Based on what I'm seeing, despite the cheery headline, this is still not looking great for the average person. This is offset a bit by the oil and gas markets stabilizing after the Russian...
Based on what I'm seeing, despite the cheery headline, this is still not looking great for the average person. This is offset a bit by the oil and gas markets stabilizing after the Russian invasion of Ukraine. This is trickling to the energy market faster, and will hopefully translate to transportation and food a bit later.
My doom and gloom is somewhat predicated on pairing this data with DPI and PCE data. Consumer spending on goods is still down hard and probably will remain so for the forseeable future, because DPI(disposable personal income) is not keeping pace with CPI gains. Spending on services is up, but that isn't neccessarily reflective of improving economy either. A good example of a problematic services/goods consumer spending imbalance: If cars remain unaffordable, people who need cars to get around will spend more on car-ride services to get around. Its another potential poverty trap if wages don't increase enough to afford cars.
Seeing this data makes me want to invent a proper economic outlook method for the average person, which more accurately reflects how CPI, DPI, and PCE interact in plain English. Much how you would write user stories for designing UIs. This would be more reflective of what an average person's economic outlook is... because that's what most people actually care about. Some things here will be a bit arbitrary for illustrative purposes.
Describing the income/expenses of Joe median. TLDR he has $800/mo in disposable income.
About $64,000 annual post-tax income, so monthly budget of $5,300. This is for household income so possibly (probably?) coming from two earners.
Median national rent is $2,100, which tracks roughly to the about 40% of income being spent on housing for the USA. $3,200 remaining
Going to lump all utilities (including cellphone and internet) together, call it $300. $2,900 remaining.
Car, Joe probably needs to have one at minimum. $516 is the current average for a used car payment right now. Probably should round that up to $600 monthly to cover maintaince, but not fuel. $2,300 remaining.
Average American drives about 12,000 miles a year. Assuming a nice average fuel economy of 35 mpg (high for a used car), That's about 28 gallons a month. Average price around $3.54 results in $100 a month (rounding for math). $2,200
Food. It's complicated, so for this I'm going to be arbitrary that comes in roughly at the low end of my food budget. 2 boxes Kraft Mac and Cheese ($1.29 a box plus $2 of butter per meal), 2 head of broccoli ($1 per) and 3 hot dogs ($0.78 per dog) for family dinner total. About 1400 calories 2 eggs ($0.60) and a piece of toast ($0.30) breakfast. About 200 calories there, total 1600...good enough for now. Add a gallon of whole milk for cooking/drinking per week ($4.50). Total cost per week about $80. 4 weeks a month, $320. Hell add a few bags of apples and other non-garbage food and we'll call it a $500 monthly food budget. $1,700 remaining
Annual amortized clothes spending, I'd call it about $100 a month...but with a kid thats probably low. $1,600 remaining
Medical costs. My health insurance is $600 a month, and I still have to budget $100 a month to make sure I have enough. I'll assume I'm on the high end though and I'll call it $400 a month. $1,200 remaining.
Other Debt. This one would be crazy hard to factor for now between student loans and credit cards. I'll roll with a credit card debt around $5,000, so in trying to pay off this year, not factoring any interest, that's a payment of $420. Arbitrary, but thats a lot less than I've heard from people ancedotally. $800 remaining.
So that's $800 a month for Joe Median to spend on literally anything not mentioned above. 15% of their income to cover a lot of expenses I didn't even think about. You should notice that there's absolutely nothing for childcare, car insurance, any consumer goods like furniture, kitchen utensils, tools, or electronics. Also missing is literally any semblance of building savings, of which Joe Median is unlikely to have even $5,000 of.
So here's a financial forecast for Joe, looking at the 12 mo un-adjusted:
He'll probably see his rent go up 8% if his annual lease ends, so his disposable income could take a $168 hit. Fuel costs are looking down though, so maybe those gas prices will drop a bit, might be able to scrape a nice $20 savings there. Food costs are holding steady, so at least Joe doesn't have to go into more debt for food this month! New cars are still basically unaffordable, but used cars might be returning to reasonable prices. Maybe Joe will be able to upgrade from his 2015 car with 150,000 miles on it when he pays it off in 3 years. Looks like getting a second car for Mom and Junior is still a ways off though.
The problem is that you are just telling a story. The median household owns their home, so there is no 8% rent increase, and used car prices have dropped more than anything other than gas...
The problem is that you are just telling a story. The median household owns their home, so there is no 8% rent increase, and used car prices have dropped more than anything other than gas utilities, so if someone was saving for a car it isn’t suddenly out of reach (not to mention they more likely than not already have a second car).
If you want to make up someone in the lower quartile then sure, it can look bleak, but I don’t think that’s because of this month’s CPI.
To tell a story more in line with owning a home: my home insurance rate is up, my auto insurance rate is up, electric bill is up, gas bill is up, water bill is up, and sewer bill is up. My family...
To tell a story more in line with owning a home: my home insurance rate is up, my auto insurance rate is up, electric bill is up, gas bill is up, water bill is up, and sewer bill is up. My family is still making ends meet, but our disposable income is down, and we don't have any idea if/when it'll stabilize. And return to office mandates couples with companies downsizing, seemingly maliciously, in the news have us saving more to weather an anticipated storm.
Maybe I wasn't completely clear: I literally made most of that up. If it was gonna be an actual thing, building different profiles would be much more useful.
Maybe I wasn't completely clear: I literally made most of that up.
If it was gonna be an actual thing, building different profiles would be much more useful.
I'm having a hard time trying to wrap my head around how this would ever be more than just "not bad news." Insane amounts of inflation already happened and it's damn unlikely to ever be reversed....
I'm having a hard time trying to wrap my head around how this would ever be more than just "not bad news."
Insane amounts of inflation already happened and it's damn unlikely to ever be reversed. Housing prices have doubled/tripled in most areas, food costs are up 20-50%, the price of a car is still insane, and every day things like utilities, luxuries, and necessities are just going up up up.
That money is never coming back to the average American, so forgive me if I don't get excited about "only 3% inflation"
Yea pretty much the only way it would cease being bad news is if we saw DPI growth outpacing inflation to the point that it compensated for the inflation for the past 20 years.
Yea pretty much the only way it would cease being bad news is if we saw DPI growth outpacing inflation to the point that it compensated for the inflation for the past 20 years.
I think putting that information in relatable and easy to digest tidbits is definately needed to help people understand. However, I don't trust the typical American driven by emotion instead of...
I think putting that information in relatable and easy to digest tidbits is definately needed to help people understand. However, I don't trust the typical American driven by emotion instead of logic would understand what things like "median" and "average" means. Logically, wearing a thin piece of fabric to save lives other than your own should have been no problem. Instead, driven by their emotions, they were toting AR-15s to their state capitals and blocking hospitals demanding haircuts and Applebee's.
I'm afraid those same people will also automatically dismiss such information if it doesn't completely fall in line with their experiences. I know you said your numbers were made up as an example but pretending for a moment they weren't.. They could pick those numbers apart in a number of ways. Some they may just outright disagree with like $100/month for clothes because they don't have to shop for kids anymore so that doesn't match what they "see". Other people might tune out after $300/month for utilities because maybe they live in a place where electric is cheap(er) and they're on a well or the opposite: their electic is more expensive and they have water/sewer bills that raise their utility bills significantly higher than what is listed.
Pretty solid numbers, especially core CPI going down. Housing is really the only thing that's still sticky, and because housing has such inelastic demand it'll be hard to dent prices much with...
Pretty solid numbers, especially core CPI going down. Housing is really the only thing that's still sticky, and because housing has such inelastic demand it'll be hard to dent prices much with monetary policy.
There'll probably be another .25 hike but that may be it for a while if core keeps steady or lowering.
That being said, I'm excited for all the hubbub when headline YoY inflation goes up next month because that was when headline CPI collapsed last year when energy prices dropped like a rock.
To throw an anecdote in there, I'm not going to pretend like I'm the most price conscious person, but offhand I don't think there's been much of any price increases in many expenditures the last 6 months or so.
I haven't seen a post on Tildes about inflation yet, but I track it pretty rigorously because, as a Canadian, it directly impacts me. As a note, the Bank of Canada just raised rates another 25bps...
How is this affecting everyone on here? Have things changed due to inflation or the rate increases?
US June Inflation Information
Both the headline and core numbers rose 0.2 percent month-over-month in June. On an annual basis, prices rose 3 percent, and when food and energy are excluded, prices rose 4.8 percent.
Sorry that I don't know my markdown for Tildes very well yet, but there was a thread recently asking this question How are Y'all Dealing with Inflation
Sorry that I don't know my markdown for Tildes very well yet, but there was a thread recently asking this question How are Y'all Dealing with Inflation
I remember reading somewhere about the Fed's attempt at a "soft landing" it's certainly been a bit rough the last year or so, but these numbers give me some hope. There are folks, the Fed...
I remember reading somewhere about the Fed's attempt at a "soft landing" it's certainly been a bit rough the last year or so, but these numbers give me some hope.
There are folks, the Fed included, that believe unemployment is correlated/tied to inflation. By driving up rates, unemployment is supposed to go up too, but it hasn't. Jobs reports are steady-ish IIRC, so I think we are getting close to equilibrium. Whether or not you believe that equilibrium is in the right spot, is up for debate.
I believe the Fed's goal remains a soft landing, and certainly equities are pricing this in. But it remains to be seen if they can actually pull it off or not. I agree there's a weird dichotomy...
I believe the Fed's goal remains a soft landing, and certainly equities are pricing this in.
But it remains to be seen if they can actually pull it off or not.
I agree there's a weird dichotomy with jobs and the economy right now, and hopefully that leads to a soft landing.
I think this has to do with the kind of work available, and what it pays. When employers started paying folks better to retain talent, plus COVID money. This extra liquid money is what pretty much...
I think this has to do with the kind of work available, and what it pays. When employers started paying folks better to retain talent, plus COVID money. This extra liquid money is what pretty much everyone points to as "the source of inflation" which I think is a croc.
Companies don't have to raise prices when they already make a profit hand over fist, but do so anyway because "unending growth" for "shareholder earnings"
So now those workers who got to enjoy some personal luxuries thanks to their new money, are now back to bare minimum because prices on the things they need to survive have skyrocketed. We see this in the CPI numbers month over month. CPI for "luxury" goods has been flat because nobody can afford them anymore, while necessities continue to climb.
It is also what you are supposed to do as a participant in a market economy to ensure it reaches equilibrium.
Companies don't have to raise prices when they already make a profit hand over fist, but do so anyway because "unending growth" for "shareholder earnings"
It is also what you are supposed to do as a participant in a market economy to ensure it reaches equilibrium.
Sure, but Companies and shareholders need to be putting something back into the market economy too, something worth the increase in cost. Instead they sit on mountains of profit and record CEO...
Sure, but Companies and shareholders need to be putting something back into the market economy too, something worth the increase in cost. Instead they sit on mountains of profit and record CEO payouts.
They haven't been given an incentive to spend it on the market. When they did, we saw wage growth for the first time in a long time. Now inflation has all but destroyed whatever wage gains were made, and that money didn't go to the government for taxes, it went back to companies.
I guess what I'm saying in short is I think the equilibrium the Fed is shooting for, isn't the one i agree with.
Is there an indicaton that they're not? For one, companies put things into the economy by definition when they make profit - that's why there is profit, they're providing some good or service to...
Is there an indicaton that they're not? For one, companies put things into the economy by definition when they make profit - that's why there is profit, they're providing some good or service to other people who give them money. For investors, if you get liquidity from share buybacks or dividends and you're not reinvesting that in a relatively high inflation period with almost 5% interest rates, then the only disservice you're doing is yourself.
Now, companies are increasing their own cash holdings, but when they spent it all on dividends, R&D, or stock buybacks the refrain was "why can't they responsible operate". Increasing cash reserves in a time of economic turbulence is expected.
Beyond all that, the price increase has a important role in market economies as a price signal. Let's say you have widget X, and demand for it has greatly increased while the cost of manufacturing it has not, meaning the new point of maximum profitability went from $5/unit to $10/unit. So you raise the price to $10/unit.
Now your margins increase greatly - this is a signal that the economy needs more widget X. When other companies see your fat margins making X, they're going to get in on the action, because they also want to make fat margins. They make X, and as overall supply of X goes on, the point of maximum profitability starts to go down, as the demand for you in specific is decreased, since you have competitors.
What we end up with is a lot more X in the world, which in most cases is what we want. The increase in demand causes a price signal which causes more production of X.
If, for some reason, you couldn't raise your prices, then there would be no price signal, and instead we'd just have shortages of X over the long term.
If someone sold you an apple last year, and it cost them $.25 and you paid $1, they made $.75, or a 300% markup. If they sold you that same apple this year for $2, they kept $1.75, or a 700%...
If someone sold you an apple last year, and it cost them $.25 and you paid $1, they made $.75, or a 300% markup. If they sold you that same apple this year for $2, they kept $1.75, or a 700% markup, and they didn't add anything extra to the economy this year. Their outlay is still .$25, and that's the part we care about. The net profit is by definition the part of the money that doesn't immediately go back into the economy. They may spend that elsewhere, but record profits means record amounts of money that are sitting stagnant in these companies' accounts.
It's possible that other companies will see those margins and compete, but given the sorry state of anti-trust laws in this country that isn't a given.
No, you provided more to the economy, because the apples are more valuable. Let's say we found out that apples cured cancer. The demand for apples would skyrocket, and the price of apples would as...
No, you provided more to the economy, because the apples are more valuable. Let's say we found out that apples cured cancer. The demand for apples would skyrocket, and the price of apples would as well. But they're also providing MORE value, since the new information driving the demand causes us to give apples to cancer patients, curing them of cancer. Curing people of cancer is more valuable than pleasurable snack. The value apple producers are providing for the economy has gone UP, even though apples have not changed in how much they cost to grow. The value of a good or service is floating, not fixed.
If other companies cannot compete because of barriers, that's a market failure, and a different problem. The thing is, it's one thing if you want us to have a planned economy (although, history has not been kind), but within a market economy, it's not like companies are being nefarious or not expected by raising prices to market equilibria - that is what they are supposed to do, it's not that you charge production cost + some fixed percentage.
If they're in some kind of market failure, like they have a natural monopoly, or they're in a cartel, then yeah, that's bad, not what they're supposed to do, and that behavior should be stamped out from a theoretical point of view, regardless of whether or not you think the government can do it. But in abstract, companies raising prices from market signals is not something that should be prevented.
But cost doesn't equal value. An apple has the same value to the person. It makes for a decent snack, or as part of a pie, or whatever. In your example, the functional utility of the apple has...
But cost doesn't equal value. An apple has the same value to the person. It makes for a decent snack, or as part of a pie, or whatever. In your example, the functional utility of the apple has changed to support the change in price, and that's not what's happening in reality right now. The quality is not increasing with the price. That they were still willing to pay for it is a good signal that your pricing isn't outside what the market will bear, but that's not you providing a benefit to the economy unless you in turn spend that money elsewhere. I agree that visibly rising prices separate from broad macroeconomic trends is a valuable price signal, but I disagree that a rising price automatically correlates with increased economic value. People can just be being bled dry.
Though I'm not saying that companies should be prevented from raising prices. Fixing prices often has broadly disruptive effects, though I could definitely argue for some form of price controls or subsidy on basic necessities to ensure a minimum quality of life for everyone. Rather, I'd like higher corporate taxes to encourage reinvestment in R&D or infrastructure. I know that stock repurchasing or dividend payouts can be argued to provide the same boost to the economy, but in those cases the money flows to whatever the stock market is enthralled with at the moment as opposed to building additional support for existing industries. I'd prefer that we ensure our existing industries are secured and that additional research is directed through government and corporate funding as opposed to stock market whims.
Ultimately, any price controls that result in below-cost prices need to have suppliers paid out of tax subsidies. This of course would require not lowering taxes, but that's often seen untenable...
Ultimately, any price controls that result in below-cost prices need to have suppliers paid out of tax subsidies. This of course would require not lowering taxes, but that's often seen untenable in Amerika.
Let's look at a real example, because I don't think it's a helpful exercise to look at some hypothetical arbitrary increase in prices. Lots of chickens died or were culled due to disease, which...
Let's look at a real example, because I don't think it's a helpful exercise to look at some hypothetical arbitrary increase in prices. Lots of chickens died or were culled due to disease, which caused egg shortages. The value that the remaining egg producers provided was having facilities that did not have disease. Because of this, people were still able to get eggs, just at increased prices due to decreased supply. I didn't see any eggs available for purchase at Costco for a few months, I think because they had limited stock and didn't increase prices so they would sell out immediately. If all stores had done the same, I would have had to resort to extreme measures like waiting in line in the morning if I really needed an egg for a cake or something. Instead, I just stopped eating eggs for a while. Anyway, the price is eggs is down now, so it's not like egg producers can just arbitrarily increase prices.
An egg doesn't have intrinsic coupling between value and price; the value is dependent on what people want and the price is how much they'll pay for it balanced against the amount available. The...
An egg doesn't have intrinsic coupling between value and price; the value is dependent on what people want and the price is how much they'll pay for it balanced against the amount available. The value doesn't have to change for the price to go up or down. Eggs averaged $2.47 in 2015 and $1.68 in 2016. That doesn't mean that the producers of eggs provided less value that year.
So it's true that no additional value is provided to account for the increase in prices, but the egg producers did provide value. The value added was the availability of the eggs themselves. They are providing value by doing what other suppliers could not do, which was continuing to provide eggs. This might have been due to better hygiene practices, or just luck due to diversity of suppliers, but either way their ability to continue producing eggs was a thing that has value. You could only say that no value was demonstrated if you take the presence of eggs for granted. Recent examples of eggs and baby formula demonstrate that the production of foodstuffs is not guaranteed.
Unfortunately the Fed doesn't really control wages; their goal is keeping inflation in check. Wages and living standards should be the realm of Congress. Boosting the federal minimum wage would do...
Unfortunately the Fed doesn't really control wages; their goal is keeping inflation in check. Wages and living standards should be the realm of Congress. Boosting the federal minimum wage would do a lot, but that's obviously not happening any time soon in the US.
But it is also shortsighted and defies physics. This is not sustainable in the face of a finite planet. We need to figure out a better path collectively.
Not really, it has nothing to do with growth. In absentia of other factors, a company that makes $X and is growing is naturally worth more than a company that makes $X and doesn't grow. That's why...
Not really, it has nothing to do with growth. In absentia of other factors, a company that makes $X and is growing is naturally worth more than a company that makes $X and doesn't grow. That's why companies that have growth potential get higher multipliers on their fundamentals.
But that's really the minority of companies, which happen to be in the news a lot. Fossil fuel energy companies are examples of companies not in a growth market. The stock prices of oil companies is practically a sine curve - you're not buying it for long term stock growth, you're buying it for dividends.
There's nothing reliant about growth in a market economy - they arguably function better with finite resources, as more accurate resource allocation is more important when there isn't growth as a rising tide to lift all boats.
But of course when there's growth to be had, resources are focus on growth - which is the correct choice.
A soft landing has been looking like "mission accomplished" for a few months now, assuming the definition is "lowering inflation without tanking the economy." Inflation and unemployment have been...
A soft landing has been looking like "mission accomplished" for a few months now, assuming the definition is "lowering inflation without tanking the economy." Inflation and unemployment have been low for a year now, which fulfills the Fed's mandate. In addition to the that, employment-population ratio (ages 25-54) is at its highest point in over 20 years, the economy is still growing without any obvious signs of recession and the stock market is fine. Barring some other crazy event like pandemic or war, the economy seems to be on track in general. The biggest problems people are facing seem to be related to inequality, but that's not really the Fed's purview; we need to legislation for that. If this isn't already a soft landing, what would have to happen for you to label it as a soft landing?
What would need to happen for me to label it as a soft landing? For me, no technical recession and no stock market crash over the next 2 years. I don't believe the market is properly pricing in...
What would need to happen for me to label it as a soft landing? For me, no technical recession and no stock market crash over the next 2 years.
I don't believe the market is properly pricing in what is going on with earnings and future earnings, yet. But hey, we'll see! They're definitely betting on a soft landing, with a bit of insanity mixed in (NVDA...).
Based on what I'm seeing, despite the cheery headline, this is still not looking great for the average person. This is offset a bit by the oil and gas markets stabilizing after the Russian invasion of Ukraine. This is trickling to the energy market faster, and will hopefully translate to transportation and food a bit later.
My doom and gloom is somewhat predicated on pairing this data with DPI and PCE data. Consumer spending on goods is still down hard and probably will remain so for the forseeable future, because DPI(disposable personal income) is not keeping pace with CPI gains. Spending on services is up, but that isn't neccessarily reflective of improving economy either. A good example of a problematic services/goods consumer spending imbalance: If cars remain unaffordable, people who need cars to get around will spend more on car-ride services to get around. Its another potential poverty trap if wages don't increase enough to afford cars.
Seeing this data makes me want to invent a proper economic outlook method for the average person, which more accurately reflects how CPI, DPI, and PCE interact in plain English. Much how you would write user stories for designing UIs. This would be more reflective of what an average person's economic outlook is... because that's what most people actually care about. Some things here will be a bit arbitrary for illustrative purposes.
Describing the income/expenses of Joe median. TLDR he has $800/mo in disposable income.
Here's Joe Median, 35, family of 3, New Jersey taxes:
So that's $800 a month for Joe Median to spend on literally anything not mentioned above. 15% of their income to cover a lot of expenses I didn't even think about. You should notice that there's absolutely nothing for childcare, car insurance, any consumer goods like furniture, kitchen utensils, tools, or electronics. Also missing is literally any semblance of building savings, of which Joe Median is unlikely to have even $5,000 of.
So here's a financial forecast for Joe, looking at the 12 mo un-adjusted:
He'll probably see his rent go up 8% if his annual lease ends, so his disposable income could take a $168 hit. Fuel costs are looking down though, so maybe those gas prices will drop a bit, might be able to scrape a nice $20 savings there. Food costs are holding steady, so at least Joe doesn't have to go into more debt for food this month! New cars are still basically unaffordable, but used cars might be returning to reasonable prices. Maybe Joe will be able to upgrade from his 2015 car with 150,000 miles on it when he pays it off in 3 years. Looks like getting a second car for Mom and Junior is still a ways off though.
The problem is that you are just telling a story. The median household owns their home, so there is no 8% rent increase, and used car prices have dropped more than anything other than gas utilities, so if someone was saving for a car it isn’t suddenly out of reach (not to mention they more likely than not already have a second car).
If you want to make up someone in the lower quartile then sure, it can look bleak, but I don’t think that’s because of this month’s CPI.
To tell a story more in line with owning a home: my home insurance rate is up, my auto insurance rate is up, electric bill is up, gas bill is up, water bill is up, and sewer bill is up. My family is still making ends meet, but our disposable income is down, and we don't have any idea if/when it'll stabilize. And return to office mandates couples with companies downsizing, seemingly maliciously, in the news have us saving more to weather an anticipated storm.
Maybe I wasn't completely clear: I literally made most of that up.
If it was gonna be an actual thing, building different profiles would be much more useful.
I'm having a hard time trying to wrap my head around how this would ever be more than just "not bad news."
Insane amounts of inflation already happened and it's damn unlikely to ever be reversed. Housing prices have doubled/tripled in most areas, food costs are up 20-50%, the price of a car is still insane, and every day things like utilities, luxuries, and necessities are just going up up up.
That money is never coming back to the average American, so forgive me if I don't get excited about "only 3% inflation"
Yea pretty much the only way it would cease being bad news is if we saw DPI growth outpacing inflation to the point that it compensated for the inflation for the past 20 years.
I think putting that information in relatable and easy to digest tidbits is definately needed to help people understand. However, I don't trust the typical American driven by emotion instead of logic would understand what things like "median" and "average" means. Logically, wearing a thin piece of fabric to save lives other than your own should have been no problem. Instead, driven by their emotions, they were toting AR-15s to their state capitals and blocking hospitals demanding haircuts and Applebee's.
I'm afraid those same people will also automatically dismiss such information if it doesn't completely fall in line with their experiences. I know you said your numbers were made up as an example but pretending for a moment they weren't.. They could pick those numbers apart in a number of ways. Some they may just outright disagree with like $100/month for clothes because they don't have to shop for kids anymore so that doesn't match what they "see". Other people might tune out after $300/month for utilities because maybe they live in a place where electric is cheap(er) and they're on a well or the opposite: their electic is more expensive and they have water/sewer bills that raise their utility bills significantly higher than what is listed.
Pretty solid numbers, especially core CPI going down. Housing is really the only thing that's still sticky, and because housing has such inelastic demand it'll be hard to dent prices much with monetary policy.
There'll probably be another .25 hike but that may be it for a while if core keeps steady or lowering.
That being said, I'm excited for all the hubbub when headline YoY inflation goes up next month because that was when headline CPI collapsed last year when energy prices dropped like a rock.
To throw an anecdote in there, I'm not going to pretend like I'm the most price conscious person, but offhand I don't think there's been much of any price increases in many expenditures the last 6 months or so.
I haven't seen a post on Tildes about inflation yet, but I track it pretty rigorously because, as a Canadian, it directly impacts me.
As a note, the Bank of Canada just raised rates another 25bps this morning to 5%.
How is this affecting everyone on here? Have things changed due to inflation or the rate increases?
US June Inflation Information
News release on latest data: Yahoo Finance
Latest CPI release: Consumer Price Index Summary - Results (bls.gov)
Latest CPI data tables: Consumer Price Index - Results (bls.gov)
The CPI Supplemental files can be found here: Consumer Price Index - Supplemental Files
Expectations are as follows:
CPI M/M
CPI Y/Y
Core CPI - Ex-Food & Energy M/M
Core CPI - Ex-Food & Energy Y/Y
Information about the CPI can be found at the Bureau of Labor Statistics here: CPI Home : U.S. Bureau of Labor Statistics (bls.gov)
Sorry that I don't know my markdown for Tildes very well yet, but there was a thread recently asking this question How are Y'all Dealing with Inflation
Ah I think I missed that one! Hopefully this post is still okay despite being somewhat similar.
My post was pretty much just a rant into the void, not informative like yours
Absolutely. Both threads are great.
I remember reading somewhere about the Fed's attempt at a "soft landing" it's certainly been a bit rough the last year or so, but these numbers give me some hope.
There are folks, the Fed included, that believe unemployment is correlated/tied to inflation. By driving up rates, unemployment is supposed to go up too, but it hasn't. Jobs reports are steady-ish IIRC, so I think we are getting close to equilibrium. Whether or not you believe that equilibrium is in the right spot, is up for debate.
I believe the Fed's goal remains a soft landing, and certainly equities are pricing this in.
But it remains to be seen if they can actually pull it off or not.
I agree there's a weird dichotomy with jobs and the economy right now, and hopefully that leads to a soft landing.
I think this has to do with the kind of work available, and what it pays. When employers started paying folks better to retain talent, plus COVID money. This extra liquid money is what pretty much everyone points to as "the source of inflation" which I think is a croc.
Companies don't have to raise prices when they already make a profit hand over fist, but do so anyway because "unending growth" for "shareholder earnings"
So now those workers who got to enjoy some personal luxuries thanks to their new money, are now back to bare minimum because prices on the things they need to survive have skyrocketed. We see this in the CPI numbers month over month. CPI for "luxury" goods has been flat because nobody can afford them anymore, while necessities continue to climb.
It is also what you are supposed to do as a participant in a market economy to ensure it reaches equilibrium.
Sure, but Companies and shareholders need to be putting something back into the market economy too, something worth the increase in cost. Instead they sit on mountains of profit and record CEO payouts.
They haven't been given an incentive to spend it on the market. When they did, we saw wage growth for the first time in a long time. Now inflation has all but destroyed whatever wage gains were made, and that money didn't go to the government for taxes, it went back to companies.
I guess what I'm saying in short is I think the equilibrium the Fed is shooting for, isn't the one i agree with.
Is there an indicaton that they're not? For one, companies put things into the economy by definition when they make profit - that's why there is profit, they're providing some good or service to other people who give them money. For investors, if you get liquidity from share buybacks or dividends and you're not reinvesting that in a relatively high inflation period with almost 5% interest rates, then the only disservice you're doing is yourself.
Now, companies are increasing their own cash holdings, but when they spent it all on dividends, R&D, or stock buybacks the refrain was "why can't they responsible operate". Increasing cash reserves in a time of economic turbulence is expected.
Beyond all that, the price increase has a important role in market economies as a price signal. Let's say you have widget X, and demand for it has greatly increased while the cost of manufacturing it has not, meaning the new point of maximum profitability went from $5/unit to $10/unit. So you raise the price to $10/unit.
Now your margins increase greatly - this is a signal that the economy needs more widget X. When other companies see your fat margins making X, they're going to get in on the action, because they also want to make fat margins. They make X, and as overall supply of X goes on, the point of maximum profitability starts to go down, as the demand for you in specific is decreased, since you have competitors.
What we end up with is a lot more X in the world, which in most cases is what we want. The increase in demand causes a price signal which causes more production of X.
If, for some reason, you couldn't raise your prices, then there would be no price signal, and instead we'd just have shortages of X over the long term.
If someone sold you an apple last year, and it cost them $.25 and you paid $1, they made $.75, or a 300% markup. If they sold you that same apple this year for $2, they kept $1.75, or a 700% markup, and they didn't add anything extra to the economy this year. Their outlay is still .$25, and that's the part we care about. The net profit is by definition the part of the money that doesn't immediately go back into the economy. They may spend that elsewhere, but record profits means record amounts of money that are sitting stagnant in these companies' accounts.
It's possible that other companies will see those margins and compete, but given the sorry state of anti-trust laws in this country that isn't a given.
No, you provided more to the economy, because the apples are more valuable. Let's say we found out that apples cured cancer. The demand for apples would skyrocket, and the price of apples would as well. But they're also providing MORE value, since the new information driving the demand causes us to give apples to cancer patients, curing them of cancer. Curing people of cancer is more valuable than pleasurable snack. The value apple producers are providing for the economy has gone UP, even though apples have not changed in how much they cost to grow. The value of a good or service is floating, not fixed.
If other companies cannot compete because of barriers, that's a market failure, and a different problem. The thing is, it's one thing if you want us to have a planned economy (although, history has not been kind), but within a market economy, it's not like companies are being nefarious or not expected by raising prices to market equilibria - that is what they are supposed to do, it's not that you charge production cost + some fixed percentage.
If they're in some kind of market failure, like they have a natural monopoly, or they're in a cartel, then yeah, that's bad, not what they're supposed to do, and that behavior should be stamped out from a theoretical point of view, regardless of whether or not you think the government can do it. But in abstract, companies raising prices from market signals is not something that should be prevented.
But cost doesn't equal value. An apple has the same value to the person. It makes for a decent snack, or as part of a pie, or whatever. In your example, the functional utility of the apple has changed to support the change in price, and that's not what's happening in reality right now. The quality is not increasing with the price. That they were still willing to pay for it is a good signal that your pricing isn't outside what the market will bear, but that's not you providing a benefit to the economy unless you in turn spend that money elsewhere. I agree that visibly rising prices separate from broad macroeconomic trends is a valuable price signal, but I disagree that a rising price automatically correlates with increased economic value. People can just be being bled dry.
Though I'm not saying that companies should be prevented from raising prices. Fixing prices often has broadly disruptive effects, though I could definitely argue for some form of price controls or subsidy on basic necessities to ensure a minimum quality of life for everyone. Rather, I'd like higher corporate taxes to encourage reinvestment in R&D or infrastructure. I know that stock repurchasing or dividend payouts can be argued to provide the same boost to the economy, but in those cases the money flows to whatever the stock market is enthralled with at the moment as opposed to building additional support for existing industries. I'd prefer that we ensure our existing industries are secured and that additional research is directed through government and corporate funding as opposed to stock market whims.
Ultimately, any price controls that result in below-cost prices need to have suppliers paid out of tax subsidies. This of course would require not lowering taxes, but that's often seen untenable in Amerika.
Let's look at a real example, because I don't think it's a helpful exercise to look at some hypothetical arbitrary increase in prices. Lots of chickens died or were culled due to disease, which caused egg shortages. The value that the remaining egg producers provided was having facilities that did not have disease. Because of this, people were still able to get eggs, just at increased prices due to decreased supply. I didn't see any eggs available for purchase at Costco for a few months, I think because they had limited stock and didn't increase prices so they would sell out immediately. If all stores had done the same, I would have had to resort to extreme measures like waiting in line in the morning if I really needed an egg for a cake or something. Instead, I just stopped eating eggs for a while. Anyway, the price is eggs is down now, so it's not like egg producers can just arbitrarily increase prices.
But your example supports my point. The value of an egg didn't rise in tandem with the price, so you changed your behavior.
An egg doesn't have intrinsic coupling between value and price; the value is dependent on what people want and the price is how much they'll pay for it balanced against the amount available. The value doesn't have to change for the price to go up or down. Eggs averaged $2.47 in 2015 and $1.68 in 2016. That doesn't mean that the producers of eggs provided less value that year.
So it's true that no additional value is provided to account for the increase in prices, but the egg producers did provide value. The value added was the availability of the eggs themselves. They are providing value by doing what other suppliers could not do, which was continuing to provide eggs. This might have been due to better hygiene practices, or just luck due to diversity of suppliers, but either way their ability to continue producing eggs was a thing that has value. You could only say that no value was demonstrated if you take the presence of eggs for granted. Recent examples of eggs and baby formula demonstrate that the production of foodstuffs is not guaranteed.
I'm definitely not arguing that the provision of foodstuffs is of null or even neutral value. I think we're basically in agreement at this point.
Unfortunately the Fed doesn't really control wages; their goal is keeping inflation in check. Wages and living standards should be the realm of Congress. Boosting the federal minimum wage would do a lot, but that's obviously not happening any time soon in the US.
But it is also shortsighted and defies physics.
This is not sustainable in the face of a finite planet. We need to figure out a better path collectively.
Not really, it has nothing to do with growth. In absentia of other factors, a company that makes $X and is growing is naturally worth more than a company that makes $X and doesn't grow. That's why companies that have growth potential get higher multipliers on their fundamentals.
But that's really the minority of companies, which happen to be in the news a lot. Fossil fuel energy companies are examples of companies not in a growth market. The stock prices of oil companies is practically a sine curve - you're not buying it for long term stock growth, you're buying it for dividends.
There's nothing reliant about growth in a market economy - they arguably function better with finite resources, as more accurate resource allocation is more important when there isn't growth as a rising tide to lift all boats.
But of course when there's growth to be had, resources are focus on growth - which is the correct choice.
A soft landing has been looking like "mission accomplished" for a few months now, assuming the definition is "lowering inflation without tanking the economy." Inflation and unemployment have been low for a year now, which fulfills the Fed's mandate. In addition to the that, employment-population ratio (ages 25-54) is at its highest point in over 20 years, the economy is still growing without any obvious signs of recession and the stock market is fine. Barring some other crazy event like pandemic or war, the economy seems to be on track in general. The biggest problems people are facing seem to be related to inequality, but that's not really the Fed's purview; we need to legislation for that. If this isn't already a soft landing, what would have to happen for you to label it as a soft landing?
What would need to happen for me to label it as a soft landing? For me, no technical recession and no stock market crash over the next 2 years.
I don't believe the market is properly pricing in what is going on with earnings and future earnings, yet. But hey, we'll see! They're definitely betting on a soft landing, with a bit of insanity mixed in (NVDA...).