Hacker News Reader

Comment by dopylitty | Hacker News Reader

Key point: “ Much of inflation rise came from gasoline prices, which increased 11.2% on the month and just shy of 60% for the 12-month period. ”

This has nothing to do with monetary policy.

View on HN

> This has nothing to do with monetary policy.

How can you be so certain? Gasoline prices started rising well before the war:

https://fred.stlouisfed.org/series/GASREGW

I would agree that the war has made a bad situation worse. But to say this has "nothing to do with monetary policy" seems like a stretch.

There's more than just monetary policy and war. Monetary policy would imply demand for gas is up, driving prices up. But demand for gas is still lower now than it was pre-covid.

Oil is on its way out the door. Oil companies all have projections that show demand for oil increasing in the short term and decreasing in the long term. The list of their options to (1) increase their profits by (2) increasing the supply of oil are all investments that only pay off in the long term. Hence, even as prices rise in the short term, they are making calculations off the long term and finding it not very profitable to increase supply. Simple economic theories of corporate response to supply and demand don't work nearly as well with this long-term, short-term incentive difference.

Refinery capacity has shrunk in the US, so even with more crude, we would likely still have price increases.

Correct me if I'm wrong but that chart shows gas prices on feb 21 being as high as in 2014, that upward trend just looks like a recovery from the $1 gas we had at the begging of the US "stay at home order"

Most of the pre-war rise was recovering from the covid crash of gas prices. The price overshot its pre covid level a bit, but that can be explained through supply issues (you can't increase production on a dime; demand was difficult to predict; and suppliers prefer to under produce than over produce)

We have a president who is hostile to oil. Let's ignore if that is a good / bad idea for moment.

It's been long enough that price of gas reflects those decisions. Except we've been drawing down our strategic oil reserves to keep prices cheap for the moment. So really it should be a lot higher.

Real pain will begin when the reserve runs out of good oil.

https://www.washingtonpost.com/business/energy/the-us-is-dep...

Gas is pulling up the CPI right now, but it's always volatile. Shelter is slow, strongly linked to monetary policy, and the highest-weighted component in the CPI basket, and it's up 5.6% YoY, with a lot of inertia to keep growing. That suggests to me, in a back-of-a-napkin way, that about half of the current inflation is due to monetary policy.

Shelter tracks CPI less energy pretty closely, especially during the recent surge: https://fred.stlouisfed.org/graph/?g=RJqZ

I wish people would stop acting like the world is fine aside from gasoline. Food at home is up 12% from a year ago

- cereals and bakery products up 13.8%

- Flour and prepared flour mixes up 19.2%

- fruits and vegetables 8.1%

- Canned vegetables 14.3%

- Dairy and related products 13.5%

- Fresh whole milk 17.1%

- Meats, poultry, and fish 11.7%

- Eggs 33.1%

- Nonalcoholic beverages and beverage materials 11.9%

- Roasted coffee 16.8%

- Other Foods 14.4%

- butter and margarine increasing 26.3 percent.

As a community HN has a strong normalcy bias to the point where they will flag and down vote comments and articles that challenge it too much. The worst something can be admitted to be is "not great now, but we'll have a fix in soon". In general this community is blind to any of the major systemic issue we are facing that are likely to forever decrease our quality of live.

I'm reminded of an interview with a few years back with the mayor of Tangier, an island which is visibly sinking off the coast of Virginia. In one instance the mayor points to a part of the sea where a community playground used to be, and when asked about climate change, without skipping a beat, replies that he just doesn't see any evidence for it.

That was a few years back now, and it was then I realized that for a certain subset of the population, no matter how real the decline of our civilization is, they will never see it. The Hoover dam could stop running from the emptying of lake mead, we could have global crop failures and being living with intermittent power outages, all of us living lives that are unquestionably worse off than 10 years ago and people in the community would still be decrying that everything was media sensationalism (even though the media rarely reports on anything being as dire as it is).

All this products require energy resources to produce. Energy resource prices are volatile thus everybody has to add safe margins. Not really a lot more to say - world is not fine, there is a war in northern parts which is rare. There are additional factors contributing to inflation (covid spending etc.)

It's not surprising that food prices rise when gasoline and natural gas prices rise. You need the gas for transporting and producing food, and you need natural gas for manufacturing fertilizer.

Perhaps worth noting poultry and especially chicken eggs are subject to truly transitory inflation due to the current avian flu outbreak: https://en.wikipedia.org/wiki/2020%E2%80%932022_H5N8_outbrea... Have not checked up on it for a while, but in the US it hit laying hens much harder than any other poultry category.

You are of course generally correct, food inflation for what I buy is roaring and significantly above topline CPI.

> I wish people would stop acting like the world is fine aside from gasoline.

The reason why is there an (appropriate in my opinion) focus on gasoline and other crude-oil products is that other commodities and services relies on this commodity. We're not yet in a state where we can use other resources as substitute for it (either because green energy is not that scaled-up or because crude oil directly contains what is needed - for example fertilizers and plastics).

It's still 6% inflation even if you take out food and energy: https://www.bls.gov/charts/consumer-price-index/consumer-pri...

Obviously Russia is making it worse, but I think it's naïve and simplistic to say monetary policy has nothing to do with it. I would still argue monetary policy must comprise a slight majority of the blame.

Don't forget very handsome and ever-rising corporate profits. They've been taking advantage of headlines to raise prices, reduce quality/quantity and cut expenses.

This is nonsense.

Unless there is a monopoly, companies have to offer the lowest / best deal or they go out of business quickly.

Food and many other industries are extremely competitive and there is no wiggle room to just raise prices and laugh at poor people.

If transportation is 50% of your products price (end to end); and fuel cost doubles, then you have to raise prices 50% just to break even.

> Unless there is a monopoly, companies have to offer the lowest / best deal or they go out of business quickly.

I don't know why you think companies like competition more than they like profits. Companies raise their prices in lockstep a lot: sometimes it is coordinated, mostly its not. Despite your faith in perfect competition: established companies do not want a race to the bottom - which is a classic iterated prisoner's dilemma scenario.

Bet most of those rely on heavy regulations of the government to prevent competition.

A number of things raise the bar: CapEx, regulations, or even high marketing costs (e.g. if one wants to compete against Coca-cola/Pepsi: making flavoured water isn't hard, over-regulated or expensive, but customer acquisition in that space is expensive).

Incumbents rarely want to rock the boat against other, similar-sized incumbents.

Far from nonsense. Oil is controlled by a global cartel. Everything in your supermarket is made by "brands" owned by a handful of companies, produced from raw materials made usually by a handful of producers. They've each carved up the world between them and sit on unprecedented pricing power. How is the US food market competitive? I also note you didn't actually challenge the fact that US corporate profits rose after the pandemic, with fatter margins despite rising costs.

I'd say a cartel works about as well as a monopoly. I think you're right about food, but you can get vertical(? - I can never remember vertical or horizontal) integrations at some points like it seems we have with beef - lots of people can grow cows, but if a cartel gets control of the processing plants, they can squeeze the market at both ends.

This is true. Large plastic tanks, like 3-5k gallon ones for water storage doubled and potentially heading for tripling in prices because of this simple fact: You can only put like 3-5 on a truck that has to drive from very far away. It makes it so that if your state does not mold plastic, then you are directly paying for the fuel of that truck.

Corporates are trying to buffer up for the incoming recession. If they have no cash reserves they will go bankrupt.

Sure. Shareholder interests and all that. But regardless of the reason why companies might be fattening up (come on, do you really believe they'd leave money on the table even in the best of times?), the fact is they're doing this at the expense of American households. That doesn't make it hunky-dory. And to bring it back to the original topic, that too is inflationary.

Core inflation, which excludes energy, rose at a 8.8% annualized rate. The current YoY figure is 5.9%

So no, it's not just about gas. If you look at the numbers it's across the board and broad based.

The Fed made a historic and pretty obviously needless mistake in delaying their response. Now we get to enjoy the fruits of either a severe recession or unchecked inflation if they decide to chicken out

Which elements of CPI aren't indirectly tied to the cost of energy?

Rent, which is rising close to the fastest pace on record for the CPI.

But depends how many leaps you want to take to justify its relation to energy

Nothing in the breakout of the CPI data shows slowing in pretty much any category

> Rent, which is rising close to the fastest pace on record for the CPI

I’m renovating a home. Shipping is higher, due to labor conditions as well as fuel costs. If I rent it out a few times a year, as I’m considering, I will price to make that back. I’m sure those with purely rental properties are similarly inclined.

I never consider my own costs when choosing how to price a rental. I will always charge market rates. If market rates are higher than my costs, great. I won't lower my rates, I'll just pocket the extra money. Similarly if market rates are lower than my costs, I can't just stubbornly keep the rates high. No one will rent from me. If that goes on for a long time I'll decide it's a non-performing asset and sell it.

I called myself out as a marginal source of supply. I love my renovations. I don’t need the cash. If a lease can’t cover my costs, altogether, I would prefer to not rent and not risk the damage.

Input costs eventually filter to the outputs.

Yes, the economy is interconnected.

I also decided to increase rent on my rentals cause the price of bread doubled and my daily sandwich got more expensive

Housing was/is directly affected by Covid supply shortage.

Cars, chips, energy, supply shocks etc are what’s causing all this increase in CPI. I would even say there’s not much (monetary) inflation, on the contrary, deflation of the USD might break the system.

Just repeating disproven mantras from a year ago.

Chip supply is higher than prepandemic. Demand is even higher due to fiscal stimulus. Not even worth discussing, its obvious to anybody that has been following the data closely.

Look at retail sales figures on FRED and explain to me how this is not a primarily demand driven inflation:

https://fred.stlouisfed.org/series/RSXFS

You and many others are conflating "shortage" with "supply side issues". Shortages can be driven by excess demand just the same as constricted supply

> This has nothing to do with monetary policy.

Monetary policy right now. It has everything to do with monetary policy for the past few years, which created trillions of new dollars.

Perhaps not, but energy is the "everything killer" of inflation since it's a major input to nearly every business that happens in the physical world (and it's non-trivial for the virtual world as well).

I'm in Europe and I had a very favorable energy contract for the last couple of years. Well, that contract ended and my rates got hiked 800%.

It sure put everything I do on a daily basis inside of the house into perspective.

>It's just gasoline

>It's just housing

>It's just plywood

>It's just food

Humans are biological, liebig's law of minimums applies.

Yeah unfortunately “energy” is a significant cost for most economic activity. Yours beginning to see “we’ve tried to hold back increases as much as possible but we can’t any more and we’re raising prices”.

Yet core inflation is 5% which is also very high.

Wonder if the Fed will start paying for solar and heat pumps to help curb inflation /s

There are existing Federal subsidies for solar installs.

Or bike lanes or public transit...

If you're right, next months CPI print should be 20-25% less because gas prices decreased by that amount. Willing to place a bet?

Wonder how bad natural gas prices will be this winter.

European countries are preparing for (energy) rationing. Record heat does not help either.

Consumers in neighboring countries, like Norway, are experiencing almost 100-fold increases in energy prices as a lot of energy is being exported. I'd be amazed if American energy firms aren't exporting LNG hand over fist to EU countries, as the situation is as dire as ever.

> I'd be amazed if American energy firms aren't exporting LNG hand over fist to EU countries, as the situation is as dire as ever.

Unfortunately, Freeport LNG terminal, the 2nd largest terminal in country, had fire and not expected to be fully operational until early next year. So even if US can produce more natural gas, they just don't have enough available capacity to export.

https://www.reuters.com/business/energy/us-regulator-finds-u...

Sadly there have been some problems at the export terminals for LNG to Europe. That's caused the price of natural gas to go down a lot in the US and up in Europe. Yet another displacement.

https://www.npr.org/2022/06/10/1104118546/freeport-natural-g...

Short-term at least, the US is relatively limited on LNG export capacity (and the facility that had an equipment failure basically cancels out the projected increases for this year until it's fixed). https://www.eia.gov/todayinenergy/detail.php?id=50598

AFAIK there's not exactly an abundance of idle ships to transport LNG either.

Fed’s expected to raise interest rates in response, so perhaps it does.

They're still very far off actually making a difference, ie. you'd want the rate within 2% of the observed inflation, so c. 7%

I think they'll stop long before that because even at 10%, they're not going to be able bring inflation down -- most of the causes being supply-side

Last time USA had a real inflation problem, Jimmy Carter pushed the fed and they jumped rates to 20%. That stopped inflation, as well as Carter’s re-election.

Biden’s own party is having cold feet about him running again. I don’t think they’ll make it viable for him to run. They’ll let the rumors fly and allow someone else to be the nominee.

So he need not think about implication on his re-election as there won’t be any.

Great point. He didn’t really seem to want to be Pres anyway. Not that the Pres has all the much power over the economy anyway, but hopefully since he probably doesn’t have anything to lose anyway, he’ll simply push towards the best thing for the country rather than best thing for re-election or party.

Interest rates can actually bring down supply-side inflation. With most things being bought on debt, making that money drastically more expensive will eventually erode demand. With demand falling it brings it better inline with the lower supply levels, easing the inflationary pressure on prices.

The same downside to all of economics still applies though. We can't actually predict what will happen and the larger the changes made the bigger the unintended consequences we will see down the road.

Sure, i suppose inducing a recession does bring prices down, eg., oil dropping is now just a recession in demand. Fair point.

It really sucks when it's phrased so directly like that, but yeah that's basically it. Slowing down inflation means causing a lot of pain along the way, no matter how you go about it

It seems consensus is calling for something like 3.5 to 3.75. But it’s all speculation.

Let's be honest here; most of the cause, is corporate greed.

People will always be greedy. Pretending otherwise is delusional.

Forcing people compete and provide the best / cheapest product with the fewest resources is how wealth is built up for all. Rich and Poor.

Letting companies that are inefficient fail and go out of business is how you manage them.

Government picking winners and losers is how you screw everything up.

But bear in mind also that the price of gasoline is not directly tracking the price of oil: it's much more expensive now than it was a few years ago when oil was about the same price.

A lot of the "inflation" we're experiencing right now is straight-up price gouging. There have been a number of reports of record profits amid all of this.

That’s called supply and demand - global refined product demand is at/above pre-Covid levels, global refining capacity has been reduced (partly due to Russian war/covid/feedstock conversions). That’s why you see historically high crack spreads.

For a few more details, US refinery capacity is down 5% or 1 million barrels per day from pre-COVID figures, so once the economy started unfreezing from that demand exceeded supply. Worldwide it's 3 million bpd. For the US, a significant part of the loss in distillate production was being made up by imports from Russia, which of course have been ended by sanctions.

Aside from undoing the sanctions, there's physically no way to fix this in the medium term aside from demand destruction from a recession or worse. In the medium to long term oil companies are not going to make major investments that will never be paid back because of anti-fossil fuel policies.

> But bear in mind also that the price of gasoline is not directly tracking the price of oil

There's always been a substantial lag. Production/shipping always takes time, plus you've got the sticky price effect to contend with. The falling price of crude today will result in cheaper prices at the pump later this year, but not immediately.

If you’re talking about retail gas prices a lot of that is inventory driven. Think about it, if I buy a tanker truck of diesel that takes a week to sell @$3/gal and prices start to rise, sure I’ll rapidly match prices, but maybe be willing to be a bit cheap (since I make most of my money on the convenience store), but now fast forward 6 months and I buy a cargo @5.5 and prices start to drop, I’m going to be inclined to lower prices as slowly as I can try to limit at how much of a loss as I going to sell my fuel high cost basis fuel (where it becomes a little anti-consumer is I can probably rely on the station across the street to be in the bind, and so neither of us are in a rush to mark to market until we have newer lower cost basis inventory)

That's likely true, too. I'm hopeful that we will, indeed, see some drop in the price of gas (though frankly, I'm also expecting to see prices rise again before winter...which is going to be rough in some places).

But from what I understand, gas prices also rose much faster in proportion to the price of oil than they have in past oil price spikes. And while I haven't seen any numbers specifically for oil/gas companies, we've definitely been seeing record profits alongside the rising prices in various places these past few months.

I can't claim that it's the whole of the current inflation, but there's definitely some opportunistic price gouging going on.

Dollars are dollars so if a companies profit is up 9% yoy and inflation is 9% yoy, real profit increase is 0%.

Imagine if we had a fully electrified economy instead of this petrol-economy crap.

There was a period where prospectors tried to hurry up and hoard all the uranium deposits they could find only to discover the stuff occurs at a rate to not be economical.

(And supposedly covering an area the size of NM with solar would provide all the worlds energy needs.)

This is how you get the electrified (or whatever else) economy.

Without the pain of higher fossil fuel prices, there is little incentive to change.

I’ve taken to calling gas “conflict fuel” to remind myself to avoid using it as much as possible in my daily life. Helps more than just a desire to not impact the climate.

I don't really care, I will use whatever energy source is the cheapest. Subsidise green energy or tax dirty energy so that's true, and people like me will naturally switch.

Or else why would you reply, right?

The nickel wars are coming to fuel the battery factories.

Batteries have a lot more flexibility outside of lithium. LFP batteries don't have nickel and work well enough for cars.

European countries have managed to set national goals and work systematically towards them, putting them far ahead of the US's non-strategy of "the market will fix it" FUD that we've been fed from Miltonites for decades.

The biggest thing European countries have done is make fossil fuels prices higher by increasing taxes. A solution that is not politically palatable to the vast majority of the US, due to the sacrifices in quality of life it would entail.

> make fossil fuels prices higher by increasing taxes

Biggest thing? No.

In Germany, where I lived for 7 years, this is only one component of a much broader strategy that includes investing in electrified infrastructure, including subways, trams, busses, long-haul trains, higher fuel efficiency standards, direct subsidies for renewables, direct investment in renewables, including projects to build them, higher efficiency standards for appliances, lightbulbs, timer-based circuits to turn off lights, broad public awareness of the role of conservation, and not tolerating as much climate change denial bullshit coming out of fossil fuel companies and political parties.

It's almost like they decided to mobilize and actually do something, treating this like a problem that can be decomposed and solved by thinking about it and doing stuff instead of tinkering with taxes, which have a tendency to be immediately undone upon the next economic downturn. Hope, they say, is not a strategy.

> It's almost like they decided to mobilize and actually do something, treating this like a problem that can be decomposed and solved by thinking about it and doing stuff instead of tinkering with taxes

The incentive to do something comes from making gas prices higher, or “tinkering with taxes”.

The US has cheap fuel at the pump, incentivizing people to continue buying SUVs and pickup trucks with 5+ liter engines that get 10 to 20 miles per gallon. It incentivizes people to live on quarter acre lots in far flung suburbs that require individual cars to get around. The people living this lifestyle do not want to spend money on public transport, or dense living. They have the life they want, in big houses on big plots of land, getting around in the luxury of their personal vehicles.

They will vote for the politician who continues to enable and make this life easier, they will vote to make roads wider, and prioritize car transportation over walking and bicycling and public transport.

Why would I want my taxes to increase to build a rail network when I have my own large, luxurious vehicle with which I can get to anywhere I want, anytime I want, without having to share the space with random others for 20 cents per mile worth of fossil fuel?

I can retype my reply if you like, or you could reread it. Government leaders at every level invested real money, time, and effort in building actual infrastructure. They did actual work, you know, planning, studying, proposing, designing, discussing, approving plans and projects, funding actual projects, building actual projects, deploying actual projects. They didn't just adjust a few numbers on paper. They are doing the logistics to accomplish the goals they set out. Funnily enough, things happen when you do them instead of hoping others will.

Government leaders were elected to do that work because the voters wanted the government leaders to invest real money, time, and effort in building actual infrastructure.

People in the US are going to vote for a 16 lane highway so their individual cars can go faster, they are not going to vote for a train to replace some of the demand for the 16 lane highway.

> Funnily enough, things happen when you do them instead of hoping others will.

That is not how allocating tens of billions or trillions of taxpayer dollars works in the US. You have to have the sufficient votes in the legislature to “do things”.

Well I'm gonna stop responding because you keep editing your comments to significantly expand and make different points, so everything is a moving target. (I tinker with comments too sometimes but I am trying to keep it to just minor clarifications).

> That is not how allocating tens of billions or trillions of taxpayer dollars works in the US

Of course this is oversimplified FUD, but I was under the impression that we were talking about the relative merits and effectiveness of policies designed to result in "electrified infrastructure" and it is absolutely clear that your original assertion of tinkering with taxes does not and never has worked except as part of an actual plan.

>Government leaders at every level invested real money, time, and effort in building actual infrastructure.

These are the same leaders who, when Trump at the UN warned four years ago that Germany is endangering itself by increasing dependence on Russia, laughed on camera (<https://www.youtube.com/watch?v=FfJv9QYrlwgepe>).

Germany is now facing the consequences of the greatest mistake its leaders have made in 80 years, an existential threat to the German (and thus European) economy and even nation-state. You know this. Yet you instead lecture the USA—home of Tesla—on how ACKSHUALLY it need to build more e-infrastructure. The mind boggles.

Reply on news.ycombinator.com