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U.S. Inflation Accelerates to 40-Year High
- hirako2000 5y agoAnd probably soon to 90y high. Most workers getting a significant bump to keep them at work, worldwide logistical mess, one must be naive to think these and everything else won't have further repercutions.
- dahfizz 5y agoIt's transitory, you right wing nut!!!
- jquery 5y agoIsn’t some of this just a reversal of stuff like oil being negative, and supply chain shocks due to factories shutting down for Covid? Some of it is certainly transitory.
- dahfizz 5y agoFor some definition of transitory, all inflation is transitory. That's a pretty useless definition. 2 full quarters of inflation well beyond target levels (with an accelerating trend) goes beyond a transitory event, in my opinion.
- djur 5y agoThe trend for month-over-month inflation is slowing, not accelerating: https://tradingeconomics.com/united-states/inflation-rate-mom https://tradingeconomics.com/united-states/inflation-rate-mo...
- AnimalMuppet 5y agoTo a 90 year high? I guess you weren't around for the late 1970s. We're a long way from there still.
- newyankee 5y agoThis was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?
- ren_engineer 5y ago>I wonder though what happens now, is hyperinflation a real possibility It will happen if the Dollar loses global reserve currency status. China, Russia, and a few allies could pull the rug out from under the US pretty easily. A lot of countries are tired of the US exporting their inflation
- mostlysimilar 5y agoWould you mind expanding a little on this for me? I'm curious but don't know much about this topic. If having reserve currency status gives a country a tool of "exporting inflation" and countries are tired of the US doing it, it seems unlikely those countries would willingly put that tool in the hands of Russia or China, whom they presumably trust much less. (Assuming we're talking about western Europe.) Devil you know or devil you don't?
- sleepingadmin 5y ago>This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ? Hyperinflation is defined as 50% inflation per month. https://tradingeconomics.com/united-states/money-supply-m2 https://tradingeconomics.com/united-states/money-supply-m2 Inflation has roughly 40% locked in; which will push out over a few years. Hyperinflation isn't in the cards. https://tradingeconomics.com/united-states/money-supply-m1 https://tradingeconomics.com/united-states/money-supply-m1 Then you look at M1 and it's like... well could happen but it's not locked in yet.
- deleted 5y ago[deleted]
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- ukie 5y ago
- adflux 5y agoCant imagine real estate not taking a hit when yields go up...
- downrightmike 5y agoAll that free money drying up
- mvkel 5y agoInventory is so low, it's extremely difficult to buy even if you wanted to
- dominotw 5y agoinventory is building back up at a rapid pace. I see lots of construction everywhere.
- jiveturkey42 5y agoI imagine there is a huge backlog after the lumber price spike in 2020 has trickled back down
- mvkel 5y agoIt depends on the area, of course, but most of the construction you're seeing is likely already purchased; developments sell well before the shovel hits the ground these days.
- adflux 5y agoRoughly, for every extra percentage of interest, your maximum mortage becomes 15% lower.
- alexanderthe- 5y agoI'm not complaining (I haven't bought a house yet).
- beamatronic 5y agoBut the demand is still there. And many buyers powered by stock market returns.
- recursivedoubts 5y agoWe are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything. I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger. It's a good reason to never let rates get this low in the first place. From zero, any increase is an infinite increase in interest rates, and a corresponding crater of NPVs. Welcome to the long run, folks. At least Keynes is dead, so, good for him, I guess.
- naveen99 5y agoVolatility adds a real time value of money on top of nominal interest rates.
- pramanat 5y agocan someone explain this?
- recursivedoubts 5y agoA naive NPV calculation discounts a cash flow by a real discount rate: https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp when the discount rate is 0, the NPV is simply the sum of all payments in the series, so an infinite series of payments (e.g. rental income) is worth infinity in reality, bad stuff happens: building burn down, renters leave, etc. so the right thing to do is to discount the payment stream by some risk function, particular far off payments
- 18nleung 5y agoHow does this work? (I thought volatility mainly affected the value of options, not the underlying cash flows?)
- naveen99 5y ago
- mzs 5y agohttps://www.bls.gov/news.release/pdf/cpi.pdf https://www.bls.gov/news.release/pdf/cpi.pdf
- marricks 5y agoInflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another. Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing. EDIT: I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING. If you want to say wealthy people have more debts, sure in dollar amounts. But I bet dollars to donuts they have way more assets in stock than in their million dollar home mortgages or w/e. [1] https://tradingeconomics.com/united-states/wage-growth https://tradingeconomics.com/united-states/wage-growth
- cleancoder0 5y agoIs student debt with variable interest rates or just a fixed rate? Because variable interest rates can get quite high due to inflation.
- redisman 5y agoFixed. https://studentaid.gov/understand-aid/types/loans/interest-rates https://studentaid.gov/understand-aid/types/loans/interest-r...
- dominotw 5y agosucks for people like me with no debts though.
- bko 5y agoThis is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years). Around $12 trillion was allocated for covid measures and around $10 trillion disbursed. About half was legislative (income support, state local funding, loans) and another half was Fed mostly benefiting banks (asset purchases and liquidity measures). So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels). But now we're seeing consumer price inflation. I'm afraid it's not like normal times where you can just "slow down" the economy by tweaking interest rates. You will need to do drastic measures to sop up the trillions in newly generated dollars. https://www.covidmoneytracker.org/ https://www.covidmoneytracker.org/
- rwj 5y agoYes, clearly, because Covid hasn't disrupted anything else. /s I suspect that the causes are more complicated.
- bko 5y agoMy belief is that printing trillions of dollars and growing the money supply by 40% in a short period of time has impacted asset prices, and now consumer prices. If covid impacted other things (i.e. business), why are all asset prices up well above pre-covid levels. The impact of the money printing outweighs any other covid impacts. Nothing covid related should tell us that Manhattan real estate should be above pre-covid levels w/ work from home, lockdowns and overall decrease in quality of life. It's the money supply
- deleted 5y ago[deleted]
- jquery 5y agoArmchair financiers on HN are always full of energy. Considering what we were threatened with at the beginning of the COVID-19 pandemic (total economic meltdown), 7.5% inflation is downright relaxing.
- logicalmonster 5y agoDoes anybody believe that the 7.5% figure is completely accurate and not fudged and massaged to give an answer that won't entirely spook the market? It feels like their strategy is to avoid making a choice and letting the bubble unwind as slowly as possible to avoid political fallout. Unfortunately, we learned as kids that ripping off a bandaid faster is usually best, so this might prolong pain for a while.
- fuckcensorship 5y agoInflation statistics have been rigged for decades [1]. [1]: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
- boring_twenties 5y agoI can't believe people are still citing shadowstats and expecting to be taken seriously. It's been known bullshit for a decade and a half. https://econbrowser.com/archives/2008/09/shadowstats_deb https://econbrowser.com/archives/2008/09/shadowstats_deb
- amanaplanacanal 5y agoI bought into the shadowstats guy for a long time, until he admitted he makes up his numbers. It's all bogus.
- fuckcensorship 5y agoI wasn’t aware of this. Thank you for letting me know! Does anyone have a source which is not bogus? Or is the “inflation numbers are rigged” premise just bogus?
- steelstraw 5y agoSource?
- amanaplanacanal 5y ago
- legitster 5y agoOn one hand, after decades of inflation being too low, it's nice to see that the spigot works still. But it's bizarre that interest rates are being held so low. It's unclear who it's supposed to help. I get that we need to boost the Covid economy, but if feels like the economy is currently running at every possible constraint - except for lack of money.
- sokoloff 5y agoThe Treasury pays over $0.5Trillion in interest every year against a total tax base of around $3.75T. Doubling the interest rate would be directly harmful to the government’s financial position. (They could of course “print” more, but at some point that’s adding to the problem more than alleviating it.) https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm https://www.treasurydirect.gov/govt/reports/ir/ir_expense.ht...
- legitster 5y agoBut this is exactly why the Federal Reserve is detached from the rest of the government. While they might coordinate with the executive branch, ultimately the Federal Reserve is supposed to follow their mandate and leave fiscal policy to Congress.
- sokoloff 5y agoYes, but it answers "who does [keeping rates this low] help?" with an answer of "all taxpayers, both now and in the near-future".
- ajsnigrutin 5y agoWho would've thought that printing huge amounts of money causes inflation. (yes, I know it was not literally printed)
- eldavido 5y agoWhat matters for inflation isn't just money, but the quantity of money and credit (thanks Ray Dalio for explaining this). The fed correctly predicted in early 2020 that there'd be a massive drop in lending (at least short-term), so eased, hard, so that money+credit would remain relatively constant (much less credit, so much more money was needed). I read last year that something like 26% of then-existing M2 (central bank + bank deposits) was created in 2020/2021. That's insane. Yet somehow, a year later, after a major pandemic, only a bit of inflation is showing up. People should give a fed more credit. They managed this thing pretty well. The whole thing feels like trying to adjust the temperature in the shower from 50 feet away with a long stick and a bit of string, and someone yelling "turn it up" or "turn it down". There is so much noise everywhere, it's very difficult.
- post_break 5y agoThe price increases at the grocery store whether it be shrinkflation or price jumps, will never come back down. This is going to squeeze a lot of people.
- ska 5y ago> will never come back down. That's how inflation works, effectively the currency (and hence debt) is devalued in real terms.
- teraflop 5y agoAs usual, take headlines about inflation with a grain of salt. Yes, the year-over-year inflation reached a new peak. But the month-over-month inflation rate has actually been declining since last October: https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm So when organizations publish a new article every month saying inflation is "accelerating", they're being incredibly misleading.
- deleted 5y ago[deleted]
- iamricks 5y agoThanks for this source, i believe in the last fed meeting JP said he expected us to be on track for 2% this year but i don’t see how that’s possible if we are already at .6 a month in, maybe it will drastically keep going down MoM for this year and average down to 2%?
- tagoregrtst 5y agoMy math might be wrong, but according your source isn't the annualized month-to-month inflation 7.5%? (1+0.6/100)^12 = 1.0744. The year-to-year (multiply all seven rates and then power to 12/7) is 7.1% which is pretty close to 7.5% anyway. (Also, note that the decrease over the last two months is probably due to the Christmas peak ending. Best case scenario, pie in the sky, for inflation is 3.6% which is higher than my mortgage rate)
- Rebelgecko 5y agoIf you still have a lot of time left on your mortgage it may be beneficial to refi
- tagoregrtst 5y agoSorry, I meant higher than my mortgage. Corrected. I already had a low rate from ‘17 and we refinanced it again.
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- bryanlarsen 5y agoThere are many competing theories for this inflation: 1. The increase in money supply. 2. Supply chain bottlenecks. 3. Corporate greed & tech monopolies. 4. Fundamental supply constraints. (mostly in the housing sector) Anybody trying to tell you that it's only or primarily one of them has a political motivation. It's all 4, with the first 2 being primary and both being important. To effectively solve inflation we need to attack all 4.
- dcolkitt 5y agoI'm sorry, but "corporate greed" doesn't make sense. Were corporations not greedy in 2017?
- bryanlarsen 5y agoSure, but they weren't able to execute on that greed to the same extent that they were in 2017. Look at the profits of big tech in 2021 compared to 2017. In a well-functioning free market, most of the surplus is captured by the consumer rather than the producer. So excess profits are a sign of an inefficient market, and thus the drum beat for anti-trust enforcement against Google/Apple/Amazon/Facebook.
- dcolkitt 5y agoNeither Google nor Facebook make any significant profit from selling consumer profits. It's pretty tenuous to claim that their large profits are driving consumer inflation. Amazon makes virtually zero profits in consumer goods. It's high recent profits come from the B2B segments of AWS and advertising. Apple's margins have always been historically high. If anything iPhone concentration in the smartphones has declined since 2017. The sizable bulk of consumer inflation is being driven by housing, energy, food and used cars. It's extremely tenuous to tie any of this to FAANG profits.
- JaimeThompson 5y agohttps://www.nytimes.com/2021/12/27/business/beef-prices-cattle-ranchers.html https://www.nytimes.com/2021/12/27/business/beef-prices-catt... "Since the 1980s, the four largest meatpackers have used a wave of mergers to increase their share of the market from 36 percent to 85 percent...Their dominance has allowed them to extinguish competition and dictate prices." https://twitter.com/AlecMacGillis/status/1476219789899096064 https://twitter.com/AlecMacGillis/status/1476219789899096064
- 6gvONxR4sf7o 5y agoIf any of this is due to a tight labor market, or whatever you call it when it's hard to hire, I wonder if it would be better for society for people to negotiate improvements in how they're treated than improvements in how much they're paid. Like if everyone negotiates a 20% raise, prices of everything probably increase by 20%, meaning nobody gets shit, and their savings are less valuable. So they come out behind, if anything. But if everyone negotiates a four day work week for the same pay, or better safety standards at work, or shit like that, I'd bet prices don't inflate nearly as much, so they actually could come out ahead. But that seems like a prisoner's dilemma kind of thing. If only you get the raise, you come out ahead. If everyone gets the raise, you come out neutral.
- JaimeThompson 5y agoI would think that the impact of rising prices would be reflected in reduced profits but it seems like most of the major companies are reporting rather large profits. Could it be some of the inflation is simply companies taking advantage to raise prices not because they need to but simply because they can?
- jesusthatsgreat 5y agoAbsolutely. If cost of goods goes up 7.8%, most companies will round prices up by 10%. Increased costs is a great excuse to not only pass costs on to the consumer, but sneak in some additional "while we're at it" price rises too.
- mFixman 5y agoMost goods didn't go up in price in the years before the pandemic despite consistent ~2.5% inflation. Companies try to raise prices as little as possible, which means accounting for inflation in previous and following years.
- JaimeThompson 5y agoLots of things have been reduced in size / quality which is approximately the same as raising prices.
- theincredulousk 5y agoYes, that is exactly what they're doing. One example: https://www.wsj.com/articles/inflation-yellen-biden-price-increase-cost-shipping-supply-chain-labor-shortage-pandemic-11636934826 https://www.wsj.com/articles/inflation-yellen-biden-price-in... It's exactly as obvious as you think. E.g. Supply and labor input costs go up 5%, and they raise prices 10%. Wherever convenient they will say "We're sorry to raise prices etc." and then during earnings calls the CEO will say "We're expecting upward price adjustments to increase our net margins in Q4". You know, a euphemism for "we're raising prices and that means more profit" Corporations, especially the the huge conglomerates with adequate pricing power etc. drive inflation, not suffer from it. The elephant in the room today is that the classic economic model that suggests "oh but another company will come with lower prices and re-balance things" is simply unrealistic. Good luck elbowing in on P&G or Unilever for shelf space in supermarkets, commercial contracts, etc.. The other trick everyone is probably about to see is that when the supply chain crisis recedes and inflation comes down, that the consumer prices curiously remain high. Maybe market forces may claw them back over years, but in the meantime it will just be another incremental wealth transfer from mass-market consumers -> concentrated corporate profits. The corporations will also kick and scream to avoid raising wages for their employees spending more on their own products, while simultaneously giving huge payouts to executives and investors through share buybacks with their newly minted profits. It's not even interesting to theorize about anymore. It's boring and obvious. Maybe this is what dystopia is?
- mcs5280 5y agoAt this point the only thing the fed manages to do is increase wealth inequality.
- throwawaymanbot 5y ago[dead]
- snake_plissken 5y agoIt'll be interesting to see how the following dynamics play out over the next few years. I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind. The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates. So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this). The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.
- oxff 5y agoNobody will ever make the connection between this, and the lockdowns they imposed on humans. Well, nobody "respectable" so the status followers won't ever hold the opinion where it matters, the court. "When you are paid not to notice, it is hard to notice" etc.
- redisman 5y agoSupply chain issues is perhaps the most common explanation the experts and laypeople are using for inflation? Aren’t those directly due to lockdowns and restrictions as factories aren’t running full speed.
- sporkland 5y agoCan anyone help me understand a seemingly dumb investment choice I made in light of this? I put some money into the Schwabs TIPS ETF (SCHP), back in December. For the most part it's been a minor loser. Even today as the inflation rhetoric picks up the price is down 0.5%. Is it because people bought expecting inflation to be even higher? Or is there some lag or some underlying treasury thing going on.