7 ms·

Here's the data: https://www.bls.gov/news.release/pdf/cpi.pdf https://www.bls.gov/news.release/pdf/cpi.pdf It's more complicated than the headline number. Th

by treis 5y ago

Here's the data: https://www.bls.gov/news.release/pdf/cpi.pdf 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.

rory 5y ago
Have we ever had inflation that was not caused by demand/supply issues? Isn't that kind of definitional to inflation?
- zdkl 5y ago
  As `treis was pointing out, what matters is demand/supply of what. Assets? Labour? Cash?
- runako 5y ago
  I think the point being made is that the portion of inflation caused by used car inflation is likely transient & due to a well-known cause (automakers shut factories due to Covid) that is being remedied. The question all along has been how much of inflation is due to obvious transitory effects like this one.
  - beerandt 5y ago
    Vehicles are not only "behind" on supply (which is difficult enough to overcome in an industry that's so dialed in to production capacity that quick bumps in production aren't possible), but they continue to be produced at below normal capacity and so the shortage is increasing, not catching up. 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.
    - runako 5y ago
      > 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.
- aggronn 5y ago
  The definition of inflation is nominal changes in prices. This can be caused by supply/demand shocks, which is where the term "transitory" comes from--inflation during a period of economic transition. The alternative to this is persistent inflation, which is largely the result of monetary or fiscal policy, and not due to supply/demand "issues" (well, or you could say, the only market where there is an issue is the currency market) 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.
  - notch656a 5y ago
    Housing vacancy rates will go up. Landlords and those selling houses just need to keep pushing the price higher until the market will no longer bear it; there is some price at which people will no longer occupy such a high fraction of houses. 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.
- notch656a 5y ago
  Inflation can be caused by "demand/supply" issues with currency, namely if much more currency is 'printed', currency may become less dear and thus price of goods come up. Whether you want to apply that to our current situation or not, demand/supply applies to dollars as much as anything else.
- matthewdgreen 5y ago
  I think this sort of comment isn't very helpful. This isn't a theoretical discussion: when people discuss this issue they're asking what we should do about the specific demand/supply issues. The answer to that question depends on the details. 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.
  - rory 5y ago
    Conversely, I think it's unhelpful to excuse away inflation as supply/demand issue and explain that if you just exclude all the things people buy, inflation really isn't that bad. Inflation in the 70's was also caused by supply/demand issues and problems with supply chains (that's what an oil shock is). 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.
    - matthewdgreen 5y ago
      If all you want to do is point at the headline number and go no farther, that’s fine. But it seems fairly pointless unless the goal is just to kvetch about something that’s generally unfortunate. In this thread nobody is denying the headline number, they’re just pointing out that a lot of these effects may cease to exist in the future even if we do nothing else. Hence maybe it’s not something to panic about.
flavius29663 5y ago
Not sure what the reasoning is here: of course it's a demand/supply issue. There are too many dollars in the economy. Because people have money, they want to buy cars, and houses and furniture etc. Why do you want to ignore car prices? Haven't they always been a part of inflation? Some people say housing and cars should have a bigger weight in the CPI, because that's where a lot of the money goes for a huge number of American families (that and education+healthcare)
- wbsss4412 5y ago
  Car prices are being driven by supply chain issues more so than a surplus of dollars.
  - hackeraccount 5y ago
    How would you know that? If say the number of cars went down by 50% and the amount of money in everyone's pocket went up by 100% which would driving the upward price more? 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.
    - wbsss4412 5y ago
      I don’t know in the sense that I have exhaustively researched the topic in exacting detail, but I believe it is mostly supply related because of a combination of factors: 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.
pdog 5y ago
I'm struggling to understand how inflation is only 7.5% when every major line item comprising inflation is up much more than 7.5% over the past year.
- runako 5y ago
  You want Table 1 in the linked doc. The summary is the things getting more expensive fastest are also things that have lower weighting. In household budget terms, our biggest expenses by far are: - 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.
  - tenuousemphasis 5y ago
    Housing is flat?! That does not seem to track with the real world.
    - CameronNemo 5y ago
      Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation. 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/housing-prices-and-inflation/ https://www.whitehouse.gov/cea/written-materials/2021/09/09/...
      - wonderwonder 5y ago
        That is a pretty convenient way to calculate CPI. Rents are up over 20% and the cost of homes has been a rocket ship.
deleted 5y ago
[deleted]
appleiigs 5y ago
The push towards green energy has reduced investment in coal, oil & gas and pipelines. This has pushed up energy prices. Sustainable energy can't be built fast enough. This is not transitory.
_ea1k 5y ago
The funny thing is that it wasn't that long ago that people were arguing that the pandemic would have a lasting impact in the opposite way. 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.
vgeek 5y ago
More importantly missed from the CPI calculations are the prices of pinball machines. It seems like the prices on the used market have nearly doubled over the last 12-18 months.
- Ancapistani 5y ago
  This is actually a more interesting trend than it might appear at first glance. 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.
CSSer 5y ago
That used car statistic is truly quite staggering. It's pretty frustrating how much of that is initially due to major manufacturer's own misread of the situation too, but no point in crying over spilled milk, right? Anyway... > "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 https://tradingeconomics.com/united-states/car-production [1]https://www.goodcarbadcar.net/usa-auto-industry-total-sales-figures/ https://www.goodcarbadcar.net/usa-auto-industry-total-sales-... [2]https://www.oica.net/category/production-statistics/2020-statistics/ https://www.oica.net/category/production-statistics/2020-sta...
stjohnswarts 5y ago
Yeah used car prices are amazing right now. If I was closer to work I'd sell my car and ride a bike to work and get a little bit more for my car than I paid for it 5 years ago (it was a 1 year old used car at the time). As it stands I'll ride it out for at least another five years or until sanity returns. Friends are being called by dealerships interested in buying back their cars (not trade-ins, straight up cash offers). It has been interesting this past year.
malandrew 5y ago
Just wait until rents start resetting and catching up. My understanding is that rent inflation is one of the slowest to be factored in because many leases need to expire before it’s inflationary impact is fully represented.

by treis 5y ago

rory 5y ago

Have we ever had inflation that was not caused by demand/supply issues? Isn't that kind of definitional to inflation?

zdkl 5y ago
As `treis was pointing out, what matters is demand/supply of what. Assets? Labour? Cash?
runako 5y ago
I think the point being made is that the portion of inflation caused by used car inflation is likely transient & due to a well-known cause (automakers shut factories due to Covid) that is being remedied. The question all along has been how much of inflation is due to obvious transitory effects like this one.
- beerandt 5y ago
  Vehicles are not only "behind" on supply (which is difficult enough to overcome in an industry that's so dialed in to production capacity that quick bumps in production aren't possible), but they continue to be produced at below normal capacity and so the shortage is increasing, not catching up. 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.
  - runako 5y ago
    > 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.
aggronn 5y ago
The definition of inflation is nominal changes in prices. This can be caused by supply/demand shocks, which is where the term "transitory" comes from--inflation during a period of economic transition. The alternative to this is persistent inflation, which is largely the result of monetary or fiscal policy, and not due to supply/demand "issues" (well, or you could say, the only market where there is an issue is the currency market) 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.
- notch656a 5y ago
  Housing vacancy rates will go up. Landlords and those selling houses just need to keep pushing the price higher until the market will no longer bear it; there is some price at which people will no longer occupy such a high fraction of houses. 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.
notch656a 5y ago
Inflation can be caused by "demand/supply" issues with currency, namely if much more currency is 'printed', currency may become less dear and thus price of goods come up. Whether you want to apply that to our current situation or not, demand/supply applies to dollars as much as anything else.
matthewdgreen 5y ago
I think this sort of comment isn't very helpful. This isn't a theoretical discussion: when people discuss this issue they're asking what we should do about the specific demand/supply issues. The answer to that question depends on the details. 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.
- rory 5y ago
  Conversely, I think it's unhelpful to excuse away inflation as supply/demand issue and explain that if you just exclude all the things people buy, inflation really isn't that bad. Inflation in the 70's was also caused by supply/demand issues and problems with supply chains (that's what an oil shock is). 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.
  - matthewdgreen 5y ago
    If all you want to do is point at the headline number and go no farther, that’s fine. But it seems fairly pointless unless the goal is just to kvetch about something that’s generally unfortunate. In this thread nobody is denying the headline number, they’re just pointing out that a lot of these effects may cease to exist in the future even if we do nothing else. Hence maybe it’s not something to panic about.

flavius29663 5y ago

Not sure what the reasoning is here: of course it's a demand/supply issue. There are too many dollars in the economy. Because people have money, they want to buy cars, and houses and furniture etc. Why do you want to ignore car prices? Haven't they always been a part of inflation? Some people say housing and cars should have a bigger weight in the CPI, because that's where a lot of the money goes for a huge number of American families (that and education+healthcare)

wbsss4412 5y ago
Car prices are being driven by supply chain issues more so than a surplus of dollars.
- hackeraccount 5y ago
  How would you know that? If say the number of cars went down by 50% and the amount of money in everyone's pocket went up by 100% which would driving the upward price more? 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.
  - wbsss4412 5y ago
    I don’t know in the sense that I have exhaustively researched the topic in exacting detail, but I believe it is mostly supply related because of a combination of factors: 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.

pdog 5y ago

I'm struggling to understand how inflation is only 7.5% when every major line item comprising inflation is up much more than 7.5% over the past year.

runako 5y ago
You want Table 1 in the linked doc. The summary is the things getting more expensive fastest are also things that have lower weighting. In household budget terms, our biggest expenses by far are: - 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.
- tenuousemphasis 5y ago
  Housing is flat?! That does not seem to track with the real world.
  - CameronNemo 5y ago
    Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation. 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/housing-prices-and-inflation/ https://www.whitehouse.gov/cea/written-materials/2021/09/09/...
    - wonderwonder 5y ago
      That is a pretty convenient way to calculate CPI. Rents are up over 20% and the cost of homes has been a rocket ship.

deleted 5y ago

[deleted]

appleiigs 5y ago

The push towards green energy has reduced investment in coal, oil & gas and pipelines. This has pushed up energy prices. Sustainable energy can't be built fast enough. This is not transitory.

_ea1k 5y ago

The funny thing is that it wasn't that long ago that people were arguing that the pandemic would have a lasting impact in the opposite way. 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.

vgeek 5y ago

More importantly missed from the CPI calculations are the prices of pinball machines. It seems like the prices on the used market have nearly doubled over the last 12-18 months.

Ancapistani 5y ago
This is actually a more interesting trend than it might appear at first glance. 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.

CSSer 5y ago

That used car statistic is truly quite staggering. It's pretty frustrating how much of that is initially due to major manufacturer's own misread of the situation too, but no point in crying over spilled milk, right? Anyway... > "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 https://tradingeconomics.com/united-states/car-production [1]https://www.goodcarbadcar.net/usa-auto-industry-total-sales-figures/ https://www.goodcarbadcar.net/usa-auto-industry-total-sales-... [2]https://www.oica.net/category/production-statistics/2020-statistics/ https://www.oica.net/category/production-statistics/2020-sta...

stjohnswarts 5y ago

Yeah used car prices are amazing right now. If I was closer to work I'd sell my car and ride a bike to work and get a little bit more for my car than I paid for it 5 years ago (it was a 1 year old used car at the time). As it stands I'll ride it out for at least another five years or until sanity returns. Friends are being called by dealerships interested in buying back their cars (not trade-ins, straight up cash offers). It has been interesting this past year.

malandrew 5y ago

Just wait until rents start resetting and catching up. My understanding is that rent inflation is one of the slowest to be factored in because many leases need to expire before it’s inflationary impact is fully represented.