Yes, the year-over-year inflation reached a new peak. But the month-over-month inflation rate has actually been declining since last October: https://www.bls.gov/news.release/cpi.nr0.htm
So when organizations publish a new article every month saying inflation is "accelerating", they're being incredibly misleading.
https://fred.stlouisfed.org/series/CPIAUCSL
It's fair to say that inflation has been at an accelerated rate over a time period that makes sense to most folks. Saying that it has decreased month-to-month is more misleading in my opinion. If you were to pick any random period in time, chances are inflation wouldn't be increasing as fast as it has been over those recent "declining" months.
(1+0.6/100)^12 = 1.0744.
The year-to-year (multiply all seven rates and then power to 12/7) is 7.1% which is pretty close to 7.5% anyway.
(Also, note that the decrease over the last two months is probably due to the Christmas peak ending. Best case scenario, pie in the sky, for inflation is 3.6% which is higher than my mortgage rate)
But what do you want me to do about the actual inflation I'm experiencing in day-to-day life, that indicate to me the inflation numbers in the headlines aren't even telling the full story?
So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels). But now we're seeing consumer price inflation. I'm afraid it's not like normal times where you can just "slow down" the economy by tweaking interest rates. You will need to do drastic measures to sop up the trillions in newly generated dollars.
Modern monetary theory ain't. Ask the Romans, the Spanish and the Germans how well that worked for them.
But, I think what the US government is doing isn't MMT.
MMT proponents seem to be arguing that creating money is good if and only if you ensure it is spent on the right things - like infrastructure. Then you can get net wins for the economy.
According to MMT it's bad if you, for instance, create a situation where institutions, investors, and giant companies have an unlimited supply of dollars that never lose value.
Correct, and _even_ in this context, the printing in the last two years is shocking.
Everyone points to the slow down in the velocity of money as justification, but look at what has happened as long as the fed has been tracking money supply and velocity of money - no matter what time period, once velocity picks back up the fed _never_ decreases the money supply in response. The printer didn’t come with a shredder.
Or, it's because supply chain disruptions have caused shortages, and there's more demand post-reopening chasing a smaller base of supply.
Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2]
> So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels).
Repeat after me: an increase in the price of assets is not necessarily asset inflation. If each quantity of asset buys you more CPI basket (i.e. returns outpace inflation) then it's an ROI. A real dollar return.
The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently.
Take Google, for instance. Going into end of 2019, it was trading at $1500/share. Today, $2780. That's 1.85X higher! Crazy right? Well, check their revenues. [3] Just over 1.6X higher (and that's an annual histogram). Google has been trading at the same P/S ratio since 2010, give or take. [4]
Big Tech is reporting some of the best quarterly performance in the history of the world - certainly since the Dutch East India Company, anyways.
Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run.
[1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
[2] https://tradingeconomics.com/japan/money-supply-m2
[3] https://www.statista.com/statistics/266206/googles-annual-gl...
[4] https://ycharts.com/companies/GOOG/ps_ratio
[5] https://www.macrotrends.net/stocks/charts/NDAQ/nasdaq/pe-rat...
Here's a thought. Supply chain shortages mean people are buying less and obviously some prices are sticky. For instance, I can't buy a new car regardless of price. The price takes a while to adjust wand when "supply chain" clears up, I'll just be able to buy my car at a higher price, further driving inflation. Repeating "supply chain" is not a counter argument.
> Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2]
While it is true that not every money supply increase has led to inflation, almost all high inflationary periods coincided with the money supply growing.
> The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently.
I think you need to check again. We're at 26 S&P. Last time it was this high was 2008. Time before then was briefly in 1890s (not a typo)
> Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run.
It's not nothing to the pensioners that saw their wealth evaporate 7.5% in one year and likely more to come. Hopefully social security keeps up...
I suspect that the causes are more complicated.
If covid impacted other things (i.e. business), why are all asset prices up well above pre-covid levels.
The impact of the money printing outweighs any other covid impacts. Nothing covid related should tell us that Manhattan real estate should be above pre-covid levels w/ work from home, lockdowns and overall decrease in quality of life. It's the money supply
In 2021, the government (local and federal) used vaccines as a kudgel to create partisan politics around the logistics industry. Ports were shut down (for no reason), and truckers who didn't want to meet vaccine requirements were barred from entry to major ports such as in California.
In 2020 and 2021 helicopter money designed to help people ended up having a second order effect of making people less likely to work. Even if you made the desired "15 dollars an hour" the left asks for as a "fair wage" for burger flipping you still would make more money being on pandemic assistance.
Moreover, California law in particular has strange environmental regulations that further reduced the availability of trucks. Your average truck is worth a small townhome and you can't just sell it and buy a 2012+ model on a whim.
Indeed, the problem like usual is government interventionism through helicopter money and the manipulation of rates to protect the petrodollar in a crisis. It's not complicated, because like usual the finger can be pointed squarely at the fed and congress. We could've been heading back to normal in 2021 with or without vaccine rates being 99.9%. But the nanny state does not believe in personal responsibility (and neither do their constituents) and so here we are. This was compounded by the incessant bleeting of climate pearl clutchers that further reduced the availability of logistical firepower that could've bailed us out.
I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger.
It's a good reason to never let rates get this low in the first place. From zero, any increase is an infinite increase in interest rates, and a corresponding crater of NPVs.
Welcome to the long run, folks. At least Keynes is dead, so, good for him, I guess.
My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people.
You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting one.
Price stability was also fine until about 6 months ago.
The thing I keep coming back to, is how incredibly little asset prices really matter, in the larger scheme of things. What does matter is things like employment, the price of milk, and whether people have a roof over their heads (rental affordability).
In the larger sense, the fed's hands are tied, unless their legal mandate is amended to include "not creating asset bubbles". The distributive and stability effects of today's monetary policy might be the longest-lasting intellectual shift to come out of all this.
Home values matter enormously to people. So does the value of their 401k, especially those aged 50+
Can you provide some data on this assertion? I would be surprised to learn that the majority of ordinary people (assuming you mean something like 'net worth < $1MM USD') do not care about housing costs and car costs, which are both assets.
They do. A large percentage of the population has 401Ks, and many public sector pension plans have equity components. Housing prices are also assets, and inflation in that sector has priced out many people from affording homes, despite low financing costs.
> Full employment is going great -- the job market is tight
We are nowhere close to full employment. We're 3M jobs lower than pre-COVID in the U.S [1], and according to Keynesians, Monetarists, Monetary Keynesians, or whatever hybrid form of wishy washy economics that has used the Phillips curve as policy guidance, this inflation should not happen.
> In the larger sense, the fed's hands are tied, unless their legal mandate is amended to include "not creating asset bubbles"
The Fed's "dual mandate" presumes that (based upon the Phillips curve) there is a sweet spot between full employment and inflation. The correlation is entirely, completely broken [2].
[1] https://fred.stlouisfed.org/series/PAYEMS [2] https://www.nber.org/digest/sep19/phillips-curve-still-usefu...
It's massive, some people more than $100 per month increase.
The waves of homelessness and people living out of their cars starts in a few months.
https://www.apartmentlist.com/research/metro-rent-changes-18...
Rental affordability is 100% correlated to asset pricing.
their real mandate is: "protect the banks"
at this point, that may be changing to "protect their necks"
rock and hard place, we'll see what happens
Is it? I thought we still have a labor shortage and the unemployment metric is skewed because it doesn't tell the full story of people who just left the labor market.
Don't you love it how banks are not raising their interest rates on savings accounts? I remember in 2007 I was getting 4% on my savings accounts. There's nowhere to park your money and earn a return even approaching inflation. Why not just front-load your future purchases and further drive inflation?
That's one reason why, given the insane fiscal and monetary policy of the last two decades, we really haven't seen hyperinflation yet (and, in fact, briefly saw deflation.)
It's an unorthodox take, admittedly, but Steve Keen is a good economist to read on the topic.
No, it doesn't. Net present value (NPV) of future cashflows is defined [1] as the sum over time periods of the ratio of the cashflow in the k-th period to one plus the discount rate raised to the power of k:
NPV = sum_k r_k / (1 + i)^k
NPV = sum_k r_k
right, so the net present value of, say, a rental unit (or any ongoing productive investment) is the sum of an infinite number of payments which, if my math is correct here, is infinity (regardless of the recurring payment amount)
of course there is a risk discount as well, which, as I mentioned on a sibling comment, has been removed in many cases by the fed backstopping a lot of investments
there's a reason we don't see actual infinite prices, after all
my general point is that as interest rates get very low, npv gets really whippy and I expect that to be what we see going forward
just a guess and I'm not an economist, although experience suggests that's a point in my favor
The fed basically controls the very short end of the curve. The 30 year rate is above 2 (it briefly touched around 1.3 or something during the start of the covid panic). No one is/was discounting cashflows 10 years into the future at 0 so "all cash flows" didn't have infinite net present value.
Maybe I'm an idiot, but if so, I'm not alone. Multiple major investment firms are recommending this to their clients.
Anyway, I gotta go count my Krugerrands.
but not much of one when the fed has backstopped everything that matters
another policy error, in my uniformed opinion
If anything I'd say this exercise shows the limits of Federal Reserve power. Without the tight labor market of the pandemic, low interest rates simply raised asset prices. We should take the lesson that the fed should not be solely responsible for driving the economy.
This is only true for cash flows discounted by the risk-free rate. The discount rate of risk assets comes from the risk-free rate with a risk premium added on top (probably 6% or so today for the average blue chip equity).
Classic HN 'Confidence = knowledge' comment.
I am extraordinarily skeptical of essentially the whole comment except this. Economies are very complicated systems composed of many non-rational actors. All economics is voodoo IMHO. It's akin to try to predict the fluctuations in current on a motherboard's bus without having any conception of what program is running. Total guesswork on top of a system more complicated than human understanding.
We want to understand economies in terms of pipes and pressure and the complexity-equivalent of simple machines, when in reality the future is going to be dominated by black swans: crazy things like cryptocurrencies, cyberattacks, once-in-a-millenium climate/weather events, political revolutions, and fads.
Chaos, indeed!
You and me both!
>I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger.
So you expect inflation to remain @ the 2-ish percent target but with extreme volatility?
It's an interesting theory, why do you think that?
We've also seen that interest rate cuts amd QE are very weak at stimulating inflation, and very strong at stimulating asset values.
I'm coming around to the view that UBI should be used to fight deflation, and interest rates to fight inflation.
I don't think this is meant to be a balance act or achieving that is possible at this point.
1. The increase in money supply.
2. Supply chain bottlenecks.
3. Corporate greed & tech monopolies.
4. Fundamental supply constraints. (mostly in the housing sector)
Anybody trying to tell you that it's only or primarily one of them has a political motivation. It's all 4, with the first 2 being primary and both being important.
To effectively solve inflation we need to attack all 4.
"Since the 1980s, the four largest meatpackers have used a wave of mergers to increase their share of the market from 36 percent to 85 percent...Their dominance has allowed them to extinguish competition and dictate prices."
https://twitter.com/AlecMacGillis/status/1476219789899096064
Why do you think that? You've listed four conceivable reasons for inflation. One could probably list another 20 after a bit more thought. That doesn't mean that these are all plausible. It seems entirely possible that just one of them accounts for just about all of the inflation. You haven't made any argument against this.
Of the four you list, (3) and (4) seem implausible. Why would corporations suddenly have become more greedy? Have fundamental constraints on the housing sector (you mean zoning restrictions, maybe?) suddenly increased?
If the problem is supply chain constraints, inflation will be quite varied among the sectors. And this is true, with used cars leading the way at 41%.
If the problem is the money supply, inflation will be fairly even across the sectors. And while the sectoral components are quite different, they are becoming more similar over time.
Those are the 4 I've heard politicians and pundits mention. I could name 20 more, but experts aren't naming them.
3&4 are long standing problems, sure. 3 is the anti-big tech anti-trust crowd. Big Tech makes a substantial portion of the profits in America, and that is fairly recent.
Re: 4. Housing costs are a big portion of the inflation index, so tackling that issue will substantially reduce inflation even if it's not a recent problem. It's also the issue that's best addressed by local politicians, in a way that the other 3 can't be.
If history is any guide we'll try the politically easy one for 10 or 20 years before we finally get around to actually doing what will work.
It feels like their strategy is to avoid making a choice and letting the bubble unwind as slowly as possible to avoid political fallout. Unfortunately, we learned as kids that ripping off a bandaid faster is usually best, so this might prolong pain for a while.
This isn't how individual people perceive inflation. What actually happens is that a few things make big jumps (10-15%) and the prices of other things don't increase as quickly.
Maybe not the nicest thing to say, but I'm hardly affected by inflation at all. The four biggest categories to experience inflation recently have been used cars, petroleum, rents, and food. As an urban-dwelling homeowner who doesn't drive much, doesn't rent, and isn't in the market for a car, the only real change has been food, and it's a small enough part of my goods basket that the extra $15-20/week at the grocery store barely registers.
The people really hurting today are the truck-driving renters sucking down 20+ gallons of gas/week driving long distances to their jobs. Those guys are feeling a lot of pain.
[1]: http://www.shadowstats.com/alternate_data/inflation-charts
It's been known bullshit for a decade and a half.
Hyperinflation is defined as 50% inflation per month.
https://tradingeconomics.com/united-states/money-supply-m2
Inflation has roughly 40% locked in; which will push out over a few years. Hyperinflation isn't in the cards.
https://tradingeconomics.com/united-states/money-supply-m1
Then you look at M1 and it's like... well could happen but it's not locked in yet.
History books focus on the bread lines, but if you dig deep enough you can find the stock market charts and they are epic! The capital class made so much bank and dipped out, just remember to actually leave because the people come for you.
https://www.ceicdata.com/en/indicator/argentina/equity-marke...
(click max)
It will happen if the Dollar loses global reserve currency status. China, Russia, and a few allies could pull the rug out from under the US pretty easily. A lot of countries are tired of the US exporting their inflation
If having reserve currency status gives a country a tool of "exporting inflation" and countries are tired of the US doing it, it seems unlikely those countries would willingly put that tool in the hands of Russia or China, whom they presumably trust much less. (Assuming we're talking about western Europe.)
Devil you know or devil you don't?
But it's bizarre that interest rates are being held so low. It's unclear who it's supposed to help. I get that we need to boost the Covid economy, but if feels like the economy is currently running at every possible constraint - except for lack of money.
https://www.treasurydirect.gov/govt/reports/ir/ir_expense.ht...
While they might coordinate with the executive branch, ultimately the Federal Reserve is supposed to follow their mandate and leave fiscal policy to Congress.
Could it be some of the inflation is simply companies taking advantage to raise prices not because they need to but simply because they can?
It's exactly as obvious as you think. E.g. Supply and labor input costs go up 5%, and they raise prices 10%. Wherever convenient they will say "We're sorry to raise prices etc." and then during earnings calls the CEO will say "We're expecting upward price adjustments to increase our net margins in Q4". You know, a euphemism for "we're raising prices and that means more profit"
Corporations, especially the the huge conglomerates with adequate pricing power etc. drive inflation, not suffer from it. The elephant in the room today is that the classic economic model that suggests "oh but another company will come with lower prices and re-balance things" is simply unrealistic. Good luck elbowing in on P&G or Unilever for shelf space in supermarkets, commercial contracts, etc..
The other trick everyone is probably about to see is that when the supply chain crisis recedes and inflation comes down, that the consumer prices curiously remain high. Maybe market forces may claw them back over years, but in the meantime it will just be another incremental wealth transfer from mass-market consumers -> concentrated corporate profits.
The corporations will also kick and scream to avoid raising wages for their employees spending more on their own products, while simultaneously giving huge payouts to executives and investors through share buybacks with their newly minted profits.
It's not even interesting to theorize about anymore. It's boring and obvious. Maybe this is what dystopia is?
Companies try to raise prices as little as possible, which means accounting for inflation in previous and following years.
(yes, I know it was not literally printed)
The fed correctly predicted in early 2020 that there'd be a massive drop in lending (at least short-term), so eased, hard, so that money+credit would remain relatively constant (much less credit, so much more money was needed). I read last year that something like 26% of then-existing M2 (central bank + bank deposits) was created in 2020/2021. That's insane.
Yet somehow, a year later, after a major pandemic, only a bit of inflation is showing up.
People should give a fed more credit. They managed this thing pretty well. The whole thing feels like trying to adjust the temperature in the shower from 50 feet away with a long stick and a bit of string, and someone yelling "turn it up" or "turn it down". There is so much noise everywhere, it's very difficult.
"When you are paid not to notice, it is hard to notice" etc.
Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing.
EDIT:
I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.
If you want to say wealthy people have more debts, sure in dollar amounts. But I bet dollars to donuts they have way more assets in stock than in their million dollar home mortgages or w/e.
It also doesn't help if your income doesn't go up. You end up just paying more for everything. And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.
So on net I think the poor are a lot worse off with high inflation.
There are many definitions of what is a wealthy person, but in my book it is someone with a net worth >$10mln and a low debt loading. Assuming their holdings are in a well diversified portfolio generating 5% net of inflation, they can likely maintain their lifestyle while their wealth will still continue to grow and they are not at risk of being wiped out by income loss or small drawdowns. E.g. someone who has assets worth $100mln but $90mln debt is very highly leveraged and could quickly find themselves being forced to liquidate assets in case they experience just a 10% drawdown.
A wealthy person will indeed often use debt as a leverage vehicle or simply to make a purchase without having to liquidate their holdings, but the debt will still mostly be a small portion of their assets and often also a relatively small portion of the appreciation of their wealth.
The wages of the poor go up with inflation.
> I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income.
That's why family annihilators are dominated by middle-class dads who lost their jobs and couldn't find another. Middle-class people can accumulate an ungodly amount of debt before the runway runs out.
Also, I am not considering upper middle class wealthy. Wealthy is upper 1% who control most of our wealth.
The counter to this is inflation is painful to people living on savings or fixed incomes. And the politics here are brutal - young people whom this benefits don't vote, older people whom this hurts do.
The last generation that generally saw the ability to do any of this are the Baby Boomers, and they're a generation that is half-dying and half-broke. Once the Xers with no savings and no pensions start losing the ability to work, the calculus changes. They're 45-60 years old now.
The material view of people who are living on savings and fixed incomes is the people who are wealthy enough not to have to work. That category will soon be dwarfed by the people who need universal health care to stay alive and the people who depend on inadequate social security payments.
And it has a historical track record of getting out of control, and wiping out nation states.
Not arguing that inflation doesn't have it's upsides. But it has some serious serious downsides.
It's not good for being retired without having much retirement savings or not investing it, though.
It’s generally good for mortgage borrowers who don’t intend to sell.
inflation (or the expectation for ones income to keep up with inflation) incentivizes spending more on houses (so long as the mortgage APR is below inflation) because the inflation is eating the debt YoY. So you may as well buy a lot of house.
That is until they raise the rates, or your income doesn't rise, etc.
Then see 2008.
Luckily mortgage payments are the larger than that chunk :D
Median real wages have been declining. https://fred.stlouisfed.org/series/LES1252881600Q
Its a good thing in the short term for a specific group of people, but generally not good at all for the macro-economy or society in the long run.
You see the consequences of low interest rates in other ways, ie housing prices.
There should be a few caveats - the interest rate has to be fixed (that's not always the case at all) and employment and wages need to go up as well (also not a given).
Iff their income increases faster than their interest rate.
> I'd like to add, wage growth is outpacing inflation
Only applicable if it refers to median income (not mean income.)
People are being successfully brainwashed into believing high inflation will benefit them, either by increased wages or proxy debt forgiveness. It is utter madness.
I suspect the average person is seeing price increases beyond their pay so inflationary policy will become increasingly unpopular.
Because variable interest rates can get quite high due to inflation.
I think it's good for people that can hop from job to job demanding higher wages as inflation comes. But if you're not in a position to do that, how is inflation good?
ultimately it hurts those who don't have a cash buffer for weathering the lag between price increases and wage increases.
This is based on a few months measurement yes? We have no idea what comes next over the coming 2 decades.
You are borrowing at an initial dollar value of A (in terms of inflation), and servicing your debt at a fixed rate, for a fixed time. During that time the value of the dollar decreases, and you now have a value of <<<A.
This presumes that your income/cashflow will stay the same or increase slightly during the borrowing period.
I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.
The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates.
So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this).
The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.
Like if everyone negotiates a 20% raise, prices of everything probably increase by 20%, meaning nobody gets shit, and their savings are less valuable. So they come out behind, if anything. But if everyone negotiates a four day work week for the same pay, or better safety standards at work, or shit like that, I'd bet prices don't inflate nearly as much, so they actually could come out ahead.
But that seems like a prisoner's dilemma kind of thing. If only you get the raise, you come out ahead. If everyone gets the raise, you come out neutral.
No cheap mortgages means a lot fewer eligible buyers.
That's how inflation works, effectively the currency (and hence debt) is devalued in real terms.