companies controlling 80+% doesn't help.
I don't know, but it seems like farmers negotiate contracts in advance, so if futures prices are driven up by speculators using easy money then there will be a period of time where farmers are selling for less than they otherwise could because they negotiated futures contracts. Isn't the whole point of the futures market to provide farmers with stable prices, not optimal prices?
Massive widespread crop failure. https://www.bakingbusiness.com/articles/54799-usda-confirms-...
I've heard this take before, and it's not wrong that a few sectors are driving it, but it's not super relevant imo.
Regardless, gotta be foolish to think all prices will settle back down once the "supply chain" unkinks itself.
Powell has one real mandate: preserve the asset values and thus the power of the current ruling class.
He only accepted problematic inflation when it was no longer politically possible to deny it. He's now making non-committal statements regarding continued QE and fed balance sheet reduction.
The fed is backed into a corner. They either pop the asset bubble and lose their jobs, or let inflation continue unchecked until their bosses(politicians) lose their jobs.
They have a politically powerful generation(boomers) going into retirement. They'll do what it takes to keep them happy. Those folks are already looking at significant inflation in health care due to the mismatch between supply and demand there. Covid is only making that worse by causing early retirements and discouraging young people from going into health care.
The inflation driven from dollar printing is definitely contributing but a large portion of it is because of lack of labor.