https://www.bls.gov/news.release/pdf/cpi.pdf
It's more complicated than the headline number. There's a lot of big numbers that are clearly demand/supply issues. Like energy being up 27%, furniture up 17%, used cars up 40.5%, and so on. If I'm doing my math right, that 40.5% increase in used car prices is responsible for 1.6% of the head line number (40.5% * 4.1% weighting). Meaning, if we ignore the increase in used car prices the headline number would be 5.9% instead of 7.5%.
The economy is still reeling from covid and settling on what a "new normal" looks like.
In a functioning economy the supply of cars, houses, and furniture etc. would rise to meet the demand preventing a price increase. But they can't due to chip shortages, labor issues, and other assorted supply chain issues. It's a different problem than inflation and requires different solutions.
It also contradicts the "If you didn't get a 7.5% raise you got a paycut" narrative because it's very dependent on what you bought. If you're trying to buy a house, put furniture in it, and get a new to you used car then things got way more expensive. If you already had those things then it didn't.
If the supply of cars is down why would that in and of itself drive the price up? Surely there's some flexibility in demand for cars?
It seems like a price increase in any individual item can be explained as a supply problem but every additional item that that gets added to the list is an argument for a money supply problem because on some level every item is substitutable.
1. Global supply chain disruptions are well documented, multiple automakers have had to shutdown factories for lack of parts.
2. Cars prices are increasing much more rapidly than the overall inflation rate. (I believe another comment in this thread said ~40% for used vehicles)
3. Total vehicle sales are still below their pre pandemic levels.
I never said that the money supply isn’t contributing to inflation. But it is quite clear that there is a significant supply problem when it comes to cars.
There will always be items that increase in price more than the average. Are you proposing to eliminate all the outliers in each report? In the end, people still need to buy cars, which are more expensive, so the inflation rate should reflect that.
> Car prices are being driven by supply chain issues more so than a surplus of dollars.
That would be true if we were talking about new cars, but apparently the big rise is in used ones. That is likely due to a combination of factors, with liquidity being only one of them - the others are scarcity from the supply side due to covid, and the sector trying to push a new technology (electric) on masses of conservative consumers.
Only because there are practically no new ones.
We've been trying to buy a new vehicle for over a year, with a family member owning a dealership, and still haven't been able to get one.
Our last one, we ordered just before covid, and the 3 month order turned into 13 months.
EV only comes into play because it made new car prices higher in order for companies to meet quotas dictated by CAFE standards, which also raises prices on the used market.
If you believe they'll be able to get back to normal numbers in the next 12 months, you believe inflation will largely go away, maybe even before the midterms
At least wrt cars, isn’t the knock-on pandemic effect by far driving the shortages? (Chips, disruptions in just-in-time, etc) rather than people have more money to spend on them?
> Person: My friend was shot!
> Expert: No, he had his heart stop beating. Stop being so uneducated™ and get your information from places that dont spread disinformation™.
> Person: But he is dead!
> Expert: Stop being so racist and anti-science. All the experts agree that his heart is just transitionally not beating. People dying would make us look bad and that is not the case here!
That is how I see the current conversation about inflation. You're supposed to ignore reality and parrot some dumb talking points. A lack of supply and increase in money IS THE LITERAL DEFINITION of inflation. I don't care about technicalities about gas prices and supply chain. If my money cant buy as much stuff as last year, that is inflation.
"A lack of supply and increase in money" vs "A lack of supply BECAUSE of an increase in money"
So the situation gets muddied a lot when there is a rather large external factor (or, more generally, when society changes). When a global pandemic hits, mouth mask prices skyrocket. This is not inflation.
Iran, we have been embargoed, "it's not inflation".
Inflation is not about changes in the world itself. The price of horse carriages has skyrocketed, because they're a luxury niche product now. The price of global travel has dropped to the point that people are semi-seriously suggesting that mach 15 travel by rocket might become a thing. Paris-Sydney in 30 minutes. That's not inflation and has nothing to do with the actions of the central bank.
House prices, by contrast, are inflation driven.
Inflation is a measure of the effect of the evolution of the money supply. It's done so the central bank can adjust course to optimize how smoothly the economy runs.
It is not a measure of how expensive it is for you to drive to the next city. When Washington decides to go to war, that doesn't affect inflation directly. When your city council decides to block the shortest route to the next city, that doesn't affect inflation, even if it doubles your cost to go there.
- housing
- health insurance
- childcare
Those have not gotten much more expensive (our health insurance got cheaper this year, housing is flat, childcare had a modest increase). Meanwhile gas for the vehicles costs much more, but comparatively fuel is a minor expense. When we weigh everything for our household, 7.5% seems high.
Most people, like you, do not rent and are not exposed to this at all. Further, 30% y/o/y rent increases are limited to a tiny minority of cities (I would even suspect 30% is an exaggeration for any major metro).
> Child care is basically free for most people after their kids start elementary school
I can't tell whether this is a troll or not. In case you're serious, consider that school dismissal is in the middle of the afternoon, and generally speaking someone has to get the kids home and occupy them for a few hours. This is of course before holidays, summer break, and extracurriculars.
> Groceries are far more expensive than they used to be, I am going to estimate at least 20%
Your estimate is likely not as accurate as the BLS's estimate of 7.4%. (Caveat: many people who read HN are rich or high earners, and so they may eat different food than most Americans. That food may have increased at a faster rate.)
> Rents in my city are up 25% last year and expected to increase a further 20% this year.
This is why BLS weighs expenses. Neither of us is exposed to this at all.
Perhaps, but if it were generally true, inflation stats would over-reflect it rather than ignoring it; the housing component is entirely rent driven (it reflects actual rents and the rent forgone by homeowners not renting out their homes), so in a situation where rents are increasing but mortgage expenses are flat, it overstates the impact of out-of-pocket housing costs (it does the reverse when purchase/mortgage expenses are increasing faster than rents.)
Our analysis, however, suggests that these higher shelter prices are likely to soon show up more clearly in the monthly CPI, potentially adding several more basis points (hundredths of a percentage point) to monthly inflation than they do now.
https://www.whitehouse.gov/cea/written-materials/2021/09/09/...
Or that locking in that current cost means less inventory on the market.
Housing costs going up across the board is only good if you have a surplus of inventory to sell that doesn’t need immediate replacement. Ie, not your primary home.
People owning only their primary residence are at best breaking even, despite amortizing their (cheaper) purchase price beyond a market increase.
But you can reasonably expect to be paid more in 2022/2023 than you would have been in those years had inflation stayed on the 2019 trend line. That will, in turn, make it easier for you to pay your mortgage and increase savings. You essentially get a raise to cover the fact that other peoples' housing costs increased*. That's the crux of the benefit.
* yes, some of your expenses increased as well, but the wage increases you receive need to cover the increase in those expenses PLUS housing expenses because market compensation increases for broad categories of workers, not for your specific household budget. So you still get "for free" the housing-linked part of the inflation adjustments to compensation.
This may seem invisible to you now, but as assesors re-assess your house, you realize how much more you are paying in 'rent' (maintenance) on your house for materials like wood and labor, or you're forced to sell at depreciated value because in 50 years you end up the old folks home or whatever -- sooner or later we all pay rent on the property we own. Basically 'using up' your house is getting more expensive in terms of opportunity cost.
Or are you suggesting that inflation will drive wood etc. to be a relatively larger proportion of a homeowner's future expenses? I would strongly disagree with that thesis.
Re-reading your comment, it looks like you're arguing that increasing home values are bad for homeowners. I also strongly disagree with that.
And thus you reveal your flippant dismissal of what's happened as things that were going to happen anyway.
> now compensation will ramp up
Like the compensation of people repairing houses, like electricians and plumbers, of those living on fixed incomes (and everyone else)?
>Re-reading your comment, it looks like you're arguing that increasing home values are bad for homeowners.
Lol straw mans all the way up. Pretty clear you're just trying to drive this towards the most disingenuous take possible, so I guess there's not much point in engaging you further.
>> And thus you reveal your flippant dismissal of what's happened as things that were going to happen anyway.
Yes, I mean that housing prices are going to increase over time regardless (unless we are in a very new phase for the US). I do expect housing prices to be higher in 2042 than in 2022. So between now and then, assessed values and therefore taxes will increase for each property. As a result, people will earn more, even those people I pay directly for services. That's what I meant was going to happen anyway. This argument is about whether it happens in N years or M years. I believe the argument that it will not happen at all (e.g. persistent deflation) is not popular at the moment.
> Like the compensation of people repairing houses, like electricians and plumbers, of those living on fixed incomes (and everyone else)?
Yes, everyone's compensation ramps up. Most people make more today than their job paid in 1980. This is also true for people who have been on fixed incomes like Social Security that entire time. It is especially true for people I pay directly for their services, like the roofers I hired recently. Yes, I understand that I will pay more for their labor in the future.
I also understand that I am part of "everyone else" and therefore eventually we will reach a new, higher, equilibrium of wages. In the new equilibrium, I expect the relationship between the wages professions earn to broadly be preserved. For example, I do not expect the new equilibrium to result in grocery cashiers earning more than electricians. So I am confident that in the new equilibrium, my expense on electricians will shake out roughly where it did in 2018 or 2019 as a fraction of my budget.
> Basically 'using up' your house is getting more expensive in terms of opportunity cost.
I thought this was obvious, but will spell it out. Yes, the use of my house does get more expensive over time. But precisely because I expect my income to at least keep pace with inflation, I do not expect it to become proportionately more expensive than it was when I signed the mortgage.
Consider a person who bought a house in SF for $250k in 1997. That person could still be paying a mortgage whose absolute level was set in 1997 while earning compensation based on 2021 levels. You are correct that to repair/replace the house, they have to do that using 2022 levels. But the house is not 100% of the property value (this is especially in high-cost markets).
My main point was to disprove the statement:
>If you own your house, your cost did not go up.
This is clearly inaccurate, if nothing else by viewing property taxes and expenses to maintain the house: your 'rent' on the house does go up in this market. It may look invisible to you now, but over the years you're going to notice the higher nominal cost of living in your house.
And while you don't have to buy/rent a house right now, your plumber may. So he will charge you more when (inevitably) you will need his services.
It is all linked together, and claiming that "it does not affect me" is naive.
Yes, the plumber will charge me more. No, you would not be able to determine that if you had my financial records, because I don't spend an appreciable fraction of my income on plumbers (or lawn care, or electricians, or other home services outside of child care).
The same applies to electricity and gas; the expenses are there, but a 10% rise in all of my utilities is still not meaningful in my overall budget. For comparison, I can easily see a 10% swing in annual heating bills based solely on the average temperature during 3 months of the year.
Yes, I am impacted by all the same things you are. But my health insurance expense dropped 3% and that dwarfs all the other category increases. This is why the BLS weighs their basket.
The fact that something (temporarily) does not affect you does not mean it is not happening.
Also, don't forget that increased inflation also eventually leads to everyone's compensation increasing. As I am in "everyone"," it will net out. If inflation moderates over the next few quarters/years, the likely impact to me is that I will earn more and so my largest expense (which is fixed!) will be proportionally smaller. But yes, I will pay more for plumbers and the like so I will be impacted by the cycle.
See also:
They aren't. Food, apparel, medical care commodities, and non-energy services are up less than the overall amount. The things that are up more just get mentioned more because big numbers are newsworthy, small numbers aren't.
[1] https://www.bls.gov/charts/consumer-price-index/consumer-pri...
[2] https://www.bls.gov/cpi/tables/relative-importance/2020.htm
> "The used cars and trucks index rose 1.5 percent in January, a deceleration from the 3.3-percent increase reported in December." (from your link)
It's good to see that this is slowing down. I was curious so I took it upon myself to gather a few links[0][1][2] with statistics on U.S. and global auto production. I wanted to know what the "old normal" looked like, what kind of drop in production is required to trigger this kind of inflation, and how close we are to getting back to normal. In short, my answers were our manufacturing numbers have been on a slow, steady decades long decline for some time now anyway[0] so I guess it depends on your level of pessimism, a 16-17% drop overall[1] (coincidentally about the same worldwide)[2], and about halfway back to normal but progress is slow and inconsistent[0]. Everything blew up in March 2020, somehow managed to snap back to normal temporarily in July 2020, and finally proceeded to spend the rest of 2020 and all of 2021 on an increasingly bleak rollercoaster that is just now beginning to rebound (hopefully).
[0]https://tradingeconomics.com/united-states/car-production [1]https://www.goodcarbadcar.net/usa-auto-industry-total-sales-... [2]https://www.oica.net/category/production-statistics/2020-sta...
If we had high persistent inflation, we would expect long term, consistent increases in prices. This is compared to "normal" persistent inflation, which we typically target around 3%. This target is set by the Fed.
If we wanted, we could target 10% inflation on a persistent basis by using monetary policy that was deliberately inflationary.
The argument being made by the government and by the media is that our current inflation (40% for cars, etc) that weighs out to 7.5% is the result of a supply/demand shock, and which must be resolved by working out these short term market inefficiencies/failures.
There are real arguments for monetary inflation (especially wrt asset inflation), but the fact that cars are up 40% and housing vacancy rates are so low and our supply chain is so backed up makes a very tangible case for us being in a transitory period of inflation which can not be dramatically improved by monetary or fiscal policy.
I think widespread disbelief of inflation, and hesitancy to embrace the 'new normal' has lead to sticky prices. These sticky prices means some goods and labor is 'cheaper' than it would otherwise be, leading to 'shortages.' In part I explain such low unemployment rate at present due to labor being a couple percentage points cheaper than it was a year or two ago.
The chip shortage is playing an outsized role here. Vehicles are being delivered with IOUs to come back in a year or two to have chips retrofitted in order to enable options listed on the window sticker. Everything from climate control and heated seats, to wireless phone charging, to autostop/gas saving measures, to lane keeping and collision avoidance. And delivery numbers are still extremely low.
Catching up means either years of bringing up total factory capacity to beyond pre-covid levels and catching up on the chip shortage... or a recession or other event that suppresses demand.
Transient in this sense only applies if we're taking about fractions of a decade, not fractions of a year.
I don't know the answer to this, but if the choice is either let inflation run hot like this for another couple of years or engineer a recession, is there a clear policy answer? The benefits of a hot economy seem to outweigh the downsides from the perspective of high employment, but perhaps not in other ways.
Just 2 years ago, the worry was whether we would end up in a deflationary spiral and have no real policy levers to exit. Given the lag time for any policy response to take effect, it seems really hard to get correct. I definitely don't envy anyone who's making policy decisions on this.
To use a ridiculous example, let's say the problem was a surge in the price of Christmas trees. One solution to the problem is to change central bank policy; a second solution is to do nothing and wait until December 26th. Clearly the price increase is caused by demand/supply issues, but it's possible to think more deeply about what's causing the demand and supply and come up with different prescriptions for how to deal with it.
Obviously the specifics determine the appropriate response, but they don't invalidate the headline number. That's the same logic the inflation panic folks used to pretend there was high inflation when there wasn't.
Whether you want to apply that to our current situation or not, demand/supply applies to dollars as much as anything else.
A popular theory was that rental car companies will dump their inventory, there'd be a glut of used cars, and both used and new car prices would crash as a result.
They overlooked that eventually demand would return and those empty inventories would have to be refilled at a time that was just 12-24 months removed from massive decreases in production. And that it'd correlate with every other industry scrambling for supplies and transportation at the same time.
This too shall pass.
The prices of _all_ of my hobbies have gone up quite a bit over the past year or so. It seems to be consistent that discretionary/luxury goods are increasing in price significantly faster than the CPI.
Your best bet would be to pick 5-15 uncorrelated assets and spread you investment over those assets and just wait. This would simply be to reduce risk.
Your response seems to imply you don’t know what they are because they’re explicitly linked to inflation with a factor linked to CPI.
So if inflation goes up 7.5% in a year then your principal invested in a TIPS bond goes up 7.5% even before you get the “nothing” coupon payment.
Edit: TIPS and other treasury bonds are distinctly different.
TIPS are overpriced because of fixed income fund mandates, moron. I worked in bond sales. You don't have to be such a prick, you know.
That's kind of backward: intro micro and intro macro are the areas of economics most tied to abstract assumptions which are neither grounded in nor consistent with empirical observation (excluding, of course, both work addressing things like hypothetical optimizations and work in overtly ideological rather than empirical approaches to economics, like that of the Austrian school, but neither of those even aspire to describing status quo reality.)
The next question is whether this is a one time bump or systemic? 10% inflation once is one thing, 10% inflation continuously is a completely different thing.
It's very important to get this right, because the only real antidote to inflation is recession. Raising interest rates and raising taxes will stop inflation, but kill the economy. Recession is preferable to stagflation, but nothing else.
And remember there are two sides to the political machinations at work here. A good recession will guarantee that the Republicans take the White House in 2024.
Why is this inevitable?
Investment in US tight oil is stagnating, OPEC+ lacks either the desire or capability to increase production, Venezuela's production capacity is still terrible, and rumors are getting quite loud that Ghawar has finally peaked.
EV sales are still far less than 50% of total sales, so net global fuel demand will continue to increase in the face of tight supply.
Barring another severe COVID variant outbreak, I don't see fuel prices declining anytime soon.
And the cool thing about energy prices is they feed forward into the cost of literally everything else in future PPI/CPI prints.
But the biggest factor is that the cost of renewable electricity is dropping fast. And to many industries, they are imperfect substites, so the price of electricity and gas are correlated.
> And the cool thing about energy prices is they feed forward into the cost of literally everything else in future PPI/CPI prints.
Exactly, which is why the forthcoming massive drop in electricity costs has me so excited.
That's not “the preferred term” for what you are responding to (whether it is transitory), but an orthogonal concern.
Yes, they would have preferred using a term that would make them look less foolish.
The political machinations you're touching on are a really disgusting reality of our system. People would love to sacrifice the middle and lower class for the sake of having their party in power.
https://thehill.com/blogs/in-the-know/in-the-know/456942-bil...
Edit since I'm getting downvoted, this did happen, and it's gross to see, regardless of what political side you support. I don't want a recession to happen even if my preferred party isn't in power. The people at the bottom are the biggest losers when recessions happen, even if most of the users on this board are largely insulated from the fallout.
Wealth comes from technological innovation improving productivity, not turning on the money printer
Obviously there’s some bias there in regards to ranking (as inflation is a highly charged topic so these articles were probably popular for months), but it seems clearly false that media has taken as fact that inflation will be transitory
Thing is, the recent volatility in inflation is a bigger concern than the actual average number (which is still within historical ranges), and also harder to address via policy responses. 7.5% is a bit scary but it's also just the latest residual. We'd like some more meaningful data before we can tell just how much of this is noise. (AIUI, market forecasts also reflect this outlook: sure, they're up, but not that far up.)
Please do understand that probably half the US and much of the world live paycheck to paycheck. They consume everything they earn and zero out at the end of the month. A 7.5% increase in costs isnt necessarily matched by an increase in pay...so that means a lot of pain.
I realize that as technologists, many of us barely consume everything we earn because many of us earn way above average, but that isnt the average reality for people.
Inflation is still mostly doe to energy prices. You get sustained inflation only after inflation expectations become self sustaining: prices up -> wages up -> prices up -> wages up
Where? The first couple months of high inflation numbers there was some of that, but while reactions against it as if it were common remain frequent, it doesn't seem anyone is saying it anymore.
> And, I can understand that coming from the Whitehouse
The White House isn't saying that, in fact it's leaning on present inflation as a reason to pass it's legislative priorities.
> but news organizations, economists, journals, Twitter, publications
Major ones of all of those also seem to not be saying it.
https://www.google.com/search?q=inflation+is+transitory&biw=...
the only way to fight inflation is to raise interest rates, but since the fed is only now in the next month or so ceasing buyback operations for bonds, its hard to imagine theyll have the momentum within the year to stop the quantitative easing binge thats left the US (and the world) with a corporate credit bubble.
tl;dr its here to stay. raising the prime interest rate is the only way to really combat stagflation, but the fed cant do it without triggering a corporate credit crisis.
We are however in February now, and people are still not back in offices, demand for consumer goods vs services is still much higher than pre pandemic, China is shutting down some of the biggest ports in the world for weeks on a moments notice, and supply chain issues abound.
The bigger issue now is how many of these factors simply represent a new normal.
Powell/GS has promised it is transitory and so has President Biden. The fact that you are paying more for everything now is just temporary. Soon things will be back to normal, especially after we embrace the new green deal and approve the 3 trillion $$$ stimulus. It's different this time, Powell has the ability to create trillions with the snap of a finger and buy all the US Government debt indefinitely.
Good job inventing a strawman and then knocking it down with sarcasm.
No one, Powel/GS/Biden et. al, is talking about deflation in the next 5 years
Not even once Rs take the house and the Green New Deal is doomed forever and ever. Not even that will bring deflation, sorry to burst your bubble
And, I can understand that coming from the Whitehouse, after all it’s a political liability… but news organizations, economists, journals, Twitter, publications… as if they all just joined a narrative to wish something untrue.
There is no “fourth estate”. That looks to have been a myth to perpetrate unwarranted prestige.