14 ms·

October had the biggest U.S. inflation surge in more than 30 years

175 points by Bostonian 5y ago

pezzana 5y ago
> In a separate report, the Labor Department said real wages after inflation fell 0.5% from September to October, the product of a 0.4% increase in average hourly earnings that was more than offset by the CPI surge. This is the thing to watch. Inflation beaten by wage increases is sustainable. Inflation not beaten by wage increases ends with higher prices being rejected and a recession at least. Given the hyper-inflated nature of just about every asset, including housing, far worse is on deck. > Escalating inflation could cause the Fed to tighten policy more quickly than it has indicated. The central bank has indicated that it will within the next few weeks start reducing the amount of bonds it buys each month, though officials have indicated that interest rate hikes are still off in the future. The Fed has been on the transitory bandwagon since the beginning of this mess. The idea that it would act to cause a recession by either tapering or raising rates is hard to believe right now. They will talk the tough talk for now. But they will not walk the tough walk. Why not? Consider the positions at the Fed that have been vacated. Consider that Powell's term ends soon. There was already a meeting at the White House with Powell and one of his most likely successors. The last thing the administration will tolerate is a recession and asset price collapse at this point. Also consider the effect of raising interest rates on the precarious US fiscal position. The entire Build Back Better initiative is based on the availability of low interest rates. Raising them means even less money to spend into the economy, not to mention resistance within the Democratic Party. Bottom line: something is going to break. There will be massive resistance to this idea for a time. Rates will not rise. QE will not be scaled back. Asset and CPI inflation will shoot higher. Consumer prices will be rejected and to stave off the inevitable collapse, still more government transfers ("helicopter money") will be injected. The result will be something common in third-world countries which follow this playbook with boring regularity, but quite new to the US. But the IMF won't be able to fix this.
- neilwilson 5y ago
  Entirely the other way around. Price rises beaten by wage increases is actual economic inflation: 'true inflation'. Price rises without wage increases is a redistribution either away from wages towards profit, or more likely towards those workers in demand and away from those that are not. Or 'semi-inflation' as it is known. And playing around with interest rates will affect neither issue, because, as it should be clear after more than a decade, interest rates aren't actually that effective a policy tool. The economic rebalancing has to play out so that the new normal can re-establish.
  - notsureaboutpg 5y ago
    Why would this make sense? If price rises are beaten by wage inflation, or if wage increases beat price inflation, the measure of inflation is that the value of the currency weakens. If both price & wage go up, currency is losing its value either way.
  - lmilcin 5y ago
    No, not really. Inflation refers only to the decrease in value of money, it has nothing to do with wages. "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation It says "reduction in the purchasing power of money", not "people can now buy less stuff for their salary". Inflation means you can buy less for the same amount of money, but how much money people earn is a separate matter.
    - neilwilson 5y ago
      That's not an economic inflation. An economic inflation is when wages and prices go up together so nothing much changes other than numbers. If people can buy less stuff with their wages that's a redistribution away from the wage share and towards the profit share. Guess which share pays people to write the definitions on Wikipedia?
- deleted 5y ago
  [deleted]
- WoodenChair 5y ago
  > The last thing the administration will tolerate is a recession and asset price collapse at this point. It really doesn't matter what they will "tolerate." They do not have the power to stop it if it's coming, just like they don't have the power to stop the surge in inflation. The current economic situation was set in motion by policy decisions made months and over a year ago (as far back as April 2020), as well as the worst of the pandemic, that we are still feeling the effects of.
- throwaway6734 5y ago
  Or you're just being incredibly pessimistic. We had a massive trade war, a reduction in immigrants coming into the country, and a massive pandemic all contributing to a goods and labor shortage that will work itself out as businesses adapt to the new environment
GDC7 5y ago
The thing about this that always shocks me is that when they calculate prices to then compute inflation they always forget to report on quantities sold. It's not the case with inflation, but for example with deflation economists are very scared about prices collapsing , but if that's due to a positive supply shock with quantities sold rising then it's a good news which doesn't warrant any correction. An example is cars. Sure the price of cars maybe is rising slightly compared to the 70s-80s-90s-00s....but you are buying a totally different animal in terms of metal mass, semiconductors mass and so forth. The term "car" is just not enough to properly describe a vehicle in 2021, because it's the exact same term used in 1970 but the they are not the same thing.
- rattlesnakedave 5y ago
  >An example is cars. Sure the price of cars maybe is rising slightly compared to the 70s-80s-90s-00s....but you are buying a totally different animal in terms of metal mass, semiconductors mass and so forth. BLS uses hedonic adjustments to account for this.
  - GDC7 5y ago
    I think sticking to raw materials is the answer The periodic chart doesn't lie. Each and every element on that has a price. If there is sand in the cogwheel that transforms raw materials into products that is surely of social nature and once you are in that realm, then all predictions and analysis capability are off. You'd be better off throwing darts in a pitch black room
    - Lhiw 5y ago
      Labour isn't free.
- mistrial9 5y ago
  to my own way of thinking, the post-industrial world has always had internal efforts to prop-up the prices of mass produced goods, to repay the capital used to build factories. I think this is known but not often acknowledged in public.
adventured 5y ago
The used car I purchased five years ago is worth as much today as it was back then, despite a tripling of its mileage. What's going on is rather astounding.
- epistasis 5y ago
  What's interesting about this is that it seems that certain products are changing in price due to the bull-whip effect in supply chains. This is rather than the traditional form of inflation where it's a monetary effect of more money being in circulation. It's one of those times where viewing economics in terms of its steady state behaviors missed out on the true dynamics.
- sharkweek 5y ago
  I have a 2000 4Runner that has provided a nice return on investment from when I bought it 12 years ago!
refurb 5y ago
My own pet, amateur theory is this is just a continuation of the expansion of the money supply from the 2008 crisis. It just took 13 years, Covid and another massive expansion for it to blow up.
- luciusdomitius 5y ago
  This is a pretty solid theory to be honest. On top of that the goalposts constantly keep moving. Here is what CPI would look like today without all the changes to the formula: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
  - gruez 5y ago
    >Here is what CPI would look like today without all the changes to the formula ...which they undid, by adding a constant number? >Responding to prior criticisms made by economist James Hamilton, John Williams explained in a private phone call that Shadowstats does not actually recalculate BLS data, rather, the Shadowstats CPI merely adds a constant to the officially reported numbers.[25] >I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an add factor to the reported statistics.
    - luciusdomitius 5y ago
      I don't see how a random person claiming something was shared with them in a phone call with another person, who probably has neither respect nor desire to talk to them is a geniune information. On top of that the person in question does not appear that trustworthy in my eyes. There is a serious possibility that he might be correct, but I would certainly not take it as established. On top of that, they have their methodology described on their website[1] and the charts match that. Here is another random quote from Wikipedia[2]: "Wikipedia is not a reliable source for citations elsewhere on Wikipedia. Because it can be edited by anyone at any time, any information it contains at a particular time could be vandalism, a work in progress, or just plain wrong" 1. http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement http://www.shadowstats.com/article/no-438-public-comment-on-... 2. https://en.wikipedia.org/wiki/Wikipedia:Wikipedia_is_not_a_reliable_source https://en.wikipedia.org/wiki/Wikipedia:Wikipedia_is_not_a_r...
arberx 5y ago
Sensationalized headlines during an extrodinary time in economic history. We've literally just come off the biggest DEFLATIONARY shock of our lifetimes (the pandemic), of course you're going to see tailwinds the year after unprecidented stimulus and consumer demand. I recommend people focus on the long term trends rather than looking at outliers to predict the future. You could very well argue wage inflation couteracts these effects, on top of supply chain shortages.
- malchow 5y ago
  Deflationary means prices going down, not demand going down. This inflation is real, and isn't just a COVID rebound. It's bad policies leasing to lack of business confidence leading to fear of the future. If you are posting here, odds are you work in software. Seek out some friends who work in hardware and ask them what they are seeing.
  - xxpor 5y ago
    Prices did go down! Oil was negative last year.
    - malchow 5y ago
      Yes, you're right. I was only calling out that the parent poster incorrectly referred to the COVID related demand slump of 2020 as a deflationary period. It wasn't.
      - arberx 5y ago
        It wasn't deflationary because of the unprecedented stimulus. It would have been.
      - colinmhayes 5y ago
        The poster didn't refer to the demand slump as a deflationary period. They referred to the time period where prices decreased as a deflationary period.
  - 5y ago
Invictus0 5y ago
If the interest rate on your debt is less than the rate of inflation, you make money by holding a loan. The current rate of inflation is 5%, the interest rate of a margin loan on IBKR is 1.5% and under. When inflation finally slows, expect a ton of money to come out of the stock market.
- rileymat2 5y ago
  That presumes your pay is rising with inflation, or some tangible asset you hold.
- exegete 5y ago
  You don’t make money having a debt. You’re still accruing interest to pay. I think another way to think about it is that the lender is not making a profit when inflation is factored in. It’s a bad deal for them and a good deal for you. Additionally if you invest the debt into something that beats your loan’s interest rate then you’ll make money, which is more likely now, since any worthwhile investment would have a rate at least inflation (for example, I-bonds).
- reducesuffering 5y ago
  Assets can already rise 30% in anticipation of 5% inflation above risk-free interest for 6 years. Then you can buy in right at the time that interest rates rise to counter that inflation. Congrats you've just purchased assets that now drop due 30% due to interest rate increases at the same time you're margin loan interest increases to 5% to hold it.
throwawaymanbot 5y ago
[dead]
bartart 5y ago
It seems like this inflation is not broad-based: “In the quarter to August used cars, hotel rooms and airfares made up less than 5% of America’s consumer-price index, but together accounted for the majority of overall inflation” If we’re having inflation due to a tiny number of goods having large price spikes, it might be too early to predict disaster https://www.economist.com/graphic-detail/2021/11/06/a-handful-of-items-are-driving-inflation-in-america https://www.economist.com/graphic-detail/2021/11/06/a-handfu...
- roody15 5y ago
  Food prices are up. https://finance.yahoo.com/news/consumer-price-index-shows-food-144607233.html https://finance.yahoo.com/news/consumer-price-index-shows-fo...
- strict9 5y ago
  This is a great point. But a counterpoint is that housing is not included in consumer price index. Real estate prices have rocketed to outer space for the past year and housing constitutes the biggest monthly expense for most people. Not predicting disaster, but what's going on is very unusual and no one can predict how or when it will shake out.
  - donkeyd 5y ago
    > Real estate prices have rocketed to outer space for the past year In the Netherlands it's about 20% YoY. And this is starting to become true all throughout the country even though it started in urban areas. I really feel bad for people who aren't homeowners yet, because becoming one right now is getting damn near impossible.
    - kipchak 5y ago
      I fall into that category, and am still mildly hopeful there might be one or two more chances to hop on board. My rent increased by close to 20% this year (US, FL) to the point where paying my old rent with a $250 month to month penalty is actually cheaper. I think this is part of the rampant speculation on crypto and the like - $1,000 isn't really going to do me that much good, but if I hit a 100x I could be a homeowner.
perihelions 5y ago
Kind of puts the labor strikes in perspective. Next week's nurses' strike is over a proposed three-year, 1% annual wage increase. Price levels are sticky, so inflation is a fast way to erase real income. https://thehill.com/business-a-lobbying/576456-more-than-100k-workers-threaten-strikes-as-unions-flex-muscles https://thehill.com/business-a-lobbying/576456-more-than-100... (edit: better source) The nursing union's own ask is +4% per year, and even that would have been real-negative over the past 12 months (according to OP's +6.2% CPI figure).
- nujnjknjknjk 5y ago
  Wouldn't their wages plummet without unions inflating their salaries? They earn as much as doctors in UK, Germany and France.
  - whydoibother 5y ago
    They do the work of doctors in the US, so that really isn’t inflated.
deleted 5y ago
[deleted]
pkrumins 5y ago
Thoughts on a possible upcoming hyper-inflation?
- deleted 5y ago
  [deleted]
- epistasis 5y ago
  I don't think we have seen any sign of that yet. Car prices are inflated because production is only at, say, 12M cars not 17M cars, and there's not much reason to decide that future production of cars should be lower than it historically has been. It's not a huge amount of new money flowing into the system, it's just a bunch of mismanagement of supply chains. (Well, I want car production to be far lower for political reasons, but I'd rather change city structure to accomplish that, not artificially limit car production because of supply chain effects. That's a completer separate issue.) Additionally, we are flushing out a lot of low-productivity employers, and bringing far more people into the workforce. This is a recipe for a far stronger economy in the future, with happier and wealthier people. I'm optimistic of the course of the future.
batushka3 5y ago
Always remember, inflation is the goverment printing (inflating) currency to the market in order fund it's agenda by stealing your savings. Basicaly inflation is just another process how government steals your money. Inflation is NOT rising prices, they are trying hard to derail the definition.
- rattlesnakedave 5y ago
  I agree with this. However, it becomes difficult to argue when definitions are shifting under you: https://www.wsj.com/amp/articles/SB10001424052748703730804576319173360183278 https://www.wsj.com/amp/articles/SB1000142405274870373080457...
- zthrowaway 5y ago
  True. If the government cannot tax you for what they want, they will just print it and increase the water level of the economy. These trillion dollar packages put forth by politicians probably aren’t helping either.
- DethNinja 5y ago
  Inflation can also happen when a country’s productivity falls compared to other competing countries.
- argentinian 5y ago
  If you want to see how this work, look at Argentina. Here politicians are always trying to find something else to blame for inflation: international prices increase, supply chain problems, monopolies trying to destabilize the economy, commodity prices that increased due to bad weather, the "greed" of businessmen, and any kind of nonsense. They always try to remove responsibility for the increase of money supply they dictate. Don't be like Argentina, keep a healthy economy. Really, I don't understand how in this site, where so many intelligent people participate, there are so many comments about trying to disregard the link between inflation and money supply.
  - TremendousJudge 5y ago
greenail 5y ago
I wonder what happens to the housing market. In the early 80's people literally swapped mortgages because getting a new mortgage came with rates >15%. Even if rates go back up to only 7.5% what happens to housing prices? It also seems like there may be a massive bubble of hedging in leveraged real estate by big institutional investors. Something like 25% of all purchases are by investors right now. What happens when regular people (who need a loan) can't afford the higher interest rates?
- Lhiw 5y ago
  > Even if rates go back up to only 7.5% what happens to housing prices? Prices go down 40-50%? Normalizing for household leverage and disposable income, a 3% mortgage in 2021 is close to a 6% mortgage in 2007. Assuming it scales linearly (not sure it does), what you're talking about would mean an equivalent effect of around a 15% rate in 2007 against 2007 prices. I tried to track down where I saw these slides but couldn't find them, I think it was a morgan stanley presentation looking at comparison rates and leverage normalization to predict how bad different rises in rates would be in terms of how the rate "feels" to the average mortgage holder.
sillycube 5y ago
What is surprising? All governments in the world are printing money. When the money supply increases a lot, the purchasing power is deminished for sure
giantg2 5y ago
Whee, and I'm getting FDN'd at work, so there's no chance I get a 6.2% raise/adjustment over the past year. Looks like I'm taking a pay cut.
throwaway24124 5y ago
As someone in their early 20s starting their career, is there anything I should be doing with my personal finances to protect myself from this?
- Sargos 5y ago
  Buy assets that have value independent from currency such as stocks, real estate, commodities. Just keep enough cash to buy the things you need for a few months at a time. Save as much as possible as in an inflationary environment your wage is going down in real terms each day and prices of goods are rising.
AYBABTME 5y ago
I read a lot of reassuring articles saying it's not a big deal, it's just temporary, etc. What's a plausible, non-doomsday scenario in which things turn bad; what does it look like?
Einstant 5y ago
Indeed, I believe the distribution of inflated prices is a stochastic function wherein elements of the economy are impacted much more quickly, if at the foundation of their business, there are quickly depleting raw costs and expenses. These are usually seen, in comparison to acquisitions, tech, staff; hiring, etc. confoundingly minute. The problem in my opinion is the psyche of the market. Is this market knowledgeable of inflation risks and Causes? Have they experienced inflationary periods? If the answer is no, the propaganda coupled with not really knowing, exacerbates confidence in participating in said economy
jonnycomputer 5y ago
Is inflation occuring in other areas as well? EU, Australia, China, etc?
jonnycomputer 5y ago
PCE may be the better measure, as it allows for the substitution of similar goods. This is from last month's report. Am waiting for it to be updated. https://econbrowser.com/archives/2021/11/economic-activity-and-inflation-measures-for-september https://econbrowser.com/archives/2021/11/economic-activity-a...
- jonnycomputer 5y ago
  Here is their updated post https://econbrowser.com/archives/2021/11/october-cpi-inflation https://econbrowser.com/archives/2021/11/october-cpi-inflati... PCE went up too (as nowcast)
hiram112 5y ago
Part of me wants to say that the Covid supply disruptions and mass money printing are not that extraordinary, at least if you look at things on a long enough scale. We've had pandemics, world wars, and social upheavals throughout history, and usually fundamentals assert themselves eventually. In other words, the inflation we're seeing was expected, and eventually the system will return to some sort of normal, as consumers and businesses adjust to price changes and change their behaviors. On the other hand I can't help but wonder if exponential population growth is now starting to influence things in a way we haven't seen before. I remember the analogy they used to explain exponential growth in middle school - most have heard something similar - where 1 bacteria is in a jar at 11am, and it's doubling in quantity every minute and will fill up the jar by noon. Students are asked to guess when the jar is half full, and most believe it would be around 11:30. They're shocked to discover that it hits the halfway point at 11:59, and by then it's too late to fix. Roughly, it took from the time of Columbus arriving to the new world 'till the Civil War to go from a population of a few million Europeans to 30M, and we had a whole continent to expand and extract resources. We'll increase more than that in just the next 10 years. What was normal for even lower class Americans historically - single family home, couple kids, fossil-fuel burning car with big, open roads and lots of high-energy consumption may just not be possible anymore for anyone but the wealthy. And that new normal is being manifested by massively rising home, car, food, etc. costs that won't necessarily cool off, even when the money supply is constrained. There's just too much demand, and not even natural resources to supply it. * https://www.youtube.com/watch?v=x5OYmRyfXBY https://www.youtube.com/watch?v=x5OYmRyfXBY
diveanon 5y ago
If only there were non fiat currencies that resist self defeating monetary policy and hyper inflation.
RickJWagner 5y ago
Not surprising, I wouldn't doubt it's not by accident. Massive spending, government cash handouts, purposeful restrictions on energy commodities.... this seems predictable. So who gets hurt, and who gains? Younger earners (who will get pay raises) and equity holders (who hold businesses that will pass along the costs) surf the wave upward. People on fixed or inelastic incomes get burned. But the $15 wage won't seem unreasonable shortly.

175 points by Bostonian 5y ago

> In a separate report, the Labor Department said real wages after inflation fell 0.5% from September to October, the product of a 0.4% increase in average hourly earnings that was more than offset by the CPI surge. This is the thing to watch. Inflation beaten by wage increases is sustainable. Inflation not beaten by wage increases ends with higher prices being rejected and a recession at least. Given the hyper-inflated nature of just about every asset, including housing, far worse is on deck. > Escalating inflation could cause the Fed to tighten policy more quickly than it has indicated. The central bank has indicated that it will within the next few weeks start reducing the amount of bonds it buys each month, though officials have indicated that interest rate hikes are still off in the future. The Fed has been on the transitory bandwagon since the beginning of this mess. The idea that it would act to cause a recession by either tapering or raising rates is hard to believe right now. They will talk the tough talk for now. But they will not walk the tough walk. Why not? Consider the positions at the Fed that have been vacated. Consider that Powell's term ends soon. There was already a meeting at the White House with Powell and one of his most likely successors. The last thing the administration will tolerate is a recession and asset price collapse at this point. Also consider the effect of raising interest rates on the precarious US fiscal position. The entire Build Back Better initiative is based on the availability of low interest rates. Raising them means even less money to spend into the economy, not to mention resistance within the Democratic Party. Bottom line: something is going to break. There will be massive resistance to this idea for a time. Rates will not rise. QE will not be scaled back. Asset and CPI inflation will shoot higher. Consumer prices will be rejected and to stave off the inevitable collapse, still more government transfers ("helicopter money") will be injected. The result will be something common in third-world countries which follow this playbook with boring regularity, but quite new to the US. But the IMF won't be able to fix this.

neilwilson 5y ago
Entirely the other way around. Price rises beaten by wage increases is actual economic inflation: 'true inflation'. Price rises without wage increases is a redistribution either away from wages towards profit, or more likely towards those workers in demand and away from those that are not. Or 'semi-inflation' as it is known. And playing around with interest rates will affect neither issue, because, as it should be clear after more than a decade, interest rates aren't actually that effective a policy tool. The economic rebalancing has to play out so that the new normal can re-establish.
- notsureaboutpg 5y ago
  Why would this make sense? If price rises are beaten by wage inflation, or if wage increases beat price inflation, the measure of inflation is that the value of the currency weakens. If both price & wage go up, currency is losing its value either way.
- lmilcin 5y ago
  No, not really. Inflation refers only to the decrease in value of money, it has nothing to do with wages. "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation It says "reduction in the purchasing power of money", not "people can now buy less stuff for their salary". Inflation means you can buy less for the same amount of money, but how much money people earn is a separate matter.
  - neilwilson 5y ago
    That's not an economic inflation. An economic inflation is when wages and prices go up together so nothing much changes other than numbers. If people can buy less stuff with their wages that's a redistribution away from the wage share and towards the profit share. Guess which share pays people to write the definitions on Wikipedia?
deleted 5y ago
[deleted]
WoodenChair 5y ago
> The last thing the administration will tolerate is a recession and asset price collapse at this point. It really doesn't matter what they will "tolerate." They do not have the power to stop it if it's coming, just like they don't have the power to stop the surge in inflation. The current economic situation was set in motion by policy decisions made months and over a year ago (as far back as April 2020), as well as the worst of the pandemic, that we are still feeling the effects of.
throwaway6734 5y ago
Or you're just being incredibly pessimistic. We had a massive trade war, a reduction in immigrants coming into the country, and a massive pandemic all contributing to a goods and labor shortage that will work itself out as businesses adapt to the new environment

GDC7 5y ago

The thing about this that always shocks me is that when they calculate prices to then compute inflation they always forget to report on quantities sold. It's not the case with inflation, but for example with deflation economists are very scared about prices collapsing , but if that's due to a positive supply shock with quantities sold rising then it's a good news which doesn't warrant any correction. An example is cars. Sure the price of cars maybe is rising slightly compared to the 70s-80s-90s-00s....but you are buying a totally different animal in terms of metal mass, semiconductors mass and so forth. The term "car" is just not enough to properly describe a vehicle in 2021, because it's the exact same term used in 1970 but the they are not the same thing.

rattlesnakedave 5y ago
>An example is cars. Sure the price of cars maybe is rising slightly compared to the 70s-80s-90s-00s....but you are buying a totally different animal in terms of metal mass, semiconductors mass and so forth. BLS uses hedonic adjustments to account for this.
- GDC7 5y ago
  I think sticking to raw materials is the answer The periodic chart doesn't lie. Each and every element on that has a price. If there is sand in the cogwheel that transforms raw materials into products that is surely of social nature and once you are in that realm, then all predictions and analysis capability are off. You'd be better off throwing darts in a pitch black room
  - Lhiw 5y ago
    Labour isn't free.
mistrial9 5y ago
to my own way of thinking, the post-industrial world has always had internal efforts to prop-up the prices of mass produced goods, to repay the capital used to build factories. I think this is known but not often acknowledged in public.

adventured 5y ago

The used car I purchased five years ago is worth as much today as it was back then, despite a tripling of its mileage. What's going on is rather astounding.

epistasis 5y ago
What's interesting about this is that it seems that certain products are changing in price due to the bull-whip effect in supply chains. This is rather than the traditional form of inflation where it's a monetary effect of more money being in circulation. It's one of those times where viewing economics in terms of its steady state behaviors missed out on the true dynamics.
sharkweek 5y ago
I have a 2000 4Runner that has provided a nice return on investment from when I bought it 12 years ago!

refurb 5y ago

My own pet, amateur theory is this is just a continuation of the expansion of the money supply from the 2008 crisis. It just took 13 years, Covid and another massive expansion for it to blow up.

luciusdomitius 5y ago
This is a pretty solid theory to be honest. On top of that the goalposts constantly keep moving. Here is what CPI would look like today without all the changes to the formula: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
- gruez 5y ago
  >Here is what CPI would look like today without all the changes to the formula ...which they undid, by adding a constant number? >Responding to prior criticisms made by economist James Hamilton, John Williams explained in a private phone call that Shadowstats does not actually recalculate BLS data, rather, the Shadowstats CPI merely adds a constant to the officially reported numbers.[25] >I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an add factor to the reported statistics.
  - luciusdomitius 5y ago
    I don't see how a random person claiming something was shared with them in a phone call with another person, who probably has neither respect nor desire to talk to them is a geniune information. On top of that the person in question does not appear that trustworthy in my eyes. There is a serious possibility that he might be correct, but I would certainly not take it as established. On top of that, they have their methodology described on their website[1] and the charts match that. Here is another random quote from Wikipedia[2]: "Wikipedia is not a reliable source for citations elsewhere on Wikipedia. Because it can be edited by anyone at any time, any information it contains at a particular time could be vandalism, a work in progress, or just plain wrong" 1. http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement http://www.shadowstats.com/article/no-438-public-comment-on-... 2. https://en.wikipedia.org/wiki/Wikipedia:Wikipedia_is_not_a_reliable_source https://en.wikipedia.org/wiki/Wikipedia:Wikipedia_is_not_a_r...

arberx 5y ago

Sensationalized headlines during an extrodinary time in economic history. We've literally just come off the biggest DEFLATIONARY shock of our lifetimes (the pandemic), of course you're going to see tailwinds the year after unprecidented stimulus and consumer demand. I recommend people focus on the long term trends rather than looking at outliers to predict the future. You could very well argue wage inflation couteracts these effects, on top of supply chain shortages.

malchow 5y ago
Deflationary means prices going down, not demand going down. This inflation is real, and isn't just a COVID rebound. It's bad policies leasing to lack of business confidence leading to fear of the future. If you are posting here, odds are you work in software. Seek out some friends who work in hardware and ask them what they are seeing.
- xxpor 5y ago
  Prices did go down! Oil was negative last year.
  - malchow 5y ago
    Yes, you're right. I was only calling out that the parent poster incorrectly referred to the COVID related demand slump of 2020 as a deflationary period. It wasn't.
    - arberx 5y ago
      It wasn't deflationary because of the unprecedented stimulus. It would have been.
    - colinmhayes 5y ago
      The poster didn't refer to the demand slump as a deflationary period. They referred to the time period where prices decreased as a deflationary period.
- 5y ago

Invictus0 5y ago

If the interest rate on your debt is less than the rate of inflation, you make money by holding a loan. The current rate of inflation is 5%, the interest rate of a margin loan on IBKR is 1.5% and under. When inflation finally slows, expect a ton of money to come out of the stock market.

rileymat2 5y ago
That presumes your pay is rising with inflation, or some tangible asset you hold.
exegete 5y ago
You don’t make money having a debt. You’re still accruing interest to pay. I think another way to think about it is that the lender is not making a profit when inflation is factored in. It’s a bad deal for them and a good deal for you. Additionally if you invest the debt into something that beats your loan’s interest rate then you’ll make money, which is more likely now, since any worthwhile investment would have a rate at least inflation (for example, I-bonds).
reducesuffering 5y ago
Assets can already rise 30% in anticipation of 5% inflation above risk-free interest for 6 years. Then you can buy in right at the time that interest rates rise to counter that inflation. Congrats you've just purchased assets that now drop due 30% due to interest rate increases at the same time you're margin loan interest increases to 5% to hold it.

throwawaymanbot 5y ago

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bartart 5y ago

It seems like this inflation is not broad-based: “In the quarter to August used cars, hotel rooms and airfares made up less than 5% of America’s consumer-price index, but together accounted for the majority of overall inflation” If we’re having inflation due to a tiny number of goods having large price spikes, it might be too early to predict disaster https://www.economist.com/graphic-detail/2021/11/06/a-handful-of-items-are-driving-inflation-in-america https://www.economist.com/graphic-detail/2021/11/06/a-handfu...

roody15 5y ago
Food prices are up. https://finance.yahoo.com/news/consumer-price-index-shows-food-144607233.html https://finance.yahoo.com/news/consumer-price-index-shows-fo...
strict9 5y ago
This is a great point. But a counterpoint is that housing is not included in consumer price index. Real estate prices have rocketed to outer space for the past year and housing constitutes the biggest monthly expense for most people. Not predicting disaster, but what's going on is very unusual and no one can predict how or when it will shake out.
- donkeyd 5y ago
  > Real estate prices have rocketed to outer space for the past year In the Netherlands it's about 20% YoY. And this is starting to become true all throughout the country even though it started in urban areas. I really feel bad for people who aren't homeowners yet, because becoming one right now is getting damn near impossible.
  - kipchak 5y ago
    I fall into that category, and am still mildly hopeful there might be one or two more chances to hop on board. My rent increased by close to 20% this year (US, FL) to the point where paying my old rent with a $250 month to month penalty is actually cheaper. I think this is part of the rampant speculation on crypto and the like - $1,000 isn't really going to do me that much good, but if I hit a 100x I could be a homeowner.

perihelions 5y ago

Kind of puts the labor strikes in perspective. Next week's nurses' strike is over a proposed three-year, 1% annual wage increase. Price levels are sticky, so inflation is a fast way to erase real income. https://thehill.com/business-a-lobbying/576456-more-than-100k-workers-threaten-strikes-as-unions-flex-muscles https://thehill.com/business-a-lobbying/576456-more-than-100... (edit: better source) The nursing union's own ask is +4% per year, and even that would have been real-negative over the past 12 months (according to OP's +6.2% CPI figure).

nujnjknjknjk 5y ago
Wouldn't their wages plummet without unions inflating their salaries? They earn as much as doctors in UK, Germany and France.
- whydoibother 5y ago
  They do the work of doctors in the US, so that really isn’t inflated.

deleted 5y ago

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pkrumins 5y ago

Thoughts on a possible upcoming hyper-inflation?

deleted 5y ago
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epistasis 5y ago
I don't think we have seen any sign of that yet. Car prices are inflated because production is only at, say, 12M cars not 17M cars, and there's not much reason to decide that future production of cars should be lower than it historically has been. It's not a huge amount of new money flowing into the system, it's just a bunch of mismanagement of supply chains. (Well, I want car production to be far lower for political reasons, but I'd rather change city structure to accomplish that, not artificially limit car production because of supply chain effects. That's a completer separate issue.) Additionally, we are flushing out a lot of low-productivity employers, and bringing far more people into the workforce. This is a recipe for a far stronger economy in the future, with happier and wealthier people. I'm optimistic of the course of the future.

batushka3 5y ago

Always remember, inflation is the goverment printing (inflating) currency to the market in order fund it's agenda by stealing your savings. Basicaly inflation is just another process how government steals your money. Inflation is NOT rising prices, they are trying hard to derail the definition.

rattlesnakedave 5y ago
I agree with this. However, it becomes difficult to argue when definitions are shifting under you: https://www.wsj.com/amp/articles/SB10001424052748703730804576319173360183278 https://www.wsj.com/amp/articles/SB1000142405274870373080457...
zthrowaway 5y ago
True. If the government cannot tax you for what they want, they will just print it and increase the water level of the economy. These trillion dollar packages put forth by politicians probably aren’t helping either.
DethNinja 5y ago
Inflation can also happen when a country’s productivity falls compared to other competing countries.
argentinian 5y ago
If you want to see how this work, look at Argentina. Here politicians are always trying to find something else to blame for inflation: international prices increase, supply chain problems, monopolies trying to destabilize the economy, commodity prices that increased due to bad weather, the "greed" of businessmen, and any kind of nonsense. They always try to remove responsibility for the increase of money supply they dictate. Don't be like Argentina, keep a healthy economy. Really, I don't understand how in this site, where so many intelligent people participate, there are so many comments about trying to disregard the link between inflation and money supply.
- TremendousJudge 5y ago

greenail 5y ago

I wonder what happens to the housing market. In the early 80's people literally swapped mortgages because getting a new mortgage came with rates >15%. Even if rates go back up to only 7.5% what happens to housing prices? It also seems like there may be a massive bubble of hedging in leveraged real estate by big institutional investors. Something like 25% of all purchases are by investors right now. What happens when regular people (who need a loan) can't afford the higher interest rates?

Lhiw 5y ago
> Even if rates go back up to only 7.5% what happens to housing prices? Prices go down 40-50%? Normalizing for household leverage and disposable income, a 3% mortgage in 2021 is close to a 6% mortgage in 2007. Assuming it scales linearly (not sure it does), what you're talking about would mean an equivalent effect of around a 15% rate in 2007 against 2007 prices. I tried to track down where I saw these slides but couldn't find them, I think it was a morgan stanley presentation looking at comparison rates and leverage normalization to predict how bad different rises in rates would be in terms of how the rate "feels" to the average mortgage holder.

sillycube 5y ago

What is surprising? All governments in the world are printing money. When the money supply increases a lot, the purchasing power is deminished for sure

giantg2 5y ago

Whee, and I'm getting FDN'd at work, so there's no chance I get a 6.2% raise/adjustment over the past year. Looks like I'm taking a pay cut.

throwaway24124 5y ago

As someone in their early 20s starting their career, is there anything I should be doing with my personal finances to protect myself from this?

Sargos 5y ago
Buy assets that have value independent from currency such as stocks, real estate, commodities. Just keep enough cash to buy the things you need for a few months at a time. Save as much as possible as in an inflationary environment your wage is going down in real terms each day and prices of goods are rising.

AYBABTME 5y ago

I read a lot of reassuring articles saying it's not a big deal, it's just temporary, etc. What's a plausible, non-doomsday scenario in which things turn bad; what does it look like?

Einstant 5y ago

Indeed, I believe the distribution of inflated prices is a stochastic function wherein elements of the economy are impacted much more quickly, if at the foundation of their business, there are quickly depleting raw costs and expenses. These are usually seen, in comparison to acquisitions, tech, staff; hiring, etc. confoundingly minute. The problem in my opinion is the psyche of the market. Is this market knowledgeable of inflation risks and Causes? Have they experienced inflationary periods? If the answer is no, the propaganda coupled with not really knowing, exacerbates confidence in participating in said economy

jonnycomputer 5y ago

Is inflation occuring in other areas as well? EU, Australia, China, etc?

jonnycomputer 5y ago

PCE may be the better measure, as it allows for the substitution of similar goods. This is from last month's report. Am waiting for it to be updated. https://econbrowser.com/archives/2021/11/economic-activity-and-inflation-measures-for-september https://econbrowser.com/archives/2021/11/economic-activity-a...

jonnycomputer 5y ago
Here is their updated post https://econbrowser.com/archives/2021/11/october-cpi-inflation https://econbrowser.com/archives/2021/11/october-cpi-inflati... PCE went up too (as nowcast)

hiram112 5y ago

Part of me wants to say that the Covid supply disruptions and mass money printing are not that extraordinary, at least if you look at things on a long enough scale. We've had pandemics, world wars, and social upheavals throughout history, and usually fundamentals assert themselves eventually. In other words, the inflation we're seeing was expected, and eventually the system will return to some sort of normal, as consumers and businesses adjust to price changes and change their behaviors. On the other hand I can't help but wonder if exponential population growth is now starting to influence things in a way we haven't seen before. I remember the analogy they used to explain exponential growth in middle school - most have heard something similar - where 1 bacteria is in a jar at 11am, and it's doubling in quantity every minute and will fill up the jar by noon. Students are asked to guess when the jar is half full, and most believe it would be around 11:30. They're shocked to discover that it hits the halfway point at 11:59, and by then it's too late to fix. Roughly, it took from the time of Columbus arriving to the new world 'till the Civil War to go from a population of a few million Europeans to 30M, and we had a whole continent to expand and extract resources. We'll increase more than that in just the next 10 years. What was normal for even lower class Americans historically - single family home, couple kids, fossil-fuel burning car with big, open roads and lots of high-energy consumption may just not be possible anymore for anyone but the wealthy. And that new normal is being manifested by massively rising home, car, food, etc. costs that won't necessarily cool off, even when the money supply is constrained. There's just too much demand, and not even natural resources to supply it. * https://www.youtube.com/watch?v=x5OYmRyfXBY https://www.youtube.com/watch?v=x5OYmRyfXBY

diveanon 5y ago

If only there were non fiat currencies that resist self defeating monetary policy and hyper inflation.

RickJWagner 5y ago

Not surprising, I wouldn't doubt it's not by accident. Massive spending, government cash handouts, purposeful restrictions on energy commodities.... this seems predictable. So who gets hurt, and who gains? Younger earners (who will get pay raises) and equity holders (who hold businesses that will pass along the costs) surf the wave upward. People on fixed or inelastic incomes get burned. But the $15 wage won't seem unreasonable shortly.