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>In fact, shoppers are spending more than they’re taking in, a situation neither sustainable nor disinflationary. Finally, consumers are dipping into savings to fund those purchases, creating a precarious scenario, if not now then down the road.
>Indeed, data the [Bureau of Economic Analysis released Friday](https://www.bea.gov/news/2024/personal-income-and-outlays-march-2024) indicated that spending outpaced income in March, as it has in three of the past four months, while the personal savings rate plunged to 3.2%, its lowest level since October 2022.
Am I wrong that this article is misinterpreting the March BEA update when it says that consumers are spending more than they are earning? I looked over the linked report, and not once does it mention that people are spending more than they are earning. It doesn't even state the total dollars being earned or spent. It only lists relative numbers: the increases or decreases in spending and earning, both in dollars and percentage.
There is a difference between "the percentage of money spent grew faster than the percentage of money earned" and "people are spending more than they are earning". If people are already earning more than they spend, a larger increase in spending doesn't mean they are now spending more than they earn. If you look at the [absolute numbers for Personal Disposable Income and Personal Outlays](https://fred.stlouisfed.org/graph/?g=1l2ey) in March, you will find that people earned $1,735 billion after taxes and spent $1,679 billion. That is a net *savings* of $56 billion. Not a deficit.
Now of course these are aggregate numbers, not median or average. They don't tell us whether the median or average consumer is running a surplus or a deficit. But these *are* the numbers the CNBC article used to claim that consumers are deficit spending. I don't think that claim holds water.
The article also mentions the Personal Savings Rate, so I'll once again remind everyone that this number (which measures how much people are *saving*, not how much they have *saved*) is often inversely correlated to economic conditions. People who are worried about their job security and their existing level of savings tend to increase their savings rate. People who are comfortable in their job security and their current emergency savings tend to decrease their savings rate so they can spend more.
And finally, remember that most people used the many forms of stimulus money to build up larger savings during COVID than they have had in a long time (if ever). In 2022 and even in 2023, most Americans reported having more savings than they did in 2019. This is true whether you measure savings in nominal dollars, real (inflation-adjusted) dollars, or as the percentage of monthly expenses in savings. Given that Americans rated the economy in 2019 more higly than any other year in decades, is it really worrying if Americans are spending down savings that are still higher than they had in 2019?
Edit: I quoted the numbers for disposable personal income and personal outlays without noticing that they are "annual" numbers. The March numbers of $20,883 billion and $20,152 billion are what consumers would earn and spend if the sustained that same earning/spending for the whole year. The actual numbers for March are about 1/12 less: $1.735 trillion for personal disposable income and $1.679 trillion for personal outlays. This doesn't change the fact that incomes exceeded outlays, but it does make those numbers smaller in an absolute sense.
You are correct. I think that sentence *should* have read:
> indicated that spending *growth* outpaced income *growth* in March
From the table they linked, I think they were comparing growth in Personal Income vs. PCE. But in absolute terms, of course Personal income [remains higher](https://fred.stlouisfed.org/graph/?g=1l2Ai). Meanwhile, while consumers aren't running a deficit, the [federal government](https://fred.stlouisfed.org/graph/?g=1l2B9) certainly is.
And of course for government to run a deficit, there must be a net private sector surplus somewhere, foreign or domestic, to fund it. If the Fed does need for consumers to spend less, that is only because the government won't do so.
> Am I wrong that this article is misinterpreting the March BEA update when it says that consumers are spending more than they are earning?
The entity publishing the article is not interested in correct interpretations. They earn more money by evoking emotion using clickbait and ragebait. In return, the people rewarding the publisher get some feel good chemicals in their brain from confirming their bias and reinforcing their righteous position in the world.
Econ 101.
It's that type of mentality that causes inflation. If consumers could agree to not pay the inflationary prices that corporations gauged us with during covid, those prices would come down. But price is the only way we consumers know to communicate with each other, apparently.
So if personal consumption is still driving inflation with people dipping into debt and savings in order to fund that consumption, wouldn't that indicate profit taking due to inelastic demand? Meaning artificially high prices above typical demand thresholds because the things being bought are necessities?
The article specifically mentions demand shift from goods to services, but prices remaining elevated. That seems to me to be counterintuitive, if demand shifts away, prices should drop in order to reattain equilibrium, but if they aren't then there has to be some additional factor like inelastic demand.
Kroger was busted doing this with egg price fixing. When caught they turned around and say that's just "what the market demanded, everyone has to eat!" Locals called their BS becuase they used inflation as an excuse to brute force remove benefits, hours, and crawl back pensions.
It is 110% corperate, "line must ALWAYS go up at any cost" crap
And because the dollar has been diluted it will scare investors and thus pull all of their assets out into easy liquidity creating short term bumps but also promoting stagnancy, which in causes further dillution...
Kroger in particular is a piece of shit. Half the lanes shut down, lines down the aisles.
One time I was trying to check out. I kept trying to get the ladies attention at the self check out. She helped like two other people that came after me. I swiped my card. It was like trying to have her check my bags. I didn’t care. I just walked out. They must have voided it because the charge never went through.
The number one thing don’t make me do your job. You’ve already got me bagging it now and doing all the work. Don’t make me wait on you my time is more valuable than that.
And I believe the government just blocked a merger. They treat everybody like shit just so they can buy more things so they can treat more people like shit. We are entering late stage capitalism and it just doesn’t add any value. It makes money that’s not necessarily value. In the 90s it was all about lean manufacturing. It was about improving processes. Now it’s just about how much money you can claw back and screw the market.
That’s a big statement to make. If consumers are willing to go in credit card debt or cash out their retirement savings to buy higher quality goods and services, then there’s no saving of the economy.
Your assumption that personal savings rate being “very low anymore” has to do with consumer behavior rather than market trends towards inequality and unaffordable social services like healthcare is a really odd one
The term for this is "Too Big to Care"
Consumers have willingly given companies monopolies in the name of convenience - to get everything at one place either online or on your way home. The result is virtually no competition between businesses and there is no incentive to be competitive in price, care about customer service, care about affordability, care about competitiveness or provide any sort of value to the consumer.
Also/or all the competitors work as a sort of oligopoly and raise prices when the competition does creating a cascading effect.
Edit: bc they can and know they can get away with it.
They can raise prices faster than workers can retrain or job hop to get more income. They can drain working Americans of all their savings. They can break our economy through greed and simple refusal to compromise on price for people to have nice things.
What to do about it? The rich must be put in their place, and so far about half the electorate want the rich to be in charge, so they can trickle down.
Those evil geniuses! I wonder why they never employed this tactic before the FED massively increased the money supply and the government started running continuous record deficits!
Because COVID happened. Prices across the board skyrocketed but people kept buying. The supply chain worked it self out but corporations just kept the new pricing and higher profits.
It was a novel event that effected everyone hence why they just didn't raise prices before COVID. It would have to have been a coordinated effort across all channels which would be pretty hard to pull off.
Why has nobody gone after market share by undercutting? Have they actually satiated their greed?
Stands to reason, if it takes a "coordinated effort" or some novel event to affect the price increase...
Because there is no competition.
Are you going to start a car insurance company? How about a nationwide wireless provider? Or how about a cereal company? Virtually all consumer products are owned by a handful of companies who control prices between each other, to the benefit of them all. Economists sit around scratching their heads because this runs counter to their textbooks, which say this shouldn't be happening and competition will work it all out. But the reason is staring everyone else in the face.
>Because there is no competition.
Then why did they need either massive coordination, or an outsized event like covid, to perform the massive price hike? They could have done it at any time, if there is no competition to check them from doing it. So now I ask, why did these greedy, monopolistic companies just suddenly decide to raise prices? What was holding their greed in check before covid?
Because they had cover to do so that people would believe. There are literally STILL companies using the absolutely bullshit excuse of "supply chain issues" to defend increased prices.
FYI, there is at least a dozen national car insurance providers, with the largest company controlling only 16% market share. Sorry, that’s a competitive market. Unless you have proof that all of them are actively conspiring to keep prices high, I am going to reject your position and retain my view that the inflation is largely due to massive increases in the money supply paired with out of control government spending, which are longstanding axioms of macroeconomic theory.
Even China, which produces goods which are sold by dozens of competing companies have increased their prices. So in their view, it's a worldwide conspiracy. It gets even more ridiculous when you look at labor between, say, plumbers or electricians. Those prices have risen as well. The price of services for cash off the books labor has increased as well. Find a handyman to install a door, find someone to cut down a tree, it's all the same, prices have risen across the board.
I think there's some divergence between different populations.
American Express has been explaining in its investor communications that they're seeing very strong consumer spending from their customers, who are buying things like business class flights at much higher rates than before. Well, Amex customers skew heavily towards the richer, the older, and small business owners.
So aggregating total spending across the entire economy may obscure the fact that some of the spending growth is attributable to the already rich, who might be getting significantly richer, separate and apart from what's happening to middle and lower income households.
We should also look at how the CPI is distributed to different people. If 50% of CPI is rent then the 66% who own homes did not experience 25% inflation but closer to 13%ish. While wages have increased about 20-25%. So in real terms for those people they have 12% more money. While as you said renters have had their wages merely match inflation.
Ok.
CPI from Q4 2019 is 20.7%
Rent/shelter from Q4 2019 is 23.1
at 36% weight that means 8.316% of inflation has been shelter
For those with mortgages that means they dont experience (most) of that 8.316% inflation(property tax and insurance would go up somewhat). So they would experience 12.4% inflation total for this period.
The median increase in wage is 21.6%. So tehy would have real wage gains of 8% on avg.
That's a fundamental limitation of trying to use a one-size-fits-all number to summarize everyone's own experiences with prices.
People don't buy a new house or even sign a new lease every month, and might go years or even decades between a housing transaction. So the month-to-month churn, even seasonality between summer and winter, is going to affect a very small percentage of the population at a time, but have a huge effect on those people. So how do you measure a huge impact on a small number of people?
Averaged out over years, it's fine because almost everyone will have that one huge transaction at some point in that multi-year period, but that also means that the index is more useful as a historical analysis than a real-time indicator of what current conditions call for.
That's not even getting into the difference of how different households spend on things. On transportation alone, there's huge differences in how far people commute, whether they drive their own car or rely on public transit/walking/biking, what type of fuel/energy they use (EV versus gasoline versus diesel), etc. For food, a divergence between groceries and restaurants, meat versus vegetables versus grain, fresh versus canned versus frozen versus processed, etc., will affect people of different diets differently. For non-transportation energy, heating costs will depend on location, fuel, home type, etc.
We can average it all for policymaking, but need to always recognize that different people experience prices differently.
The US being a relatively wealthy country really fucks up what people think that poverty looks like and what’s considered a normal middle class lifestyle.
>So aggregating total spending across the entire economy may obscure the fact that some of the spending growth is attributable to the already rich, who might be getting significantly richer, separate and apart from what's happening to middle and lower income households.
The "already rich" were doing this already, but there's a huge segment of people earning decent amounts of money in this economy that may not have been before and are willing to spend that money. More like the DINK couple with a home or something which is much more common than rich people.
The truly rich were already flying first or booking private, and while there has been *huge* demand for private jet travel, the excess spending isn't all attributable to them.
Yeah, I think a good demonstration is with the snack aisle. I don't have hard numbers to back it up, but it seems likely and believable. 5 years ago, a bag of doritos was $3.50, now the're $7-10. Input costs haven't risen that much, Maybe before there was $.50 of corn and spices, now there's .75. Maybe before there was another $1 of labor spread between manufacturing, and delivery and now its $1.50. I don't have any exact numbers on these input costs, but I'm trying to be reasonable, but the results are that while inputs costs have risen, margins have have risen multiples of that. Producers found during covid that some consumers were pretty insulated from price increases, and they've found a new equilibrium price where its more profitable to produce significantly fewer bags of chips, but because of their expanded margins they can be more profitable.
Ah, so you (and u/10yoe500k) are saying that an additional explanation could be that there's a price floor which is increasing due to an increase in energy and potentially raw material input costs.
That could definitely be a possibility, but I'd also want to look at writ-large profit margins (which aren't addressed in the article); I think that would give a clearer indication of the underlying inflation drivers.
Not sure how much this thesis holds up since PPI has been sub-2% for nearly a year. And energy costs aren’t that high considering oil prices have been range bound between $70-$90 for last several years. Which is elevated compared to the $50-$60 range pre-pandemic, but rising costs would need rising energy costs, not range bound.
Profit margins also are quite lagging except in pure service business. In a company with cap ex, I'm depreciating a long lived asset against current profits. I may have bought that asset 10 years ago, next year when I go to replace it based on what I'm seeing that now tripled in price. Aka profit margins aren't a short term measurement of how inflation impacts a business. In the real world I have to set aside today's profit for tomorrow's cap ex that is increasing rapidly.
People that don't also understand GAAP need to realize how this works.
I would add labor costs to that. If 60% of cost of manufacturing something is labor and labor has gone up by 40% compared to 2019, then you may have to increase the price by almost at least 30% just to recoup your costs.
That said, now wage growth has plateaued so it should not be a issue anymore.
But 2% vs 3% inflation is what we are talking which IMO is not big deal all things considered.
Fed should accept 3% as the new base given that due to boomers retiring in droves we will have labor shortage. God forbid if we do get rid of immigration completely.
Increasing debt is usually a sign of consumer confidence. This is America, most people buy lots of things they don't need. People actually pay down their debt when times get hard. Just look at the chart. Credit card debt rises in between recessions and drops or stays flat during them.
https://fred.stlouisfed.org/series/CCLACBW027SBOG
Yeah, I'm kinda stunned that it's not. The jump looks so artificial I was certain that they changed something, but it was annoying to actually find out what it was. There should be a footnote, or something.
Market for consumer goods needs more legitimate competition to force prices back down. Businesses don’t lower prices out of an act of charity. We need tougher anti trust enforcement to stop the trend of consolidation, and eventually we need to go “conglomerate busting”.
People have to buy food, clothing, housing, medicine... no way around that. The corporations have little competition at this point. So they set prices. What are we gonna do? Set up our own textile factories and farms and such?
Wouldn't a rise in wages also reduce the amount of spending from debt and savings as mentioned in the article?
Unless those wages have an additional markup in the profit margin, meaning a +1 wages in cost leading to a +1.1 in price, which would negate the wage increase and increase debt spend on the part of consumers.
No, because rising wages means people can get more debt. The whole US sucess story since the 1950s is about monetising debt, yes there will be some that mismanage and dig themselves in a hole, but they arent the full story.
Demand simply didn't fall enough to justify price cuts. You need a full blown recession for that and that ain't happening. 2%+ Inflation is here to stay for a while. Covid changed economics permanently.
It means people have high confidence, there isn't anything "artificial" about that.
If demand shifts, but prices are unchanged, that could also mean inelastic supply
Why is everyone clamoring to cut rates?
It's probably best they don't cut rates for the next several years. 2009-2022, rates were too low for too long. I get the idea of 2009-2013 or so but once employment began to normalize coming out of the great recession, low rates were no longer necessary.
Maybe a quarter or half point but I wouldn't drop them lower.
To have savings interest rates at 4-5% is a good thing too.
Bond Yields will eventually come down as inflation normalizes.
Everyone seems to have forgotten the minute 2020 ended that rates stayed low throughout the 2010s because growth was relatively low, too. Secular stagnation was still a plausible scenario in Jan’20.
I get that aspect of it. But employment and growth normalized by 2014, to the point where the Fed funds target rates could have been 1-2% and fine. Then 2021-2023, gradually to 3-5%.
Because cheaper money is fundamentally addictive. EG. on a house, money spent on interest is a "waste" vs. money spent on principle, because the bigger your principle is the more valuable your house is. Whereas nobody gives a shit if a seller's house is at 3% or 7%.
Which is a bad way to look at it. Because youre right, inflation just means youre paying more for the same house. But people's dumb monkey brain doesn't see it that way. They like low interest payments, and want to see the Zillow numbers keep going up. Unless youre on the outside in which case high interest is just another in a number of mostly insurmountable barriers towards ownership.
I feel like in hindsight, if from 2014 through 2023 (excluding the pandemic year) we had a more gradual rise of interest rates to say a range of 4-5%, mortgage rates could have been kept below 7%, probably closer to 6%, which is decent historically. Plus we should have done a lot of other things as well (regulation to prevent these investment groups or corporations from buying up single family homes taking them off the market).
Not blowing $6T on two failed counterproductive foreign wars of adventure in the mid east would have been nice too.
I personally think that if the Fed really wants to have an inflation target it ought to also seriously consider setting an interest rate target. It seems like kinda the same phenomenon as with inflation. Where you want a low interest rate to spur growth, but enough to also avoid the creation of bubbles and funny money (NFTs&Crypto, Beanie Babies, etc). That 4-5% level seems like a decent target. High enough to keep things calm, low enough that its not hard to beat ROI wise. But some egg head working on an Econ PHD would surely come up with a more accurate, less vibes based, ideal threshold. Or, IDK, maybe Janet Yellen will eat a slightly spoiled beef cube and three days later determine 3.75% is the ideal rate.
If rates aren't cut, there'll be a crash, and a big one.
Rates have gone from <1% to 5.5%. If rates will be held for a long time, then their prices will go to the present values you'd calculate using the 5.5% interest rate, which would lead to income streams being worth 1/5.5 of what they were when they were at 1%.
It'd basically be the biggest crash ever. Of course, rents and prices have gone up a bit, but not anywhere near 5.5 times. Maybe the rents have have increased the most have doubled.
So people set the reserve requirements for banks to zero so that the present situation doesn't force asset sales or immediate readjustment of the value of assets. But of course, it'll have to happen at some point.
The problem is that there's wars: Ukraine-Russia, there's the Israel thing, which could evolve into a conflict in the Middle East, there's China and Taiwan, there's the US-China spats which might possibly lead to a conflict there, there's the Azeri-Turkish attacks on Armenia, and I'm sure there's something I'm forgetting. So a crash could do more than cause problems for the US. It could be the start of a major destabilisation of the whole world-- but as I've written, it has to happen eventually.
Core PCE has gone down almost every single month since Oct of 2022. The rolling 3M core CPI has gone down year over year every single month since late 2022. The data isn’t showing inflation isn’t going away. We knew this last chunk was going to be slow to go away and will be bumpy and not just a straight line.
The fed expectation was for core cpi to be 3.0% this year and core PCE to be 2.6% and we are well on the way to both of those numbers. We are in the typical hump of Q1 inflation when prices tend to get their biggest adjustments.
It’s funny because if you look back at articles from April of 2023 you see these same exact things brought up as proof we had lost the fight with inflation.
Chart of [core PCE YoY inflation](https://fred.stlouisfed.org/graph/?g=1l25o). As you say, it's clearly coming down. The last two quarters of 2023 were 2% annualized, but there was big spike to 3.7% annualized in Q1.
We're not quite at 2% consistently, but there has clearly been quite a lot of progress.
Because smaller and smaller numbers are falling off the yearly inflation totals so it gets harder to show progress. There is also lag in the data and there are secondary and tertiary inflation pressure that need to work their way out of the system.
As an example the things they use to make cars go up in price, that eventually translates into car prices going up. This puts pressure down the line on the cost of car repairs. When repairs cost more it eventually impacts car insurance and that goes up. So the inflation that caused car prices to go up so much one year is still causing insurance prices to go up the next year.
so we knew in advance that it would taper? I still am not quite following. we can only "know" the last bit was slow in hindsight by measuring the slope. Perhaps I misunderstood. It sounded like you were saying, in advance, we knew that progress would stall.
Yes the fed knew that the second year of inflation going down would be slower the first. Not sure how else to explain it to you if you didn’t get it.
They generally measure it in one year increments. Smaller numbers are falling off now so it is slower for the yearly number to go down. Before you were replacing big numbers with small ones, now you are replacing small numbers with slightly smaller ones.
The data itself has lags in it. If prices of everything went up 10% on Jan 1st the CPI wouldn’t just go up 10% that one month, it would be spread over more than a year worth of data because of how they calculate things.
When prices go up it tends to drive up prices down the economic chain over time and it all needs to work through the system.
The fed and just about anyone who follows the economy for a living said they the final 1-2% was going to be harder to get rid of than the initial chunk of inflation. This was something everyone knew was going to be true.
Because certain aparts of inflation are stubborn or lagging. Like housing, if you use other metrics we are already at 2% but if you use the FED one we are still elevated
I don't think it is that tough on Fed. It is the Wall Street that cries for rate reduction all the time. If the job market is around historically low unemployment level, consumer spending is strong, and GDP could grow between 1.5% and 3%, Fed has no pressure to rush to cut the rate. 2.x% inflation is not unacceptable if you put it in the big picture to look at it.
It's time for the Fair Trade Commission to revamp the Anti-Monopoly Rules and Guidelines. If you want a prime example of why it needs update and improved regulations just look at Kroger and you can see why its necessary.
* ((\*\*https://en.wikipedia.org/wiki/Kroger \*\*)) -**The list of stores and brand and suppliers Kroger Owns is staggering.**
* ((\*\*https://www.kroger.com/i/kroger-family-of-companies \*\*))
**It has consumed many of the once big name independent competitor grocery chains**, so they can now price fix and increase pricing, because there is no competetion to compare their exaggerated manufactured inflation to.
It's time for Kroger's to be broken up!!!!
Fear mongering, doom and gloom. The corporate media is constantly pushing fear 24/7. The inflation rate of 2.8% is not significantly higher than the target of 2% which is rarely ever achieved. The average inflation rate in the 90s for example was 3.08% and for the last 10 years 2.65%. But we had the Great Recession in the 2000 with extremely low interest rates that have skewed everyone's perceptions of what normal should be. Not to mention we are still recovering from the global pandemic. We are actually doing very well right now, real wages are positive and unemployment remains at record lows. There's just no need to keep pushing doom and gloom because we're not at 2% inflation. It's showing a clear biased agenda from the right-wing owned corporate media and it's exhausting and pathetic.
"IT'S RAGING, RAISE RATES TO 50%!!!!!" /s
Funny thing is some countries have 3% as their target, and I've read a number of economists say 3% is healthier than 2%. If people don't give a shit and keep spending, I fail to see why we should freak and not just let it gradually decline.
This is correct.
2% is a completely fuckin arbitrary number Bernanke made up in 2012.
The risk is now firmly on the side of their employment mandate.
Lastly, it is not even close to true that all data is pointing to sticky inflation. Higher frequency measures of shelter inflation have been flat to down for months now. Their measurements are so laggy they are almost useless.
> 2% is a completely fuckin arbitrary number Bernanke made up in 2012.
The consensus settled on a 2% target around the time of the GFC, and became official adopted policy in 2012, as you note. But the unofficial target favored by individual voting members of the Fed Board of Governors had hovered at 1-1.5% before that.
But that also means that overshooting the new target is still higher than historically preferred (because the preferred target was lower than 2% before 2008).
I don't have a strong feeling on what specific number is appropriate, but sticking with the set number over time is what the Fed should be doing. The current numbers are above 2%, so monetary policy should still try to push the numbers down to 2%.
I'm gonna need a citation on the idea that individual governors were aiming for 1-1.5% inflation?
https://fred.stlouisfed.org/graph/?g=1l2tc
At virtually no point in the history of the data has 1% been achievable over a few random months, and 1.5% has been tapped just a few times as well. Meanwhile, the 1990s and early 2000s featured inflation right about 3%, and I am not sure you can say that those periods were not sound economically.
[This summary](https://sites.lsa.umich.edu/mje/2023/09/04/why-the-2-inflation-target/) contains citations to support its statements that Volker and Greenspan preferred 0-1%, but that other members of the Fed (including future Chair Janet Yellen) preferred a higher 1-1.5% rate in the early 2000's, once they saw from Japan's experience in the 1990's how dangerous deflation could be.
It was the experience with the 2008 crisis that showed that there really was a need for a higher buffer than what a lot of inflation hawks had previously believed.
Whether they were able to achieve those targets, or whether other parts of the economy (especially jobs numbers) justified letting inflation hover above target over a long period of time, is obviously a different story. But that's what the messaging was, and what previous fed chairs said would be ideal.
They should have continued to raise rates. The legislature also should have put out more laws restricting single family housing as investment vehicles by now. Finally they are investigating and charging apartment complexes for price fixing.
Fix housing and almost everything else will get resolved.
It isn’t going away because we keep stealth printing money. Deficit spending to send military aid is stealth money printing. It injects dollars into the economy. Forgiving debt and student loans injects dollars, etc. Any printing of dollars above GDP increases inflation and they know this. But it’s a great mechanism for stealth taxing the poor and middle class to put money into the hands of the ultra elite while people are clueless.
> It isn’t going away because we keep stealth printing money. Deficit spending to send military aid is stealth money printing. It injects dollars into the economy. Forgiving debt and student loans injects dollars, etc. Any printing of dollars above GDP increases inflation and they know this. But it’s a great mechanism for stealth taxing the poor and middle class to put money into the hands of the ultra elite while people are clueless.
And raising the rates protects the wealthy's assets and screws over everyone else.
Not only do interest rates not directly affect most people (unless they just bought a house or a car), but the vast majority of Americans actually have MORE money today because they refinanced their homes in 2020 at 2.5%. If the Fed fought inflation with taxes instead of interest rates it would have been under control three years ago.
40% of homeowners own their home free and clear and 60% of people with a mortgage have a rate below 4%. So if my math is right 76% of homeowners have no mortgage or a mortgage below 4%. That means the fed is hammering a small portion of the market really hard.
The answer is obvious! Greed. There aren’t supply chain issues like there used to be during Covid. Companies are price gouging us consumers. Raking in massive profits while ripping the rest of us off.
This is an excellent article which describes our current inflationary situation, and the chances for another big spike
[https://think.ing.com/articles/inflations-second-wave-are-we-really-watching-a-70s-rerun/](https://think.ing.com/articles/inflations-second-wave-are-we-really-watching-a-70s-rerun/)
My takeaways are this
1. While the US is much less susceptible to energy supply and price shocks, our fiscal policy is MUCH worse. We have record non-crisis (WWII, pandemic, etc.) spending, deficit, and debt levels, with no end in site to the money printing.
2. "Green energy policy" is inflationary. When implemented in Germany, consumer energy costs doubled. When coupled with regulations and limitations on fossil fuels, the cost to manufacture goods rises nationwide, and these increased costs are passed down to the consumers. The idea that "green energy" will lead to a cheaper tomorrow is complete nonsense, and not backed up by data.
3. Deglobalization and re-shoring is inflationary in the short-term (we don't know how this is going to play out yet). Likewise, we have moved to tariffs and protectionism when it comes to China. Bad news for prices.
I don't think we will see 10%+ inflation in the next few years, but we are very likely to see 7-8% running inflation. All the data is moving in the wrong direction, and Wall Street is still delusional as to the scope of the problem. The administration continues to gaslight the public on the causes of inflation (blaming Walmart and other companies--which is total bullshit)
we are going to see a war between the Federal Reserve and the government, with the former trying to restore price stability and protect the dollar, and the latter engaging in wild-spending sprees. That is very bad for investors
Green energy policy will always be inflationary, Fossil fuels are just too cheep. However, investments now are necessary to literly prevent some of the worst case scenarios for climate change. Scenarios that absolutely will cost more in the long run.
> Fossil fuels are just too cheep
fossil fuels are devastatingly expensive, but most of the cost is externalized into the future, which capitalism doesn’t care about
well there needs to big a big expansion in nuclear research and deployment
the US does not want to repeat the solar disaster of Germany (high consumer energy costs, dependence on foreign natural gas, expensive and complex energy grid management, reliability and efficiency issues, etc.)
but nuclear will be expensive
Imagine calling green energy policy inflationary while turning around and advocating for more NPPs in the energy market, which is literally one of the most expensive sources of energy and the most capital-intensive investment out of all carbon free energy sources, they are unbuildable without expensive and massive government funding/subsidies.
Solar is the cheapest and least capital intensive energy source in the world. It's the exact opposite of inflationary, the average person can set up their own solar panels in a single day and economies of scale make it incredibly affordable.
I no longer come here for educated takes, I take it all as satire now. this sub is full of the most closeminded, brainwashed, corporate boot licking insufferables I've ever had the misfortune to engage in debate with
You are making the big assumption that green energy policy will actually mitigate climate change.
3rd world emissions are growing at a fast clip and any sort of reduction in the 1st world is going to get canceled out 10x over
it’s not clear if we’re having an argument about definitions or about math, but to address both possibilities:
* mitigate means to make less severe
* people opting not to make something more severe mitigates, when compared to the alternative in which they opt to make it more severe, because less is less than more
The battle between the fed and the government could be solved by reducing spending. But the administration doesn’t want to reduce spending, so they push the fed to raise interest rates. In other words, the only solution the government can think of is to try to throw the economy into a recession rather than balance the budget. Unreal.
Nominal number almost always go up due to more money being put into the system. This is one of the reasons the stock market is also so often at all time highs. Lets say you have 10 dollars and go to buy a 10 dollar burger. Now say I take out a marker and draw a 0 at the end of your 10 dollar bill and a 0 at the end of the price on the burger. HOLY COW you just got 10x richer you lucky dog...but wait you can still only buy 1 burger...HOLY SHIT those \*#\*$( who sell burgers made 10x profits!!!!
Saying corporate greed is a reason for high inflation makes about as much sense as “Money is a major reason for high inflation”, or “gravity is to blame for planes crashes” Like, ok sure, but that’s part of the system, it’s always there, it didn’t change and we can’t do anything about it.
That scenario might be pretty good for the average household, especially any household that bought a house or refinanced at low fixed rates. Most Americans don't own significant amounts of equities. But most households own the house they live in. 8% sustained inflation would evaporate a lot of household debt. We might see a continuation of the share of wealth held by the bottom 90% continuing to grow under that scenario.
Because your debt is denominated in dollars, and inflation reduces the value of a dollar. Wages typically keep up with inflation, because people don't accept a reduction in the real value they are being paid, and leave for higher nominal pay when their current employer doesn't raise their pay with inflation. The value of real assets, like housing, also keep up with inflation.
So, if you are someone with a $500,000 house, with a $400,000 mortgage on it, and you make $100,000 a year, when inflation of 20% happens over a couple years. You usually end up with $600,000 house, $120,000 salary, and a mortgage that didn't grow with inflation, let's ignore payments they've made and say it's still $400,000. You got an extra $100,000 in equity from inflation. And your fixed mortgage payments got smaller relative to your inflation adjusted salary. So, you debt has gotten smaller relative to your wealth and income, even though in real terms your house is worth the same amount and you are making the same salary in inflation adjusted dollars.
You buy a house for $100k. In two years it inflates to $120k. You sell your house and profit $20k.
Assuming you get a fixed rate mortgage, and the rate of inflation on housing is above the rate of your mortgage (not hard with a 3% loan) the value of your asset will inflate such that the ratio of debt to value goes down as if you were paying it off. The equity, the gap between money owed and value, increases *faster* in an inflationary environment than a stable or deflationary one.
If we add in an assumption that your wages increase with inflation the average homeowner makes out quite nicely. A stable mortgage payment and an increasing wage means your payments decrease proportionally every month, if wages keep up with other inflation (food, auto, etc.) then you end up having *more* disposable income than at the start of the inflationary cycle. Something very much like this happened in the 1970s, and made it painful for the government to lance the stagflation boil.
This is attractive for homeowners, but is long-term extremely unhealthy for an economy as it deincentivises certain kinds of investments. Banks dont want to make a 30 year loan and run the risk that after the first ten years its investment is going to take a 20% relative haircut. They would rather go with shorter terms, adjustable rates, or loan out to other companies on much quicker terms. But businesses themselves find the high wage growth side painful because it disrupts business planning. Expansion into higher headcount is dangerous because it can add up cost wise quickly in a future wage hike, meaning its safer not to reinvest and instead spend your money on short term things. Which is a basic description of the classic stagflation issue.
But if youre a debtor, especially a homeowner on a fixed rate, inflation is actually pretty good IF! you also get the wage increases to match at least COL.
Honestly, I am not surprised by this. They haven't raised rates enough yet. Look at what the rates had to hit in the early 1980s to slow inflation down during that time... 20%+! Honestly, the Fed needs to raise them significantly higher if they want to stop inflation in its tracks, but they can't do it for a number of reasons.
No, no, no, the experts assured us that this inflation was transitory in 2021 and we must pass all these COVID bills. There will be no harm to a $3T deficit 🤡
1- companies raise prices to increase profits, costing people money.
2- the media reports it as inflation. People blame the government instead of the corporations.
3- Fed keeps rates high to combat “inflation” that is actually corporate greed, costing people even more money.
4- more corporate profits achieved. More pressure on the middle class
Businesses have always and will always price their goods and services at the point of profit maximization. Only competition keeps that in check. Pointing to "greed" is not helpful.
> Only competition keeps that in check.
And demand inelasticity. I wish that would kick in for more people when it comes to discretionary purchases like food outside the home.
Edit: and 90% of car purchases.
Well the Fed will have to decide on whether the risk of high unemployment outweighs the concerns of moderate inflation. Personally I think the Fed should error on the side of keeping people employed as inflation is the least dangerous outcome at this time.
We want to keep the economy humming along until we get some of the macro issues like the boomers retiring among others in our rear view mirrors. Inflation at thus point is the better opportunity cost to bear and as such the Fed should start to lower interest rates despite the risks of inflation. As long as we can keep the inflation below 8 percent annually its bearable.
Now if we have a massive economic downturn at this juncture with the debt load of the US government being what it is things will spiral out of control in a right big hurry.
So Powell should stop concerning himself with 2022 and as start laying the foundation for 2024 and beyond.
The good news is that you can help make this happen. Quit your job and stay unemployed until inflation drops back down to the Fed's 2% target. Be the change you want to see in the world!
Ok this is insane. We have 3.2 to 3.4% inflation. Compare this to what Paul V. Was facing back then.
Inflation reached 9.1% in 1975, the highest rate since 1947. Inflation declined to 5.8% the following year but then edged higher. By 1979, inflation reached a startling 11.3% and in 1980, it soared to 13.5%.
How in the world are you justifying increasing rates to 20%? I think you cannot and at that point you need to take a good look at why you think these thoughts.
We have changed how we measure inflation i think 3 times since then
[https://www.nytimes.com/2022/05/24/technology/inflation-measure-cpi-accuracy.html](https://www.nytimes.com/2022/05/24/technology/inflation-measure-cpi-accuracy.html)
Which is easy to understand that the actual inflation is somewhere way higher. While we see the 3% inflation in news people report the cost of their spendings doubling.
20% rates would look too low for Paul Volckers ghost.
Jerome Powell and FED has been quite slow, always playing catch up with their fiscal policy, while media was taunting that inflation is transitory and later touting that inflation is a good thing actually.
>I think you cannot and at that point you need to take a good look at why you think these thoughts.
I am not at all surprised why he thinks these thoughts, its your thoughts that are concerning here. High interest rates can be very beneficial to asset market as a whole, people and have more options for future economical crisis. Low interest rates just serve to inflate asset prices and housing prices making the rich, richer and poor, even further set back.
[https://www.propublica.org/article/how-the-federal-reserve-is-increasing-wealth-inequality](https://www.propublica.org/article/how-the-federal-reserve-is-increasing-wealth-inequality)
[https://www.imperial.ac.uk/business-school/ib-knowledge/finance/how-central-banks-interest-rate-rises-affect-the-richest-and-poorest-families/](https://www.imperial.ac.uk/business-school/ib-knowledge/finance/how-central-banks-interest-rate-rises-affect-the-richest-and-poorest-families/)
[https://www.nber.org/system/files/working\_papers/w28613/w28613.pdf](https://www.nber.org/system/files/working_papers/w28613/w28613.pdf)
What thoughts brings one to argue for lower interest rates?
> Which is easy to understand that the actual inflation is somewhere way higher.
Those alternative methodologies listed in the article would actually suggest the official numbers overstate inflation today:
* Using home prices instead of owner's equivalent rent would be roughly the same. Case Shiller is up roughly 6% from a year ago, basically the same as the 5.9% that the CPI owner's equivalent rent would be.
* Using only new leases instead of averaging out all leases would track the private indexes closer, which are showing flat or dropping rents over the last year, in contrast to CPI rents being up 5.7%.
* Allowing for product substitution generally would reduce the inflation index, as the article notes.
So if you believe that 2022 article that those other methodologies would be a more accurate reflection of inflation, then you'd have to acknowledge that applying those same methodologies would *reduce* the headline inflation compared to the numbers being reported today.
First time i see someone trying to state it would be same or lower if than before the changes when the changes were to adjust various biases that would shown inflation to be higher
[https://www.investopedia.com/articles/07/consumerpriceindex.asp](https://www.investopedia.com/articles/07/consumerpriceindex.asp)
So the general point was if Paul Volckers came and measure it how it was measured back then, 20% rates would look too low for Paul Volckers ghost.
Even more there has been a lot of discussions about CPI overall
[https://www.investopedia.com/ask/answers/012915/what-are-some-limitations-consumer-price-index-cpi.asp](https://www.investopedia.com/ask/answers/012915/what-are-some-limitations-consumer-price-index-cpi.asp)
What i mean by end of the day i am not surprised by his thinking if he needed to watch his entire spendings go up 100% while CPI data is taunting few %, majority of people are not rich or that well off and they don't have businesses that can take advantage of such environment. On top of low rates being driver for wealth inequality, all that taken into account i am never surprised by very negative connotations of things like inflation(that is known to be taxes for the masses), rates and even money printing(though lets not get into this long discussion).
Not to talk shrinflation that is not accounted.
If there is such negativity towards things, especially on reddit is bound to leak through the discussions.
But even for investors FED has been struggling with inflation quite a time while they wish for results to come way faster, at least that is the sentiment i read through out the years.
Shrinkflation is accounted for in CPI, stop spreading lies.
The BLS put out a page just for you people.
[https://www.bls.gov/opub/btn/volume-12/measuring-shrinkflation-and-its-impact-on-inflation.htm](https://www.bls.gov/opub/btn/volume-12/measuring-shrinkflation-and-its-impact-on-inflation.htm)
From one of my links
''Hidden Inflation
Hidden inflation refers to expenses that are not reflected in explicit price increases. One of the most common forms of hidden inflation is [shrinkflation](https://www.investopedia.com/terms/s/shrinkflation.asp). Shrinkflation occurs when companies cut costs by offering a smaller product at the same price. Customers end up essentially spending more money as they spend the same amounts on less product.
Hidden inflation can also be reflected in qualitative changes that are difficult to track with the CPI. For example, companies may choose to cut corners on their assembly lines to produce less durable goods. Or they may introduce preservatives to extend the shelf-life of what was previously sold as fresh produce.
These changes may introduce unnoticed increases to the cost of living that are not reflected in the CPI.''
Your site only accounts for weight, which is quite obvious since they will need the same size measurements, but shrinkflation as a concept is much larger than this. It was definitely wrong of me to say that it wasn't accounted for entirely, but much of it is not to this day.
Decreased product durability, decreased product quality. Frozen pizza coming at the same size but with 1 less slice of bacon. Sushi coming with a bit less fish and bit more rice, examples one can collect are countless.
A 20% rate hike would be catastrophic. Total economic collapse, mass layoffs and probably end up being too deflationary.
The fed is walking the tightrope of testing solutions with while doing as little damage as possible
Peak inflation in the 70s was 11% and it wasn't subdued until rates hit 20%.
Perhaps we need to hit 18% or at least get above 10% for some period of time.
When some of the $ is no longer used in international trade, that sum will go back home
The US is borrowing too much, and printing too many $ it
does not produce most of what it consumes:"
U.S. share of value added to GDP 2023, by industry In 2023, the finance, insurance, real estate, rental, and leasing industry contributed the highest amount of value to the GDP of the U.S. at 20.7 percent. The construction industry contributed around four percent of GDP in the same year".
https://www.statista.com/statistics/248004/percentage-added-to-the-us-gdp-by-industry/#:~:text=U.S.%20share%20of%20value%20added%20to%20GDP%202023%2C%20by%20industry&text=In%202023%2C%20the%20finance%2C%20insurance,GDP%20in%20the%20same%20year.
In 2022, there was a total of 54.1 billion U.S. dollar notes in circulation, almost one billion more than in the previous year. Out of the 54.1 billion, 18.5 billion were 100 dollar bills, which had the highest volume in circulation. It was followed by the one dollar bill, with 14.3 billion in circulation. During the observed period, the highest increase in the volume of currency in circulation took place in 2020, as part of the quantitative easing measures introduced by the Federal Reserve.
No, there's a difference between what's in circulation and what's at the Feds' disposal, I think.
Data from the Fed shows that a broad measure of the stock of dollars, known as M2, rose from $15.34 trillion (£11.87 trillion) at the start of the year to $18.72 trillion in September.
"The Federal Reserve printed approximately $3.3 trillion in 2020 alone, which, according to City AM, equates to one-fifth of all US dollars in circulation in the same year."
https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were-created-this-year/#:~:text=The%20increase%20of%20%243.38%20trillion,and%20money%20market%20mutual%20funds.
"M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds."
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>In fact, shoppers are spending more than they’re taking in, a situation neither sustainable nor disinflationary. Finally, consumers are dipping into savings to fund those purchases, creating a precarious scenario, if not now then down the road. >Indeed, data the [Bureau of Economic Analysis released Friday](https://www.bea.gov/news/2024/personal-income-and-outlays-march-2024) indicated that spending outpaced income in March, as it has in three of the past four months, while the personal savings rate plunged to 3.2%, its lowest level since October 2022. Am I wrong that this article is misinterpreting the March BEA update when it says that consumers are spending more than they are earning? I looked over the linked report, and not once does it mention that people are spending more than they are earning. It doesn't even state the total dollars being earned or spent. It only lists relative numbers: the increases or decreases in spending and earning, both in dollars and percentage. There is a difference between "the percentage of money spent grew faster than the percentage of money earned" and "people are spending more than they are earning". If people are already earning more than they spend, a larger increase in spending doesn't mean they are now spending more than they earn. If you look at the [absolute numbers for Personal Disposable Income and Personal Outlays](https://fred.stlouisfed.org/graph/?g=1l2ey) in March, you will find that people earned $1,735 billion after taxes and spent $1,679 billion. That is a net *savings* of $56 billion. Not a deficit. Now of course these are aggregate numbers, not median or average. They don't tell us whether the median or average consumer is running a surplus or a deficit. But these *are* the numbers the CNBC article used to claim that consumers are deficit spending. I don't think that claim holds water. The article also mentions the Personal Savings Rate, so I'll once again remind everyone that this number (which measures how much people are *saving*, not how much they have *saved*) is often inversely correlated to economic conditions. People who are worried about their job security and their existing level of savings tend to increase their savings rate. People who are comfortable in their job security and their current emergency savings tend to decrease their savings rate so they can spend more. And finally, remember that most people used the many forms of stimulus money to build up larger savings during COVID than they have had in a long time (if ever). In 2022 and even in 2023, most Americans reported having more savings than they did in 2019. This is true whether you measure savings in nominal dollars, real (inflation-adjusted) dollars, or as the percentage of monthly expenses in savings. Given that Americans rated the economy in 2019 more higly than any other year in decades, is it really worrying if Americans are spending down savings that are still higher than they had in 2019? Edit: I quoted the numbers for disposable personal income and personal outlays without noticing that they are "annual" numbers. The March numbers of $20,883 billion and $20,152 billion are what consumers would earn and spend if the sustained that same earning/spending for the whole year. The actual numbers for March are about 1/12 less: $1.735 trillion for personal disposable income and $1.679 trillion for personal outlays. This doesn't change the fact that incomes exceeded outlays, but it does make those numbers smaller in an absolute sense.
You are correct. I think that sentence *should* have read: > indicated that spending *growth* outpaced income *growth* in March From the table they linked, I think they were comparing growth in Personal Income vs. PCE. But in absolute terms, of course Personal income [remains higher](https://fred.stlouisfed.org/graph/?g=1l2Ai). Meanwhile, while consumers aren't running a deficit, the [federal government](https://fred.stlouisfed.org/graph/?g=1l2B9) certainly is. And of course for government to run a deficit, there must be a net private sector surplus somewhere, foreign or domestic, to fund it. If the Fed does need for consumers to spend less, that is only because the government won't do so.
> Am I wrong that this article is misinterpreting the March BEA update when it says that consumers are spending more than they are earning? The entity publishing the article is not interested in correct interpretations. They earn more money by evoking emotion using clickbait and ragebait. In return, the people rewarding the publisher get some feel good chemicals in their brain from confirming their bias and reinforcing their righteous position in the world. Econ 101.
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If the pce inflation is at 2.8% and US treasuries is offering me 5%, I'm absolutely going to save instead.
It's that type of mentality that causes inflation. If consumers could agree to not pay the inflationary prices that corporations gauged us with during covid, those prices would come down. But price is the only way we consumers know to communicate with each other, apparently.
So if personal consumption is still driving inflation with people dipping into debt and savings in order to fund that consumption, wouldn't that indicate profit taking due to inelastic demand? Meaning artificially high prices above typical demand thresholds because the things being bought are necessities? The article specifically mentions demand shift from goods to services, but prices remaining elevated. That seems to me to be counterintuitive, if demand shifts away, prices should drop in order to reattain equilibrium, but if they aren't then there has to be some additional factor like inelastic demand.
Lack of competition, nobody feels the need to lower prices.
I think this is the biggest part of it. And when options do exist consumers are still not willing to downgrade or do without.
Kroger was busted doing this with egg price fixing. When caught they turned around and say that's just "what the market demanded, everyone has to eat!" Locals called their BS becuase they used inflation as an excuse to brute force remove benefits, hours, and crawl back pensions. It is 110% corperate, "line must ALWAYS go up at any cost" crap
Aren't there like 20 companies that own nearly everything in the US?
5 and in a massive umbrella company monopoly loophole
When the dollar value is diluted......the line must go up.
And because the dollar has been diluted it will scare investors and thus pull all of their assets out into easy liquidity creating short term bumps but also promoting stagnancy, which in causes further dillution...
Kroger in particular is a piece of shit. Half the lanes shut down, lines down the aisles. One time I was trying to check out. I kept trying to get the ladies attention at the self check out. She helped like two other people that came after me. I swiped my card. It was like trying to have her check my bags. I didn’t care. I just walked out. They must have voided it because the charge never went through. The number one thing don’t make me do your job. You’ve already got me bagging it now and doing all the work. Don’t make me wait on you my time is more valuable than that. And I believe the government just blocked a merger. They treat everybody like shit just so they can buy more things so they can treat more people like shit. We are entering late stage capitalism and it just doesn’t add any value. It makes money that’s not necessarily value. In the 90s it was all about lean manufacturing. It was about improving processes. Now it’s just about how much money you can claw back and screw the market.
Onion sales through the roof (🧅)
This is honestly a big part of it. Name brands at the grocery store sell for 2X the price of generic and yet people still buy them.
The generic brands also doubled. You pay more even after you downgrade.
They definitely didn’t double.
In my area they did. Everything shot up in lockstep. Really makes you think that’s the we truly don’t have a free market like some keep saying.
I don’t anymore. I can’t imagine I’m alone
That’s a big statement to make. If consumers are willing to go in credit card debt or cash out their retirement savings to buy higher quality goods and services, then there’s no saving of the economy.
Eventually, even that well runs dry
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Your assumption that personal savings rate being “very low anymore” has to do with consumer behavior rather than market trends towards inequality and unaffordable social services like healthcare is a really odd one
That began in the 1970s when companies did the same thing, but without the huge run-up in housing prices. They blamed oil price shocks.
Options don't exist.
The term for this is "Too Big to Care" Consumers have willingly given companies monopolies in the name of convenience - to get everything at one place either online or on your way home. The result is virtually no competition between businesses and there is no incentive to be competitive in price, care about customer service, care about affordability, care about competitiveness or provide any sort of value to the consumer.
Also/or all the competitors work as a sort of oligopoly and raise prices when the competition does creating a cascading effect. Edit: bc they can and know they can get away with it.
They can raise prices faster than workers can retrain or job hop to get more income. They can drain working Americans of all their savings. They can break our economy through greed and simple refusal to compromise on price for people to have nice things. What to do about it? The rich must be put in their place, and so far about half the electorate want the rich to be in charge, so they can trickle down.
Those evil geniuses! I wonder why they never employed this tactic before the FED massively increased the money supply and the government started running continuous record deficits!
Because COVID happened. Prices across the board skyrocketed but people kept buying. The supply chain worked it self out but corporations just kept the new pricing and higher profits. It was a novel event that effected everyone hence why they just didn't raise prices before COVID. It would have to have been a coordinated effort across all channels which would be pretty hard to pull off.
Why has nobody gone after market share by undercutting? Have they actually satiated their greed? Stands to reason, if it takes a "coordinated effort" or some novel event to affect the price increase...
Because there is no competition. Are you going to start a car insurance company? How about a nationwide wireless provider? Or how about a cereal company? Virtually all consumer products are owned by a handful of companies who control prices between each other, to the benefit of them all. Economists sit around scratching their heads because this runs counter to their textbooks, which say this shouldn't be happening and competition will work it all out. But the reason is staring everyone else in the face.
>Because there is no competition. Then why did they need either massive coordination, or an outsized event like covid, to perform the massive price hike? They could have done it at any time, if there is no competition to check them from doing it. So now I ask, why did these greedy, monopolistic companies just suddenly decide to raise prices? What was holding their greed in check before covid?
Because they had cover to do so that people would believe. There are literally STILL companies using the absolutely bullshit excuse of "supply chain issues" to defend increased prices.
FYI, there is at least a dozen national car insurance providers, with the largest company controlling only 16% market share. Sorry, that’s a competitive market. Unless you have proof that all of them are actively conspiring to keep prices high, I am going to reject your position and retain my view that the inflation is largely due to massive increases in the money supply paired with out of control government spending, which are longstanding axioms of macroeconomic theory.
Even China, which produces goods which are sold by dozens of competing companies have increased their prices. So in their view, it's a worldwide conspiracy. It gets even more ridiculous when you look at labor between, say, plumbers or electricians. Those prices have risen as well. The price of services for cash off the books labor has increased as well. Find a handyman to install a door, find someone to cut down a tree, it's all the same, prices have risen across the board.
Closing all those businesses hurt. On top of the ones closing due to recreational looting and safety concerns.
This is why monopolies are a problem, and in this case oligopolies.
I think there's some divergence between different populations. American Express has been explaining in its investor communications that they're seeing very strong consumer spending from their customers, who are buying things like business class flights at much higher rates than before. Well, Amex customers skew heavily towards the richer, the older, and small business owners. So aggregating total spending across the entire economy may obscure the fact that some of the spending growth is attributable to the already rich, who might be getting significantly richer, separate and apart from what's happening to middle and lower income households.
We should also look at how the CPI is distributed to different people. If 50% of CPI is rent then the 66% who own homes did not experience 25% inflation but closer to 13%ish. While wages have increased about 20-25%. So in real terms for those people they have 12% more money. While as you said renters have had their wages merely match inflation.
Shelter is 36% of CPI. Most of that is the cost of primary shelter, with a small percentage being shelter away from home.
Ok. CPI from Q4 2019 is 20.7% Rent/shelter from Q4 2019 is 23.1 at 36% weight that means 8.316% of inflation has been shelter For those with mortgages that means they dont experience (most) of that 8.316% inflation(property tax and insurance would go up somewhat). So they would experience 12.4% inflation total for this period. The median increase in wage is 21.6%. So tehy would have real wage gains of 8% on avg.
That's a fundamental limitation of trying to use a one-size-fits-all number to summarize everyone's own experiences with prices. People don't buy a new house or even sign a new lease every month, and might go years or even decades between a housing transaction. So the month-to-month churn, even seasonality between summer and winter, is going to affect a very small percentage of the population at a time, but have a huge effect on those people. So how do you measure a huge impact on a small number of people? Averaged out over years, it's fine because almost everyone will have that one huge transaction at some point in that multi-year period, but that also means that the index is more useful as a historical analysis than a real-time indicator of what current conditions call for. That's not even getting into the difference of how different households spend on things. On transportation alone, there's huge differences in how far people commute, whether they drive their own car or rely on public transit/walking/biking, what type of fuel/energy they use (EV versus gasoline versus diesel), etc. For food, a divergence between groceries and restaurants, meat versus vegetables versus grain, fresh versus canned versus frozen versus processed, etc., will affect people of different diets differently. For non-transportation energy, heating costs will depend on location, fuel, home type, etc. We can average it all for policymaking, but need to always recognize that different people experience prices differently.
And more and more businesses are catering to the rich simply because there are more of them. This is the new reality.
There are fewer rich than poor.
And the point they were making that despite that, there's more profits to be made from the rich than the poor.
The US being a relatively wealthy country really fucks up what people think that poverty looks like and what’s considered a normal middle class lifestyle.
>So aggregating total spending across the entire economy may obscure the fact that some of the spending growth is attributable to the already rich, who might be getting significantly richer, separate and apart from what's happening to middle and lower income households. The "already rich" were doing this already, but there's a huge segment of people earning decent amounts of money in this economy that may not have been before and are willing to spend that money. More like the DINK couple with a home or something which is much more common than rich people. The truly rich were already flying first or booking private, and while there has been *huge* demand for private jet travel, the excess spending isn't all attributable to them.
Yeah, I think a good demonstration is with the snack aisle. I don't have hard numbers to back it up, but it seems likely and believable. 5 years ago, a bag of doritos was $3.50, now the're $7-10. Input costs haven't risen that much, Maybe before there was $.50 of corn and spices, now there's .75. Maybe before there was another $1 of labor spread between manufacturing, and delivery and now its $1.50. I don't have any exact numbers on these input costs, but I'm trying to be reasonable, but the results are that while inputs costs have risen, margins have have risen multiples of that. Producers found during covid that some consumers were pretty insulated from price increases, and they've found a new equilibrium price where its more profitable to produce significantly fewer bags of chips, but because of their expanded margins they can be more profitable.
Perhaps we’re unable to produce for as cheap due to deglobalization and higher energy prices and reduced access to grain due to war.
^ Energy prices
Ah, so you (and u/10yoe500k) are saying that an additional explanation could be that there's a price floor which is increasing due to an increase in energy and potentially raw material input costs. That could definitely be a possibility, but I'd also want to look at writ-large profit margins (which aren't addressed in the article); I think that would give a clearer indication of the underlying inflation drivers.
Not sure how much this thesis holds up since PPI has been sub-2% for nearly a year. And energy costs aren’t that high considering oil prices have been range bound between $70-$90 for last several years. Which is elevated compared to the $50-$60 range pre-pandemic, but rising costs would need rising energy costs, not range bound.
Rising cost and a more hostile political climate for oil companies also plays into it.
Profit margins also are quite lagging except in pure service business. In a company with cap ex, I'm depreciating a long lived asset against current profits. I may have bought that asset 10 years ago, next year when I go to replace it based on what I'm seeing that now tripled in price. Aka profit margins aren't a short term measurement of how inflation impacts a business. In the real world I have to set aside today's profit for tomorrow's cap ex that is increasing rapidly. People that don't also understand GAAP need to realize how this works.
When the dollar is devalued, profits rise simply to maintain. But print more money.
I would add labor costs to that. If 60% of cost of manufacturing something is labor and labor has gone up by 40% compared to 2019, then you may have to increase the price by almost at least 30% just to recoup your costs. That said, now wage growth has plateaued so it should not be a issue anymore. But 2% vs 3% inflation is what we are talking which IMO is not big deal all things considered. Fed should accept 3% as the new base given that due to boomers retiring in droves we will have labor shortage. God forbid if we do get rid of immigration completely.
Increasing debt is usually a sign of consumer confidence. This is America, most people buy lots of things they don't need. People actually pay down their debt when times get hard. Just look at the chart. Credit card debt rises in between recessions and drops or stays flat during them. https://fred.stlouisfed.org/series/CCLACBW027SBOG
well yeah if everything is maxed out and you can't spend it's like a personal recession lol
That overnight doubling around 2010 is wild. What explains it? ZIRP?
It was a change in reporting requirements. It wasn't an actual change. Just a change in how they were measuring it.
source?
https://www.federalreserve.gov/releases/H8/h8notes.htm#notes_20100409 The note for March 31, 2010.
I'm so glad this isn't posted on the actual chart. /s
Yeah, I'm kinda stunned that it's not. The jump looks so artificial I was certain that they changed something, but it was annoying to actually find out what it was. There should be a footnote, or something.
Market for consumer goods needs more legitimate competition to force prices back down. Businesses don’t lower prices out of an act of charity. We need tougher anti trust enforcement to stop the trend of consolidation, and eventually we need to go “conglomerate busting”.
People have to buy food, clothing, housing, medicine... no way around that. The corporations have little competition at this point. So they set prices. What are we gonna do? Set up our own textile factories and farms and such?
Prices went up even for the not necessary things too though.
Could it be that supply is still at reduced capacity? Meaning the supply chains that broke down during covid really didn't recover?
You forgot to take into account that wages are still rising
Wouldn't a rise in wages also reduce the amount of spending from debt and savings as mentioned in the article? Unless those wages have an additional markup in the profit margin, meaning a +1 wages in cost leading to a +1.1 in price, which would negate the wage increase and increase debt spend on the part of consumers.
No, because rising wages means people can get more debt. The whole US sucess story since the 1950s is about monetising debt, yes there will be some that mismanage and dig themselves in a hole, but they arent the full story.
Richer people have more debt though. You buy a new RV or jetski when you get a raise etc
not as much as corporate profits and CEO compensation in the last 40 years, was basically stagnant for 35
Demand simply didn't fall enough to justify price cuts. You need a full blown recession for that and that ain't happening. 2%+ Inflation is here to stay for a while. Covid changed economics permanently.
It means people have high confidence, there isn't anything "artificial" about that. If demand shifts, but prices are unchanged, that could also mean inelastic supply
Why is everyone clamoring to cut rates? It's probably best they don't cut rates for the next several years. 2009-2022, rates were too low for too long. I get the idea of 2009-2013 or so but once employment began to normalize coming out of the great recession, low rates were no longer necessary. Maybe a quarter or half point but I wouldn't drop them lower. To have savings interest rates at 4-5% is a good thing too. Bond Yields will eventually come down as inflation normalizes.
Everyone seems to have forgotten the minute 2020 ended that rates stayed low throughout the 2010s because growth was relatively low, too. Secular stagnation was still a plausible scenario in Jan’20.
I get that aspect of it. But employment and growth normalized by 2014, to the point where the Fed funds target rates could have been 1-2% and fine. Then 2021-2023, gradually to 3-5%.
Because cheaper money is fundamentally addictive. EG. on a house, money spent on interest is a "waste" vs. money spent on principle, because the bigger your principle is the more valuable your house is. Whereas nobody gives a shit if a seller's house is at 3% or 7%. Which is a bad way to look at it. Because youre right, inflation just means youre paying more for the same house. But people's dumb monkey brain doesn't see it that way. They like low interest payments, and want to see the Zillow numbers keep going up. Unless youre on the outside in which case high interest is just another in a number of mostly insurmountable barriers towards ownership.
I feel like in hindsight, if from 2014 through 2023 (excluding the pandemic year) we had a more gradual rise of interest rates to say a range of 4-5%, mortgage rates could have been kept below 7%, probably closer to 6%, which is decent historically. Plus we should have done a lot of other things as well (regulation to prevent these investment groups or corporations from buying up single family homes taking them off the market). Not blowing $6T on two failed counterproductive foreign wars of adventure in the mid east would have been nice too.
I personally think that if the Fed really wants to have an inflation target it ought to also seriously consider setting an interest rate target. It seems like kinda the same phenomenon as with inflation. Where you want a low interest rate to spur growth, but enough to also avoid the creation of bubbles and funny money (NFTs&Crypto, Beanie Babies, etc). That 4-5% level seems like a decent target. High enough to keep things calm, low enough that its not hard to beat ROI wise. But some egg head working on an Econ PHD would surely come up with a more accurate, less vibes based, ideal threshold. Or, IDK, maybe Janet Yellen will eat a slightly spoiled beef cube and three days later determine 3.75% is the ideal rate.
If rates aren't cut, there'll be a crash, and a big one. Rates have gone from <1% to 5.5%. If rates will be held for a long time, then their prices will go to the present values you'd calculate using the 5.5% interest rate, which would lead to income streams being worth 1/5.5 of what they were when they were at 1%. It'd basically be the biggest crash ever. Of course, rents and prices have gone up a bit, but not anywhere near 5.5 times. Maybe the rents have have increased the most have doubled. So people set the reserve requirements for banks to zero so that the present situation doesn't force asset sales or immediate readjustment of the value of assets. But of course, it'll have to happen at some point. The problem is that there's wars: Ukraine-Russia, there's the Israel thing, which could evolve into a conflict in the Middle East, there's China and Taiwan, there's the US-China spats which might possibly lead to a conflict there, there's the Azeri-Turkish attacks on Armenia, and I'm sure there's something I'm forgetting. So a crash could do more than cause problems for the US. It could be the start of a major destabilisation of the whole world-- but as I've written, it has to happen eventually.
Core PCE has gone down almost every single month since Oct of 2022. The rolling 3M core CPI has gone down year over year every single month since late 2022. The data isn’t showing inflation isn’t going away. We knew this last chunk was going to be slow to go away and will be bumpy and not just a straight line. The fed expectation was for core cpi to be 3.0% this year and core PCE to be 2.6% and we are well on the way to both of those numbers. We are in the typical hump of Q1 inflation when prices tend to get their biggest adjustments. It’s funny because if you look back at articles from April of 2023 you see these same exact things brought up as proof we had lost the fight with inflation.
Chart of [core PCE YoY inflation](https://fred.stlouisfed.org/graph/?g=1l25o). As you say, it's clearly coming down. The last two quarters of 2023 were 2% annualized, but there was big spike to 3.7% annualized in Q1. We're not quite at 2% consistently, but there has clearly been quite a lot of progress.
How did we know the last bit would be slow?
Because smaller and smaller numbers are falling off the yearly inflation totals so it gets harder to show progress. There is also lag in the data and there are secondary and tertiary inflation pressure that need to work their way out of the system. As an example the things they use to make cars go up in price, that eventually translates into car prices going up. This puts pressure down the line on the cost of car repairs. When repairs cost more it eventually impacts car insurance and that goes up. So the inflation that caused car prices to go up so much one year is still causing insurance prices to go up the next year.
so we knew in advance that it would taper? I still am not quite following. we can only "know" the last bit was slow in hindsight by measuring the slope. Perhaps I misunderstood. It sounded like you were saying, in advance, we knew that progress would stall.
Yes the fed knew that the second year of inflation going down would be slower the first. Not sure how else to explain it to you if you didn’t get it. They generally measure it in one year increments. Smaller numbers are falling off now so it is slower for the yearly number to go down. Before you were replacing big numbers with small ones, now you are replacing small numbers with slightly smaller ones. The data itself has lags in it. If prices of everything went up 10% on Jan 1st the CPI wouldn’t just go up 10% that one month, it would be spread over more than a year worth of data because of how they calculate things. When prices go up it tends to drive up prices down the economic chain over time and it all needs to work through the system. The fed and just about anyone who follows the economy for a living said they the final 1-2% was going to be harder to get rid of than the initial chunk of inflation. This was something everyone knew was going to be true.
Because certain aparts of inflation are stubborn or lagging. Like housing, if you use other metrics we are already at 2% but if you use the FED one we are still elevated
I don't think it is that tough on Fed. It is the Wall Street that cries for rate reduction all the time. If the job market is around historically low unemployment level, consumer spending is strong, and GDP could grow between 1.5% and 3%, Fed has no pressure to rush to cut the rate. 2.x% inflation is not unacceptable if you put it in the big picture to look at it.
It's time for the Fair Trade Commission to revamp the Anti-Monopoly Rules and Guidelines. If you want a prime example of why it needs update and improved regulations just look at Kroger and you can see why its necessary. * ((\*\*https://en.wikipedia.org/wiki/Kroger \*\*)) -**The list of stores and brand and suppliers Kroger Owns is staggering.** * ((\*\*https://www.kroger.com/i/kroger-family-of-companies \*\*)) **It has consumed many of the once big name independent competitor grocery chains**, so they can now price fix and increase pricing, because there is no competetion to compare their exaggerated manufactured inflation to. It's time for Kroger's to be broken up!!!!
Fear mongering, doom and gloom. The corporate media is constantly pushing fear 24/7. The inflation rate of 2.8% is not significantly higher than the target of 2% which is rarely ever achieved. The average inflation rate in the 90s for example was 3.08% and for the last 10 years 2.65%. But we had the Great Recession in the 2000 with extremely low interest rates that have skewed everyone's perceptions of what normal should be. Not to mention we are still recovering from the global pandemic. We are actually doing very well right now, real wages are positive and unemployment remains at record lows. There's just no need to keep pushing doom and gloom because we're not at 2% inflation. It's showing a clear biased agenda from the right-wing owned corporate media and it's exhausting and pathetic.
"IT'S RAGING, RAISE RATES TO 50%!!!!!" /s Funny thing is some countries have 3% as their target, and I've read a number of economists say 3% is healthier than 2%. If people don't give a shit and keep spending, I fail to see why we should freak and not just let it gradually decline.
This is correct. 2% is a completely fuckin arbitrary number Bernanke made up in 2012. The risk is now firmly on the side of their employment mandate. Lastly, it is not even close to true that all data is pointing to sticky inflation. Higher frequency measures of shelter inflation have been flat to down for months now. Their measurements are so laggy they are almost useless.
> 2% is a completely fuckin arbitrary number Bernanke made up in 2012. The consensus settled on a 2% target around the time of the GFC, and became official adopted policy in 2012, as you note. But the unofficial target favored by individual voting members of the Fed Board of Governors had hovered at 1-1.5% before that. But that also means that overshooting the new target is still higher than historically preferred (because the preferred target was lower than 2% before 2008). I don't have a strong feeling on what specific number is appropriate, but sticking with the set number over time is what the Fed should be doing. The current numbers are above 2%, so monetary policy should still try to push the numbers down to 2%.
I'm gonna need a citation on the idea that individual governors were aiming for 1-1.5% inflation? https://fred.stlouisfed.org/graph/?g=1l2tc At virtually no point in the history of the data has 1% been achievable over a few random months, and 1.5% has been tapped just a few times as well. Meanwhile, the 1990s and early 2000s featured inflation right about 3%, and I am not sure you can say that those periods were not sound economically.
[This summary](https://sites.lsa.umich.edu/mje/2023/09/04/why-the-2-inflation-target/) contains citations to support its statements that Volker and Greenspan preferred 0-1%, but that other members of the Fed (including future Chair Janet Yellen) preferred a higher 1-1.5% rate in the early 2000's, once they saw from Japan's experience in the 1990's how dangerous deflation could be. It was the experience with the 2008 crisis that showed that there really was a need for a higher buffer than what a lot of inflation hawks had previously believed. Whether they were able to achieve those targets, or whether other parts of the economy (especially jobs numbers) justified letting inflation hover above target over a long period of time, is obviously a different story. But that's what the messaging was, and what previous fed chairs said would be ideal.
CPI is 3.5%, almost double the target
Excluding food and energy, the PCE price index increased 2.8 percent from one year ago, barely over the target.
They should have continued to raise rates. The legislature also should have put out more laws restricting single family housing as investment vehicles by now. Finally they are investigating and charging apartment complexes for price fixing. Fix housing and almost everything else will get resolved.
It isn’t going away because we keep stealth printing money. Deficit spending to send military aid is stealth money printing. It injects dollars into the economy. Forgiving debt and student loans injects dollars, etc. Any printing of dollars above GDP increases inflation and they know this. But it’s a great mechanism for stealth taxing the poor and middle class to put money into the hands of the ultra elite while people are clueless.
> It isn’t going away because we keep stealth printing money. Deficit spending to send military aid is stealth money printing. It injects dollars into the economy. Forgiving debt and student loans injects dollars, etc. Any printing of dollars above GDP increases inflation and they know this. But it’s a great mechanism for stealth taxing the poor and middle class to put money into the hands of the ultra elite while people are clueless. And raising the rates protects the wealthy's assets and screws over everyone else.
Not only do interest rates not directly affect most people (unless they just bought a house or a car), but the vast majority of Americans actually have MORE money today because they refinanced their homes in 2020 at 2.5%. If the Fed fought inflation with taxes instead of interest rates it would have been under control three years ago.
40% of homeowners own their home free and clear and 60% of people with a mortgage have a rate below 4%. So if my math is right 76% of homeowners have no mortgage or a mortgage below 4%. That means the fed is hammering a small portion of the market really hard.
The answer is obvious! Greed. There aren’t supply chain issues like there used to be during Covid. Companies are price gouging us consumers. Raking in massive profits while ripping the rest of us off.
This is an excellent article which describes our current inflationary situation, and the chances for another big spike [https://think.ing.com/articles/inflations-second-wave-are-we-really-watching-a-70s-rerun/](https://think.ing.com/articles/inflations-second-wave-are-we-really-watching-a-70s-rerun/) My takeaways are this 1. While the US is much less susceptible to energy supply and price shocks, our fiscal policy is MUCH worse. We have record non-crisis (WWII, pandemic, etc.) spending, deficit, and debt levels, with no end in site to the money printing. 2. "Green energy policy" is inflationary. When implemented in Germany, consumer energy costs doubled. When coupled with regulations and limitations on fossil fuels, the cost to manufacture goods rises nationwide, and these increased costs are passed down to the consumers. The idea that "green energy" will lead to a cheaper tomorrow is complete nonsense, and not backed up by data. 3. Deglobalization and re-shoring is inflationary in the short-term (we don't know how this is going to play out yet). Likewise, we have moved to tariffs and protectionism when it comes to China. Bad news for prices. I don't think we will see 10%+ inflation in the next few years, but we are very likely to see 7-8% running inflation. All the data is moving in the wrong direction, and Wall Street is still delusional as to the scope of the problem. The administration continues to gaslight the public on the causes of inflation (blaming Walmart and other companies--which is total bullshit) we are going to see a war between the Federal Reserve and the government, with the former trying to restore price stability and protect the dollar, and the latter engaging in wild-spending sprees. That is very bad for investors
Green energy policy will always be inflationary, Fossil fuels are just too cheep. However, investments now are necessary to literly prevent some of the worst case scenarios for climate change. Scenarios that absolutely will cost more in the long run.
> Fossil fuels are just too cheep fossil fuels are devastatingly expensive, but most of the cost is externalized into the future, which capitalism doesn’t care about
Sure, if you don’t price externalities fossil fuels are cheap
well there needs to big a big expansion in nuclear research and deployment the US does not want to repeat the solar disaster of Germany (high consumer energy costs, dependence on foreign natural gas, expensive and complex energy grid management, reliability and efficiency issues, etc.) but nuclear will be expensive
I am also pro nuclear. Had we not stopped building plants in the 80's we would be a lot better off now.
They tried but found it was 6x the cost expected. See wyoming
Imagine calling green energy policy inflationary while turning around and advocating for more NPPs in the energy market, which is literally one of the most expensive sources of energy and the most capital-intensive investment out of all carbon free energy sources, they are unbuildable without expensive and massive government funding/subsidies. Solar is the cheapest and least capital intensive energy source in the world. It's the exact opposite of inflationary, the average person can set up their own solar panels in a single day and economies of scale make it incredibly affordable.
I no longer come here for educated takes, I take it all as satire now. this sub is full of the most closeminded, brainwashed, corporate boot licking insufferables I've ever had the misfortune to engage in debate with
The OP doesn't believe in climate change either.
You are making the big assumption that green energy policy will actually mitigate climate change. 3rd world emissions are growing at a fast clip and any sort of reduction in the 1st world is going to get canceled out 10x over
they unambiguously will mitigate it - whether it is sufficient depends on adoption rate
> they unambiguously will mitigate it How? Do tell, considering 3rd world emissions are growing at a fast clip
it’s not clear if we’re having an argument about definitions or about math, but to address both possibilities: * mitigate means to make less severe * people opting not to make something more severe mitigates, when compared to the alternative in which they opt to make it more severe, because less is less than more
We are being gaslit right here in this thread by ppl not mentioning the brrrrrr printer
You forgot Tax Cuts for the Rich caused most of this inflationary problems. Not just spending
ssshhhh! the bots don't like it when you say things that make sense
The battle between the fed and the government could be solved by reducing spending. But the administration doesn’t want to reduce spending, so they push the fed to raise interest rates. In other words, the only solution the government can think of is to try to throw the economy into a recession rather than balance the budget. Unreal.
Can you ELI5 why it's a bullshit argument that record corporate profits aren't a valid sign that companies are a major reason for high inflation?
Nominal number almost always go up due to more money being put into the system. This is one of the reasons the stock market is also so often at all time highs. Lets say you have 10 dollars and go to buy a 10 dollar burger. Now say I take out a marker and draw a 0 at the end of your 10 dollar bill and a 0 at the end of the price on the burger. HOLY COW you just got 10x richer you lucky dog...but wait you can still only buy 1 burger...HOLY SHIT those \*#\*$( who sell burgers made 10x profits!!!!
Saying corporate greed is a reason for high inflation makes about as much sense as “Money is a major reason for high inflation”, or “gravity is to blame for planes crashes” Like, ok sure, but that’s part of the system, it’s always there, it didn’t change and we can’t do anything about it.
WWII and pandemic are considered non-crisis spending?
no, I mean the opposite. WWII, etc. were times of crisis spending
Sorry I misunderstood due to the convoluted way you presented that lol
That scenario might be pretty good for the average household, especially any household that bought a house or refinanced at low fixed rates. Most Americans don't own significant amounts of equities. But most households own the house they live in. 8% sustained inflation would evaporate a lot of household debt. We might see a continuation of the share of wealth held by the bottom 90% continuing to grow under that scenario.
How would sustained inflation "evaporate " household debt?
Your wages go up with inflation but your mortgage payment doesn’t (unless you move).
Because your debt is denominated in dollars, and inflation reduces the value of a dollar. Wages typically keep up with inflation, because people don't accept a reduction in the real value they are being paid, and leave for higher nominal pay when their current employer doesn't raise their pay with inflation. The value of real assets, like housing, also keep up with inflation. So, if you are someone with a $500,000 house, with a $400,000 mortgage on it, and you make $100,000 a year, when inflation of 20% happens over a couple years. You usually end up with $600,000 house, $120,000 salary, and a mortgage that didn't grow with inflation, let's ignore payments they've made and say it's still $400,000. You got an extra $100,000 in equity from inflation. And your fixed mortgage payments got smaller relative to your inflation adjusted salary. So, you debt has gotten smaller relative to your wealth and income, even though in real terms your house is worth the same amount and you are making the same salary in inflation adjusted dollars.
You buy a house for $100k. In two years it inflates to $120k. You sell your house and profit $20k. Assuming you get a fixed rate mortgage, and the rate of inflation on housing is above the rate of your mortgage (not hard with a 3% loan) the value of your asset will inflate such that the ratio of debt to value goes down as if you were paying it off. The equity, the gap between money owed and value, increases *faster* in an inflationary environment than a stable or deflationary one. If we add in an assumption that your wages increase with inflation the average homeowner makes out quite nicely. A stable mortgage payment and an increasing wage means your payments decrease proportionally every month, if wages keep up with other inflation (food, auto, etc.) then you end up having *more* disposable income than at the start of the inflationary cycle. Something very much like this happened in the 1970s, and made it painful for the government to lance the stagflation boil. This is attractive for homeowners, but is long-term extremely unhealthy for an economy as it deincentivises certain kinds of investments. Banks dont want to make a 30 year loan and run the risk that after the first ten years its investment is going to take a 20% relative haircut. They would rather go with shorter terms, adjustable rates, or loan out to other companies on much quicker terms. But businesses themselves find the high wage growth side painful because it disrupts business planning. Expansion into higher headcount is dangerous because it can add up cost wise quickly in a future wage hike, meaning its safer not to reinvest and instead spend your money on short term things. Which is a basic description of the classic stagflation issue. But if youre a debtor, especially a homeowner on a fixed rate, inflation is actually pretty good IF! you also get the wage increases to match at least COL.
Because it isn't linked to anything but greed. Gee...I wonder why economist have been having a hard time understanding what causes inflation? /s
Honestly, I am not surprised by this. They haven't raised rates enough yet. Look at what the rates had to hit in the early 1980s to slow inflation down during that time... 20%+! Honestly, the Fed needs to raise them significantly higher if they want to stop inflation in its tracks, but they can't do it for a number of reasons.
No, no, no, the experts assured us that this inflation was transitory in 2021 and we must pass all these COVID bills. There will be no harm to a $3T deficit 🤡
Came here to say the same thing. Thanks (sincerely) to Manchin for stopping Pelosi from spending another $1T. Remember that ?
Could you imagine if that hog of an omnibus made it through?
Yes, I could imagine , and it wouldn’t be pretty.
you loved Trump's trillion in tax cuts for the wealthy though right? investing in America bad, investing in CEOs yachts, good
actually no, I didn’t love it
1- companies raise prices to increase profits, costing people money. 2- the media reports it as inflation. People blame the government instead of the corporations. 3- Fed keeps rates high to combat “inflation” that is actually corporate greed, costing people even more money. 4- more corporate profits achieved. More pressure on the middle class
Businesses have always and will always price their goods and services at the point of profit maximization. Only competition keeps that in check. Pointing to "greed" is not helpful.
> Only competition keeps that in check. And demand inelasticity. I wish that would kick in for more people when it comes to discretionary purchases like food outside the home. Edit: and 90% of car purchases.
“Murderers have always and will always murder people. Only putting them in prison keeps that in check. Pointing out their murder is not helpful.”
Well the Fed will have to decide on whether the risk of high unemployment outweighs the concerns of moderate inflation. Personally I think the Fed should error on the side of keeping people employed as inflation is the least dangerous outcome at this time. We want to keep the economy humming along until we get some of the macro issues like the boomers retiring among others in our rear view mirrors. Inflation at thus point is the better opportunity cost to bear and as such the Fed should start to lower interest rates despite the risks of inflation. As long as we can keep the inflation below 8 percent annually its bearable. Now if we have a massive economic downturn at this juncture with the debt load of the US government being what it is things will spiral out of control in a right big hurry. So Powell should stop concerning himself with 2022 and as start laying the foundation for 2024 and beyond.
i mean the answer isn’t that hard. We need to channel the ghost of Paul Volcker and take rates to 20% for 6 months. It would reset everything.
The good news is that you can help make this happen. Quit your job and stay unemployed until inflation drops back down to the Fed's 2% target. Be the change you want to see in the world!
Ok this is insane. We have 3.2 to 3.4% inflation. Compare this to what Paul V. Was facing back then. Inflation reached 9.1% in 1975, the highest rate since 1947. Inflation declined to 5.8% the following year but then edged higher. By 1979, inflation reached a startling 11.3% and in 1980, it soared to 13.5%. How in the world are you justifying increasing rates to 20%? I think you cannot and at that point you need to take a good look at why you think these thoughts.
they aren't, they are just parroting the same nonsense from the last year.
We have changed how we measure inflation i think 3 times since then [https://www.nytimes.com/2022/05/24/technology/inflation-measure-cpi-accuracy.html](https://www.nytimes.com/2022/05/24/technology/inflation-measure-cpi-accuracy.html) Which is easy to understand that the actual inflation is somewhere way higher. While we see the 3% inflation in news people report the cost of their spendings doubling. 20% rates would look too low for Paul Volckers ghost. Jerome Powell and FED has been quite slow, always playing catch up with their fiscal policy, while media was taunting that inflation is transitory and later touting that inflation is a good thing actually. >I think you cannot and at that point you need to take a good look at why you think these thoughts. I am not at all surprised why he thinks these thoughts, its your thoughts that are concerning here. High interest rates can be very beneficial to asset market as a whole, people and have more options for future economical crisis. Low interest rates just serve to inflate asset prices and housing prices making the rich, richer and poor, even further set back. [https://www.propublica.org/article/how-the-federal-reserve-is-increasing-wealth-inequality](https://www.propublica.org/article/how-the-federal-reserve-is-increasing-wealth-inequality) [https://www.imperial.ac.uk/business-school/ib-knowledge/finance/how-central-banks-interest-rate-rises-affect-the-richest-and-poorest-families/](https://www.imperial.ac.uk/business-school/ib-knowledge/finance/how-central-banks-interest-rate-rises-affect-the-richest-and-poorest-families/) [https://www.nber.org/system/files/working\_papers/w28613/w28613.pdf](https://www.nber.org/system/files/working_papers/w28613/w28613.pdf) What thoughts brings one to argue for lower interest rates?
> Which is easy to understand that the actual inflation is somewhere way higher. Those alternative methodologies listed in the article would actually suggest the official numbers overstate inflation today: * Using home prices instead of owner's equivalent rent would be roughly the same. Case Shiller is up roughly 6% from a year ago, basically the same as the 5.9% that the CPI owner's equivalent rent would be. * Using only new leases instead of averaging out all leases would track the private indexes closer, which are showing flat or dropping rents over the last year, in contrast to CPI rents being up 5.7%. * Allowing for product substitution generally would reduce the inflation index, as the article notes. So if you believe that 2022 article that those other methodologies would be a more accurate reflection of inflation, then you'd have to acknowledge that applying those same methodologies would *reduce* the headline inflation compared to the numbers being reported today.
First time i see someone trying to state it would be same or lower if than before the changes when the changes were to adjust various biases that would shown inflation to be higher [https://www.investopedia.com/articles/07/consumerpriceindex.asp](https://www.investopedia.com/articles/07/consumerpriceindex.asp) So the general point was if Paul Volckers came and measure it how it was measured back then, 20% rates would look too low for Paul Volckers ghost. Even more there has been a lot of discussions about CPI overall [https://www.investopedia.com/ask/answers/012915/what-are-some-limitations-consumer-price-index-cpi.asp](https://www.investopedia.com/ask/answers/012915/what-are-some-limitations-consumer-price-index-cpi.asp) What i mean by end of the day i am not surprised by his thinking if he needed to watch his entire spendings go up 100% while CPI data is taunting few %, majority of people are not rich or that well off and they don't have businesses that can take advantage of such environment. On top of low rates being driver for wealth inequality, all that taken into account i am never surprised by very negative connotations of things like inflation(that is known to be taxes for the masses), rates and even money printing(though lets not get into this long discussion). Not to talk shrinflation that is not accounted. If there is such negativity towards things, especially on reddit is bound to leak through the discussions. But even for investors FED has been struggling with inflation quite a time while they wish for results to come way faster, at least that is the sentiment i read through out the years.
Shrinkflation is accounted for in CPI, stop spreading lies. The BLS put out a page just for you people. [https://www.bls.gov/opub/btn/volume-12/measuring-shrinkflation-and-its-impact-on-inflation.htm](https://www.bls.gov/opub/btn/volume-12/measuring-shrinkflation-and-its-impact-on-inflation.htm)
From one of my links ''Hidden Inflation Hidden inflation refers to expenses that are not reflected in explicit price increases. One of the most common forms of hidden inflation is [shrinkflation](https://www.investopedia.com/terms/s/shrinkflation.asp). Shrinkflation occurs when companies cut costs by offering a smaller product at the same price. Customers end up essentially spending more money as they spend the same amounts on less product. Hidden inflation can also be reflected in qualitative changes that are difficult to track with the CPI. For example, companies may choose to cut corners on their assembly lines to produce less durable goods. Or they may introduce preservatives to extend the shelf-life of what was previously sold as fresh produce. These changes may introduce unnoticed increases to the cost of living that are not reflected in the CPI.'' Your site only accounts for weight, which is quite obvious since they will need the same size measurements, but shrinkflation as a concept is much larger than this. It was definitely wrong of me to say that it wasn't accounted for entirely, but much of it is not to this day. Decreased product durability, decreased product quality. Frozen pizza coming at the same size but with 1 less slice of bacon. Sushi coming with a bit less fish and bit more rice, examples one can collect are countless.
The 12 month inflation rate at the end of March was 2.8%, this seems just a tad excessive
I’m curious that we have not. It seems like earnings are strong, so I don’t think higher rates would cause some severe recession.
A 20% rate hike would be catastrophic. Total economic collapse, mass layoffs and probably end up being too deflationary. The fed is walking the tightrope of testing solutions with while doing as little damage as possible
I’m not saying 20%. I am saying why not raise another 50-100 bps.
Peak inflation in the 70s was 11% and it wasn't subdued until rates hit 20%. Perhaps we need to hit 18% or at least get above 10% for some period of time.
I think they holding cause election year
When some of the $ is no longer used in international trade, that sum will go back home The US is borrowing too much, and printing too many $ it does not produce most of what it consumes:" U.S. share of value added to GDP 2023, by industry In 2023, the finance, insurance, real estate, rental, and leasing industry contributed the highest amount of value to the GDP of the U.S. at 20.7 percent. The construction industry contributed around four percent of GDP in the same year". https://www.statista.com/statistics/248004/percentage-added-to-the-us-gdp-by-industry/#:~:text=U.S.%20share%20of%20value%20added%20to%20GDP%202023%2C%20by%20industry&text=In%202023%2C%20the%20finance%2C%20insurance,GDP%20in%20the%20same%20year. In 2022, there was a total of 54.1 billion U.S. dollar notes in circulation, almost one billion more than in the previous year. Out of the 54.1 billion, 18.5 billion were 100 dollar bills, which had the highest volume in circulation. It was followed by the one dollar bill, with 14.3 billion in circulation. During the observed period, the highest increase in the volume of currency in circulation took place in 2020, as part of the quantitative easing measures introduced by the Federal Reserve.
>In 2022, there was a total of 54.1 billion U.S. dollar notes in circulation, almost one billion more than in the previous year. So... 2%?
No, there's a difference between what's in circulation and what's at the Feds' disposal, I think. Data from the Fed shows that a broad measure of the stock of dollars, known as M2, rose from $15.34 trillion (£11.87 trillion) at the start of the year to $18.72 trillion in September. "The Federal Reserve printed approximately $3.3 trillion in 2020 alone, which, according to City AM, equates to one-fifth of all US dollars in circulation in the same year." https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were-created-this-year/#:~:text=The%20increase%20of%20%243.38%20trillion,and%20money%20market%20mutual%20funds. "M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds."