7 ms·

US Inflation Tops Forecasts, Cementing Odds of Big Fed Hike

26 points by IdealeZahlen 4y ago

lamontcg 4y ago
Monthly CPI was only 0.1%, but the monthly core CPI was 0.6% compared to expectations of 0.3% and for a yearly core CPI of 6.3%. The market seems to be coming to sudden realization that energy prices aren't the sole driver of CPI. The Fed is going to hike 75 pts again at the next meeting and they're not close to being done (and certainly not close to cutting rates).
- lotsofpulp 4y ago
  I would like to see income gains by income decile. If the inflation due to wage gains is in the bottom deciles, I do not see a problem.
  - QuarterReptile 4y ago
    'Burn it down' will always hurt the bottom decile the most, because they're always operating on the slimmest margins, which makes volatility hellish.
    - deleted 4y ago
      [deleted]
    - lotsofpulp 4y ago
      I suspect the volatility of the basket of goods and services that bottom decile buys is different than the volatility of the basket of goods and services of higher income/wealth deciles. I notice people complaining about volatility of eating out, vacations, cars, houses, etc, but I wonder what the real data is for people who were working the $15 per hour jobs that are now $20 per hour jobs. They might very well be earning $10k+ more per year, but not paying that much more in their expenses.
      - QuarterReptile 4y ago
        First, to make sure we're talking about the same people: Full time at $15 hourly puts one well outside the bottom decile. About 35% of Americans were paid less than that in 2020; even in a relatively wealthy state like Virginia, it's more than 30% below that line. https://datausa.io/profile/geo/waynesboro-va https://datausa.io/profile/geo/waynesboro-va For the sake of being on the same page, I'm going to frame the expenses by this article talking about spending categories by income quintile: https://www.marketwatch.com/story/why-the-poor-spend-more-on-restaurants-than-all-but-the-very-rich-2016-06-10 https://www.marketwatch.com/story/why-the-poor-spend-more-on... 51% nondurables (think grocery store) 16.6% restaurants 14% Other services 10.7% durables 7.2% fuel My most frequent places eating out are probably Chipotle, McDonalds, ChikFilA, and Costco, all in mid-to-low CoL places, so I feel pretty qualified to say that prices have gone up substantially ([0] says 8% 'from 2020' to June 2022), and service has degraded enormously over the same period. Groceries are at least 10% higher.[1] Fuel is a very high outlier, which I'll let you research if you don't have recent experience. 'Durables' and 'other services' are harder to nail down, but the three places I've lived since 2020 have all seen significant price increases (as assessed by talking to people, with me not having the time in place to judge), and service is reliably disappointing enough to take services from convenient to 'I don't have 3 hours to wait on hold for this thing that was screwed up because billing department doesn't have enough people working there' levels of crappy. Finally, and most importantly, people who switch jobs for higher pay will, indeed, tend to see improvement over time. But the people who didn't switch jobs over the same time period will likely have seen 1-3% raises, if any. And the bottom decile probably isn't very full of people job hopping for upward mobility. [0] https://www.gobankingrates.com/money/business/as-mcdonalds-prices-go-up-customers-are-taking-action/ https://www.gobankingrates.com/money/business/as-mcdonalds-p... [1] https://www.cnn.com/2022/07/13/business/grocery-inflation/index.html https://www.cnn.com/2022/07/13/business/grocery-inflation/in...
    - MuffinFlavored 4y ago
      what can be done to make those at the bottom not be at the bottom?
      - neon_electro 4y ago
        Universal basic income. (https://en.wikipedia.org/wiki/Universal_basic_income https://en.wikipedia.org/wiki/Universal_basic_income)
        mc32 4y ago
        I think the pandemic proved this was a pipedream. Did people pursue their passions once they had government disbursements? No. They just moped around and became malaised and disinterested. Sure, we got tik-tokers, and YT personalities (all 'bourgeois-capitalist schmaltz'), but if that is what we get from that "investment" I don't want to invest any more. Previously hardworking people more or less got comfortable being freeloaders --taking but not giving back.
        lamontcg 4y ago
        > Did people pursue their passions once they had government disbursements? No. I'd argue that the wage inflation and labor shortages we're seeing in areas like food service indicates the correct answer to that question is "Yes" and that a lot of people spent the time "leetcoding" (or whatever) and landed a significantly better job.
        mc32 4y ago
        Could be, but I'd like to see some data behind that.
        thunky 4y ago
        I'd be interested to see the data to back up your claims as well. Regardless, I'm not sure the main point of UBI is to allow people to quit their jobs and pursue thier passions at the government's expense. It's moreso meant as a way to give people on the bottom rung a little bit of room to breath and better their circumstances, and in theory this also benefits the rest of the economy.
  - lamontcg 4y ago
    I don't really see any problem with wage inflation once it is at least hitting the middle deciles and isn't just confined to SWEs and above. We spent the past 30 years being very cool with housing costs appreciating out of control and out of the reach of the middle-ish deciles, pricing everyone out of the market. If we could get some wage-price inflation to pull up wages then housing wouldn't need to crash to make it affordable. And then long interest rates would then rise, acting as a brake on speculation and cheap money. Higher inflation that hit wages and not just assets would also help to reduce income/wealth inequality (we could also try substantially taxing the rich like we used to). Instead the Fed is going to crash the economy into an iceberg in order to create unemployment, keep inflation low, and low inflation expectations on the 10y horizon will keep long rates low and stimulate future speculative bubbles. Either way the bottom decile loses out and they're always living month-to-month, so I don't think it matters that much. Are they worse off with high cost of living and wages that aren't keeping up with prices, or without jobs due to high unemployment and an economic depression?
cglan 4y ago
I don’t think rent prices will be driven down by rate increases. We need a federal government initiate to be building dense/modern housing across the board. The western world basically hasn’t been building enough housing since post ww2 and it’s biting us in the ass
- vinyl7 4y ago
  The fed fund rate won't, but increasing mortgage rates will. The fed is set to roll off their MBS holdings this month (starting tomorrow iirc), which should increase mortgage rates. People won't be able to afford homes at these maxed out prices when adding on the increase of interest rates, so home sellers will be forced to lower prices. High interest rates and lower home prices is a much better position to be in than vice versa.
  - deanmoriarty 4y ago
    > so home sellers will be forced to lower prices. If I were an home seller not in distress (which, in this market and low unemployment rate, is still the vast majority of sellers), why would I want to lower prices for an asset I bought financing at a 2% rate? The latest news point to inventory actually decreasing as home sellers take homes off the market, waiting for better times (i.e. lower interest rates, which might happen in a few years).
    - refurb 4y ago
      That’s the fun thing - prices are set at the margins. You don’t need to sell your house for the value to go down.
      - lotsofpulp 4y ago
        deanmoriarty’s point is it is possible the supply curve shifts more than the demand curve mitigating price decreases. In the short term.
    - lamontcg 4y ago
victor106 4y ago
> Food costs increased 11.4% from a year ago, the most since 1979. Electricity prices rose 15.8% from 2021, the most since 1981. The Fed has completely screwed up the US economy. The fed chair Powell was using fancy words to basically say that inflation would not be persistent last year when most of the industry was saying it would be. The worst part is he got another term even with such a big screw up.
- mensetmanusman 4y ago
  Covid was bigger than the fed.
  - hersko 4y ago
    Mostly because it was artificially made to be. After the first few months it was pretty clear that the vast majority of people were barely effected by the virus, and yet they still moved for massive lockdowns, business closures and other useless "security-theater" policies.
    - slaw 4y ago
      One of the reasons is, everything must be extremely safe. Once some guy tried to take a bomb in a shoe on an airplane. Thanks to him airports security theater added new requirement, take shoes off before boarding.
    - notch656a 4y ago
      The might-makes-right destruction of free movement and trade during COVID lockdowns in 'free' Western nations should have red-pilled millions into the illegitimacy of these governments and their hostility against the pursuit of life, liberty, and happiness. Many countrymen calling for these policies were found out to be nothing more than proponents of violence to enforce their own health policy goals. Fortunately the US didn't go quite as dystopia as Europe, so we may find ourselves yet in a position of comfort as usurious European energy prices, inflation, and post-COVID European war expand American competitive advantages.
- deleted 4y ago
tryptophan 4y ago
This is your daily reminder that there is no theoretical reason to do these monthly small hikes. Except to keep pretending everything is still fine I guess. Russia hiked by 9% in a day and it helped stabilize things quickly. We need to hike to 6% and be done with it, no more of these games pretending things are fine.
- junofan 4y ago
  There’s an election coming up.
- pid-1 4y ago
  The reason is nobody knows the correct rate to stop inflation and nobody wants to drive rates too much, as that also would have bad consequences.
  - slaw 4y ago
    We know the correct interest rate. It is 2% above inflation. https://en.m.wikipedia.org/wiki/Taylor_rule https://en.m.wikipedia.org/wiki/Taylor_rule
  - seper8 4y ago
    Better to do nothing than to make a mistake your political competition will point out...
- whywhywhydude 4y ago
  I don’t think it’s that simple. Very high monthly mortgage payments will massively reduce demand for new housing. Will bring all new construction to a complete stop. And then layoffs in the construction industry. But the worse thing is it won’t bring the rents down because no new houses are being built.
  - lamontcg 4y ago
    It'll bring rents down because people who lose their jobs won't be able to afford those rents and will get evicted.
mc32 4y ago
This is the 27th straight month of inflation. It was labeled transitory, and people who rang the alarm were ridiculed. They expected a .1% drop and instead we got an .1% increase. But people are celebrating, it was only a .1% raise. The contortions... They'd better fix this now before the elections real quick. Handing out candy (ala student debt forgiveness) surely will prolong our diabetes. Instead allow students to declare bankruptcy on student debt.
- lamontcg 4y ago
  Who is "celebrating"? The markets are down 3% so far today.
- sbelskie 4y ago
  Given that CPI was flat last month, I’m curious what you mean by 27th straight month?
  - abduhl 4y ago
    I'm also confused by the OP. CPI has been above the Fed's 2% target since roughly the start of 2021, so even by that metric ("above 2% means a month of inflation") the OP seems off. I'm not really sure what it means to be a "month of inflation" honestly, inflation is always occurring in the US by design (and when it isn't there is usually a large global calamity taking place causing deflation). See https://fred.stlouisfed.org/series/CPILFESL https://fred.stlouisfed.org/series/CPILFESL or https://fred.stlouisfed.org/graph/?g=rocU https://fred.stlouisfed.org/graph/?g=rocU
- robotcapital 4y ago
  > Instead allow students to declare bankruptcy on student debt. I'm curious what impact people think this would have. Or if there's any research on the subject. My initial reaction was that giving out more debt relief could only lead to more inflation. But on second thought I could see only a much smaller segment that is struggling with debt willing to go through bankruptcy. While I buy that that would be less regressive than the current proposed debt forgiveness plan, I don't see how this would affect inflation (or elections, for that matter) in any meaningful way.

26 points by IdealeZahlen 4y ago

Monthly CPI was only 0.1%, but the monthly core CPI was 0.6% compared to expectations of 0.3% and for a yearly core CPI of 6.3%. The market seems to be coming to sudden realization that energy prices aren't the sole driver of CPI. The Fed is going to hike 75 pts again at the next meeting and they're not close to being done (and certainly not close to cutting rates).

lotsofpulp 4y ago
I would like to see income gains by income decile. If the inflation due to wage gains is in the bottom deciles, I do not see a problem.
- QuarterReptile 4y ago
  'Burn it down' will always hurt the bottom decile the most, because they're always operating on the slimmest margins, which makes volatility hellish.
  - deleted 4y ago
    [deleted]
  - lotsofpulp 4y ago
    I suspect the volatility of the basket of goods and services that bottom decile buys is different than the volatility of the basket of goods and services of higher income/wealth deciles. I notice people complaining about volatility of eating out, vacations, cars, houses, etc, but I wonder what the real data is for people who were working the $15 per hour jobs that are now $20 per hour jobs. They might very well be earning $10k+ more per year, but not paying that much more in their expenses.
    - QuarterReptile 4y ago
      First, to make sure we're talking about the same people: Full time at $15 hourly puts one well outside the bottom decile. About 35% of Americans were paid less than that in 2020; even in a relatively wealthy state like Virginia, it's more than 30% below that line. https://datausa.io/profile/geo/waynesboro-va https://datausa.io/profile/geo/waynesboro-va For the sake of being on the same page, I'm going to frame the expenses by this article talking about spending categories by income quintile: https://www.marketwatch.com/story/why-the-poor-spend-more-on-restaurants-than-all-but-the-very-rich-2016-06-10 https://www.marketwatch.com/story/why-the-poor-spend-more-on... 51% nondurables (think grocery store) 16.6% restaurants 14% Other services 10.7% durables 7.2% fuel My most frequent places eating out are probably Chipotle, McDonalds, ChikFilA, and Costco, all in mid-to-low CoL places, so I feel pretty qualified to say that prices have gone up substantially ([0] says 8% 'from 2020' to June 2022), and service has degraded enormously over the same period. Groceries are at least 10% higher.[1] Fuel is a very high outlier, which I'll let you research if you don't have recent experience. 'Durables' and 'other services' are harder to nail down, but the three places I've lived since 2020 have all seen significant price increases (as assessed by talking to people, with me not having the time in place to judge), and service is reliably disappointing enough to take services from convenient to 'I don't have 3 hours to wait on hold for this thing that was screwed up because billing department doesn't have enough people working there' levels of crappy. Finally, and most importantly, people who switch jobs for higher pay will, indeed, tend to see improvement over time. But the people who didn't switch jobs over the same time period will likely have seen 1-3% raises, if any. And the bottom decile probably isn't very full of people job hopping for upward mobility. [0] https://www.gobankingrates.com/money/business/as-mcdonalds-prices-go-up-customers-are-taking-action/ https://www.gobankingrates.com/money/business/as-mcdonalds-p... [1] https://www.cnn.com/2022/07/13/business/grocery-inflation/index.html https://www.cnn.com/2022/07/13/business/grocery-inflation/in...
  - MuffinFlavored 4y ago
    what can be done to make those at the bottom not be at the bottom?
    - neon_electro 4y ago
      Universal basic income. (https://en.wikipedia.org/wiki/Universal_basic_income https://en.wikipedia.org/wiki/Universal_basic_income)
      - mc32 4y ago
        I think the pandemic proved this was a pipedream. Did people pursue their passions once they had government disbursements? No. They just moped around and became malaised and disinterested. Sure, we got tik-tokers, and YT personalities (all 'bourgeois-capitalist schmaltz'), but if that is what we get from that "investment" I don't want to invest any more. Previously hardworking people more or less got comfortable being freeloaders --taking but not giving back.
        lamontcg 4y ago
        > Did people pursue their passions once they had government disbursements? No. I'd argue that the wage inflation and labor shortages we're seeing in areas like food service indicates the correct answer to that question is "Yes" and that a lot of people spent the time "leetcoding" (or whatever) and landed a significantly better job.
        mc32 4y ago
        Could be, but I'd like to see some data behind that.
        thunky 4y ago
        I'd be interested to see the data to back up your claims as well. Regardless, I'm not sure the main point of UBI is to allow people to quit their jobs and pursue thier passions at the government's expense. It's moreso meant as a way to give people on the bottom rung a little bit of room to breath and better their circumstances, and in theory this also benefits the rest of the economy.
- lamontcg 4y ago
  I don't really see any problem with wage inflation once it is at least hitting the middle deciles and isn't just confined to SWEs and above. We spent the past 30 years being very cool with housing costs appreciating out of control and out of the reach of the middle-ish deciles, pricing everyone out of the market. If we could get some wage-price inflation to pull up wages then housing wouldn't need to crash to make it affordable. And then long interest rates would then rise, acting as a brake on speculation and cheap money. Higher inflation that hit wages and not just assets would also help to reduce income/wealth inequality (we could also try substantially taxing the rich like we used to). Instead the Fed is going to crash the economy into an iceberg in order to create unemployment, keep inflation low, and low inflation expectations on the 10y horizon will keep long rates low and stimulate future speculative bubbles. Either way the bottom decile loses out and they're always living month-to-month, so I don't think it matters that much. Are they worse off with high cost of living and wages that aren't keeping up with prices, or without jobs due to high unemployment and an economic depression?

cglan 4y ago

I don’t think rent prices will be driven down by rate increases. We need a federal government initiate to be building dense/modern housing across the board. The western world basically hasn’t been building enough housing since post ww2 and it’s biting us in the ass

vinyl7 4y ago
The fed fund rate won't, but increasing mortgage rates will. The fed is set to roll off their MBS holdings this month (starting tomorrow iirc), which should increase mortgage rates. People won't be able to afford homes at these maxed out prices when adding on the increase of interest rates, so home sellers will be forced to lower prices. High interest rates and lower home prices is a much better position to be in than vice versa.
- deanmoriarty 4y ago
  > so home sellers will be forced to lower prices. If I were an home seller not in distress (which, in this market and low unemployment rate, is still the vast majority of sellers), why would I want to lower prices for an asset I bought financing at a 2% rate? The latest news point to inventory actually decreasing as home sellers take homes off the market, waiting for better times (i.e. lower interest rates, which might happen in a few years).
  - refurb 4y ago
    That’s the fun thing - prices are set at the margins. You don’t need to sell your house for the value to go down.
    - lotsofpulp 4y ago
      deanmoriarty’s point is it is possible the supply curve shifts more than the demand curve mitigating price decreases. In the short term.
  - lamontcg 4y ago

victor106 4y ago

> Food costs increased 11.4% from a year ago, the most since 1979. Electricity prices rose 15.8% from 2021, the most since 1981. The Fed has completely screwed up the US economy. The fed chair Powell was using fancy words to basically say that inflation would not be persistent last year when most of the industry was saying it would be. The worst part is he got another term even with such a big screw up.

mensetmanusman 4y ago
Covid was bigger than the fed.
- hersko 4y ago
  Mostly because it was artificially made to be. After the first few months it was pretty clear that the vast majority of people were barely effected by the virus, and yet they still moved for massive lockdowns, business closures and other useless "security-theater" policies.
  - slaw 4y ago
    One of the reasons is, everything must be extremely safe. Once some guy tried to take a bomb in a shoe on an airplane. Thanks to him airports security theater added new requirement, take shoes off before boarding.
  - notch656a 4y ago
    The might-makes-right destruction of free movement and trade during COVID lockdowns in 'free' Western nations should have red-pilled millions into the illegitimacy of these governments and their hostility against the pursuit of life, liberty, and happiness. Many countrymen calling for these policies were found out to be nothing more than proponents of violence to enforce their own health policy goals. Fortunately the US didn't go quite as dystopia as Europe, so we may find ourselves yet in a position of comfort as usurious European energy prices, inflation, and post-COVID European war expand American competitive advantages.
deleted 4y ago

tryptophan 4y ago

This is your daily reminder that there is no theoretical reason to do these monthly small hikes. Except to keep pretending everything is still fine I guess. Russia hiked by 9% in a day and it helped stabilize things quickly. We need to hike to 6% and be done with it, no more of these games pretending things are fine.

junofan 4y ago
There’s an election coming up.
pid-1 4y ago
The reason is nobody knows the correct rate to stop inflation and nobody wants to drive rates too much, as that also would have bad consequences.
- slaw 4y ago
  We know the correct interest rate. It is 2% above inflation. https://en.m.wikipedia.org/wiki/Taylor_rule https://en.m.wikipedia.org/wiki/Taylor_rule
- seper8 4y ago
  Better to do nothing than to make a mistake your political competition will point out...
whywhywhydude 4y ago
I don’t think it’s that simple. Very high monthly mortgage payments will massively reduce demand for new housing. Will bring all new construction to a complete stop. And then layoffs in the construction industry. But the worse thing is it won’t bring the rents down because no new houses are being built.
- lamontcg 4y ago
  It'll bring rents down because people who lose their jobs won't be able to afford those rents and will get evicted.

mc32 4y ago

This is the 27th straight month of inflation. It was labeled transitory, and people who rang the alarm were ridiculed. They expected a .1% drop and instead we got an .1% increase. But people are celebrating, it was only a .1% raise. The contortions... They'd better fix this now before the elections real quick. Handing out candy (ala student debt forgiveness) surely will prolong our diabetes. Instead allow students to declare bankruptcy on student debt.

lamontcg 4y ago
Who is "celebrating"? The markets are down 3% so far today.
sbelskie 4y ago
Given that CPI was flat last month, I’m curious what you mean by 27th straight month?
- abduhl 4y ago
  I'm also confused by the OP. CPI has been above the Fed's 2% target since roughly the start of 2021, so even by that metric ("above 2% means a month of inflation") the OP seems off. I'm not really sure what it means to be a "month of inflation" honestly, inflation is always occurring in the US by design (and when it isn't there is usually a large global calamity taking place causing deflation). See https://fred.stlouisfed.org/series/CPILFESL https://fred.stlouisfed.org/series/CPILFESL or https://fred.stlouisfed.org/graph/?g=rocU https://fred.stlouisfed.org/graph/?g=rocU
robotcapital 4y ago
> Instead allow students to declare bankruptcy on student debt. I'm curious what impact people think this would have. Or if there's any research on the subject. My initial reaction was that giving out more debt relief could only lead to more inflation. But on second thought I could see only a much smaller segment that is struggling with debt willing to go through bankruptcy. While I buy that that would be less regressive than the current proposed debt forgiveness plan, I don't see how this would affect inflation (or elections, for that matter) in any meaningful way.