Consumer prices rose 8.5% in March – highest since 1981
cnbc.com
cnbc.com
Inflation is hurting Americans, and the war in Ukraine is killing Ukrainians. The idea that these people would try to use one of these things to advantage themselves politically instead of addressing the suffering that their policies are causing (and changing course) is reprehensible to me.
There is a daily White House press briefing that I suggest everybody watch (you can 2x speed through it). Here is a link to today's: https://www.youtube.com/watch?v=07-AMwJbXQY
Just the way that they talk about this is so...vile. 8.5% inflation is a nightmare. You're in charge. Take ownership of that, and for the love of god stop trying to use the massacre of innocent people in Ukraine is a political tool for youself.
Ergo, the Russians launching the war in Ukraine significantly contributes to inflation.
Is it solely responsible? Of course not. Does it contribute? Oh most definitely.
Every day it's "Putin Price Hike", and absolutely 0 taking responsibility.
[edit] Blaming the world for the sanctions they imposed on the Russians is like seeing a bully smacking a victim yelling "stop hitting yourself" and saying "yeah! why are you hitting yourself?!"
So yeah, the Russians are responsible for large increases in the cost of oil, and food. Are there other factors at play? Sure. A global shipping crisis, a COVID outbreak and lockdowns in China. A lot of pent-up demand chasing limited supply. Snarled supply chains.
I do think we'd be much further along getting out of this if the Russians hadn't kicked off their 'special military operation.'
What are we blaming the administration for? Continuing the bi-partisan Trump-era QE cycle which allowed America the fastest-ever exit from a recession event (COVID), saving America from a lost decade?
...though the certainty that inflation is definitely 100% Biden's fault is a bit unjustified too.
When you walk into your grocery store and see consumer basics going up in price so dramatically, it's going to prompt the desire to blame, and of course Biden is a big target. Regardless of if it's fair for voters to blame Biden so heavily, they are and will.
Claiming they’re not responsible, or even worse, claiming that an additional $1.85T of spending will reign in inflation is beyond ridiculous: https://www.nytimes.com/2021/11/11/business/economy/biden-in...
The reality is everyone agrees: if you increase the money supply beyond demand for money, inflation will result. However, the demand for money is extremely difficult to model and is incredibly unpredictable. There's demand for US dollars all over the world, from dollarized economies like Venezuela and El Salvador and Panama - to European and Asian bond buyers - to unusual dollar demand curves at home, such as the sudden fear that gripped the economy during COVID that caused everyone to stuff dollars into their mattresses.
The model is far more complex than you're making it out to be.
Was Biden running the government response (or the Fed policy) when 2008 happened (when QE started, that many here are blaming for the inflation)? No, he wasn't. He wasn't even running the response for the first part of Covid. I seem to remember stimulus checks with Trump's signature on them.
One could fault Biden for the anti-drilling and anti-pipeline policies. But much of the blame is just "he's the guy currently there", so he gets the blame. "The buck stops here", and all that. It's unfair. But it happens to every president, and it's always unfair.
No, the Fed is supposed to be relatively isolated from short-run political influence to put a step of separation between government fiscal policy targeting the economy (the responsibility of Congress) from monetary policy affecting the currency (the responsibility of the Fed) except to the extent that the former effects the landscape that the latter targets, to maintain confidence in the currency by making monetization of debt unlikely.
This is very much not to prevent the elected officials of government from intervening in the economy. If anything, it frees them to do so, because the barrier against monetization of debt not only protects the currency, it protects policymakers from the perception that deficits will likely be resolved with monetization, which is a brake on fiscal policy that involves deficit spending.
Congress isn't a person or even an institution with a unitary head, and that's at least 5 separate Congresses, several of which didn't have even approximate unity between the two houses on the issue.
And most of the promises on that came from the White House, not “Congress” (as if there was anyone who could speak for “Congress” anyway.)
And Congress passed infrastructure bills in 2009, 2012, and 2015 before the one in 2021.
I think it's more the former, leading to a circular argument on where the blame for that 60% lies.
No, the Fed is an independent entity similar to the supreme court. The president could fire the chair and install someone new, but I don't believe that has ever been done.
This may be hard to hear, but you probably shouldn't be watching it every single day. They're never going to say what you want them to say because it's not true.
Russia's invasion of Ukraine (and associated war crimes) is most definitely a root cause for current inflation spikes in food and energy. If you're looking for someone to say that it's due to other factors then you're looking for something that isn't true.
And food/energy prices are most likely going to get worse as the conflict drags on.
Government borrowing will be inflationary if it is financed by the central bank and it doesn't look like there is any credible plan for paying it off. That sort of thing is indistinguishable from printing currency to pay your bills, which doesn't work out very well after a while. Germany in the 1920s and Zimbabwe more recently are good examples of that.
Is the government responsible for the inflation observed right now? That's a complex answer, of which current political adversaries of the executive branch leadership would love to pin solely on them.
Hayekian acolytes and hard money advocates have been warning about this on this very site for YEARS, only to be downvoted and shouted down by the dominant Keynesian Central Bank Worshipper HN zeitgeist.
No, these consequences have been in the making since Helicopter Ben launched QE. The supply chain shocks introduced by COVID definitely accelerated things, but the outcome was always inevitable.
Furthermore, the March print only included a small portion of the Ukraine-related inflation, specifically in fuel prices only. It's going to take several quarters for these high energy costs to filter into the rest of the CPI. So if you think this March print is bad, just wait.
Exiting COVID, lots of demand chasing limited supply, shipping issues, supply chain issues - especially for core inputs like silicon wafers. However, that was well on its way to being resolved, which is what you see in the CPI data in spite of the Russian war. +0.3% MoM vs expected +0.5% MoM. The worst is well behind us.
Lumber is way down, corn is flat, soy is flat, consumer discretionary inventories (excluding auto) are up and there's word that demand for chips has peaked too.
> No, these consequences have been in the making since Helicopter Ben launched QE.
The impact from QE is limited compared to all the above. There's a ton of demand for dollars, not just domestically but internationally. Monetary policy has some, small, impact, but nothing compared to the war, supply chains, shipping issues and labor market issues.
How can you accurately predict that the worst is behind us, when you don't know the outcome of the Covid tornado wreaking havoc in China? You can correctly forecast how that's going to play out and how it'll impact manufacturing and consumer prices globally? Of course not, nobody can.
Fed funds rate: 0.5%
US gov debt: 125% GDP
HN: the problem is COVID/Putin, there is nothing the WH or the Fed can do.
As for fracking leases, oil companies have over 9000 approved permits they're not using already, and when pressed on why, CEOs stated it is because shareholders want them to be conservative with capital. I suspect it's because they realize this is all transient and there's no sense investing in the long run to address a short-term spike.
It will be interesting to see how energy companies respond to this though. Will they play chicken with Russia to see how long it will hold on the price increase? Or will they start dropping the capex to tap the more expensive resources that the higher price point has unlocked?
I agree the oil market is in backwardation, but this is retrospective CPI, not December 2023 CPI.
[edit] Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market. It's less than 8.9% of global financial assets, and while it increased a lot recently (for obvious reasons) on average over the last 20 years it's not super dramatic.
[1] https://www.fsb.org/wp-content/uploads/P161221.pdf
[2] https://unctad.org/news/shipping-during-covid-19-why-contain...
[3] https://www.wsj.com/articles/container-ship-backup-at-southe...
[4] https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-pr...
[5] https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzh...
[6] https://www.cbsnews.com/news/long-covid-labor-market-missing...
But it's ignoring something much simpler: if you print more money, you're directly obfuscating supply and demand by devaluing your currency. The notion that it's not money printing because it's held by financial institutions is as credible as trickle-down economics. There's still more money in the system, and that system is purposefully using the extra cash to prop up the stock market. You know what the best hedge against unsustainable debt is? Devaluing the currency.
Yes, I am making some simplifications. If you really want to get into the details of quantitative easing in the US we can, but honestly it's just noise. You can't escape the concept of supply and demand no matter how opaque your policies are. The M2 money supply has had an enormous increase in just the past few years.
https://fred.stlouisfed.org/series/WM2NS
I admit I have not had a chance to look at all your links as of writing this comment.
[edit] Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too!
So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations.
I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.
I also think that these issues are transient, and caused by a very poor transition out of COVID lockdowns and into normalcy. It's taking longer than I thought to resolve, but I do think that not taking too much dramatic action and letting the market sort it out is the path forward.
I think the amplification of these issues is transient, but that the overall trend is still up. I believe CPI will come down again soon, but then start to trend up again without drastic measures from The Fed (much more than raising rates by 25 basis points a few times a year like they're currently discussing).
The world economy is complicated though. Nobody was predicting covid a few years ago. Not many people were predicting a war last year. Who knows what crazy wrench reality will throw in the system soon.
Basically, Japan's public-sector debt growth is offsetting private-sector debt shrinkage.
This dynamic is unique to Japan.
This is where the argument breaks down in my view. You cannot effectively centrally plan an economy. Granting these special favors for pet projects creates malign incentives. Those who are closest to the money spigot benefit disproportionally as compared to those who receive the newly printed money later. See also: Richard Cantillon.
The decentralized market price discovery mechanism is disrupted by the malign incentives created by the money printers. Even if central planners could acquire enough information to effectively plan an economy, the problem of corruption and malign incentives remains.
That said, central planners cannot effectively out-compete the decentralized price discovery mechanism of a generally unhampered market. They are limited and fallible bureaucrats, where the market participants are legion. Institutional group-think is yet another obstacle.
Finally, even if you could conclude that your centrally planned port was not a bad investment, can you measure the cost of lost innovation? The opportunities not taken by the market because capital was misallocated by central planners for a port?
Only if that new port resulted in value added equal to the money printed. If the port only adds, say, half the value it's going to lead to inflation.
If you just print a bunch of money to give to unemployed people, it's going to lead to inflation.
Wanna guess how many people actually get caught for that? I guess we'll find out in a year or two. I'm guessing almost none.
Is this even a logical proposition? If people save $100 dollars, what's wrong with adding $100 dollars to the economy, assuming no price controls like the massively distorting zero lower bound that artificially keeps interest rates from entering negative territory to signal overabundance of capital. This artificial price control forces all capital to be utilized at capacity (endless growth fallacy) or destroyed (broken window fallacy) to reduce the abundance of capital.
After all, if every product has a price at which it is guaranteed to be sold, there is going to be an interest rate that guarantees that capital will be accepted by someone even if that interest rate is negative.
Imagine if you produced trash that costs $10 to dispose of, or in other words, the price of that trash is -$10 but then the government stepped in and guaranteed to buy that trash for $0. Suddenly a lot of people will keep producing more trash.
>There's still more money in the system, and that system is purposefully using the extra cash to prop up the stock market.
That's what happens when you disable market signals like negative interest rates. Since you have obligated yourself to buy the trash your economy slowly turns into a bigger and bigger trash heap. Before you say nonsense like negative interest rates prop up the stock market, think about how a reduction in the money supply is supposed to prop the stock market up, it's completely illogical.
>You know what the best hedge against unsustainable debt is? Devaluing the currency.
No, the best solution against unsustainable debt is to tell the owners of financial capital that they have accumulated financial assets beyond your desire to be in debt, i.e. the interest rate that you would consent to is not positive anymore. As it stands right now. That market signal is completely dead. There is nothing in this market that can say "I've had enough of the debt nonsense, I do not want further debt, I will not accept further debt" as a 0% interest rate allows people to keep saving more and more endlessly which means others must be more and more in debt unless they want a recession or depression and lose their job.
When you think about it, all these rich savers are just lying to themselves by saving beyond the desire of society to let them save which is obviously going to lead to inflation. After all, you have these tokens and no meaningful agreement on the other side that they are worth anything, you just forced that obligation upon them but that doesn't mean they will actually fulfill it, it's not like they agreed to do that. The interest rate that they would agree to isn't positive.
The problem is they start to spend it (especially if inflation mindset takes hold in popular culture). Here's the velocity of M2 money
https://fred.stlouisfed.org/series/M2V
What happens if that reverts to the mean, like many things do over the long run?
Why not? Fload the economy with dollars and people will demand goods. This increased demand will affect shipping prices.
But you are wrong on a number of fronts.
> Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2].
Monetary policy has a massive influence on aggregate demand by consumers.
> Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market
You're focusing on the wrong thing. What matters is money/assets changing hands and bidding up the price of things. Fed policy absolutely has a massive impact on this, nobody denies this empirically.
Bids jumped by about 30% when the war began, but the price of wheat was already up by nearly 100% over pre-pandemic levels when we still thought there was little chance of war breaking out.
https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf...
"Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market."
If you look at the curve since OP, you'll see it's is actually less backwardated than it's been all year (due to repeated releases from the US reserves). But long term futures are near their highest - suggesting a worse picture for impact on consumer prices over time.
Source: traded oil futures professionally. Data you can watch: https://www.eia.gov/outlooks/steo/marketreview/crude.php
The reason why QE doesn't lead to inflation is so utterly boring it surprises me that people even think it can cause inflation. Once interest rates fall below liquidity preference, people would rather keep their money liquid than invested in fixed term assets (treasuries or certificates of deposit) which means banks need liquid assets (reserves) to match their now increasingly liquid liabilities (your deposits).
Banks have learned from 2008 and aren't lending to risky borrowers anymore which means the government is acting as the borrower of last resort.
EDIT: It was a simple comment, not a lecture of how the global economy works. Point was that there is a hell of a lot more causing inflation than the supply of Russian oil. Much higher prices have had nowhere close to the overall impact on CPI that we are currently experiencing.
This comment betrays a deep lack of understanding about how pricing works for fungible commodities.
Russian oil is a huge chunk of the world supply, and oil is sold on a global market.
> It was a simple comment, not a lecture of how the global economy works.
Well, one can only reply to the comment you wrote, and that comment, as originally written, was misleading at best.
> Point was that there is a hell of a lot more causing inflation than the supply of Russian oil.
No one is claiming otherwise.
But the annualized core inflation rate (6.5%) is dwarfed by the headline rate (8.5%) and the key difference between those rates is fuel and food, both of which are directly affected by Russian actions in Ukraine.
Furthermore, as the article notes: "there were signs that core inflation appeared to be ebbing, as it rose just 0.3% for the month, less than the 0.5% estimate"
Moreover core inflation, despite factoring out direct fuel costs, is still influenced by fuel costs as fuel factors into the price of many other goods. So that 0.3% increase in core inflation is actually pretty remarkable in that it's lower than I would've expected given the brutal increase in fuel prices.
The upshot being, were it not for Russian invasion of Ukraine, I suspect the headline would be "Growth in consumer prices fell slightly in March" as increasing interest rates plus an easing of supply chain issues has reduced pressure on consumer prices.
But forget all that, it's way more fun to ignore the actual facts and just expound about the money supply and how we all need to invest in bitcoin and gold.
Source: "Der Spiegel" yesterday citing a US research institute.
The US sanctions on North Korea for example have caused incomprehensible amounts of starvation, a fate worse than being killed in an airstrike, yet people don't seem to care.
In this case the citizens who consume the pro-sanctions narrative are expected to toe the line while they pay higher prices.
"See what Mr. Putin made me do to you, on your behalf!" seems a greater leap than saying, "See what Saddam made me do to those Iraqis on your behalf!"
The prohibitions on trade are the fault of those enacting the prohibitions on trade.
If you're going to take the realpolitik stance of demanding the necessity of the sanctions as a result of the Russian administration's actions, then where does this train of consequences end?
Did the war in Ukraine happen in a vacuum? Were there no precipitating events, no opportunities for deescalation? If the invasion was solely the fault of the Russian administration, then it should follow that the sanctions are solely the fault of those who enacted them.
International trade isn't a right, it's a privilege. Agreements negotiated between states at the state level. You have a right to trade at home, you don't have a right to trade abroad whether that's at the discretion of the state that represents your interests, or the state that represents the interests of your trading partner.
For instance, the Chinese can't sell fentanyl into the US market. Why not? Because trade isn't a right, it's a privilege.
> If the invasion was solely the fault of the Russian administration, then it should follow that the sanctions are solely the fault of those who enacted them.
Other way. If the fault of the invasion was solely on Russia then the consequences of those actions are also on Russia.
How fair is it to force starvation upon a populace in retribution for the actions of an unelected leader?
As a thought experiment, suppose that Russia did not have nukes nor means to retaliate, would you be equally okay with the US bombing Russian cities and killing civilians in numbers equal to those that will starve due to our sanctions?
What if instead of sanctions or bombing we developed some kind of chemical weapon that increased the population's metabolism such that equal numbers starve. Would that not be seen as completely despicable? Yet the outcome is the same.
As a fun bit of trivia, one of the main opium traders, Jardine Matheson is still around. Now a British-domiciled Bermuda corporation that, among other things, owns the Mandarin Oriental.
There were a lot of things popular back then that wouldn't be such an easy sell today. Slavery, for one (not in the UK, btw, they'd already ended it by then).
> As a thought experiment, suppose that Russia did not have nukes nor means to retaliate, would you be equally okay with the US bombing Russian cities and killing civilians in numbers equal to those that will starve due to our sanctions?
As an aggressor nation conducting genocide in all but name? Go to town. By "go to town" I mean bomb government and military buildings until they surrender, and avoid civilian casualties at all costs.
How many Russian civilians died btw, as a result of these sanctions?
> What if instead of sanctions or bombing we developed some kind of chemical weapon that increased the population's metabolism such that equal numbers starve. Would that not be seen as completely despicable? Yet the outcome is the same.
The only folks using chemical weapons appear to the the Russians. But I'm sure you know they're broadly banned by the Geneva Convention.
>Russian President Vladimir Putin has said his country had "no other choice" but to invade Ukraine and that what he has called a "special military operation" was aimed at saving people in the Donbas region.
Just as others would claim that the west had "no other choice" but to prohibit trade. From my side your response reads as side-stepping this direct comparison. Perhaps one could even go as afar as denying the free-will of human actors by concluding that the sanctions were inevitable, just like the war was inevitable.
Another area where I would differ with your perception of fundamentals would be the personification of the state. States, in my view are incapable of trading. It is individual human actors who create trade. National anthems, lines on a map or flags simply cannot load up the trucks. As to the origin of rights, because humans create states, their rights clearly do not come from those states.
Take any example of a state abusing or denying someone their rights. Next observe that those were not rights, those were privileges. This chain of logic works well if you believe that rights originate from the state.
>“Everything in the State, nothing outside the State, nothing against the State.”
You're conflating decent people with their indecent governments. There are plenty of decent people who would gladly trade with decent people of countries we sanction, but we not only punish the entire country, we punish ourselves in the form of higher prices. Those prices ripple through the economy and we all get less.
Virtually everyone loses here, but we're supposed to take solace that the "other side" suffers more. That is pure 1984-level insanity.
This may not be fair for the individual - but no less so than it is for the individuals in other countries that their government affects - but collectively, they are their country.
I see this sentiment a lot here, but it's really unclear what the WhiteHouse can do about it. Maybe they should take Gerald Ford's lead and start printing up "Whip Inflation Now!" buttons? Maybe you want a wage and price freeze à la Richard Nixon? The Federal Reserve is where your ire should be aimed. They left rates way too low for way too long kicking the can down the road and now the next kick of the can could reveal it to be a bomb. The way to deal with inflation is the way Paul Volcker dealt with it in 1980: raise interest rates significantly - not these piddly 1/4% raises.
https://qz.com/2139399/surging-nickel-prices-are-bad-news-fo...
Also, the fuel processed from the pipeline is chiefly an export, so it wouldn't have affected prices in the USA.
Lastly, the XL pipeline was a huge risk to the American agriculture industry. There was opposition to it it on the right, particularly from ranchers in the region. Do you really think it's wise to put the beef and wheat industries in the north at risk just so refineries can sell oil overseas at a slightly lower cost?
Oil is (mostly) fungible. An export from Canada is additional capacity that doesn't compete for American oil that can stay in America.
Then sit back and wait as it blows over. It's already blowing over, prices are stabilizing. Month over month 0.3% increase in CPI is 3.6% annualized inflation.
Much of this is outside of the purview of the US president. These are areas where the private sector has to take the lead. AFAICT there have been efforts to increase domestic manufacturing of semiconductors - Intel is taking a big lead here, but it's going to take at least a couple of years (probably closer to 3 or 4) to get these new fabs online. There's not much a US president can do about that. And much of what he could/can do is limited by congress passing laws.
> The Fed's contribution is small.
It's not. ZIRP has had a huge impact on this inflation and fueled lots of market speculation both in housing and the stock market (not to mention crypto). With interest rates closer to their historical mean this speculation wouldn't have happened.
There aren’t really “historical average” interest rates, they’ve been going down continuously for like 40 years.
Crypto is the same kind of speculation that drew folks to beanie babies. The entire crypto world market cap is like 2/3 of apple, it’s really not a big thing.
> they’ve been going down continuously for like 40 years.
Cycles. They go down... they go up.
I don't disagree about zoning playing a part, but again, this is something the US President has little control over. Yes, he should probably be using the bully pulpit to support building more affordable housing, but it's not something that's going to result in a quick reduction of inflation.
> Japan housing CPI being dead flat with similar interest rate policies
Japan has an aging, declining population with essentially no immigration. Of course their housing prices have been essentially flat, they're experiencing a decline in household formation.
They do but the cardinal directionality has been down and to the right.
> Japan has an aging, declining population with essentially no immigration. Of course their housing prices have been essentially flat, they're experiencing a decline in household formation.
Totally! What you're describing there is the equilibrium of supply and demand. In their case, demand went down. In our case, demand is going up and we're refusing to add supply. It's the same thing. Or at least, two sides of the same coin. We're both arguing that housing prices are fundamentally - primarily - driven by supply and demand of housing, not supply of money.
> I don't disagree about zoning playing a part, but again, this is something the US President has little control over. Yes, he should probably be using the bully pulpit to support building more affordable housing, but it's not something that's going to result in a quick reduction of inflation.
This is where we disagree! We should federalize zoning rules yesterday. The federal government has the right to do this, for instance Chicago residents ability to install satellite dishes is already governed by federal law. [1] Time to stop obstructionist city councils from the top and maximize the freedom of individuals to build housing as they see fit.
[1] https://www.chicagotribune.com/news/ct-xpm-2005-03-06-050306...
You expected that to last forever?
> driven by supply and demand of housing, not supply of money.
Yes, it's driven by supply and demand, but easy money means more demand than there would be with higher interest rates and tighter monetary policy.
> We should federalize zoning rules yesterday. The federal government has the right to do this, for instance Chicago residents ability to install satellite dishes
I suspect this Chicago instance has more to do with FCC than anything else. Federalizing zoning would likely be an uphill battle that would go to the SCOTUS and I'm going to guess with the current composition they won't look favorably on that.
And yes I see little appetite for federalizing zoning however it’s both an option with precedent and would actually help unlikely raising interest rates :)
Removing house finance interest tax deduction would help reduce speculation and reduce prices.
https://www.brown.edu/news/2021-09-01/costsofwar
'... 20 years of post-9/11 wars have cost the U.S. an estimated $8 trillion and have killed more than 900,000 people. '
Western USA has large land tracts owned by federal forest service and BLM. Maybe you could advocate for feds changing their zoning to allow house building?
I already advocate for zoning reform at all levels including federalizing the zoning rules to preclude obstinate city councils from banning the desperately needed development within towns.
Large tracts of forest are kind of useless if your job is in a city and the city council won't let you build a house to live near it lol. "If you want houses so bad why don't you build them in a forest well away from anything" is among the worst arguments I've ever heard.
All the tax cuts that give real estate advantages over other investments have arguably more to do with it. People don't leverage 5x their net worth into a single asset in a single location that produces nothing but for housing that's the norm.
Real estate produces something very valuable, and if you can't understand that try living homeless for a few months .. its the only way without a house you will get to be near amenities ¯\_(ツ)_/¯
In financial terms it produces rent or saving of paying rent.
edit: my bad 3.66% my calculator rounded to 4.
The market is pricing in a 87% chance the next hike is 50 bps, and a roughly 95% chance of the rate being at least 2.25-2.5% by the end of the year.
https://www.cmegroup.com/trading/interest-rates/countdown-to...
The market isnt always right, and even a series of back to back 50 bp hikes might not be enough. We'll see.
The best case I see is that they raise rates by 1-2 pct and accept a few years of elevated inflation followed by a gradual normalization towards a long term mean. I really don't believe hyperinflation is a big risk.
That’s the point: raise interest rates until they cause a recession, that suppresses demand and so kills inflation.
The Federal Reserve Bank’s job to control inflation (and unemployment)
Nitpick: it was still February in Ukraine.
Source: https://www.bls.gov/regions/mid-atlantic/data/consumerpricei...
It's an interesting read. I recommend as you read through the recommended provocations, try to figure out which ones we implemented and what was the result. There's quite a few such as withdrawing from peace treaties, arming Ukraine with lethal weapons, and performing military exercises on Russia's border.
https://www.rand.org/pubs/research_reports/RR3063.html
If anyone perceives this as being "pro-Putin" don't bother responding. He's an evil dictator who should be in prison for the rest of his miserable life and I'm uninterested in hearing you parrot the regime's propaganda that if you criticize them you must be pro-Putin.
The Rand paper describes why the US military funded report believes Russia invaded Ukraine, and it's as a result to the provocations we implemented. It's fair to disagree with it, but it didn't come from Russia, it came from a US military think tank.
Also note that the paper is from 2019. Russia's invasion of Crimea and Donbass was 2014. So Russia was perfectly capable of getting there without the US having to figure out how to "provoke" them.
I'm not going to bother with semantics arguments around whether the US intended for Russia to go further into Ukraine vs intentionally kept escalating the behaviors that they knew would increase the risk of Russia going further into Ukraine but they didn't "want" it to happen.
In 2014, you mean when the US openly supported revolution in Ukraine and cherry picked the new administration?
https://www.theguardian.com/commentisfree/2014/apr/30/russia...
Ukraine had previously had a long-standing agreement with Russia to guarantee access to the only warm water port Russia had. After the new regime that was picked by the US came in, they revoked that relationship. That is the reason why Russia took Crimea (warm water port), because it was unwilling to be nerfed by the US in this way.
If you couldnt make it anymore obvious that you're pro-putin... you bring up the Kharkiv pact and then re-order historical events to blame putin's actions on the US.
The pact that was terminated BY RUSSIA, AFTER they took Crimea.
The idea that the US cherry picked the new administration is bonkers. The only "evidence" of this is a phone call where some diplomats talk about how effective they think the opposition are. If there a phone call where US officials say that they think Macron is better than Le Pen is that evidence that the US chose Macron to be the leader of France?
It's an especially silly accusation when you realize that the temporary government just ruled for 6 months until they held an election and made no major changes during that time.
If Putin actually wanted to get his hands on Ukraine to turn it into a puppet state or kick start a neo soviet union then he completely failed.
The primary purpose of those exercises was to signal a strong commitment to NATO defense for the Baltics and Eastern Europe.
That seems to have been successful as Russia has not touched Poland and so the overall scope of conflict of this war was reduced to Ukraine.
> arming Ukraine with lethal weapons
This seems to also have been successful. Without those weapons, Ukraine would have been overrun and we would have seen Bucha 2.0 in Kiev.
I find it hard to believe that giving Ukraine fewer weapons would have resulted in no invasion, especially given the fact that Russia only invaded because they believed Ukraine was weak.
I do agree that this one was risky, which is why we made sure to get consent from Ukraine's democratically elected government for this policy.
> withdrawing from peace treaties
I assume this is referring to "Withdraw from the INF Treaty", which is an arms control treaty, not a peace treaty? Or is there some other treaty you are referring to? I highly doubt this has had any real effect, given that nuclear escalation is so far off the table anyways and any missiles of this variety would have been stationed in the Baltics / Poland anyways.
The paper explicitly calls out providing lethal aid to Ukraine as one of the highest risk actions and most directly tied to Russia feeling pressure to go further into Ukraine. It's a chicken and egg situation. Yes, the lethal aid was helpful, but would the lethal aid have been necessary if we weren't interfering so much there?
Let's not forget Operation Timber Sycamore where we did execute a coup attempt in Syria, one of Russia's biggest allies. And our dealings with Iran, another Russian ally.
We signed the Charter on Strategic Partnership signaling our intent to let Ukraine into NATO, which would obviously be a red line for Russia. The weird thing about this one is that after the invasion Zelensky revealed that publicly the US was saying Ukraine would be joining NATO but privately the US was telling Zelensky it would never happen. So it was a psyop specifically to provoke Russia.
We also pulled out of the Open Skies Treaty.
One clarification here. None of this is to say that Russia is justified in doing anything. Putin is an evil dictator. End of story. Also, the US repeatedly escalated tensions with Russia knowing that the Ukraine invasion was a likely response Russia would take.
Atrocity Propaganda (https://en.wikipedia.org/wiki/Atrocity_propaganda) is extremely effective.
>Atrocity propaganda is the spreading of information about the crimes committed by an enemy, which can be factual, but often includes or features deliberate fabrications or exaggerations.
>"So great are the psychological resistances to war in modern nations", wrote Harold Lasswell, "that every war must appear to be a war of defense against a menacing, murderous aggressor. There must be no ambiguity about who the public is to hate."
Also, what you call a coup did not install a new government. The parliament was still the same. All MPs who didn't flee remained MPs. Including from Yanukovitch's party and including openly pro-Russian ones.
Finally, a new president was _elected_ very shortly (given the circumstances).
No. NSDAP did not win once in free elections. He got into power only after subverting the election system in a couple of ways.
> That's also democracy, literally.
Pogroms are also democracy, literally. The majority decided that Jews ate Christian babies, and acted to end the great evil.
When we, in the so-called West that I also feel a part of, say "democracy" - we mean also the "rule of law". The idea that you can do anything as long as 50% + 1 person agrees to it is not democracy in the Western sense.
> Also, what you call a coup did not install a new government.
That only means the coup failed, not that it didn't take place.
> The parliament was still the same. All MPs who didn't flee remained MPs.
If enough MPs flee to make it impossible to govern, the Parliament should dissolve itself. Instead, it chose to remove the President using unconstitutional means. I don't know what else that Parliament did, but whatever it was, it could have waited until the elections, which would happen quickly after dissolution.
> Finally, a new president was _elected_ very shortly (given the circumstances).
Sure. Nobody says otherwise. The problem is the time between the riots and new elections. The riots that cost more than a hundred dead are also a problem. In democracy that upholds the rule of law, fighting and killing 18 police officers is a crime, no matter how morally justified it was.
Like the GP, I believe Putin is bad and Russia is an aggressor, and all of that. This war is wrong and Ukrainians are brave people. However, the Euromaidan was not a win for democracy. It was not the right thing to do in a democratic country. Here in Poland we managed to peacefully replace the communists in '89-'91. Nobody died back then. No riots happened. No violence broke out. Precisely because we aspired for democracy, even if the other side had blood of workers on their hands. If we could do that peacefully, then Ukrainians could have ousted Yanukovych without 100 people dying, and more than a thousand people getting seriously wounded. Instead, they chose to resort to violence.
I'm not pro-Russia. It would be suicidal for me to be pro-Russia. I'm not saying the current or previous governments of Ukraine are illegitimate. All I'm saying is that Euromaidan is not something anyone should be proud of. The goals do not justify the means. Killing is a crime. Violence is bad. Just because the violence was done in the name of anti-Russia sentiment does not make it less bad.
Do you think the US is alone in these hikes? The Eurozone is also showing very similar rates. It's unlikely to be something one country can fix by itself.
The US already has a law that requires the minimum age of the president (35). They should change the law and add a maximum age set to ~65. Could solve a lot of our problems.
If you truly think Trump could resolve this issue, then please explain exactly what he would do to resolve it. I hate to break it to you, but more liberal tears are not a solution to higher inflation.
Meanwhile the current Fed chair, a Trump nominee, has way more control over inflation and was responsible for raising interest rates way too late. And yet you blame Biden?
I am still waiting on an answer as to what exactly Trump would do to curb inflation if he were in office. As far as I understand, wishful thinking and partisanship does not impact wheat prices.
The only good thing would be that OPEC+ would almost certainly be producing more oil since Saudi Arabia much prefers Trump. They even recently invested $2 billion dollars in his son in laws fledgling investment fund.
And yet there was no inflation to speak of. Weird.
The geriatric retreads we get to choose from every election cycle is just maddening.
The Federal Reserve Board of Governors, an executive agency of the federal government that is “independent” within government in the same sense as, say, the FCC, and not at all independent from the government, is actually the relevant actor in inflation-control policy.
Is this also your take on the car shortage? The fact people are paying 40% higher prices on used cars?
Is your official response to that - Hey, theres a chip shortage in Asia, but who cares? you're in charge! start making the cars without the chips!! start making chips at home!! vroom vroom!!
This is what every country should do. Reduces interdependency and foments high tech industry.
https://fred.stlouisfed.org/series/M1SL [1]
/s
[1] Keep in mind, the effects of these changes are often not felt in everyday prices for at least 1-2 years.
Time will tell how much effect this has on inflation, but it's odd that so many of the people complaining about inflation insist that it must be related to anything but the increase in money supply.
Yes, Putin's individual actions in Ukraine have had a negative effect on the global economy, and yes that negative effect is creating additional inflation, but "putin price hike" is so obviously a sound-bite crafted explicitly to trick voters into not "blaming" the current administration.
I voted for Biden because I wanted an adult in the Oval Office, and an adult doesn't talk like that, in my opinion. I understand why it can feel necessary to talk like this, but you give up the high ground by doing so, and I think that's a mistake.
We are left to pray for such good days.
Electoral reform (approval voting ftw, I don't get the obsession with ranked-choice) is a crucial part of the solution to these problems, but mandatory voting is completely stupid if you keep first-past-the-post. That would only serve to enshrine the spoiler effect in law as an inevitability in US politics forevermore. Great for anyone who gets paid by DNC or RNC, terrible for literally everyone else.
1. The President of the United States does not control inflation, the price of oil, the price of CPUs, the price of new and used cars, or the ports that are backed up. People ask a glib question and get a glib answer.
2. What war in all of human history was not politicized? This really should not be surprising.
I get not liking politics, but being outraged at the state of the world and directing that at whichever politician is in office... is not useful unless you're playing politics yourself.
Except he does. Sure he is not holding a dial labeled "inflation", but he led a tsunami of poorly thought out policy, wasteful spending, and virtue-signalling.
Even if you lay aside how he was actively demonizing O&G before winning the election, his first action as POTUS was literally to cancel an oil pipeline. Transport costs are a factor in oil prices, you cannot pretend they aren't.
Is there evidence that demonizing O&G or canceling a single pipeline is making an impact on the price at the pump?
To be honest, I think you're reading too much into the headlines and not enough into the underlying factors. Dig through the CPI numbers for the contributing factors.
Examples?
This is a nuanced thing tbh.
Anyone with a lot of debt (eg lots of student loan debt) actually benefits from inflation.
Inflation is hurting _fixed income and currency holders_
No one was getting rich by saving money with interest rates basically zero and the stock market posting record returns.
> it's not like corporations are in a rush to give matching raises to workers.
Inflation is nearly at a 50 year low. Corporations that want to fill their hiring targets are giving raises
I think this is a typo?
It sounds like you're suggesting people should spend it as soon as possible on depreciating things.
That being said in an inflationary environment assets will retain most or all of their base price. So you don't have to buy things that are a waste. You just have to buy assets.
Just last week they extended the delay on student loan debt repayment? Why in heck? That leaves more money in people's pockets to go out and buy and spend. Let's stop with this Covid charade of outlandish government spending on programs that we don't need. In reality Covid is a prop to push through liberal fiscal policies.
Another example; the current administration pushing hard for Union's at Amazon and Tesla. Once again, rising wages is not the policy that helps reduce inflation. It's literally econ 101; "to make up for the increase in cost, companies must charge more for their goods and services to maintain the same level of profitability."
Please cite specifics, with sources.
As an aside, your assertion about covid is utterly ludicrous.
Starting with the first calamity. Biden’s American Rescue Plan. $1.9 trillion dollars completely unneeded, only done for political reasons. In the name of Covid, pushed through absurd welfare programs. It’s like cashing in $5 chips at the casino for $100 loses down the line.
Enacting regulation to limit US production of oil and stopping the keystone pipeline. Under Trump the united states was energy independent and also for the first time in 75 years a net exporter or oil.
Thank god Biden’s build back better plan is being held up. Another outrageous case of spending that will throw gasoline onto the raging fire. Perhaps would be the last nail in the coffin.
You're also hilariously wrong about oil and energy issues; the US is still producing more oil, right now, than the average year during the Trump Administration, and is still a net exporter of energy. Nothing has changed on that score.
As for the ARP, a lot of that money was for emergency economic needs created by the pandemic. Ask the people who benefitted from it whether it was "completely unneeded"; that's a joke. BTW, the ARP was supported by 60% of Republicans. Look it up.
Ok, you seem to be a good word smith. Let's break this down with some common sense. If you don't have to pay the monthly student loan note, that leaves more money in your pocket right? That means you're likely to go out and spend that extra money that should have been allocated for the student loan on goods and services. Hense buying goods and services leads to further inflation. Cash will only lose value, so it is better to get your shopping out of the way and stock up on things that probably won't lose value. This is fairly straightforward and common sense.
> but the unionization complaint is perhaps even more hilarious
Once again. What do union's for the most part do? Bargaining representative during negotiations related to wages and salary. What do higher wages do? Cause inflation... Fact! Businesses pass that cost onto the consumer. Once again econ 101 stuff here.
> You're also hilariously wrong about oil and energy issues; the US is still producing more oil, right now, than the average year during the Trump Administration, and is still a net exporter of energy.
This topic is a bit harder as data seems to be mixed, but I did find an article that quoted.
Higher net crude oil imports are set to make the United States a net petroleum importer this year again, as in 2021, after a historic shift of being a net petroleum exporter in 2020, the U.S. Energy Information Administration (EIA) said on Friday.
So basically, you can't form the plural properly in your native language, and you're also telling various lies about unionization because you read one or two stories about how one or two Amazon shops are unionizing, and you've decided to buy into the host of silly right-wing lies on all this, even though it's completely impossible that this infinitesimal increase in unionization, which hasn't even occurred yet, could have had any role in the current inflation. Any role whatsoever.
I would have just let all this drop, but really now. You can't spell "unions" or figure out whether it's capitalization yet but you want to grandstand about how unionization that hasn't even occurred yet has magically caused inflation? It's just a bit much to swallow, is all.
I quote:
“In 2021, the number of wage and salary workers belonging to unions continued to decline (-241,000) to 14.0 million, and the percent who were members of unions – the union membership rate – was 10.3 percent, the U.S. Bureau of Labor Statistics reported today. The rate is down from 10.8 percent in 2020 – when the rate increased due to a disproportionately large decline in the total number of nonunion workers compared with the decline in the number of union members. The 2021 unionization rate is the same as the 2019 rate of 10.3 percent. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent and there were 17.7 million union workers.”
https://www.natlawreview.com/article/unions-numbers-2022-edi....
There is no real surge in unionization at all. Did you even bother to check before mouthing the words that the most credulous 2% of feral Trumpers are feeding you?
To the extent that any such surge does eventually materialize, it will of course have nothing to do with Joe Biden, and it will improve the economy. Not harm it. But please. Let's not engage in magical time-travel thinking and pretend, among adults, that a surge starting in 2022 is responsible for our current inflation. That's a complete joke. Almost as big of a joke as other parts of your argument, like the assertion that the halting of Keystone XL, which would not have even been completed until 2023 even if it had been allowed to go ahead, is responsible for inflation.
One is the extended period of 0% fed rate coupled with ludicrous spending. Most of that happened under the previous administration and was largely bipartisan. This administration still has insanely low fed funds rate and is still spending like crazy. Please don't bother explaining how the federal reserve works, the buck stops at whoever appoints them and/or gives them power.
The second is continually escalating sanctions against one of the world's biggest energy and food exporters. This also started under the previous administration and was expanded during this administration. Again, bipartisan. The administration(s) paint pictures of oligarchs losing yachts when they talk about sanctions. They conspicuously neglect to mention food rationing in Spain, food riots in Peru and Sri Lanka, and the looming famine crisis when the crops that should be getting planted now don't get planted because there's no fertilizer. So in 3-8 months when those crops should be getting harvested, it's going to be bad and food inflation is going to be much worse and many, many poor people are going to starve.
Because there’s an election in November.
People started getting vaccinated and returning to normal? I know a few people got it in december, but January is when things really ramped up.
If he didn't attack the oil price won't go increase further.
Under current conditions, this is just politics. I was never impressed with Biden's integrity, and this does not change my estimation, but anything that might help keep out-and-out grifters out of government is looking like a win, nowadays.
The perfect is the enemy of the good, but likewise the not-great is the enemy of the disastrous. That's where we are now.
Accurately characterizing this inflation as being partly the result of disruption in the oil markets caused by the war in Ukraine is emphatically not the same as taking political "advantage". It's simply a statement of fact. Not a "political tool".
I think you have an axe to grind and have decided that the Biden Administration would be a nice sharpening stone.
Even when our current national bank director stated in early January that'll we'll reach double digit measured[1] inflation by summer.
[1] felt the need to emphasis measured because they changed the way inflation is measured last November, to probably show politically better numbers going forward.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4716201/
Additional reading here: https://www.frontiersin.org/articles/10.3389/fpubh.2022.8513...
I'm not going to make the argument that more people in the US will die b/c of inflation than the war in Ukraine: that is really insensitive.
I'm just highlighting the fallacy of "oh some people have it worse, you can't complain!"
When you include the reduced life expectancy of people in Ukraine due to war it will be a lot higher :(
Without even extrapolating to higher inflation rates, I think this works out to an additional 10k deaths due to inflation?
I would not call this a "small bump" and I am the opposite of the "sky is falling due to inflation!" crowd - just trying to be grounded. It is a fairly big bump.
Not sure what policies you're talking about here? Most of the current inflation drive is (1) a spike to petroleum markets which is impacting shipping speculation (you handwave it away, but yes: this is the biggest current factor), (2) the reheating of the consumption economy in the wake of the pandemic, (3) the slower ramping of the production economy to compensate (c.f. chip shortage), (4) the tail end of the pandemic savings boom caused by in hindsight very generous temporary benefits.
Of those factors, only one is an issue of US government policy. And it was wildly popular, almost 100% bipartisan, and passed during the prior administration.
To wit: in your horror that the Biden administration would blame inflation on Putin, you seem to be rushing to blame inflation on the Biden administration with even less justification! It's topical right now because of a discussion yesterday, but... basically, I'm not completely convinced your argument is being made in Good Faith.
The other is COVID hangover from money printing and screwed up supply chain.
It's perfectly responsible to highlight the factors that are driving it.
If Biden was lying, it'd be another thing, but he's not.
It's perfectly fair populism.
Putin kicked of a war that is having massive repercussions that are just beginning.
You have Ukranian sympathy, but are you willing to pay 2x heating bill next winter?
Because Germans are going to have to face that, and their sympathy for Ukraine might plummet, there could be riots.
Those are the kinds of things that cause revolutions.
Here's something you might not know. Russia produces 86 billion tons of wheat, Ukraine 25 billion tons of wheat annually. Only China produces more. The yellow in Ukraine's flag symbolizes wheat, it's that important. Much of Russia's wheat has been cut and 100% of Ukraine's wheat shipments have been cut from the world supply. Several countries get almost all their wheat from one of Russia or Ukraine. Not only are their prices skyrocketing, but famine is inevitable. It is coming. Inflation is only the beginning. Famine is the oncoming train, and people have the balls to complain about prices. Just wait. Those countries are going to try and buy US or Canadian wheat, driving up prices yet again.
You're free to complain about politics, but war is now the primary driver of inflation, whether you believe it's politically correct or not.
“Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” -- Milton Friedman
All else being equal, a rise in the price of wheat or oil would necessitate a decrease in the price of other goods as more money than previously is spent on those particular goods. If you spend more money on gas, you'll have to spend less on something else. The only way [wheat+gas+etc] and all other goods can rise is if there's more money created to chase those goods.
The masses are being programmed to look away from monetary policy. The last time an invasion caused oil prices to soar, we didn't get 8.5% inflation!
1. https://chrome.google.com/webstore/detail/ycs-youtube-commen...
edit: my search was on yesterday's press briefing
1) Tax increases. Political poison.
2) Reductions in entitlements. Unpopular with many (depending on which entitlements are reduced.)
3) Inflation. Sometimes nearly invisible, it only becomes politically dangerous when it's a good deal above average and in the public eye. (We are there now.)
What impact would a 1% move have on these payments, is this public information? (ie. how much is fixed vs floating etc).
Can the Fed even raise rates in an environment like that?
1. I was listening the radio a couple weeks ago and the DJ invited people to call in and talk about the mask mandate being lifted (in Toronto). Woman calls in, says she went to the grocery store, got three bags of groceries, $146. The dj asks "and... were people wearing masks?" "oh yeah, some were" says the woman before going on to explain how she paid $14.50 for a roll of aluminum foil. The topic was masks and the caller didn't even want to talk about that, the cost of goods was her top and only issue.
2. Standing in a park, an older gentleman is walking by with two small bags of groceries in his hands. I look at him to greet him as he passes, but he walks straight up to me as though he wants to address me. He stops in front of me, looks right in my eyes, lifts his groceries and says "FORTY DOLLARS! Too much money!!" (English was not his first language.) I directed him to the discount grocery, he confirmed that's where he is already shopping, and it's a green grocer with dry goods so I know his bags contained no (costly) meat, just vegetables and maybe some bread, pasta, or eggs.
I frequently hear of "inflation" etc. on the news or economic reports, but this is different. I have never been approached by strangers on the street who are so frustrated and shocked by price hikes they couldn't walk all the way home without telling someone, even a stranger. This economic situation is different from any I have experienced in my ~40 years.
I'm sure you realize it at some level, but as someone who's half again older than you, this is the 1970s at warp speed.
jcal93's comment below about eggs though is partly "transitory" inflation, we're having another widespread bird flu outbreak like in 2015: https://en.wikipedia.org/wiki/2015_United_States_H5N2_outbre...
https://www.bls.gov/charts/consumer-price-index/consumer-pri...
March saw a continuation of a year-long trend in which YoY shelter inflation accelerated by almost exactly an additional 0.3% each month. March came in at 5%, 0.3% higher than February's 4.7%, and so on.
Shelter is the largest category in the CPI basket, and it is critical for a reason. It isn't coming from Ukraine. It mostly isn't coming from supply chain bottlenecks and shipping container shortages. It isn't discretionary. And most importantly, it's a deeply lagging indicator with a long way still to go to catch up to the current activity in the housing and rental markets.
My expectation is to see this trend continue. Base year effects (in the second derivative) might slow it down a bit, but by June we could be looking at almost 6% inflation in shelter alone.
And remember -- a linearly increasing growth rate is faster than exponential price growth.
Interest rate hikes may help, but the dynamics are such that they'll need to make things worse before they make things better.
Inventory is still bumping along record lows. Housing starts were up in the new year, but it will take time for new units to come online after being side lined with labor and material shortages. ~5% mortgage rates are also likely to begin to slow things down.
Absolutely, but that's part of the mechanism through which price rises happen, more than a causal explanation of it. It further suggests that shelter has a lot of momentum.
> Housing starts were... side lined with labor and material shortages.
That's a bigger part, but easily offset by historically low population growth in the US. Low pandemic interest rates were almost certainly a much bigger factor in driving the housing market than the cost of construction.
> ~5% mortgage rates are also likely to begin to slow things down.
Again, absolutely (although if inflation also levels out at 5%, that may be neutral). But, as I mentioned in my comment, there's a "right half-plane zero" in the transfer function between interest rates, housing prices, homeownership costs, and shelter. Rising mortgage rates may level off housing prices, but meanwhile drive up the cost of homeownership. Even as the housing market plateaus, those rising homeownership costs can carry shelter higher, both in the form of real rents and "owner's-equivalent" rents. (In Canada the relationship is more direct, with mortgage interest costs directly included in the shelter basket, but the relationship exists indirectly in the US CPI metric too).
That shelter CPI can trend higher as housing prices plateau is the price of reciprocity that we pay for shelter CPI appearing low after interest rate cuts, even as housing prices grew rapidly.
I can't decide if the U.S. is headed towards a feudalistic society or not. If shelter cost inflation is accelerating it gives me hope, in a sort of grim accelerationist way, that housing will have to be addressed soon. I want to believe that we will see a housing campaign to "promote the American dream" or something, but everyone I talk to seems to think it's not gonna happen and democracy isn't alive enough to fix the corporate rent seeking.
Probably, yes. It was easy to see this coming, so I think policymakers should have shifted policy earlier, but it will be hard not to do so at this point, because now you don't need to look ahead anymore to see it.
The last time shelter inflation rose in this fashion was around 2010 to 2013 -- but that was shelter bouncing back from -0.6% to 2.3% after the GFC, rather than running ahead of the inflation target. The time before that was 2005-2007, when shelter inflation ramped up to 4.3% before the GFC. And the time before that was the '80s Volcker shock.
That's not just pattern-matching; that's a causal relationship. When interest rates gradually rise or fall, housing prices fall or rise in tandem such that shelter inflation -- rent and mortage payments -- is fairly constant at around 2%. But when interest rates step-change suddenly, shelter reacts violently. When that change is a rate cut, shelter initially falls (as mortgages get cheaper) and then climbs back (as housing prices adjust for the lower rates). When that is a rate hike, shelter initially spikes (as mortgages get expensive) and then falls (after the real estate market corrects).
But real estate market corrections are more broadly devastating than stock market corrections (although they often go in pairs). Housing is a highly-leveraged asset, is most peoples' largest (or only) investment, is used as collateral for other loans, and so on.
Shelter is a good approximator for overall long-term inflation expectations, labor prices, and wage inflation. So the Fed doesn't have much choice but to either address it or allow an inflationary wage-price spiral.
When you look at just the energy component of the CPI you'll notice that it began to outpace inflation in March of 2021 at 13.2% and has fluctuated between 25% and 32% since them. The previous chart on that page that breaks down the most recent month's inflation between food, energy, and all other items you see that food is in-line with inflation, energy is crazy, and other items are at 6.5%.
https://www.bls.gov/charts/consumer-price-index/consumer-pri...
We have a lot of problems going on right now, but why the energy sector has been experiencing crazy inflation for the last year might be more of a factor that the other things grabbing the headlines right now.
> Headline CPI in March rose by 8.5% *from a year ago*
Another notable piece:
> core inflation appeared to be ebbing, rising 0.3% for the month, less than the 0.5% estimate
which matches the other commenter mentioning that the gas prices were a massive contributor to this.
I would say it is due to loose monetary and fiscal policies (duh).
Maybe we are in for a 70es rerun; and the 70es inflation spiral didn't really end until Paul Volker, Thatcher, and Reagan changed the economic policies.
Also stopping the inflation spiral helped bankrupt the Soviets who were a great benifitter of the rising commodity prices ... just a hint.
If you don't think this has any affect on inflation Ive got a bridge to sell you.
Can you explain what you mean by that? I think many of us would argue that we’re more efficient now in WfH situations.
My workplace is post-remote now. We're back to fulltime in the office. I'm super happy for all the random interaction, problem solving together and coffee breaks. The social interaction enables us to work better in the team.
The best policy was not the topic of the comment but it's probably to let those who want and like remote work to do it.
Ah yes, the pervasive disruptive social din of an office. Unstructured, random and disruptive interactions. How anyone achieves optimal focus and gets into the zone when in an office is beyond me.
So my -efficiency- is higher. Total work productivity, sure, taken a hit.
Team velocity? What do people who say this do all day? Are you in sales?
Most of these things really are harder to do remote. I could honestly see how you'd be more productive and have stats to prove it if the vast majority of your responsibilities were just code.
Think of your work output as a vector. It has a magnitude - how much work you can get done in say a quarter. It also has a direction - what is the project you're working on, and does that line up in an economically productive way?
The reason we have corporations and management is to get all those vectors to line up in a certain direction. They're like magnets, aligning the productivity vectors of each IC so they don't compete with each other and instead contribute to a common goal. Almost every IC is less productive in terms of magnitude when working in a big corporation, but because there are thousands of them, the overall product becomes very hard to compete with.
WFH effectively reduces the magnetic force on each employee. Their productivity magnitude increases - they get more individual work done per unit time. But their alignment suffers. It's harder to identify when two IC's work is not going to line up perfectly, and harder to catch problems and complications early, and harder to set a direction in the first place.
And that's where WFH is going to suffer. As long as people can basically continue on the same direction they were going pre-pandemic, it's an improvement. But as soon as a direction shift becomes needed, corporations that have gone all-WFH are going to quickly find that the reason they're a corporation has gone away. They won't be able to adapt and chart a new course, and their employees will all quit and join new startups that are already pointed in the right direction.
If you recall "ping-gate" entire underground lines were shutdown in the UK due to people working jobs that can't be done remotely.
My passport took forever to get renewed during the very first lockdown due to disruption to a fairly manual process that required handling of physical things (eg a passport)
Although they saved money on studio rental and travel, they ended up teaching far fewer students - despite starting out with an established group of regular students, and charging much less than an in-person class would cost.
Where are these statements coming from?
Here's a summary of revenue/share for the S&P 500 (from Standard & Poor's data): https://www.multpl.com/s-p-500-sales/table/by-year
This time around, who wants to be Carter? Somehow I suspect we will be short of volunteers. Neoliberal propaganda shot itself in the foot. Oops.
Just like Obama, really.
Biden actually did it, and paid the political price. There was never going to be any way to withdraw without horrific consequences. Which is why neither Obama or Trump actually did it.
Volker was brought in by Carter.
And Reagan got all the credit - supposedly he tricked the Russians into thinking the Star Wars program actually worked and that was why they went bankrupt.
Things have obviously changed - but the basics are still there: inflation comes from monetary and fiscal expansion - once the spiral picks up - commodities lead the way - and that’s the Russians.
I think everyone agrees they can't raise rates to 20% without causing catastrophic side effects.
I think everyone also agrees they don't need to raise rates that high.
Highly subjective.
search for "Volker" http://bilbo.economicoutlook.net/blog/?p=7591
It’s an amazing turnaround from the unisonic voice of “it’s transitory”, ‘printer go brrrrrrt’ is a conspiracy, don’t you worry…
The standard way to formulate YoY changes is what GP said, or "Consumer prices rose 8.5% in the year ending in March".
The MoM change for March is a hefty 1.2% in its own right.
Straw man. Core inflation includes housing and healthcare.
If one can’t understand why food and energy inflation aren’t cleanly a monetary phenomenon in the midst of Russia, an energy exporter, invading Ukraine, a food exporter, I’m not sure how to help.
A hypothesis perfectly corroborated by core PCE, the metric OP criticised [1].
Because we live in a representative democracy and policy responses are likely to be a significant electoral issue.
Supposedly a majority voted for this and are now complaining about what they voted for. Maybe they didn't vote for this and voter fraud really did happen...
If it’s a long-term problem and you’re living paycheck to paycheck you’re screwed for longer.
Honestly, what’s the play here for someone who doesn’t own any significant assets and barely makes enough to pay bills each month? That’s what I read as OP’s point.
If I’m living paycheck to paycheck and my current term runs up, I would go month to month if this is a short term spike since prices should recover soon. But if it’s long -term, I should go ahead and lock in now because it won’t get better.
There are tons of those examples. Even people with no assets and just living month to month can use this information. Obviously, billionaires are impacted more, but people might literally be trying to figure out if they just skip meat for a month (short term) or buy a bicycle (long term).
I also find it hard to believe that a bus / train pass costs as much as car ownership fwiw
Public transit can be very cheap and convenient for some use cases: for example, if you live close to a stop, your destination is close to a stop, there is straight transit line between the two places, it runs frequently and has few stops on the way, and you usually travel by yourself. If all of the above is satisfied, it will likely to be more cost effective and similarly convenient to use public transit. However, for many other standard use cases, public transit is by nature very inconvenient compared to cars: for example, if you visit grandma with your small kids on a regular basis, grandma lives in a small town, getting to which on public transit from your home requires 2 transfers, and is only reasonably possible twice a day at very particular times. In that scenario, which, by the way, is (in some form) extremely common for most people who aren’t single professionals living in big city, public transit is just a non starter, even in Germany.
Since the latter scenario is, as I point out, rather common, most people own a car anyway. At that point, you’re already paying the total cost of ownership just to use it on routes where public transit is extremely inconvenient. This changes your calculation on routes where public transit actually is pretty convenient: sure, public transit on that route might win with total cost ownership of the car, but once you already have a car, fixed costs are already sunk, so public transit is now competing with marginal costs, and it might very well then lose.
For this reason, even in countries with good public transit, it is largely a domain of students, young singles, and retirees, and working people with families overwhelmingly own and use cars.
Boston, MA -> Philadelphia, PA (511km):
By car: 5h15
By Amtrak (this Monday): $311 for business on Acela, 4h54
By Amtrak (next Monday): $119 for coach on NR, 5h50
Munich Hbf -> Berlin Hbf (582km):
By car: 5h23
By DB (this Monday): 195eur for 1st class on ICE, 4h34
By DB (next Monday): 68eur for 2nd class on ICE Sprinter, 3h57 OR 48eur for 2nd class on ICE, 4h34
FWIW, the travel times you post are not instructive, because you are not going to drive from Hbf to Hbf. Getting to the station, waiting for a train, and getting from the station to the final destination will increase travel length substantially. At the same time, not having to drive into city center (where Hbfs are) will decrease drive times.
Should make you wonder how much other outdated/incorrect information you unknowingly spread in the same fashion.
> Sadly, this means that if I lived in Germany, it would be much cheaper for my family to drive everywhere.
Only if you don’t factor in massive discounts for children (who ride for free until they’re 15) or even small groups of people. Eg. the Bayern-Ticket - can’t really beat a day trip to an alpine lake town for 32eur total (for a couple with young children, and no need to book in advance).
Oh, And don’t forget about that 25% Bahncard discount that pretty much pays for itself after taking two train trips in a year.
> FWIW, the travel times you post are not instructive, because you are not going to drive from Hbf to Hbf.
Ending up in the centre next to a main station is actually one of the biggest benefits over flying or driving in my experience. Maybe it’s just the way I plan my trips, but I almost always end up wanting to be in the centre of wherever I’m going to, anyway.
Inflation clearly affects cost of living because wages are stickier than prices. You don't walk into work every monday morning and get your wages increased by CPI.
> If you think prices are going up
I don't think prices are going up. I factually know prices are going up. We keep track of this data
> you need to explain how this is possible at all.
sure. Let's say I have a grocery store. I pull off the price sticker from last week and put a new one on this week. I don't even understand how this is a question.
You can argue the root causes all you want but just writing the words "there is no inflation" isn't an argument.
If you don't understand the cause for it, then attempts to fix the not-cause may cause more or bigger problems in other parts of the economy.
This is in part complicated because there isn't necessarily one cause.
If it was caused simply because the supply chain shock from different spending habits of consumers from the pandemic, then that would sort itself out as the supply chain adapts to the different habits - going from just in time to just in case in many places.
If it was caused by an increase in energy prices, then increasing supply (and importantly, having the existing energy reserves be used).
(and so on)
The other side to this is the managing expectations. If you know that you can't fix it by just adding more oil to the market, then that data can be used to manage the expectations for all parts of the economy. "No, this isn't going to get better for some time" is a valid answer.
There is no monetary phenomenon. It's clear as day on the Fed's balance sheet the reason for inflation. https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
If one can't understand why the value of their money goes down as the government buys trillions of dollars of their own debt with non-existent money, I'm not sure how to help.
Yet there was not this inflation during the Fed balance sheet runup in 2008-2018......
So maybe your simple claim is not what is the cause. More likely is that in 2008, the balance sheet was loans to banks (paid back), whereas in 2019+, the increase was from money being handed to people?
In fact, your total assets graph is misleading. Look at the same graph, under the selected liabilities breakdown - the monetary base has been steady, with no inflation for most of it. The big recent increase is in purchase of Treasuries, which is the money the govt gave to the people to help them through the COVID caused downturn. This is a good use of money, and of course giving people money with no gain in production will lead to inflation, but it's not the Fed at fault - it's elected officials voting for free money.
Could you think of something which happened in 2008 which might have impacted the velocity of money in the global economy, despite the aforementioned QE? QE works great following a recession. For quite a number of years later, in turns out. But not forever. At some point the economy recovers and continuing to pour gasoline on it stimulates it beyond the target inflation zone.
You and the comment you’re responding to agree on the Fed’s balance sheet being insufficient per se to explain core or non-core PCE. It's a complicated phenomenon.
Unsurprisingly, the lion's share of that money handed out for covid relief wasn't given to people. It was corporations that, once again, walked away with most of it. Going back even further, the 2016 tax bill also provisioned way more money to corporations compared to the time-limited-bone they threw at people.
While its fair to say handing out money can cause inflation, lets not kid ourselves about who is really getting that money.
https://theintercept.com/2020/12/04/covid-irs-corporation-ta...
https://www.washingtonpost.com/graphics/2020/business/corona...
https://www.forbes.com/sites/christianweller/2019/05/30/the-...
https://www.nytimes.com/2018/01/16/us/politics/banks-are-big...
Wrong [1]. 1.8T directly to people, 1.7T to businesses. I'd not call that a lion's share.
>It was corporations that, once again, walked away with most of it.
And a significant part of that was to pay, you guessed it, people :)
Of the 1.7T to businesses, 835B went to paycheck protection program (i.e., people wages) , 85B to a delay (not handout) of employer payroll tax (so this will be paid back by the businesses), and a significant number of loans, not handouts, that have to be paid back.
And keeping companies alive, i.e., jobs available, has vastly better long term economic value than simply giving it to people, since at some point those people will really like having a job for a continued income.
Tell me again of the 1.8T given to people, how much was loans that have to be paid back? And what is that ratio for the business side?
[1] https://www.nytimes.com/interactive/2022/03/11/us/how-covid-...
Asset prices are prices, they're just not part of the CPI.
The early part of the inflation fed almost entirely into financial assets. Take a look at the absolutely INSANE multiple expansion of the S&P 500 for this time period, as well as the INSANE monotonically decreasing yield curve in literally every kind of debt security.
Fed added 3.5T in balance sheet over this time. S&P 500 market cap went from $12T to $23T (and this is not counting all the other market caps from other stocks and exchanges not in S&P 500). It's not unreasonable that investment market caps have increased tens of trillions over this time.
So it's pretty hard to claim the Fed injected this money into the stock market. It's much more likely that as the world is changing some companies are viewed as increasing in value due to the products and services being more valuable than before.
Energy commodities are up 48% this year, but 37% of that increase was over the last month.
Didn't we all go through that period early in the pandemic where spot oil prices briefly went negative?
Weren't "bullwhip effect" articles regularly making the rounds on HN or did I dream that all?
Interesting, not in Europe. The UK produces a separate CPIH index. CPIH is CPI, additionally factoring in Owner Occupiers’ Housing Costs.
> Instead, the BLS uses an owner’s equivalent rent (OER). The BLS estimates the OER by asking homeowners how much they could charge to rent their home.
That’s headline inflation. It’s politically relevant. If you're running for Congress or the President of the United States, this is the one that gets you in and out of office.
Core inflation is monetarily and thus more financially relevant. It singles out what central banks can strategically respond to. (You don’t want to raise rates because an energy exporter invaded a food exporter; rates aren’t the problem.)
Anyone in leveraged debt is going to do well in inflation.
How do you figure? YoY is the best way to measure these things since there's seasonal changes that happen month to month.
This... seems like a good news story?
Obviously the Russian invasion of Ukraine has royally messed up fuel and food prices, but that's a specific shock that's independent of larger macroeconomic issues.
Gasoline, unleaded regular - +48.8% (+20.1% over last month)
i called the bottom on oil during the worst of the pandemic but did nothing about it :(
EDIT: i also sold apple at $10/share, i am not good at trading hah
Also a US President who is antithetical to the oil/lng industry will drive up the price of oil through the futures market. Demand is still high, Biden has constrained supply, forcing futures prices to go up. Trump was bullish on oil/lng, with the same demand and increased supply, prices went down.
America no longer supports the House of Saud. It tolerates it. But were it to face a serious threat, apart from a Wahhabi fundamentalist, the U.S. would be unlikely to intervene. Riyadh knows this, which is why those calls aren’t very useful.
That said, the President does have dials. They are drilling permits and import restrictions.
I'll focus just on the first half: Less than 10% of oil drilling happens on Federal land, and there are thousands of unused permits available.
Which isn't to say that these thousands of permits could be drilled on tomorrow - they are subject to environmental impact studies, lawsuits from locals for dozens of reasons, supply chain issues around equipment, etc.
Which is a long way of saying: This particular dial is very indirect, at best.
Additionally, there's the push to expand LNG exports to Europe.
Both of these are major factors in the price rise. I personally don't really care about this as I don't own a car, and this will push new buyers towards EVs, but the media silence on this is kind of instructive - corporate media is owned by the same investors profiting off the high energy prices, so there's no incentive for honest reporting, not if you want to keep your media job anyway.
Seems to me if they wanted to increase production a lot they would decrease the stock buy backs and instead increase future revenue by increasing current and near future production.
USD value is going to be hit extremely hard as it loses reserve currency status. The days of the petrodollar have come to an end. It will be a typical “closing the barn doors after the horses have bolted” response which will only make things worse.
This is actively happening now, the big holders are just trying to do it quietly to get out as much as possible before the US tries to shut it down and USD fully tanks.
As this happens the market valuations will appear to rise in nominal values. If you value the market in gallons of unleaded or dozens of eggs however you will see a different story. There’s only so many years the politicians can claim it’s a “supply shock”.
The dollar is approaching a 3-year high [1]. It is up close to 9% over the past year.
The U.S. dollar index, “an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies” [1].
> How do you square it with a chart of USD value versus an asset which has held consistent value for millennia?
Gold has appreciated relative to the dollar since its 2016 low.
Granted, it took until 2020 for gold to regain its ca. 2013 price. That doesn’t translate into any information about inflation in that interval. Nor about U.S. export/import balances or the dollar’s strength. Unless you’re in the gold business, gold prices are a facile measure of anything economically useful.
If foreign currency has 20% inflation, and US has 10%, the dollar index will go up. But the USD still lost value in absolute terms
Agreed. Which is why we have different words for each.
Saying “USD is down” unambiguously means the former. Inflation unambiguously means the latter. Saying inflation is up in response to an article about inflation being up is tautological. So, in the spirit of Hacker News, I assumed they weren’t being flippant but were instead factually wrong.
"USD is down" is only implied to be about foreign currencies in a trading/finance context
"Dollar loses value" and "USD is down" are different words. The former is ambiguous. The latter is unambiguous. Particularly in response to an article about inflation. Again, "USD is down" is, given the context, either inane or wrong. I'd prefer to be wrong than stupid.
The terms “real” and “nominal” make it abundantly clear that I’m not talking about USD versus other currencies. Why are other currencies even part of the discussion? I can only guess because it was an easy retort to “disprove” my statement and derail the discussion.
The meaning should be clear enough from the context of my full comment. I’d rather hear feedback and discussion on that, than debating something I wasn’t even trying to claim (e.g. whether other currencies are rising or falling faster than the USD).
Countries are beginning to do real volumes of energy trade outside of the USD. Countries are also questioning the level of USD reserves they want to be holding with the Fed. This structural decrease in the demand for US dollars will have a very lasting impact that will become clear over the next decade. This is a tidal change which was a long time coming, but I think the weaponization of the USD and SWIFT thru never-before-seen sanctions have pushed it over the edge.
It doesn’t help to be reaching this point with debt levels at 140% GDP and deficit to GDP over 10%…
Because demand for dollars has been so consistently high in modern history, we usually think of inflation in terms of the US economy being too “hot” or because we’ve printed too many dollars. It can be bizarre to think about changing “demand” for a currency, because, who doesn’t want more money? The light bulb is understanding there are many options for storing value, and demand for one option versus another shifts through a combination of present utility and future expectations.
I believe that the structural reasons driving inflation this year and for the next decade have shifted entirely into something the US has never seen before, and it’s very interesting to consider where it will lead. The war and COVID are confounding variables which I believe some people use to try to ignore the new reality.
A weak USD relative to other currencies isn’t an entirely terrible thing. It leads to massive re-domestication of production for one thing, as imports become too expensive. But that depends as much on how quickly other countries devalue their currency.
In the near term the biggest hit from debasement of the local currency is to anyone with liquid savings, or anyone who has stagnant wages (e.g. once yearly wage increases become insufficient to not lose significant purchasing power).
This is false [1].
> Why are other currencies even part of the discussion?
Referring to dollars by their ISO currency code is an FX convention. Given the article you're commenting on is about inflation being up, which is a more direct way of saying dollars have lost value vis-à-vis real assets, most people assumed you were (a) using the convention correctly and (b) not re-stating the headline.
Maybe try this one:
http://pricedingold.com/charts/SP500-2006.pdf
It’s ok though, I give up on productive discussion today. You can “win”.
Centuries and decades (your graph) are similarly useless in evaluating intraday reactions. These data are widely available [1]. American equities are up, in real terms, for almost any reasonable time interval.
Pricing the S&P 500 in gold is a convoluted way of looking at it, but for purposes of discussion, even that chart shows a 2022 decline followed by a recent rally. All up from the last few years. At par with 2006, which sounds dismal, until one consider the chart shows the S&P 500's price, not total return. The S&P 500 currently spits out a 1.45% dividend yield [2].
Someone who bought the S&P 500 in 2006, a terrible year, is unambiguously better off than someone who bought gold. In nominal terms. In real terms. In gold-priced terms.
[1] https://data.nasdaq.com/data/MULTPL/SP500_INFLADJ_YEAR-sp-50...
Which is why it's compared to a basket of currencies instead of a single one.
The USD, Yuan, Yen, Euro, GBP, and Rupee cover like 70% of the world's GDP. Maybe throw in the CHF because it's stable.
The dollar index can strengthen while cost of bread doubles in USD terms.
If every government agreed to print 2x the money supply overnight, dollar index remains the same but cost of everything will double (at equilibrium)
A good suit always costs 1 ounce of gold, since there were suits and gold.
This is clever. One can vary the value of "good" to fit any asset. Taken in good faith, I'm curious about the suit discounts I missed between 2013 and 2016, when gold lost value (relative to the dollar).
> value of gold is invariant
Axiomatic arguments work for anything. Bagel is invariant. All price relative to bagel. One breakfast sandwich always costs one bagel.
Also note that while the value of the dollar in real terms can vary minute to minute and swing percentage points day-to-day and many percentage points year to year, retail pricing will take time to catch up due to the length of the supply chain and the cost of repricing. Retail pricing is “sticky”.
Keep in mind that over the last 100 years the US dollar has lost ~95% of its real value. It will most certainly do so again, and my opinion is that it won’t take nearly as long the next time around.
Gold is terrible for stability, which is why booms and busts were more common and longer before every single country learned that and dropped gold standards.
In 500 B.C. in Babylonia apparently an ounce of gold would buy you 350 loaves of bread. It’s roughly the same today.
Augustus paid his centurions about 40 ounces of gold a year in 0 B.C. Today the median wage is about the same.
I don’t disagree about the booms and busts, I’m not saying that a gold standard is a solution.
The fact that pricing in gold is stable over millennia even within an order of magnitude is pretty cool. Certainly no fiat currency could say the same even on a 100 year scale.
No one holds fiat for 100 years, so it's a silly thing to worry about. No one hold currency even 25 years, so again, irrelevant. Fiat is designed to make pricing predictable and smooth out the booms and busts that gold causes. It's designed to be slightly inflationary to avoid deflationary spirals. Fiat has been the most stable economic basis in history. There never was a goal that a loaf of bread is $1 usd for eternity. There is a goal that inflation targets around 2%, and the resulting stability under this system allows loans to have lower interest, for businesses to make longer term financial plans, and for solid expansion of economies.
Another way to think of it over those timespans, is gold is simply a terrible thing to hold also. If you're claiming holding gold for 10,000 years breaks even, it's a terrible thing to hold. You might as well hold water or dirt. If gold is worth the same now as 100 years ago, you should have sold it immediately and invested into productive assets, such as Dow Jones index (which over the past 100 years returned 132 times the initial investment).
Since no one holds currency for long term investments, and for likely centuries decent investments have returned vastly more than gold, there is nearly zero use for gold. The love of gold is simply voodoo.
Currency is more stable for buying and selling and pricing over any range people hold currency. If you want an investment that has return, pick nearly anything except gold.
The purchasing power of an ounce of gold in terms of real goods that can be obtained is remarkably consistent over human history, taking into account productivity increases which make everything actually easier to produce (rather than making gold or fiat currencies more “valuable”).
This is a characteristic of gold in particular (above all other commodities), due to a number of factors related to its density/portability, longevity, malleability, and the consistent rate over history at which it’s been extractable from the earth. It’s a rather peculiar if not spectacular equilibrium.
It’s a nice benefit that it’s also rather pretty, and interesting to consider to what degree that matters.
The way I know this was because of the giant laugh that my historian wife gave when I showed her your comment.
Do the exercise in terms of housing/lodging, loaves of bread, nice attire, annual median wages, etc…
The reason why market prices look so high is because it’s priced in US dollars, and US dollars aren’t worth what they used to be.
The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue.
If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture.
If you price the dollar in terms of ounces of gold, then you would think that the dollar is worth more than it was in September of 2011, and you would think that the dollar is worth more now than it was in August of 2020. While gold is stable over the long term e.g. centuries, its price can be quite erratic over the short term.
You can price it in barrels of oil, silver, copper, a collection of other currencies, bitcoin, median house price and get a different answer each time.
> The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue.
It's a global phenomenon. We've got less production of goods and commodities because of covid and just as much if not more demand. So supply down, demand even or even up. What do you expect to happen?
While the USD has problems, other currencies seem even worse at the moment.
There is not some other fiat currency at the moment that is better than the USD. Things that people think are hedges BTC(Ponzi scheme), Gold(volatile) don't always work well.
e.g. here is real(inflation adjusted) gold prices. https://blogger.googleusercontent.com/img/a/AVvXsEiyWSImAdvN...
it doesn't look all that cheap at the moment.
> If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture.
Like this? https://schrts.co/pAKzMCFc
Yes, your graph at the end showing SPY in gold falling below the 200 day MA is exactly what I was talking about.
I absolutely agree gold is volatile in the short term and not some magical replacement for fiat currency nor an absolute indicator of the level of inflation in an economy.
Sometimes however it’s important to figure out if the “platform” you’re taking your measurement from isn’t actually what’s moving, rather than the thing you’re trying to measure. If you’re going to step outside of the fiat viewpoint, gold is where I’d usually start.
Maybe a VIX-adjusted price of gold or something like that could be useful to smooth it out.
I agree it's interesting. I'm invested in Gold, so I'm basically betting that it's going to go up. Instinctively, I'm looking for the best disconfirming evidence.
Here's where I got the chart. http://scottgrannis.blogspot.com/2022/03/inflation-net-worth...
> If you’re going to step outside of the fiat viewpoint, gold is where I’d usually start. > Maybe a VIX-adjusted price of gold or something like that could be useful to smooth it out.
yeah, I'm not really sure what the best way to look at it is. I believe Adam Smith used minimum price of labor, but that's distorted as a signal by minimum wage laws. I find the big mac index to be useful-ish. idk, perhaps something like median cost of an hour of labor per big mac, is a measure of prosperity.
Our passenger rail is depressingly subpar.
More like last 50-100mi.
Where's your "local" intermodal yard?
its really shocking just how far detached most HNers are from logistics that is hidden. literally the comfort we enjoy is run by people who don't work from home, who are most impacted by prices.
For rent. Oh I’m feeling that myself. Finally got the point of, let’s move prices are insane. Nothing in a safe area that’s affordable for 50 miles. Minimal in high crime areas.
It honestly doesn't make much sense to me.
I think a lot of people have this doom fantasy of runaway inflation in the US, but it's likely to slow down quicker than people realize. Monetary supply is tightening (mortgage rates touching 5% now), and the supply chain is slowly getting back to normal. Heck, even gas prices have reversed where I am.
Europe is having to restructure it's economy to deal with reduced energy and materials inputs from aggressor nations.
We still face a massive shortage of workers, particularly in logistics.
I suspect we will see inflation remain steady or even increase later this year, barring a recession.
It’s a weirdly predictable phenomenon around American inflation discussions. Has it always been this way? Is it renewed interest in gold bugging or people sour about crypto losses?
Just like QE is good as a short term solution to economic problems releasing strategic oil reserves to push down inflation (as it relates to oil) is a short-term fix that will likely exacerbated the problem in the medium to long term.
[1] https://www.reuters.com/business/energy/us-strategic-oil-sal...
So it's more of a signal that the US is about to start swinging a bigger stick to get oil production up, than it is an illusion.
I’m sorry but I disagree. Do you have an explanation for why the increased price of gasoline won’t just infect prices for all the goods and services which depend on it?
Any business which needs to move people or goods over the road, or runs equipment/vehicles on gas is going to be affected. Not to mention the fact that consumers will have less disposable income to spend on things. And businesses may have to pay their workers more to account for that loss of disposable income.
Edit: see “wage price spiral”
It will, but the price of oil has already dropped substantially from the recent peak, and probably will continue to do so.
The price of gas is known to be volatile, it has gone up in the past without bringing the entire economy along with it, and also has gone down many times without making everything cheaper. The prices of retail goods don’t adjust instantaneously, and gas may well be below what it is now by this time next year. The price of gas might be a small minority fraction of the cost of producing most retail goods as well, so there’s no reason to assume that consumers will tolerate compensatory price hikes that blame gas while the price is falling.
This is the reason that the US Department of Labor excludes the price of gas as one of the core indicators of inflation, because the price of gas does not always reflect inflation, and frequently changes for other reasons independent of inflation.
That doesn't sound like rampant inflation, it does sound like a market correction.
Now in reality gas prices globally is high because of Ukraine and Russia, which hides the massive gas deflation over the last decade, but if 2011 businesses could afford gas at $3.50, I'm not sure why 2022 businesses can't afford it at $4. Wages are up about 30% in the same time period (well by 2020) [2]
[0] https://gasprices.aaa.com/
[1] https://business.time.com/2011/12/20/2011-is-priciest-year-e...
What's your general impression regarding price levels in the US? How much has your grocery bill gone up? How about rent? What about restaurant bills? Services like haircuts? Whats your credit card bill look like, excluding gasoline?
Personally I have seen prices go up well above 10%. Inflation metrics are complicated and there is a huge incentive to keep the official numbers down as they affect trillions in spending in terms of social security and other numbers tied to official inflation.
To put this number in context, Congress gave themselves a 21% increase in House office budgets to account for inflation
For staffers. Not members of Congress [1]. Never officially tied to inflation.
[1] https://www.factcheck.org/2022/03/spending-bill-includes-pay...
That isn't remotely obvious and in this case is very obviously not true. This is a chronically underfunded program that Democrats have been lobbying to increase for years. AOC, for instance, has been pushing for this since she first entered Congress, well before any inflation showed up.
It's entirely disingenuous to point to a budget increase in a single extremely-small Congressional staff program and paint it as evidence of broad-based inflation.
Maybe, but it's a perfectly valid data point. Congressional staffers are struggling because, in the D.C. area, costs are rising very quickly, and the low-paid staffers are having trouble paying bills because of it.
It's not disingenuous to suggest this is a signal. Also, Democrats are always lobbying for an increase in all budgets. They got this one through because they were going to lose staff who can't make the job work because of rising living costs. I.e., inflation.
So would it disingenuous to point out Xbox prices dropped significantly recently then claim it as evidence there is no inflation?
Using such simple, single data points is disingenuous when there is ample broad based data to point to instead. Ask why he picked something with a 21% increase instead of something with a 4% increase, then you understand why it's disingenuous.
That is the problem with anecdotes versus broad and properly computed inflation.
They keep, and some people on HN, keep calling it a conspiracy when you mention actual inflation is a lot higher than reported, my question is what is this crowd's reasoning? Are they so well off that they are not able to see the rapid rise in prices because they use maids to do the grocery shopping?
Why is it a conspiracy to suggest actual inflation is far above and beyond what is reported by the Feds, who are stuck between a rock and a hard place when it comes to controlling the money markets now?
If they raise rates to match actual inflation they are going to cause the asset bubble to burst. If they don't raise rates than they are going to find hyperinflation that will certainly damage USD's "exorbitant privilege"
The conspiracy is that it’s treated as a conspiracy. Local inflation varies wildly [1]. In official statistics. And inflation is personal, dependent on your basket of goods and services. There is no market evidence that inflation is endemic, but the market is frequently wrong.
> so well off that they are not able to see the rapid rise in prices
Many on this forum have equity holdings and/or in-demand jobs. Those make one somewhat inflation tolerant.
[1] https://www.bls.gov/charts/consumer-price-index/consumer-pri...
Yeah I’m genuinely shocked that people seem so upset about inflation. Then again I couldn’t tell you if the gas price down the road begins with a 3, a 4, or a 5.
I wouldn't call it a conspiracy, but throwing out random number like "25-50%" because you noticed your one specific grocery bill is more expensive also isn't an argument I'm going to give much credence to.
The government is actually very transparent about how they calculate inflation and what goes into it, so if you're going to argue that they're bullshitting you need to argue one of:
1. The basket that they use to calculate the price index isn't a good representation of most people.
2. They're fibbing on specific prices.
3. The "smoothing" they always do can hide some of the recent acute inflation.
If you want to make any of those arguments, with data, great! Please go ahead. I've certainly seen plenty of good arguments related to points 1 and 3, not so much point 2. Otherwise, it's fine to say you notice things you buy seem a lot more expensive, but that's not an argument that the Fed is somehow fudging the numbers.
[0]: http://www.shadowstats.com/alternate_data/inflation-charts
Zillow rent index up 17%, CPI rent index up 5%
CPI calculates rent by asking people how much they are currently paying for rent or how much do they think it would cost to rent their place.
That's OER, which is computed separately from rent.
[0]: http://www.shadowstats.com/alternate_data/inflation-charts
Official stats say grocery store items are up 10%, which is roughly line with my experience. It can vary a lot from item to item so it really depends on your diet. White bread is up 6% while wheat bread is up 9%. Meats are up 15% while fresh veggies are up 6%.
"What you see" is literally what's being measured, though. Typical prices for typical commodities grew less than expected. The outlier is one particular commodity (petroleum) which is experiencing an external shock.
Sanctions on Russia are poorly explained as "inflation", obviously.
> Personally I have seen prices go up well above 10%.
On what? Does that not match up with the data in the report? If so, document it! You'll be internet famous, if nothing else.
For what goods/services? Have you been tracking the same goods/services over the past year to make this analysis?
> Inflation metrics are complicated and there is a huge incentive to keep the official numbers down as they affect trillions in spending in terms of social security and other numbers tied to official inflation.
You haven't provided anything aside from personal anecdote (without any actual data to support it). Your understanding is built entirely on your own experience, the official numbers are built on a transparent basket of goods that is meant to represent the entire country.
For me, housing costs (most people's largest expense) hasn't changed in 3 years because I have a 30-year mortgage. Does that mean that the 5% CPU measure of housing expenses is false? Of course not.
Data, when reported by a reputable organization, is going to be substantially more predictive.
Incentives are another interesting factor to consider.
If an institution has a history of providing a certain quality of service, and is successfully used to make highly consequential decisions, it is objectively more reputable than an institution with neither of those things.
Reputability is the aggregate of individual opinion, which is the definition of subjectivity.
More likely there is a continuum, and more reputable places have more objective (and hence less subjective) output than less reputable places.
"The Bureau of Labor Statistics is a reputable institution"
"A triangle has three sides"
"Governments, politicians and their bureaucrats are trustworthy"
"Two parallel lines will never meet"
This is why I much prefer to follow guidance from institutions over individuals. There's also a "stewardship" in institutions that seems effective in countering other forms of bias (but not all).
Of course there's a whole lot of bias left over that doesn't make this a fire-and-forget strategy, but comparatively it seems closer to objectivity than to just trust one's eyes alone, which has effectively zero systemic corrections for bias.
[0] - You may know about this already, but I think of it like crowds singing, and if you'll afford me a bit of metaphorical license, here's a better explanation of how that works than what I could write: https://physics.stackexchange.com/questions/382429/in-concer...
See, I think the opposite. If your numbers differ from the US gov. official ones, you're either doing something wrong, or measuring a different thing.
The BLS in particular aims for consistency in reporting. They ask people what they bought, and for how much, then they go around collecting real world pricing information about products.
No other entity is putting that much work and effort into collecting pricing information. So anyone reporting different numbers is less accurate than the official BLS ones.
Even people who complain that they under-report "real" inflation use BLS numbers, but they change the weights on the various categories such that categories experiencing the highest inflation are also weight the highest.
Nope, a few people's unmeasured selection bias is no where near as accurate as a professional methodology done like the official numbers.
>there is a huge incentive to keep the official numbers down
Also false. If the numbers were gamed, there would be significant arbitrage employed in markets to extract value from the lie. There are ample papers analyzing this, and no one has found a way to do it, since the numbers are the best possible.
Also the numbers are done in many places, from Goldman Sachs, to the Billion Prices project at MIT, to the Bureau of labor and Statistics, and so on.
If you really think the numbers are gamed, do this experiment (I have, it's easy to do, and then you'll never claim the numbers are gamed again since you methodically checked them).
Take BLS listed inflation for a decent period of time, say 20-30 years. Make a basket of goodssplit by how most people buy: energy, housing, food, eneterainment, etc.
Pick a list of goods, say same sized apartments, houses, foods, etc.
Look at prices now. Write them down. Hide that list so you don't cheat.
Look at ads from the beginning of the period. Get prices.
Compute.
Now add say 1% to BLS annual inflation numbers, and compute.
Viola! BLS and rest are very accurate. People's unmeasured selection bias beliefs are not.
This is QAnon tier logic. “All my friends voted for Trump, therefore the vote count was fabricated!”
My grocery bill isn't in a vacuum. Does anyone buy the same basket of groceries constantly? My career has been on a steady rise and my lifestyle has inflated.
> How about rent?
It's up a TON in many LCOL places - but in many of the most expensive places, it's gone up less in the last 3 years than normal (and in some places down). Either way - 67% of people are homeowners, and their payments went DOWN a lot because the Fed allowed everyone to refinance at historically low levels.
> What about restaurant bills? Services like haircuts?
My anecdata is that I'm shocked so far none of this has gone up. I do expect it HAS to go up probably 10-20-50% eventually / soon. But I haven't seen it happen yet.
> Whats your credit card bill look like, excluding gasoline?
Again - who's credit card bill is in a vacuum?
What's interesting is although fast food prices have went up, it doesn't seem like casual dining chains have gone up. So even though steak prices have doubled at the grocery store, they've stayed the same at the chain steakhouses.
Some useful insights if you have enough data points would be where in the year you are, which season it is, if it might be an El Nino or la Nina year, and over the long term if there are any secular trends like global warming...
People live in one place and only care about the weather at that place. Whereas consumers need products from all sectors of the economy, so an aggregate inflation indicator makes sense.
Sure, it's not perfect, since every household spends their money differently, but everyone needs food, housing, energy, etc.
CPI is like climate news, not weather news, and should be understood as much.
Edit: Reread and understand now...
The point is that GDP is a measure of how much the economy in the US grows or contracts, just as CPI is a measure of how much prices in the US grow or contract. You shouldn't view GDP as a personal indicator of economic growth, just like CPI isn't an analysis of costs on your personal spending. Treating it as such feels like distorting the purpose of the measure to suit a narrative.
Nobody has denies this, so why is it a talking point?
> as we both agree it’s not a good indication of any individual persons experience
Which is why I use it for what it is instead of complaining about it not being something else. Any one individual is influenced by their own bias and experience, which creates an entirely different problem.
let's stick with the basics. this was the whole conversation, a leading question that pretends to be a thought exercise that suggests in some other scenario that GDP is a good measure. no more, no less. I think we've gone over everything now.
> you're the only one that had to read it twice, we talked about it now, good talk.
The lack of punctuation and choice of verb tense made it difficult to understand, no need for the condescending tone.
Meanwhile imagine a family that rents their home, commutes long distances to work and has growing kids. They are probably drowning. Comparing these cases feels a lot like averaging together the temperatures of Seattle and Houston.
Who? What are their credentials? What improved measure have they created?
> Price indexes are available for the U.S., the four Census regions, nine Census divisions, two size of city classes, eight cross-classifications of regions and size-classes, and for 23 local areas. Indexes are available for major groups of consumer expenditures (food and beverages, housing, apparel, transportation, medical care, recreation, education and communications, and other goods and services), for items within each group, and for special categories, such as services.
An analogy is the BMI. This is intended as a population metric, but is often used by the individual. It’s less useful for the individual, but still actually pretty useful. If your BMI is above 30, you’re probably unhealthy. You might be a pro wrestler with huge muscles, but you probably aren’t.
Say we give duplicate the amount of money in the economy(M1 M2 etc) and prices immediately double. Won't that also double firm revenue, profits, dividends, and thus firm value in nominal terms?
Thus, if stock prices and home prices are +10% in nominal terms, with inflation close to 10%, doesn't this mean they are just breaking even?
I'm reasonably certain that is the point of inflation, since everyone seems to measure economic health based off the stock market.
Stocks for retail/commodities/food/oil... will generally keep up with high inflation, since these industries have low margins and profits track closely to prices. There will even be some speculation, so it might pop in these environments, only to come down when clarity returns.
Growth stock will be obliterated in high inflation environment, because they're valued for future profits, which will be worth less because money is worth less.
Business services, entertainment, ... kind of wavers in between.
Mechanically higher not-USD things. Crypto, stocks, real estate, gold.
>Say we give duplicate the amount of money in the economy(M1 M2 etc) and prices immediately double. Won't that also double firm revenue, profits, dividends, and thus firm value in nominal terms?
It wont evenly distribute amongst crypto, stocks, real estate, gold, etc
>Thus, if stock prices and home prices are +10% in nominal terms, with inflation close to 10%, doesn't this mean they are just breaking even?
Oh ya, like you have to compare inflation to GDP to interest rates.
If GDP was 15% and inflation was 10% and interest rates are 10%. Those are some big numbers but not really a giant problem or anything. Social mobility would be fantastic in those numbers.
Reality: GDP is 6.9 with previous of 2.3, inflation 8.5%, and interest rates are 0.5%. YTD S&P500 is -6.75% while 1y is 7.3%
In reality the GDP figure is fake, temporary boost that wont be able to hold on.
Yes, to a point. Stocks are priced in nominal dollars because revenues are earned and dividends paid in nominal dollars. Endemic inflation screws with an economy, however. That reduces its productivity. First real returns falter. Then investors abandon the market.
this has been answered already but I want to add something that wasn't mentioned: if you are thinking about it now, the market thought about it months before you and it's probably already baked in the current price.
so don't expect a 10% increase in 1 year on spy even if everything goes up 10%. that 10% was grabbed by the better informed the moment the money printers were turned on.
Raising interest rates paid to the Fed are another way of removing money from the economy, but are a broader brush, although the Fed is a much better steward than Congress. Increased interest rates cause stock market declines, so they also tend to act as a wealth tax.
Cutting spending is another way, but it's slow acting. It's more of "don't make things worse" than attacking the core problem of "too much money".
So if you hear somebody screaming about inflation, ask them if they support increased taxes.
Or you can learn to live with the inflation.
Rock and a hard place is the standard expression for the situation we're in.
Here are my assumptions:
1. Inflation is a function of monetary supply, the velocity of money, and available goods.
2. The rich contribute less to the velocity of money (since they tend to save or drive up asset prices) than the poor
As for stopping printing money, the Fed did that last summer.
Tax collection pays the interest on the debt. Higher taxes means more debt load.
The government, like any modern public company, does not care about profit. They operate to maximize cash flow. Income is from taxes, but most cash flow comes from debt leveraged on that income. More income, more debt. Less income, less debt.
BREAKING Stocks rebound on hope inflation is peaking, Nasdaq adds 1%
We are headed for unprecedented market deflation.
Most retail investors absolutely do not own puts nor are they net short the market.
The actual situation over the past few months seems to be the exact opposite of what you mention. It would seem that institutional investors have been using their retail facing market commentators to urge the public to "buy the dip" while the institutional smart money is selling every uptick:
- https://www.zerohedge.com/markets/jpmorgans-resident-permabu...
- https://www.zerohedge.com/markets/pain-trade-remains-higher-...
To be clear I’m referring to the whole market, not a move in a single stock.
Most post-WWII recessions were preceded by or coincident with a spike in CPI (and not coincidentally by record-low unemployment numbers). This point is widely overlooked and plain forgotten. A substantial CPI-spike preceded the GFC, for example.
Here's a handy chart to look into this further:
https://fred.stlouisfed.org/series/CPIAUCSL#0
Way too much attention is being focused on the Fed at this point. The Fed is pretty much a bystander engaged in a psychological operation on the American Public. It talked up the current stock market bubble with its pointless QE and now it's in the process of talking down the bubble as gently as it knows how.
Meanwhile markets are telling you what's about to happen. The inversion of the Eurodollar curve in late 2021 and Treasury yield curve more recently are telling you that a recession is on the way. The speed with which interest rates have been fluctuating tells you that something big could be in the works. The sudden appearance of large amounts of housing inventory, partially resulting from spikes in long-term rates tells you that market is peaking. Overvaluation of the stock market by just about any metric (e.g., "the Buffett Indicator") tells you that the bull market is transitory.
And of course, there's falling real wages, which the article notes. 0.8% MoM decreases in purchasing power are not sustainable. Consumer spending makes up the majority of the US economy. Give people less to spend and they start going into debt to keep up appearances. Take away their job during a recession, and they default on those debts.
Every time these kinds of warnings flash, spinmeisters write them off as peculiarities of the current situation. Every time, there's a reason this time is different. It never is.
It turns out that buying a house when house prices are going down isn't much fun. In fact, it's downright terrifying.
Worse, most of the charm of "owning" a house evaporates with even flat prices.
I’m not sure of the specific reason, but they ditched those tablets a few months later.
Isn't all this already captured today? Restaurants can very easily keep track of what most people are ordering, what dishes are being sent back, etc.
I understand it would become easier to collect this data, but I'd be surprised if most (decent) restaurants don't already track popular dishes, table turnaround, etc.
Yes I've been thinking more and more recently about how personalization means fewer shared experiences.
It becomes much harder to remain a cohesive group when everyone is getting their personalized version of a thing.
I don't think there's much value in this for something as small as a restaurant where menus are always limited enough that personalization wouldn't impact what is on the menu (maybe just how its presented to you).
Personalized pricing (combo or otherwise), surge pricing etc for restaurants seems just unlikely IMO. But I can see why some might think otherwise.
It's the "Let them Eat Cake" of 2022. Poor people driving economy boxes and living in a 4th floor walkup apartment with 3 roommates aren't buying an EV... even if the savings are better long term.
It's the "Buy a better pair of boots they'll last longer".
And yet - people seem oblivious - like Marie Antoinette that the poor class can't simply upgrade to solar and use an EV and avoid the gas prices which hit their bottom line pay every week in the form of higher prices and higher costs to travel.
Who cares about bread when it costs so much to drive to the gas station? Let them get an EV
Try forgoing expensive medical bills.
Try not eating.
You only need some organs.
People living in 4+ story apartment buildings have extensive options for transit that don't involve driving their personal "economy box" around. And to the extent they do, the "poor class" in the USA continues to pay lower prices for gas than any other industrial democracy, including in places like Australia and Canada with comparable per-capita driving statistics.
That argument seems like a canard. Yes, higher gas prices suck. They suck rather less than land wars in Europe though, so... what's the option here? I know there's a partisan angle there that says something about fracking, but needless to say short term inflation isn't well treated by half decade infrastructure projects. Gas is going up because Russia invaded Ukraine, and there's nothing anyone in the west can do about that right now regardless of whether they drive an EV or not.
(Won't lie though, that I'm totally loving the Tesla right now.)
I have to say this debate is just exhausting. People just don't want to accomodate any solutions beyond "We Must Have Cheap Gas For Our Trucks In Perpetuity". I mean... that's just not the world we live in. And the rest of us (including and especially the urban poor!) have been looking at alternatives for decades.
[1] Here's Georgia's helpful site. Indeed Atlanta transit is sort of a mess, but it's there and it does work. No doubt you didn't take the bus when you lived there, but you almost certainly had options you weren't aware of. https://www.gatransit.org/page/TransitNearMe
- President Joe Biden, March 31, 2022
The people living in these situations likely rely on public transportation and don't even have an economy box. Gas prices will still hit their bottom line as transport costs rise for food and other goods.
I love this phrase, it's so deliciously orwellian. In other news, home invasions are down over 90% YoY. Sharp increase in undocumented roommates though.
That people are arguing only implies you are bourgeoisie, and feel the need to explain how these poor people are really effected by X and Y and Z. I have people on my team where their weekly bill for travel to work has doubled in the last two years. It hits peoples bottom line quite clearly.
I know people who don't own a car and share an apartment with others, and I also know people who struggle to keep their vehicles road-worthy. The latter usually have fewer room mates, though.
It was recorded in 2009.
https://www.econtalk.org/meltzer-on-inflation/
It’s an interview with Prof Meltzer from Carnegie Mellon who has done extensive research on the federal reserve system.
Cliff notes:
- As a result of the 2008 crisis the fed expanded the money supply to a degree never seen before
- Rather than drive inflation, the “new money’s” effect was muted due to skittish banks who would decide to just take the funds and hold as cash/treasuries (maintaining strong reserves) until more positive economic indicators emerged (this process could be paused if economic sentiment turned negative)
- Once economic forecasts turn more optimistic, the money will be deployed (through lending) into investments and assets leading to inflation in those prices
- Eventually the excess supply will spill over into consumer spending in the classic indicators of inflation like CPI
- However the fed will be under immense political pressure to not drive the “fragile” economy into a recession so any tightening will be far too late and inflation will overshoot targets by a large degree.
- Similar to the 70’s, until strong monetary contraction is brought in, inflation will run very hot despite other efforts to control it
Pretty accurate so far.
[0] - https://www.bls.gov/cpi/factsheets/motor-fuel.htm
[1] - https://www.epa.gov/system/files/styles/large/private/images..., from https://www.epa.gov/automotive-trends/highlights-automotive-...
[2] - https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W...
[3] - https://www.statista.com/statistics/188448/total-us-domestic...
Theoretically this should be adjusted via lowering the basket weight for fuels (if consumption indeed does drop).
For example, I live in Ohio. Can someone explain to me why I would expect a swordfish steak or tuna steak or salmon to be cheap whatsoever? And that's still not pricing in offsets needed from c02 emissions. Chicken on the other hand? Yea that should be very cheap and very fresh.
We need more local suppliers. Grow a victory garden. Last season we had so many onions. I wish I could have had a neighborhood farmer's market. But rules. Regulations. Etc.
Because global interconnected economy. The same business processes that figure out how to distribute all sorts of widgets to warehouses and supply house shelves and parts departments all over the country are being used to send a steady stream of approximately the amount of swordfish to Cleveland that people in Cleveland buy. It doesn't really cost any more to ship it to Cleveland than it does NYC. It's just a giant customization problem. Thanks to modern communications technology the dozen swordfish steaks that you and eleven other people will buy this week get to your supermarket.
Ironically here in the US the party of "trash international trade to increase local workers' bargaining power" is also the party of "keep retirement age the same at all costs and maintain fixed income QOL".
As we see globalization unwind from international policy and as working populations age (China peaked @ ~1 billion workers, and is declining), we are guaranteed to see prices rise as workers can demand much, much more (to the dismay of those on fixed income).
I think it'll be interesting to see this unholy coupling tear apart.
Our stuff was being made in China, until many of our supply chains were severed due to Covid, leading to Chinese defaults, shortages, and an increased cost of doing business. Now a certain amount of stuff simply isn't getting made at all.
The question at play is will they recover to 2019 levels? Will China be able to deal with the defaults of businesses who provided key nodes in the supply chain while juggling their 0-covid strategy? What will happen to the cost of doing business when China loses 20% of its workers over the next decade or so due to aging?
I've been a broken record about this but I highly recommend The Great Demographic Reversal. It provides a high level view of the forces at play in our world and is a real eye opener.
caycep said prices were artificially low but that's not quite right - prices were as low as they deserved to be because China had workers and we were able to make deals to mobilize them. In the coming decades I'm not convinced we will have that luxury.
Would love to hear why it won’t work, how to improve it, etc.
Instead of asking governments to stop printing so much dang money, or, starting wars, both of which cause inflation, we can now say fuck it and build economic tools that protect people from the crushing lose in purchasing power. Let’s do that!!
There is some effort to get the ban re-instated as of 2021:
> "Khanna drafted a letter to the White House Monday signed by nine Democrats urging the administration to block the export of U.S. oil, which has been allowed since 2015 when Congress lifted a 40-year-old ban on the practice. Since then, U.S. exports have regularly surpassed 3 million barrels a day, more than the production of major OPEC members such as Kuwait and Iran."
https://financialpost.com/pmn/business-pmn/lawmaker-says-whi...
Certainly it's more cost effective to obtain it domestically than to import it from the other side of the world?
[1] https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...
it's also the reason Alberta's tar sands have few importers, because not everyone is capable of refining it (which leads to Canada having to export it, and import foreign oil).
there are refineries in the US that only work effectively on Russian oil -- and I'm sure there's similar issues elsewhere in the world. they can probably adapt but it's not as uniform as we'd think.
https://www.sightline.org/2022/03/04/pacific-northwest-state...
> "The refineries do not rely on Russian oil equally. Nearly 60 percent of Russian crude imported to Washington went to the Tesoro/Marathon Anacortes refinery, and another 29 percent went to the BP Ferndale refinery. Russian crude made up almost 7 percent of all crude refined at the Tesoro/Marathon Anacortes refinery from 2009 through 2021."
Getting oil from Bakken or Pennsylvania would likely be expensive, and also refineries are optimized to process specific grades/types of crude oil. The best solution would be for the US government to prioritize the transition to renewables in Oregon and Washington.
With this unemployment figures deficit could be decreased substantially without hurting much economy. Why on Earth they aren't doing this?
1. We went from Covid discounts in housing to a corection and a surge in the other direction. Housing is certainly a problem but the impact on inflation is slightly exaggerated because of that swing; and
2. A war started in Ukraine and this allowed energy companies to arbitrarily raise prices for massive profits that have little to do with actual or potential supply issues.
Housing takes a long time to turn around. I honestly think we need to start punitively taxing property held by corporations (including LLCs), foreign-owned property and illegal hotels (ie AirBnB) as these are restricting access to a necessity for no real benefit.
As for energy, as much as many in the US in particular like to blame this on Biden. It's worldwide. The real problem though is profiteering by oil companies. It maddens me when I see governments suspending taxes to reduce the hit but somehow the energy companies can't take a hit? They're making absolute record profits. But no one even speaks about that.
Where Biden is responsible is in the same way every US president is, regardless of party. And that is in promoting a reckless foreign policy and dangling NATO membership to Ukraine to keep it aligned with the West when it was (and is) never going to happen for exactly the reasons we're seeing now. Of course, Russia is to blame for a completely unjustifable and horrific invasion and everything that comes from that but both of these things can be true at the same time.
Put it this way: you park your car in a crappy part of town and leave your Macbook on the hood and there's a good chance it'll be stolen. Sure the thief is responsible but you also could've taken more care. And no, that's not victim-blaming.
[1]: https://www.pewresearch.org/fact-tank/2022/01/24/as-inflatio...
The best fix (and proper one) is for states/feds to step in, override zoning, and start mass construction of new multi-family housing.
Rental prices are almost completely demand based because supply is completely inelastic in the short run and only barely elastic in the medium/long run. Landlords are already charging as much as the market will bear, they can't just unilaterally raise prices, people will move and they won't fill their units.
Where will they move?
Blaming trump for everything just won't work, not when you have control of the house, senate and the presidency. What is even more ironic was that Biden repeatedly attacked trump for deflecting blame, and promised the "adults in the room" won't make excuses. If by the mid terms nothing has changed, the electorate won't be receptive to the mental gymnastics required to connect the situation to Trump.
The only thing they will see is that Biden's admin is completely impotent and everything is worse than it was 2 years before. (Even covid numbers are incredibly higher under the Biden admin). So let's hope a miracle happens in the next 6 months because this is has been a slow motion disaster, and no amount of "actually this is perfectly normal but even if it wasnt the presidency cannot be blamed" damage control will magically make things better.
https://www.marketwatch.com/investing/future/crude%20oil%20-...
Here we can see the price of oil futures going back a few years. We can see they start an upward trend once Biden gets into office. and long before the Ukraine conflict.
There are two parts of this, what Biden has done, and what people fear he might do.
There is a trade off between using goods now, and using them later. The higher the return for using them later, the higher the return for using them now has to be in order to justify consuming it.
If Biden says, no more drilling on public land, you are right, that would not impact supply immediately, but it would impact the expected supply and price of oil in the future. Which means that in order for the oil to be consumed now, the price has to be higher.
If you add to that the expected regulations to come in the future, further restricting or taxing fossil fuel use, it pushes this even higher.
So because it is expected that the price of oil will be more expensive in the future, both because of what Biden has done already, and because of what he has promised to do, then the price of oil has to increase now. Do you understand what I'm trying to convey?
FURTHER EXPLANATION
Let's say you have 10 barrels of oil to sell. You can sell those barrels now for $100 dollars, or you can sell them in a year for $200 dollars.
The more the price of oil in the future increases, so too does your incentive to wait to sell.
In response to this, the price of oil has to increase in the present, to compete with the prices promised in the future.
So if the future price rises to $250, the present price might increase to $130 in order to incentivize producers to sell now, rather than wait for higher returns in the future.
What Biden has done is send signals that in the future, the supply of oil will be lower, and the price higher, which incentivizes producers to wait for those higher returns, which as a result increases the prices now, in order to compete.
He told Germany and other NATO leaders that dependence on Russian oil was a major threat to their economies. He told them they should focus on other avenues. But they didn't listen. He was tough on Russia.
He wasn't advising Germany to divest from Russia because it would strengthen NATO. He was saying NATO was corrupted because of Russian oil and therefore was worthless. This is based on the same fallacious perspective that Putin employs. Namely that NATO exists to be Russia's adversary. NATO exists for the defense of politically-aligned democracies against aggressors. Russia is only the enemy of NATO because they choose to be. Trump's behavior towards Ukraine was not only grotesquely unethical and breach of his Constitutional obligations but seriously weakened their position when it came to resisting Russia.
https://breakingdefense.com/2020/10/trump-admin-sets-allied-...
I at the time thought that was a very wise strategy. Recent events have proven that true.
The 2% defense spending target was negotiated by Obama and agreed by NATO members before Trump took office. Trump took that cue and railed that America was paying for NATO as though it were a dues-based organization. When he went to Brussels to push for compliance, he raised the prospect of 4% as a new spending target even when the US was tracking to drop below 3%. While he may have achieved a policy victory here and there it was only ever by coincidence. I've not seen any indication has understands or even cares about any policy whatsoever and only says things that get him attention.
https://www.nytimes.com/2018/07/12/opinion/editorials/trump-...
https://www.cnbc.com/2018/07/11/obama-and-bush-also-pressed-...
That's a fallacy. If you limit the production, then you have less oil. The fact that the price increase is due to competing, individual, interests.
If you limit the production, limit the demand too. Doing it with the price is the worst possible way to do it because speculation turns on...
During the recovery, consumer demand increased at a faster rate than the production increase... leading to rising prices. It continues to be higher than world production. Right now, demand is back to pre-pandemic levels, but production is still a few million barrels (per day) short.
You can see that clearly in the first chart on this page: https://www.eia.gov/outlooks/steo/report/global_oil.php
That fits perfectly with what OP said. If the production wasn't limited, there would be more production.
Again, the COVID dip was larger than the entire US production. It's silly to believe a global problem can be solved entirely by the US.
And the issue with OPS analysis is that he wants to blame biden, when his own chart clearly shows prices rising since the COVID dip... something that happened before he was elected. This has nothing to do with politics.
Any reason Biden can't use the war time production act to force American oil producers to up production (which is still short sighted) instead of making matters worse?
Make carbon more expensive and rebate that to folks by income (carbon tax). Push people away from fossil fuels, and then you won't be held hostage by fossil producers in the future. Cheap oil isn't a right.
It’s easier to enforce American political will on a wind farm in Texas than a pump in Saudi/Siberia.
A lot of windmill farms are popping up offshore, however.
https://foreignpolicy.com/2020/06/25/texas-chinese-wind-farm...
https://www.politico.eu/article/chinese-wind-farm-investment...
Also, the inherent intermittency of wind and solar makes it even harder for generators to hold the market hostage, as they don't control the timing when they generate power. To curtail energy supply would be to undermine the economics of the capital investments into these projects, as it would be missed revenue.
And shadowstats.com puts it to 17.15%:
March 2022 CPI-U annual inflation hit a 40-plus year high of 8.54% [up from 7.87% in February], the steepest inflation pace since December 1981; March 2022 ShadowStats “Corrected” Alternate CPI estimate hit 17.15%, up from 16.05% in February], the steepest inflation rate since June 1947 (in 75 years).
Counter-arguments: https://en.m.wikipedia.org/wiki/Shadowstats.com#:~:text=A%20....
The qualifier "slightly hotter than expected" reeks of media manipulation. 'Spin' at best, 'propaganda' at worst. It seems obvious to me that the reporters are trying to dampen or downplay this obviously negative news. Whereas this exact same news could be harped on and used like a weapon against the policy of the current administration. But don't worry, this was "expected" and only slightly worse than our central planners predicted. Keep calm and carry on.
> Details: Analysts surveyed by FactSet expect the release to show 8.4% inflation over the last year. That would be the highest inflation rate since December 1981. The rate was 7.9% for the year that ended in February.
From this morning (6am) Morning Brew:
> Good morning. Today’s consumer price index reading is expected to show that March prices surged 8.4% over last year. You know who’s not contributing to inflation? The Brew. Today, we’re launching a revamped referral program with cheaper “prices” on swag items…that were already free to begin with.
So the NEWS of the release is that it was 8.5% instead of 8.4%. That's why they pointed it out. Everything else was already priced in by markets.