10 ms·

Bad News About Inflation

73 points by stereoradonc 3y ago

wavesounds 3y ago
My understanding is that a large portion of this "CPI index that excludes food and energy" is housing. Which might explain the seasonality mentioned in this blog post (people tend to move more in the warmer months). I don't see how raising interest rates will help when the core issue with housing is the lack of supply. If anything higher rates will make it harder to add more supply.
- dangwhy 3y ago
  > I don't see how raising interest rates will help when the core issue with housing is the lack of supply. why did this become a issue last 2-3 years. I don't understand this at all. Re raising interest rates will crush demand via job losses, foreclosures, dissuade flippers and property speculators.
  - wavesounds 3y ago
    Because of the pandemic which caused people to desire more space. Maybe they were living with their parents or roommates and want their own place, maybe they had kids during the pandemic, maybe they need a home office. Sure if you raise rates enough to cause a recession and massive job loss that would eventually push home prices down but it seems like building more housing would be a simpler, kinder solution.
    - lumb63 3y ago
      That’s the importance of having a unified approach, shared between the government and the Fed. It doesn’t help inflation when the country is running all-time-high (or close to it) deficit levels, especially if that money isn’t being appropriately allocated.
  - pc86 3y ago
    > Re raising interest rates will crush demand via job losses Raising interest rates doesn't automatically lead to layoffs and businesses closing. It certainly might for faltering or weak companies, but it's not like x% interest rate increase === y% unemployment increase or z% business closure. > foreclosures Sure, if you have an adjustable rate mortgage, are massively underwater, and can't afford the new payments. That in and of itself is not a bad thing - if you couldn't afford the house five years ago at 4.5% fixed rate, you couldn't afford it at a 3% ARM either. There's no reason to think an increase in foreclosures would be anywhere close to 2008 levels simply because rates are increased to more historically reasonable levels. > dissuade flippers and property speculators Good.
  - fear_and_coffee 3y ago
    [dead]
- svachalek 3y ago
  They don't raise mortgage rates, they raise the rates at which banks pay each other for overnight loans. But this tends to affect all other rates indirectly, including mortgages. They've only got one tool and it's a giant sledgehammer. From the looks of it they're trying to crash the economy, but avoid wrecking it so badly they can't start it up again. The Fed can't do anything about housing supply. Mostly it's zoning regulations preventing it, lower mortgages to bring out the buyers might help a little but even when the market was roaring we hardly built anything.
gjsman-1000 3y ago
Who would’ve thunk that almost everything we did during the pandemic would be called into question whether it was really a good idea. The dumbest take though on the inflation issue was from the Washington Post, with this since-renamed headline: “Inflation is cooling, so why aren’t customers feeling it?” Well, slowing inflation isn’t exactly deflation, is it!
- dboreham 3y ago
  That pesky second derivative.
- deleted 3y ago
  [deleted]
soared 3y ago
> The gains in wages and employment that the hot labor market is delivering seem very large compared to the modest cost imposed by a temporary period of inflation. Sentences like that seem crazy to me - where is the hot labor market money going outside of faang? In my circle nobody is getting raises that overcome inflation unless they switch jobs, which is only viable every couple years at a max and has diminishing returns over time. Separately, is inflation temporary? I had thought price increases don’t return to their prior levels with the exception of gas, and seemingly a dozen eggs.
- dangwhy 3y ago
  I think hot labor market is outside of white collar jobs. Thats why i am seeing with my family members who dont' work white collar jobs, demand is unlimited.
  - coldtea 3y ago
    Find it hard to believe this (except some regional or personal exceptions), since a lot of the demand for non-white-collar services comes from white collar employees who aren't exactly thriving and spending atm... Except if there's some thriving export industry with domestic factories on the rise!
    - havblue 3y ago
      Some have said there's an undocumented labor shortage after the pandemic. This is, well, undocumented, so it's hard to determine actual numbers for it. Unfilled jobs aside, housing maintenance has become far more expensive.
    - dangwhy 3y ago
      > since a lot of the demand for non-white-collar-jobs comes from white collar employees... who are spending money at unprecedented rates.
      - coldtea 3y ago
fauxpause_ 3y ago
I’m not sure who this person is, but I feel they lose a credibility make two bullet points that seasonal effects being a thing is a noteworthy insight, and that they are difficult to assess. I mean yeah, they’re going to be difficult to assess when you’re only plotting 2-3 years of data.
- PheonixPharts 3y ago
  You can just click the "about" tab: > Paul Romer, economist and policy entrepreneur, is a co-recipient of the 2018 Nobel Prize in Economics Sciences and University Professor in Economics at NYU. He has spent his career at the intersection of economics, innovation, technology, and urbanization, working to speed up human progress. I personally do find it surprising how over seasonal effects are often the primary number reported, and there isn't much effort to really understand them. This was especially problematic for reporting unemployment numbers during the pandemic. All of the published unemployment numbers during the pandemic included seasonal effects, which is absurd to anyone giving the situation even a moments thought. Clearly the impact of the pandemic disrupted whatever seasonal pattern there may have been during stable period. For unemployment during the pandemic including these seasonal effects would often invert conclusions about the data (e.g. "unemployment is higher this month" when the non-adjusted values were lower and vice versa). Often times when we really care about an economic indicator it's during times where something strange is happening meaning we should be cautious about unquestioningly using seasonal effects in models.
  - fauxpause_ 3y ago
    Idk. Seasonal effects may be tricky, but that graph showing just two years is certainly not strong evidence of that as the author claims. He makes reference to a prediction of a 100 bps decline, I think by the end of the year which seems kind of silly to me given the numbers appear to swing by more then 1000 bps over individual months. I’d be curious what he’s actually basing the claim on. He has some sort of model. I’d hope it’s not just based on what is shown in the article
- deleted 3y ago
  [deleted]
ProfessorLayton 3y ago
SVB's failure was barely a month ago, and has sent chills all over the banking sector, which has started to tighten lending all around. While the current inflation trends may seem troubling, it looks like higher interest rates have started to trickle their way towards cooling inflation significantly. Of course this might not be the case, but at the very least I wouldn't expect the impact of SVB's failure to show up in any of these charts just yet. Disclaimer: Not an economist
- taeric 3y ago
  Of course, svb didn't fail due to bad lending. So...
  - ivalm 3y ago
    Right, but higher capital requirements cause decrease in lending.
  - ac29 3y ago
    Wasnt that the primary factor? They lent their money to the government at very low interest rates. When interest rates rose, the value of those loans fell.
- seizethecheese 3y ago
  Economists estimate this to be equal to rough 0.3% higher interest rates.
weard_beard 3y ago
“Seasonal” ha! Spring isn’t in the air. That’s the smell of fresh cut dollars.
mysecretaccount 3y ago
> From February to March, the CPI index that excludes food and energy shows that prices rose at an annual rate of 5.8% this year Didn't the BLS say 5.6%, not 5.8%? From https://www.bls.gov/cpi/ https://www.bls.gov/cpi/ > In March, the Consumer Price Index for All Urban Consumers increased 0.1 percent, seasonally adjusted, and rose 5.0 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.4 percent in March (SA); up 5.6 percent over the year (NSA). What am I missing?
jarsin 3y ago
Yes listen to this guy and please short treasury bonds. I need more rocket fuel on the way up.
zeitgeistcowboy 3y ago
I understand what he is saying. The difference between the two lines was positive in the last month. But, compared to how large this positive gap was last August and September (looks like about 4% to 5%) this really seems negligible and possibly due to noise. And, it seems even more negligible compared to the cumulative negative (a good thing) gap since October. I think it's a little early to call the trend on one recent data point. Seems a little alarmist.
skybrian 3y ago
Looking at that graph, I'm thinking "about the same as last year at this time."
coffeebeqn 3y ago
I really don’t think one (1) datapoint is enough to draw any conclusions about the seasonality of inflation. I’m sure inflation will be at a higher than baseline level for some years but unless something like COVID happens again - what would be driving an increase in inflation? If it’s from workers getting raises then why should we - the workers - worry about that? That’s literally the best place for the money to be going in the whole system!
rco8786 3y ago
Why are we using 2 data points and acting like it’s a trend.
zeckalpha 3y ago
We rounded a corner in June, but the annual reporting hasn't caught up yet. Once we hit July, (annual) inflation is going to look a lot better, but has been better when you look at the monthly numbers. https://fred.stlouisfed.org/graph/?g=12rxD https://fred.stlouisfed.org/graph/?g=12rxD
1letterunixname 3y ago
Real inflation, that is the prices of essentials like food and prescriptions paid by people who aren't made of money, is still absurd and under-reported as usual. K-shaped recovery and inequality for the 99%.

73 points by stereoradonc 3y ago

My understanding is that a large portion of this "CPI index that excludes food and energy" is housing. Which might explain the seasonality mentioned in this blog post (people tend to move more in the warmer months). I don't see how raising interest rates will help when the core issue with housing is the lack of supply. If anything higher rates will make it harder to add more supply.

dangwhy 3y ago
> I don't see how raising interest rates will help when the core issue with housing is the lack of supply. why did this become a issue last 2-3 years. I don't understand this at all. Re raising interest rates will crush demand via job losses, foreclosures, dissuade flippers and property speculators.
- wavesounds 3y ago
  Because of the pandemic which caused people to desire more space. Maybe they were living with their parents or roommates and want their own place, maybe they had kids during the pandemic, maybe they need a home office. Sure if you raise rates enough to cause a recession and massive job loss that would eventually push home prices down but it seems like building more housing would be a simpler, kinder solution.
  - lumb63 3y ago
    That’s the importance of having a unified approach, shared between the government and the Fed. It doesn’t help inflation when the country is running all-time-high (or close to it) deficit levels, especially if that money isn’t being appropriately allocated.
- pc86 3y ago
  > Re raising interest rates will crush demand via job losses Raising interest rates doesn't automatically lead to layoffs and businesses closing. It certainly might for faltering or weak companies, but it's not like x% interest rate increase === y% unemployment increase or z% business closure. > foreclosures Sure, if you have an adjustable rate mortgage, are massively underwater, and can't afford the new payments. That in and of itself is not a bad thing - if you couldn't afford the house five years ago at 4.5% fixed rate, you couldn't afford it at a 3% ARM either. There's no reason to think an increase in foreclosures would be anywhere close to 2008 levels simply because rates are increased to more historically reasonable levels. > dissuade flippers and property speculators Good.
- fear_and_coffee 3y ago
  [dead]
svachalek 3y ago
They don't raise mortgage rates, they raise the rates at which banks pay each other for overnight loans. But this tends to affect all other rates indirectly, including mortgages. They've only got one tool and it's a giant sledgehammer. From the looks of it they're trying to crash the economy, but avoid wrecking it so badly they can't start it up again. The Fed can't do anything about housing supply. Mostly it's zoning regulations preventing it, lower mortgages to bring out the buyers might help a little but even when the market was roaring we hardly built anything.

gjsman-1000 3y ago

Who would’ve thunk that almost everything we did during the pandemic would be called into question whether it was really a good idea. The dumbest take though on the inflation issue was from the Washington Post, with this since-renamed headline: “Inflation is cooling, so why aren’t customers feeling it?” Well, slowing inflation isn’t exactly deflation, is it!

dboreham 3y ago
That pesky second derivative.
deleted 3y ago
[deleted]

soared 3y ago

> The gains in wages and employment that the hot labor market is delivering seem very large compared to the modest cost imposed by a temporary period of inflation. Sentences like that seem crazy to me - where is the hot labor market money going outside of faang? In my circle nobody is getting raises that overcome inflation unless they switch jobs, which is only viable every couple years at a max and has diminishing returns over time. Separately, is inflation temporary? I had thought price increases don’t return to their prior levels with the exception of gas, and seemingly a dozen eggs.

dangwhy 3y ago
I think hot labor market is outside of white collar jobs. Thats why i am seeing with my family members who dont' work white collar jobs, demand is unlimited.
- coldtea 3y ago
  Find it hard to believe this (except some regional or personal exceptions), since a lot of the demand for non-white-collar services comes from white collar employees who aren't exactly thriving and spending atm... Except if there's some thriving export industry with domestic factories on the rise!
  - havblue 3y ago
    Some have said there's an undocumented labor shortage after the pandemic. This is, well, undocumented, so it's hard to determine actual numbers for it. Unfilled jobs aside, housing maintenance has become far more expensive.
  - dangwhy 3y ago
    > since a lot of the demand for non-white-collar-jobs comes from white collar employees... who are spending money at unprecedented rates.
    - coldtea 3y ago

fauxpause_ 3y ago

I’m not sure who this person is, but I feel they lose a credibility make two bullet points that seasonal effects being a thing is a noteworthy insight, and that they are difficult to assess. I mean yeah, they’re going to be difficult to assess when you’re only plotting 2-3 years of data.

PheonixPharts 3y ago
You can just click the "about" tab: > Paul Romer, economist and policy entrepreneur, is a co-recipient of the 2018 Nobel Prize in Economics Sciences and University Professor in Economics at NYU. He has spent his career at the intersection of economics, innovation, technology, and urbanization, working to speed up human progress. I personally do find it surprising how over seasonal effects are often the primary number reported, and there isn't much effort to really understand them. This was especially problematic for reporting unemployment numbers during the pandemic. All of the published unemployment numbers during the pandemic included seasonal effects, which is absurd to anyone giving the situation even a moments thought. Clearly the impact of the pandemic disrupted whatever seasonal pattern there may have been during stable period. For unemployment during the pandemic including these seasonal effects would often invert conclusions about the data (e.g. "unemployment is higher this month" when the non-adjusted values were lower and vice versa). Often times when we really care about an economic indicator it's during times where something strange is happening meaning we should be cautious about unquestioningly using seasonal effects in models.
- fauxpause_ 3y ago
  Idk. Seasonal effects may be tricky, but that graph showing just two years is certainly not strong evidence of that as the author claims. He makes reference to a prediction of a 100 bps decline, I think by the end of the year which seems kind of silly to me given the numbers appear to swing by more then 1000 bps over individual months. I’d be curious what he’s actually basing the claim on. He has some sort of model. I’d hope it’s not just based on what is shown in the article
deleted 3y ago
[deleted]

ProfessorLayton 3y ago

SVB's failure was barely a month ago, and has sent chills all over the banking sector, which has started to tighten lending all around. While the current inflation trends may seem troubling, it looks like higher interest rates have started to trickle their way towards cooling inflation significantly. Of course this might not be the case, but at the very least I wouldn't expect the impact of SVB's failure to show up in any of these charts just yet. Disclaimer: Not an economist

taeric 3y ago
Of course, svb didn't fail due to bad lending. So...
- ivalm 3y ago
  Right, but higher capital requirements cause decrease in lending.
- ac29 3y ago
  Wasnt that the primary factor? They lent their money to the government at very low interest rates. When interest rates rose, the value of those loans fell.
seizethecheese 3y ago
Economists estimate this to be equal to rough 0.3% higher interest rates.

weard_beard 3y ago

“Seasonal” ha! Spring isn’t in the air. That’s the smell of fresh cut dollars.

mysecretaccount 3y ago

> From February to March, the CPI index that excludes food and energy shows that prices rose at an annual rate of 5.8% this year Didn't the BLS say 5.6%, not 5.8%? From https://www.bls.gov/cpi/ https://www.bls.gov/cpi/ > In March, the Consumer Price Index for All Urban Consumers increased 0.1 percent, seasonally adjusted, and rose 5.0 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.4 percent in March (SA); up 5.6 percent over the year (NSA). What am I missing?

jarsin 3y ago

Yes listen to this guy and please short treasury bonds. I need more rocket fuel on the way up.

zeitgeistcowboy 3y ago

I understand what he is saying. The difference between the two lines was positive in the last month. But, compared to how large this positive gap was last August and September (looks like about 4% to 5%) this really seems negligible and possibly due to noise. And, it seems even more negligible compared to the cumulative negative (a good thing) gap since October. I think it's a little early to call the trend on one recent data point. Seems a little alarmist.

skybrian 3y ago

Looking at that graph, I'm thinking "about the same as last year at this time."

coffeebeqn 3y ago

I really don’t think one (1) datapoint is enough to draw any conclusions about the seasonality of inflation. I’m sure inflation will be at a higher than baseline level for some years but unless something like COVID happens again - what would be driving an increase in inflation? If it’s from workers getting raises then why should we - the workers - worry about that? That’s literally the best place for the money to be going in the whole system!

rco8786 3y ago

Why are we using 2 data points and acting like it’s a trend.

zeckalpha 3y ago

We rounded a corner in June, but the annual reporting hasn't caught up yet. Once we hit July, (annual) inflation is going to look a lot better, but has been better when you look at the monthly numbers. https://fred.stlouisfed.org/graph/?g=12rxD https://fred.stlouisfed.org/graph/?g=12rxD

1letterunixname 3y ago

Real inflation, that is the prices of essentials like food and prescriptions paid by people who aren't made of money, is still absurd and under-reported as usual. K-shaped recovery and inequality for the 99%.