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Inflation is wiping out wage increases for many workers
- thehappypm 5y agoInflation coupled with wage growth is great for homeowners. Mortgage payments are inflation-proof.
- procinct 5y agoInteresting, in NZ you have an interest rate you pay to the bank for your mortgage that has to be renewed every few years. This interest rate is definitely impacted by inflation. Does the US/where you are from not have a similar system?
- MontyCarloHall 5y agoNope. Most mortgage rates are fixed for the full term of the loan (typically 30 years). If you can afford the down payment, it’s a great time to buy a house. (Even better would have been a few months ago, before inflation started to kick into high gear).
- WanderPanda 5y agoHow much interest do you pay on a 30 year fixed interest mortgage? Seems like a total no-brainer if it is below 2-3%
- dominotw 5y ago2 - 4% these days. Its only a no brainer only if property prices never go down, which does seems to be the case these days.
- procinct 5y agoHoly shit that is insane. You’re right, that is indeed inflation proof. Is this the US?
- thehappypm 5y agoYes. Fixed mortgages are the norm.
- neltnerb 5y agoThere are several varieties, fixed rate mortgages exist for 10-30 year terms. Adjustable rate mortgages also exist and commonly with a lower starting interest rate, but they are often a trap for people with low incomes who suddenly cannot afford their home because of interest rates outside their control. And some mortgages have a cliff, so that you're paying mostly just interest and very little principle. Then at the end of the term you basically have to pay the entire principle at once. So you can do it either way. A fixed rate is vastly less risky, I'm surprised that an adjustable rate is the default in NZ. In the time I've had a home rates have varied from like <3% to 7%.
- procinct 5y agoWe have fixed and floating. But generally the absolute max you would fix for is 5 years. People commonly fix for 1 year.
- nly 5y agoIn the US. In the UK it's normal to refinance every few years. Fixed rates of 2-5 years are common and 20% or so of people are fully variable.
- nugget 5y agoProperty taxes and maintenance costs are not, however.
- noduerme 5y agoThere's not much to like about the California tax code, but prop 13 is one good thing there. It caps the rate of property tax increase at 1% per year. Whereas my property tax in Oregon is up 10% this year. That's a tax on an unrealized gain. Worse, it's not even a real gain, it's a tax for just keeping pace with inflation.
- CogitoCogito 5y agoProposition 13 is good for those who have had a property for a long time, but it's certainly not good for new buyers. They are effectively subsidizing long-term residents. I understand why property owners might like it after they've been somewhere for a while, but I personally find it fundamentally unfair.
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- noduerme 5y agoBased on that reasoning, is rent control also unfair?
- throwaway0a5e 5y agoAnd it screws everyone who isn't in debt up to their eyeballs on their home.
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- thatguy0900 5y agoIsn't that just the way it goes. The common man finally finds himself in a position of power and business has to start paying more and then we get 5-6% inflation.
- eigengrau5150 5y agoIf your wage didn't go up by ten percent, you got a pay cut.
- jgalt212 5y agoprice inflation for thee, asset inflation for me.
- wcoenen 5y agoUntil interest rates are raised, and then the higher discount rate used to value future cash flows results in a crash of asset prices.
- bradwood 5y agoWhich is not likely to happen any time soon. Just look at the palava associated with the US debt ceiling. Fed tapering and interest rate rises will either result in a US government default (which won't be allowed to happen) or more money printing (which will). Either way, we are heading for hyperinflation.
- imtringued 5y agoYeah, the hyperinflation story... Everyone seems to have forgotten what the Fed did in the 70s, namely cripple the private economy with massive interest raises. Did you really forget that QE is meant for government bonds? The short term federal funds rate for private banks and the treasury yield curve are two completely different things.
- leobg 5y agoWell, of course. Isn’t that what inflation is for? Give ‘em a raise on paper so they keep quiet. Then take it back through “the invisible tax”.
- dragontamer 5y agoThose in debt (which is the majority of people) benefit from inflation though. Be it mortgages, car loans, or even just credit-card debts. If inflation/wage growth is 6% and your mortgage is 3% and your car payment is 5%, you're getting ahead. The people who are hurt by inflation are people holding cash and/or bonds.
- nly 5y agoOnly if your debt is fixed for term and the term is long Most mortgages in most parts of the world aren't long term fixed rate. Same is true of student debt and credit card debt.
- dragontamer 5y agoLuckily for those people, interest rates are at record lows as well. So even if you are in a variable-rate loan, you're still making it out ahead right now.
- kobalsky 5y ago> Those in debt (which is the majority of people) benefit from inflation though it's a temporal win though. it never ends well.
- naveen99 5y agoYou can also use non-debt based leverage to benefit from inflation. For example selling put spreads or buying calls on inflating stocks or etfs.
- xyzzy123 5y agoAlso creates a steady state where actual taxes are slowly increasing due to bracket creep.
- tcmart14 5y agoHasn't this been the case for years? Where I work, yearly raises are usually 2-3% except for this year (they did 5%). During those years, inflation was somewhere in that same window.
- croutonwagon 5y agoMeanwhile I haven’t seen a wage change since 2018….when I accepted my current role. It’s hard. It’s a good job. And I can do it with my eyes closed. But I’m probably definitely leaving a good percentage on the table, in exchange for other ancillaries (lots of time off per year, cheap benefits etc)
- dominotw 5y ago> It’s hard. It’s a good job. And I can do it with my eyes closed. But I’m probably definitely leaving a good percentage on the table, in exchange for other ancillaries (lots of time off per year, cheap benefits etc) you can find this at a higher wage too. You will be surprised.
- dominotw 5y ago> except for this year (they did 5%). my employer said rsu price increase was inflation adjustment. There is no adjustment to base pay.
- aeternum 5y agoIt's more likely that the wage increases are causing the inflation. The rich typically do not compete for everyday items like groceries and gasoline.
- dumdumdumdum 5y agoBut the rich do control the supply for everyday items. People aren't eating more all of a sudden.
- aeternum 5y agoFood spending does increase as income increases: https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58372 https://www.ers.usda.gov/data-products/chart-gallery/gallery...
- 4903000 5y agoIf food spending increases with income, doesn't that mean that rich people's competition over food is proportional to their wealth?
- dumdumdumdum 5y agoThis just tells me spending increases. Nothing about absolute consumption. I don't know about others, but I'm consuming about the same amount of milk I was when I was getting $10/hr vs $35/hr. I might buy more "luxury" products (ice cream, organic milk, etc), but I'm certainly not buying more than I was at $10/hr. My caloric intake is about the same. Perhaps, I'm the odd one out. In my case, most of that extra money just went towards rent and a car.
- 4903000 5y agoIf wage increases cause inflation, then what causes wage increases?
- dominotw 5y agotight labor market?
- throwawaymanbot 5y ago[dead]
- twirlock 5y ago[dead]