US annual inflation declines to 7.7% in October vs. 7.9% expected
bls.gov
bls.gov
Also, this number is year over year, so the decrease just means the price increases between Oct 21 and Oct 22 are not as steep as between Sept 21 to Sept 22, which is not hard to achieve because Sept 21 to Oct 21 had a bigger month over month jump.
The right way to interpret this number is that high prices have plateaued a bit. Yes that means your groceries are going to be x% higher than in 2020. Short of deflation, they always will be.
https://totalrealreturns.com/s/USDOLLAR?start=2021-11-10&end...
or over a longer time period: https://totalrealreturns.com/s/USDOLLAR
(this site is my side project)
If "p" is the relative price level index (CPI-U in this case), then "1/p" represents the relative purchasing power of a single dollar over time -- explained on homepage in more detail.
It means CPI_oct22 - CPI_oct21 < CPI_sep22 - CPI_sep21
d^2p/dt^2 isn't necessarily negative.
The difference is important, especially because we're looking at a yearly increase every month. The derivative of the annual inflation is not d^2p/dt^2 but (dp(t)/dt - dp(t-T)/dt).
These explanations are very necessary so that people develop an intuition of what is going on.
Edit: there are some people saying it's a myth, or not a complete picture. Looks like we don't have the data. But my point is that we aren't very good with numbers or economics.
https://www.scientificamerican.com/article/fractions-where-i...
https://www.stlouisfed.org/on-the-economy/2018/september/how...
It wasn't revealed at all until the founder's memoirs in 2007, and it wasn't reported widely until this [1] 2014 article.
0: https://awrestaurants.com/blog/aw-third-pound-burger-fractio...
1: https://www.nytimes.com/2014/07/27/magazine/why-do-americans...
https://awrestaurants.com/blog/aw-third-pound-burger-fractio...
So tldr; some people in a private focus group questioned the value of a 1/3 pound burger over the same priced 1/4 pound burger. It's not indicative of any system numerical illiteracy.
I will add there were no actual data released - it's solely based on an anecdote from a A&W restaurant executive.
https://skeptics.stackexchange.com/questions/28745/did-aw-cu...
I would not say Americans in general are dumb though. I would say that:
1) they are under-educated ( and then we can also get about the quality of education for those that were educated ) 2) they are very heavily propagandized
Most places that report on this say that the third pounder was cheaper and that Americans preferred the taste, but they didn't buy it because of the name and their poor math skills. But its name was changed to "Papa Burger," and it still didn't become the quarter pounder killer it's portrayed as.
But of course my point was never about the burger. It was just that many aren't good with numbers and finance (in the edit with the links).
Also, the 1/4 or 1/3 is referring to the raw, uncooked meat only. So in theory you can add 1400 lbs of lettuce to make something larger than my car. (Which is terrible, since lettuce is where you pick up all the disease these days - everyone here should order all their food without any lettuce)
Many more pretend to be less literate than they are for ideological reasons.
>still remember the classic example that a burger chain released a 1/3 pound burger to compete with another chain's 1/4 pound burger, and many people thought the 1/4 pound was bigger.
This trope needs to be taken out back and shot. It wasn't that people didn't get it. It's that it was poorly marketed and the difference between 1/3 and 1/4 isn't enough to make people go to a burger chain that was dying due to low and variable quality when they could just go to McDicks and get a reliable 1/4lb.
I really liked the 1/3 pound “thickburgers”. I don’t think it was just some dying chain trying to spread rumors about how stupid people didn't understand their marketing and that’s why they “died” (they’re still very much alive last I checked).
Then it should be possible to point to said survey…
The larger point is that it does demonstrate what the actual data shows - that the US has a sizable portion not good at math/fractions or finance.
The overwhelming majority of car sales people know almost nothing about cars. That's already how you know that their industry is basically useless.
It's also extremely predatory. Anyone trying to pay a 30K mark up on a rav4 prime is being swindled (even if they think they're not). You (the sales person) should prevent obviously stupid car sales (or shit like 25% apr hellcats to US soldiers), but of course not, they're greedy!
They make a lot of their money today selling warranties, service packages, and financing.
I was looking a few weeks ago and the sales associate mentioned that it's starting to come down but they've just struggled so much at getting enough inventory that people were willing to bid up from MSRP. He advised me it's still a bad time to buy a car and that next year will probably be better.
But most people aren't thinking that far ahead. They just know I can recharge my car for $10 but it costs them $100 to refill theirs. They know that electricity prices are a lot more stable than gas prices.
This will inevitably lead to people saying the numbers are fake because milk used to be $2/gallon.
Conversely, if there was a one-time jump in a particular item, it will take a year before it gets 'removed' from the inflation numbers.
Extremely contrived example: if gas/petrol was $1/L in December 2021 (and generally in all of 2021), but $1.20/L in January 2022, then there will be a 20% YoY jump in inflation for the January number comparing Jan 2021 to Jan 2022.
Now if gas stays at $1.20/L in February 2022, it will still register as 20% YoY even though the price has not changed month-to-month. That 20% (YoY) is "stuck" in the system until January 2023 when we're comparing $1.20/L to $1.20/L.
A one-time jump can 'skew' the numbers if all you look at is YoY metrics.
What’s misleading about reporting yearly percentage increases in prices? I’m baffled.
(from the comment I directly replied to)
Serves me right for reading too quickly.
The YoY is useful for businessmen and economists.
People aren't checking their statements for milk prices from Nov 2021 right now. They just know "man it jumped up".
The point is that the everyday person cares about jumps and trends, and hearing "20% YoY increase" for 12 months is misleading to someone not thinking about it in economists' terms.
The fact a bunch of people here are debating what it means and how to interpret it proves my point.
0% 0% 0% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% 0% 0% 0%
If there's a .8% price increase per month, every month, it looks like:
+10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10% +10%
The upside of reporting this way:
* Seasonal effects are (mostly) removed
The downside:
* You have to have a lot of context about surrounding numbers to try and distinguish between these scenarios.
* The drop from +10% to 0% is not related proximally at all to the real change.
* Even if you are careful in interpretation, information and context are removed.
It's not very user friendly or useful as a single number to get an idea about what's happening with prices now.
> If we're honestly at the point where this is considered too confusing for the masses, I think I've stopped thinking democracy is a good idea.
I have a lot of knowledge about economics and mathematics, and it's frequently confusing for me and difficult to tease out what's really happening with prices from a couple of macroeconomic aggregates. If that makes you give up on democracy, uh, so be it.
Well, that makes it even worse, the "flow through" you're describing from prices increasing because an input price increased. That spreads the initial shock over a longer term.
But the effect I'm describing shows up even if it's just a single good that steps once. What's measured in the YoY inflation number is a convolution/FIR filter of 12 months of changes.
This is wrong, but so obviously so that you must be making another point?
Consider how last month everybody was reporting Core-CPI because it was higher than overall CPI and therefore produced more urgent sounding headlines whereas earlier in the year when overall CPI was higher that was the reported number. Yes, headlines said "Core-CPI" last month but if you aren't careful you get a very incomplete picture of things.
It is also the case that going extreme in the other direction is ridiculous. Imagine a daily inflation measure. Also nearly useless. "Oh, prices were flat today so everything is fine."
Published inflation numbers in media are usually used to make either the claim "everything is fucked, you should be mad about public policy" or "everything is fine, you should be happy about public policy." To me, this means that the reported should ideally be tied to some cadence that matches public policy. I'm not sure what that cadence is.
Here you are encountering a common human cognitive failing, which is the belief that there is some sort of objective answer to the question "are prices going up?" that we should all be able to totally agree on, somehow floating in Platonic space without reference to any particular measure of "prices increasing".
The problem is that if you drill down to the question of "what does it mean for prices to be 'going up'?", you must admit to the fact that there are multiple valid definitions of that. It just isn't possible or plausible to create one true definition.
In the presence of that fact, it becomes inevitable that there will be senses in which the price is going up, and senses in which they are not, and senses in which prices are going up more than other senses. That is the reality, which is complicated.
(One propaganda technique is to take one of these numbers, which really exists and is perfectly defensible on its own terms, and then use it in a context in which you know people are generally going to interpret it as one of the other senses of the term. Excitingly, by controlling which "sense" you anchor your listeners to, both "sides" of a debate can push the numbers in whatever direction favors them at the same time.)
According to our nationally-used, generally-accepted metric, if gas is the same price today as it was 365 days ago, inflation is zero. But does that mean the metaphorical person on the street is "lying" if they say prices are generally going up because gas is 20% more expensive than it was three hundred and sixty six days ago? There is a fundamental arbitrariness both to our metrics, and how we all feel about things. I've seen plenty of "How can annual inflation be %8 if my eggs are 2.5x more expensive than this time last year?" posts around lately. The literal answer to that question is obvious, but if someone's expenses involve more eggs than mine, either because their food is a bigger percentage of their home budget or they are a business for whom eggs is a major input cost, they may feel a higher level of inflation than I do, and they're not wrong. They've just got their own inflation metric that disagrees with the national one, but their own metric may well be more relevant to their life than the national one is.
The price is still 20% you, and still 0% mom. If reported as inflation still at 20%, does that affect perceptions of inflation, and if so, expectations of inflation? Because expectations of inflation often turn out to be self fulfilling drivers of inflation.
Reported as inflation stable even if it is 20%? Better? Not that 0% is a great target, but that's a separate issue.
My brain swapped annualised with seasonally adjusted. Sorry.
Jul 2022: 0.0%
Aug 2022: 0.1%
Sep 2022: 0.4%
Oct 2022: 0.4%Rather than modeling it as "the price increases happened in a short period of time and then went back to normal," I think it's more likely that it happened more spread out and persistently, and perhaps still is going on. It's not going to jump to zero after some given month
“Inflation is transient” fits prices increasing and then leveling out, and does not imply that every bit of price increase is balanced out one-for-one by immediate deflation afterwards.
As for gas prices, it’s going to depend on supply (including refinery capacity) and demand. The $2/gallon of April 2020 was an artifact of covid nuking demand.
Your explanation is fully technically correct, but the subsequent messaging that inflation is zero is a matter of not reading the room.
When an important item dramatically rises in price, this can have a massive impact on people. A dramatic drop in purchasing power or even businesses needing to close. It is impactful.
When the price continues to be high, the impact remains. The pain continues, the problem is not solved. The politically smart messaging is to say "we feel and acknowledge your continued pain, this is what we're going to do about it", not "Good news! Inflation is 0%."
Same with the opportunistic messaging of sometimes using MoM or YoY, whichever number looks better. When MoM inflation in October is 15% and 5% in November, you really shouldn't bring this as good news. The situation still got worse in the real world.
It’s a major reason why society spends so much on education. Stupid people make poor citizens.
It would have been much clearer for them to say, "The increase has slowed."
3rd derivative would be Nixon's:
>When campaigning for a second term in office, U.S. President Richard Nixon announced that the rate of increase of inflation was decreasing, which has been noted as "the first time a sitting president used the third derivative to advance his case for reelection."[2] Since inflation is itself a derivative—the rate at which the purchasing power of money decreases—then the rate of increase of inflation is the derivative of inflation, opposite in sign to the second time derivative of the purchasing power of money. Stating that a function is decreasing is equivalent to stating that its derivative is negative, so Nixon's statement is that the second derivative of inflation is negative, and so the third derivative of purchasing power is positive.
https://en.wikipedia.org/wiki/Third_derivative#Economic_exam...
p = price
t = time
dp = change in price
dp/dt = change in price over time = inflation
d^2p/dt^2 = change in change in price over time over time = change in inflation over time = what we are talking aboutDefinitely not a statement that I would be able to visualize :)
Without trying to be mean, I would also argue your framing is also poor as some inflation is not bad.
To put it in context, if current trends hold we'll expect 3-5% inflation yoy. That is not awful. Higher than last decade or so but we have had super low inflation for a long time. Averaging out, inflation over the last decades, even including the recent high inflation, will still be pretty low, around 3%.
Also there isn't a cliff, there's only speed bumps for going too fast. At least if movement=inflation.
On the other hand if the "cliff" is supposed to be a specific level of inflation, then we didn't just slow down, we're walking away from it.
If we average 2%yoy every single decade for the next 300 years, people will probably have a lot of trust in the dollar in the decade following. If we hit that same price level tomorrow, people will rightly flip. $1700 milk either way, but in one case we'd expect $1700 milk the following day and in the other we'd expect the dollar to plummet further from the shock of it.
And nobody is suggesting changing the x-axis. It's still time. The distinction people are making is which points does one use to calculate the slope? The most recent two? The most recent one and the one from a year ago? What are the implications of each?
I didn't see any thread of discussion that you’re alluding to where people were trying to interpret what the data actually means. There was simply a word of caution about making sure not to let the headline confuse you. Then some incorrect and sloppy comments appeared like “actually this is incorrect data because the price is trending down MoM don’t be fooled”. That’s an entirely different thing. Hence why you see all the people trying to explain how it’s silly. I didn't introduce confusion by changing the slope calculation… I’m just responding to it trying to clean up the mess it’s made.
I’m seriously confused: what is your actual point?
The comment was in response to a comment that was speaking to nuance and basically said there's even more nuance. It's right there to see.
The yoy is just using two points very far apart. The mom is using two points closer together. It would be nice but practically impossible to measure it instantaneously, mom is about as good as we get.
If you are right, I'd guess the cost benefit probably isn't there regardless.
This part is true.
> that means your groceries are going to be x% higher than in 2020
But this part jumps right back into the much bigger fallacy that inflation represents a change in value and not price! Sure, groceries are higher in price, just like your assets are higher in value (on average) and your wages are higher (on average).
But in any case, your notion that inflation isn't instantaneously halted is a little spun. In fact month-to-month CPI change for October is 0.4%, which corresponds to about 4.9% per year. That's higher than we've seen for most of the last decade, but not a number most people would consider "high" in the sense of "disruptive to economic activity".
A good time to but the 10 year Bond IMHO.
Do you think I should have bought it when the price peaked?
What I am saying is that the "market", which is now controlled by AI reading newsprint, is wrong and that 10 Year Bonds will increases again.
You don't think I know how bonds work? Yet you agree with me?
You might as well say "I don't understand how bonds work". It's fewer words.
That’s the number that matters in a forward looking instrument like the market
Had we just reported a month on month -0.4% instead of 0.4%, the yoy rate would have been reported as 6.9%. A headline of 6.9% would mean prices are actually going down.
The discussion is around how the numbers should be interpreted. There isn't confusion around what they have literally reported.
The instantaneous slope would be negative if the last month happened to observe a slight decrease, true. But the slope of the line between last year and this year would be positive.
Both statements can be true:
1. prices just fell slightly since last month
2. prices have risen overall since last year
EDIT: you edited your comment I’m not going to update mine.
>> The instantaneous slope would be negative if the last month happened to observe a slight decrease, true
This is sloppy. It's fine, it's a forum, we aren't writing academic papers.
Nobody is trying to figure the slope of the straight line between the two points, that's what is already reported.
Yes, both can be true.
IDK… nobody is really trying to figure out how to interpret the data. People were just commenting that “declines to X%” actually still means that it’s gone up YoY and not that it’s declining YoY and here you are yelling that actually it is declining because recently it went down. Which is false, YoY.
They just take the recent point and the point from a year ago and do the math and report the change. For mom they do the recent point and the one before that, do the math and report.
Some people actually know what the CPI is, how it gets reported, and understand the shortcomings of said reporting. If you aren't one of those people, it's silly to go around correcting others.
This is actually great (if noisy) news. 2 months of 0.4% CPI increase is equivalent to 5% yearly inflation. But the YoY is still high because it was much worse 8-12 months ago.
I hadn’t even considered that people will think low numbers are a lie because prices don’t go down. But of course (sadly) you’re right.
Or is this a specific criticism of a regulatory blind spot for reigning in market power? Monopolies can get away with price increases now, but they wouldn't normally?
I think the best way to understand it is to just look at the index itself [1] and not the first or second derivative.
[1] https://tradingeconomics.com/united-states/consumer-price-in...
I've been tracking my expenses since 2015 and they're up around ~50% since then, for effectively the same food (eggs, bread, meat, etc). I eat ~2800-3000 calories per day (which I also track) and that's been consistent.
According to BLS it should be up only 27%, but everyone knows that's just not true. Remember ~1 year ago when the administration was calling prices "transitory", that means they're claiming a larger elasticity in prices so inflation doesn't look bad because they believe they'll come back down (soon).
I'm not trying to be the best investor or anything like that - but knowing the basic inflation trend I think would be useful to a large % of the population.
The only thing we can hope for is that, as inflation numbers continue dropping back toward "normal", wage increases will eventually catch up and make those already-higher prices less difficult to swallow. Of course, it never works out that neatly.
How that didn't drive the price back down to $1 or up to $2 I'll never understand. It had to have increased labor on the parts of the vendors and decreased demand for the vendors at the same time. That's about the time I started just stocking a 6 pack or 2 liter (depending on which was cheaper per oz) in the fridge for the week, too, which drops the unit price.it also decreased the total volume of soft drinks that I bought.
I don't know how soft drinks can continue to increase in prices under that dynamic. My guess is that the majority of people just buy it and don't notice anything that costs less than $10 anymore, so convenience stores can get away with movie theater prices as long as they don't cross that trivial threshold. People will pay for convenience under $10.
I remember buying 2L bottles for $0.99 on a regular basis (they often had sales). I don't drink it anymore (one month and counting) but i do check the prices weekly out of habit and never see it below $2.29/2L now?
I actually just checked and it has gone up in price once again, now $2.49/2L
Crazy.
Sellers do not determine the market price for anything. Buyers do by what they will pay. Sellers can specify a price, but any transaction actually happening is only determined by the buyer. (Setting the price can be intended to apply psychological manipulation to the buyer, which often works.)
If you are complaining about the prices of anything, your complaint is not with the seller, it is with other buyers who have proven they are willing to pay it.
Something like Spindrift is a partial substitute.
A real substitute is Izze. Less sugar, but still sugary. Tastes awesome - better than Coke.
http://blog.nawaz.org/posts/2021/Dec/taming-my-soda-addictio...
It can be, if you commit to really reducing your sugar intake. I did it, 20+ years ago, completely giving up soda. My go-to drink for every meal is water, and I drink water throughout the day from a large water bottle. I still consume sugar here and there in food (or the occasional cocktail), but I eat much less of the stuff than I used to. It's hard in the US, where everything has so much sugar, but it's doable.
The less sugar you consume, the less your body/brain will want and need it. It's like an addiction...
Yes, you the single person going generic will definitely send a message to Coke!
Hey I get your "sending a message" concept. But you also have to be realistic. Coke is almost literally everywhere you could possibly go. A lot of times it's basically the only option aside from a grocery store. It's popularity is so high and it is to be fair a quality product, that you as the individual are never ever going to have anywhere close to a material impact no matter how hard you believe.
Also, most people agree it is objectively the superior product. So while you may save some money, you are also getting a shitter version of something that is already bad for you.
Send a message with your wallet- sure. But don't be so naive that it will actually have an impact for something like Coke. You are honestly just hurting yourself in the taste department to save a negligible amount of money. It's a no-win.
I don't know why pricing for the generic brands wouldn't increase as much. Perhaps some stores see the large price increase in branded soft drinks as an opportunity to get people to shift to the store brands and are willing to tolerate lower profit margins to see if that strategy pays off.
Coke spent $4B on advertising in 2021 [0], which is about a quarter of their costs. [1]
[0] - https://statstic.com/coca-cola-advertising-costs/
[1] - https://www.macrotrends.net/stocks/charts/KO/cocacola/cost-g...
With Coke it's the quality (and consistency) of the product. I've never tasted anything "as good" as Coke. A new fresh cold can has a bite that simply nothing else has.
4 billion a year on advertising something everyone knows about...
So I do see your point, I just don't get how that influences people. But again, I recognize it must to enough of a degree- I just don't feel like I'm one of them so it's hard to personally understand. Maybe I am, but I think I'm being objective about it.
Do you think you’re immune to ads? Or that ads don’t work at all?
I think it’s reasonable that you’ve never seen an ad and consciously bought a coke, but that’s rarely the point of coke.
We’re not aware of all our subconscious motivations. I’d like to be, but it’s usually pretty hard for me to understand why I do things at a deep level.
This isn’t true in all cases. When I first drank a coke I was very young and wasn’t even aware of advertising. The first coke I drank was because my parents took me to McDonalds and that’s all they sell. Then I found I preferred it over Pepsi. Advertising had very little to do with my first coke, it was more contracts with fast food companies.
Also known as 'advertising.' (Coke has an insane amount of control over how their products are sold at McDonalds, down to how the soda fountain equipment can look) Why do you think PepsiCo Bought KFC/Pizza Hut/Taco Bell (before spinning them back out as Yum!)?
Coke spends money so that every time you are thirsty you reach for a Coke, and part of that is the immense amount of work they do to make Coke the only beverage available in places like McDonalds, AMC, United Airlines flights, etc.
You "found" that either because of advertising, or because you were primed to like Coke more because of your childhood experience.
And the reason McDonald's only sold Coke? Advertising, of course. McDonald's believed they were better off selling Coke over Pepsi.
Advertising is everywhere. I try to avoid advertising as much as possible (adblockers, never watching ad-supported TV or movies, etc.) because I know how pervasive ads are, and how insidiously emotionally manipulative they can be. I know I can't make myself immune to their effects, so the best I can do is just avoid them as much as I can.
Coke does not pay to be in fast food restaurants. It’s the other way around. This would be the weirdest form of free advertising, but I think people are using that term very loosely in this thread.
Except when I watch broadcast TV and some TV shows with products embedded, I do not see ads. But the first time I had a coke was long before adblockers existed.
Your parents were. Or whoever it was that bought that coke.
Sure, not every person is a Coke consumer. What drinks do you drink?
Keep in mind, a very meaningful part of Coke's (and any other CPG company) advertising budget is paying grocery stores to put their products in prominent locations.
I also prefer Mt. Dew over them all so....
They could both stop advertising forever and I would still have those associations for the rest of my life.
https://www.tomthumb.com/shop/product-details.208010001.html
https://www.kroger.com/p/big-k-cola-soda/0001111049680?
https://www.publix.com/pd/publix-cola/RIO-PCI-106059
https://www.walmart.com/ip/Sam-s-Cola-Soda-Pop-12-fl-oz-24-P...
https://www.heb.com/product-detail/h-e-b-original-cola-7-5-o...
Also, prices for coke in plastic bottles are also up.
Most notably it resulted in a big reduction in the variety of food available because while some of the biggest companies could survive with the new lower prices (and work with the gov directly to set those prices) the bulk of small/medium sized ones couldn't, often as other expenses eventually increased while prices didn't.
I don't see how it will create more competition.
Not directly or quickly, no. Fully agreed that price caps and other invasive measures are usually counterproductive.
I was only pointing out that in a market economy led by profit-seeking CEOs, pushing pricing up is expected. Listening to those clips, they sounds downright sociopathic, but it's just another Tuesday in America.
The best way to deal with this is likely ensuring workers are paid a fair living wage. And take the appropriate measures to curb the worst of the inflation.
Price controls are a pretty big deal though. Especially in a low margin industry you run the real risk of putting firms out of business and damaging supply. They're very dangerous when done wrong.
And this is from a food cart, mind you - not a restaurant. And not a fancy food cart that people drive miles to try their unique food. Just a few years ago that sandwich would have been $8-9.
And bring back the "White Label" groceries from the 80's while you're at it. http://historysdumpster.blogspot.com/2012/08/generic-product...
I’m not sure how much they’ve increased as I don’t remember the old price of crackers but I remember them being really cheap.
It seems odd that the inputs vary substantially between the two so is it just that Nabisco has very different labor costs? Or are they just jacking up the price because they can?
I suspect store brand have a very fixed cost-plus style of pricing where they just sell for a fixed markup over whatever their costs are and don’t really do market research for price points.
https://www.bls.gov/news.release/cpi.nr0.htm
You may also be interested in what is referred to as "sticky CPI" which is reported by the Atlanta Fed: https://www.atlantafed.org/research/inflationproject/stickyp...
The name is fairly descriptive of what it is: the slowest re-acting elements of the CPI calculation. This is contrasted with the "flexible" CPI, which are the elements that react the fastest. In the last report, Sticky CPI was constant (no change), whereas all the decrease in CPI came in the flexible side of things.
And yes, I tried checking. The Fed does put out their data, but nary a precision factor to be found
I wouldn't be surprised if it's better in a few months, especially with the growing protectionism in the anti-inflation act, etc. and acts against Chinese competition, etc. keeping more industry in the US.
The Biden administration mailed student loan checks to people (conveniently set up to arrive just before the most recent midterm): https://www.foxbusiness.com/personal-finance/student-loan-re...
The checks are "rebates" for people who paid their student loans during the moratorium. The idea is to reimburse those people and add back their student loan debt so they can claim the maximum $10K / $20K amount of the forgiveness program.
It's hard to argue that's not inflationary.
Those are people who overpaid during the pause in payments. It's as inflationary as getting a tax refund in April.
It’s directly related to the student loan cancellation program as it’s intended to maximize the amount of cancellation for people who paid during the moratorium.
> Those are people who overpaid during the pause in payments. It's as inflationary as getting a tax refund in April.
It’s not overpayment. It’s just payment because it’s money those people owed on their loans. A payment pause doesn’t mean the money is not owed, it’s simply delayed.
Additionally it’s only for people who paid their loans during the pandemic and have less than $10k in their current loan balance. The check is for whatever amount would return their balance back to $10k.
> "If you made voluntary payments during the payment pause (from March 13, 2020, through Dec. 31, 2022) and your current loan balance is below the amount of debt relief you’ll receive, after you successfully apply for and receive debt relief under the administration's debt relief plan, we’ll automatically refund the amount you paid during the payment pause (only up to the remaining amount of your eligible debt relief)," the Office of Federal Student Aid states on its website.
> But that plan is currently being challenged in court. A federal appeals court on Oct. 21 issued a temporary block on the student loan forgiveness program as it considers legal challenges raised by six states: Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina.
I didn't see anything corroborating your statement that checks were mailed out. Maybe I missed something?
It's my understanding that the pause in student loan payments was initiated prior to Biden becoming president, along with the trillions of dollars of stimulus given to small business owners and individuals, as alluded to by the top post in this thread.
[0] https://www.foxbusiness.com/personal-finance/student-loan-re...
I feel silly because I paid off a student loan during this period and if I had paid nothing it would have been forgiven.
The rational action is to pay nothing as long as possible.
I am definitely familiar with how American public schools are funded (there are also federal funds in the mix).
It’s the governments fault for making terrible loans and forcing taxpayers to absorb the risk. Don’t be mad at people for receiving…be mad the government is offering!
Large income and large student loans is actually very typical for early-career doctors and many other professionals who have very high expected lifetime income.
FWIW, this transfer was means tested - it's just that they consider the lesser of 2021 & 2020 income and we were in school in 2020.
The government stopping charging interest. They don’t care if you pay or don’t. You aren’t taking any money from the taxpayer.
Also, the “taxpayer” charged me 6% internet when the prime rate was 2%. Did it make you feel like shit because you, the taxpayer, were gouging student borrowers?
The discussion isn’t about never paying back. The discussion is about not paying back during the 0% interest period when the gov asking not to pay back.
I’ve been using money that normally goes to loans for other bills. I imagine plenty of other people are buying more stuff with the money so i imagine it does contribute to inflation
Just spitballing here… But maybe you should pay because you promised to pay it, the costs were borne by the vast majority of taxpayers who did not take out such loans, and because tradesmen and other perfectly deserving parties do not get access to such easy money?
The sheer amount of interest I have paid, and will pay, on my student loans makes me think the costs will in fact be borne by me.
After all, I don’t want to be labeled some kind of troublemaker.
If the government wanted us to repay during this period it would not have automatically turned our payments off and told us multiple times it turned auto-debit off.
What kind of absolute fool would restart payment during a 0% interest penalty free forbearance? That’s having a loan that’s much less than the inflation rate. Why on earth except based on irrational internet principles would an individual restart payments on a loan like that? Very little spit balling went into that original comment..
I expect my savings to go up by $20k thanks to this, so I will shift some of my current savings to spending.
You rate the risk of SCOTUS rejecting the program at 0%?
Regardless, it will shift my consumption patterns.
You are incorrect about the exact specifics about the Direct Student Loan program refunds - anyone who had made payments during the pandemic can be refunded.
You are still generally correct though - inflation is caused by several things, M1 and M2 money supply, employment, demand, supply, and sentiment.
Everyone not paying their loans decreased demand for jobs, as that was the primary motivator for many to work. Additionally, the money printed and disbursed to colleges not being paid back leads to another increase in money supply, since the money never gets repaid, and a few select loan companies are now holding very large U-O-ME's, which the department of education seemingly is going to average between all of us, by forgiving it, further adding to the printed money pile.
This is a widely disproved myth.
Everyone got money for free. Things that are free, tend to have less value.
Note also that investors eventually get wise to inflation and start putting their money in gold or somesuch.
The Fed is trying to command the economy, but ultimately people must be more productive for a little less. QE easing and asset deflation have some part, but unemployment must increase, or we simply won't have the "strong labor market" that increased productivity requires. We don't have the sentiment or confidence, and that is going to be devastating if not quickly corralled - inflation can lead to hyperinflation exponentially.
Not for the USD - we have control of the world's economy - which is why the MIC complex and foreign policy is actually an investment in the largest scale.
That difference, between productivity gains and captured output, is the price our future generations pay (in inflation) for continuity _now_. But it isn't fair to push such a can down the road. Things need to pop sooner rather than later, and the Fed would like a "soft landing" - no pop, which may not be possible at this point.
You can print money endlessly, stuffing it into people's bank accounts limitlessly, and as long as they don't spend it you won't see inflation. But once they do start to spend it, the capacity to spend is magnified. Stocks, real estate, etc. provided essentially that bank account... until now.
That means all of my usual expenses during that period were paid for (unless I made nothing or too much that week), plus a lot of weeks it made sense for me to get new equipment.
In many states, people on the low end of the earning scale made more through unemployment than they did working. I have two friends with small businesses that had a hard time getting people to come back to work for that reason.
In a non-inflationary period increasing prices will be met with less demand.
If "more money makes each dollar worth less" was the story then we'd see all goods inflate at similar rates. Perhaps it'd be delayed from the money printing but we'd still see this consistency across industries.
But we don't.
But it is well understood that said willingness changes on what buyers believe[1]. If they believe that lockdown stimulus is causing inflation, it will cause inflation. The mere existence of lockdown stimulus won't cause inflation, but the emotional response to it very well could.
And given that this appears to be a widely held belief, something even some government officials trumpet as the cause of inflation, it seems unlikely that it isn't a significant contributing factor. How is this dispelled?
[1] https://www.brookings.edu/blog/up-front/2020/11/30/what-are-...
Housing has been hard to balk at for a decade for the same reason that nobody politically wants to address: a lack of supply in the market. Renters are now doubly stuck in renting, as home ownership as an alternative market is now rendered unaffordable by spiking mortgage rates. (I.e., the very "demand destruction" the fed desired. And my landlord knows it!)
Energy prices are spiking due to … a lack of supply in the market.
Still, the rate is allegedly +7% YoY, apparently, and my rent goes up +9.5% YoY "due to economic conditions", and my salary is -1% YoY.
Stimulus checks contributed $844 billion to the $1.7 trillion of excess savings we still had by mid-2022.
> We estimate that households in the lower half of the income distribution were still holding about $350 billion in excess savings as of mid-2022—mostly stemming from the boost to income induced by fiscal stimulus in 2020 and 2021.
Personal consumption expenditure went up especially for the bottom income quartile, driven by stimulus. As soon as the bottom of the income distribution had extra money, they drove up the prices of things that are in the CPI.
In contrast, when the top of the income distribution has excess savings, they drive the prices of Tesla stock, NFTs, and real estate. Since they are not in the CPI, nobody cared and money printing could continue. This is what we had in 2010–2020. Direct money transfers to the poor were the thing that broke the system.
Wouldn't protectionism be inflationary?
Unless you are a savvy technocrat who knows where production bottlenecks are better than the market does, protectionism is just a welfare program at best and a cynical rent-seeking, vote-buying scheme at worst.
If it reaches 20% that means every 3.5 years your cash reserve loses half its value
Mean someone correct me if I’m wrong I think that is astounding
It used to be primarily labor costs, and labor/wages is still a major part. However with automation some labor is being replaced by automation and thus converts what used to be labor cost to energy cost.
European countries are not in great shape from an energy POV.
Europe already gets ~12% of its energy from Nuclear, ~5% from hydro.
Solar energy will not be a problem in the future - neither will sourcing the remaining 33% of energy from other renewables, nuclear, and fossil fuels.
The infrastructure they have now is literally insufficient.
Where in my post does it say that inflation is just fine? The point is that the crazy 15% numbers we are seeing are mostly due to energy prices, which are extremely volatile.
We should strive to get an accurate picture of the current state of affairs, not be overly optimistic or pessimistic.
My guess is that expectation of higher inflation was combined with expectation of further interest rate increases to combat it. Interest rate increases generally make currency more attractive for investments from abroad, which increases exchange rate.
This expectation was "priced in" current exchanged rates and now the market has corrected.
But what is considered “safe” really has a lot to do with your timeline. How soon do you want to access the money? If it’s in tears then index funds are likely a good buy today.
Oil and copper tends to follow inflation, but they're highly volatile so you can't rotate into them expecting good liquidity. If you hold say $100K+ USD you want to rotate and re-deploy after the carnage with fairly liquid assets at relatively low risk, then I can't think of much beyond take the hit in a conservative cash and select bonds positioned in a capital preservation posture, or Benjamin Graham-style conservative value equities.
In the very short term, inflation linked bonds as other comments mention.
In the 15+ year bracket, probably equities.
Perhaps real estate at a low mortgage rate but it's not very diversified.
Gold is commonly touted as an inflation hedge, but that's over a much longer time horizon, probably longer than most people are alive.
In the end it really depends on the cause of inflation - expected vs unexpected, supply vs demand side.
Real estate is inflated. Stocks are too, but seems less so than property, at least in Australia.
Traditional flight to safety like gold has significant gains last few years so are you buying another peak?
Meanwhile you know cash is devaluing 5-10% per year.
For my non-expert opinion I think Australia shares are fairly good relatively currently, but I say that as an Australian. Its reasonably valued compared to some of the markets, stable govt/economy with low govt debt as western nations go (consumer is high though). Shares will probably return dividends around 3-5% per year on a market tracking ETF, which should offset some drops while the market and inflation, and then you are in market for the turn as as the cycle flips and inflation has run I could see some sharp gains as companies revalue to the new cost bases.
Also I think a FSTE tracker wouldn't be so bad. Since Ukraine and general market drops these are off their peak pricing. US Id avoid as I think there's a bunch more to unwind both in the market, politically, plus govt debt (heading for 140% of GDP and showing no signs of slowing) so I would be hesitant market tracking there until things stabilise. That said there will always be amazing companies ongoing in the US if stock picking.
Im so far from an expert, so take all this with a shovel of salt. Keep things diverse. But overall I think a Aus/Eur market type tracker is probably a reasonably safe bet at the moment for a uncertain and unprecedented enviroment, and take the odd punt on companies that you think are getting trashed and fear has over taken. Keep some level of cash as if the markets do tumble you want to be able to go in, or generally have options.
I know nothing. Good luck.
But are they? To me many stocks look comparatively flat over 30 years given the fact that they should point upwards just to correct for inflation in the currency they are denominated in and even more upwards when taking into account productivity gains.
I don't live where negative interest is a thing, but it seems like that would encourage people to keep money outside of banks.
If you had a pile of cash, it would remain a pile of cash. If you had 100,000 euro in the bank that might be 99,000 euro after some time because the bank essentially charges you a storage fee as interest rates are negative. Conversely, the bank would essentially be paying you to take out a loan.
Maybe I'm misunderstanding how it works since it's never happened in the USA, but I think that I have it right. See https://www.investopedia.com/articles/investing/070915/how-n...
As for negative interest rates, here in the Netherlands banks didn't dare to go negative, even if conditions would warrant it. Perhaps because it might trigger a bank run.
Another reason is that a major war in Europe started within this year, adding to the difficulty of Y0Y comparisons. The principal weapon deployed against the aggressor is economic warfare to collapse Russia's economy. That has only recently made an impact that can't be denied in Russia.
Meanwhile, the war has directly cut food exports from Ukraine and both directly and indirectly disrupted food and fossil fuel markets in many regions, mostly toward higher costs and trade substitutions that also mostly lead to higher costs.
Interest rate rises are probably needed but the causes of inflation are mostly outside central bankers' control.
The US were trading very little with Russia to begin with, even before the war. Russia's economy before the war was still smaller than California, New York or Texas. Waging economic warfare on a medium economy like that should not wreak the US, Europe or the World economies.
Like you said, the Russians still sell energy and food worldwide, even if Europe and US buy less (or at all), so I don't buy this explanation.
> Try to be less nakedly partisan
This is a talking point from DNC, I was trying to show how flawed it is. If that makes me partisan, fine. It means we're ready to swallow any bullshit that comes from the party/government, as long as it makes us feel good.
I'm personally ecstatic that inflation seems to be softening. It's likely that there will be another couple interest rate hikes regardless, but there does seem to be a "back to normal" in the (distant) horizon somewhere.
> "For this exercise, we’ll use the annual average CPI-U values for 1973 (44.4) and 2008 (215.303). Because the CPI-U includes relatively volatile items such as food and fuel, I tend to avoid the monthly values with their fluctuations. If you want to adjust to the most recent data available, consider averaging the most recent six months of CPI-U values."
https://anthonydebarros.com/2009/11/01/adjusting-for-inflati...
This is similar to analyzing climate trends, where you really want to look at 5-year running averages (possibly 10-year). Generally, 'response time of the system to forcing' is what matters, in both cases.
Isn't the YoY inflation definitionally equivalent with running (geometric) mean of the past 12 (annualized) monthly increases?
However currently temperatures are moderate and demand is pretty low. There's optimism for a mild winter and users have done a good job of reducing demand.
So at the moment there's a situation where Europe has too much gas in anticipation of future bad things which is driving a slump in prices.
This will probably change.
There is no instrument or policy isolating them from it. The best you can do is diversify.
I don't know any retireees on a fixed income. They all get Social Security, which is not fixed. And if they have any signifcant savings, those interest rates are also not fixed, and have been rising a lot recently (recently advertised CD rates at 3-4% are common where I live).
It’s been fixed since the last cost of living adjustment almost a year ago. Trailing adjustments really hurt when inflation rises this fast.
Working citizens - as well as those on public assistance? - have been losing ground to inflation for decades.
The bottom line: In the eyes of bread winners this is old news, and does nothing (again) to mitigate their discomfort and pain. From a sociopolitical POV this is not sustainable.
Inflation in the United States has risen 8.2 percent in the past 12 months. While the Federal Reserve’s long-term inflation target is 2 percent, Dalio predicted that the central bank will go for a more realistic target of around 4.5 to 5 percent.
Based on those numbers, he believes the real interest rate could land in between 4.5 percent and 6 percent. “Six starts to break things pretty bad,” Dalio said. “The vicinity of 4.5 and 6 may be the number in terms of cracking the thing.”
[1] - https://www.institutionalinvestor.com/article/b20hpgzhxph5h5...
Utility (piped) gas service -4.6%
I used the A/C more than heat last month since temps have been quite a bit higher than normal. Just using A/C in October is pretty abnormal for me.
My grocery bills overall have definitely gone up, but that's because I stopped eating out and buy a lot more groceries.
Wouldn't this make your bills go down?
>Wouldn't this make your bills go down?
I'd imagine that when GP "eats out," they don't do so at the grocery store/supermarket. I know I don't. Usually I'll go to a restaurant.
Which may make my overall food bills go up, but it certainly doesn't increase my grocery bills.
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"Workers around the world: lost $3.7 trillion in the pandemic Billionaires around the world: gained $3.9 trillion in the pandemic
It's the biggest one-year wealth transfer in history, yet somehow barely anyone is talking about it."
https://twitter.com/danpriceseattle/status/13751892041251143...
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Iron Mountain CEO says he's been 'praying for inflation' because it means he can raise prices
https://www.businessinsider.com/ceo-praying-for-inflation-ra...
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Leading grocery chains such as Kroger (KR) and Alberstons have said in recent days that they expect to benefit from rising prices. Sales boomed at these chains and other grocers during the early stages of the pandemic, but have slowed down in recent months as more people return to eating meals out.
“Our business operates the best when inflation is about 3% to 4%,” Kroger CEO Rodney McMullen said on an earnings call with analysts Thursday. “A little bit of inflation is always good in our business.”
https://www.cnn.com/2021/06/18/business/grocery-store-inflat...
Worth a look.
Anyone making impactful decisions based on expectations should not be making impactful decisions.
Inflation is a different problem.
You just have to roll your eyes at these people. They're too far gone now.
where do you see that projection?
The US announces retreat
Let’s say all of this is due to the war in Russia, or in some alternate reality China carpet bombs Taiwan, if you thought you were living in bad times before the event you are in for a rude awakening. It’s the same as black swans and cannot really work over time.
I understand this is a bit snarky, but I think it perfectly makes my point clear. By some metrics right now looks like a golden age, by other metrics it looks like staring into the abyss.
For example, anything for which you pay in dollars (a strong dollar now) is more expensive. If you add the exchange rate to the fact of the inflation itself you end up paying the sum of both differences.
The strong dollar is also the reason why EU has no choice but to follow the interest rate escalation from dollars: if they do not do it, people run away to buy follars because the euro suffers depreciation.
Complex topic, with more ramifications than it looks at first.
https://pearsonblog.campaignserver.co.uk/wp-content/uploads/...
Super-low interest rates have very little to do with it. The Fed rate has been low for over a decade and inflation has only appeared recently:
* https://fred.stlouisfed.org/series/FEDFUNDS
Similarly neither has QE done much about consumer prices. People predicted the almost end of the financial world when QE started years ago and not much has happened in the intervening years; from 2010:
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
Neither does money supply: Japan's M2 has been rising for decades and they've had low inflation (and even deflation) in that same period:
* https://fred.stlouisfed.org/graph/?g=PA7P
The current situation is partly due to velocity and the cheques that were sent out by the Treasury (not Fed) earlier in 2022. But also due to supply-side stuff life oil (see RU) and food (see RU). An SF Fed report estimates about half of the current US inflation is on the supply side/chain side of things:
* https://www.frbsf.org/economic-research/publications/economi...