Inflation or Deflation?

[endthefed]

Quote:

Originally Posted by haha Yes, it's that old favorite of CPI economists- substitution. For example, one can substitute fasting for eating, spirituality for hedonism. Unless of course your chosen spirituality involves a place of worship which must be supported. But that is really no problem either, silent prayer at home can be substituted for churchgoing. Self love or the small capital cost of an appropriate sex toy can be substituted for wasting money on dates with other humans. So you see, just as our most benevolent and highly esteemed government tells us, the cost of living is actually going down.

haha - you rule! good stuff

[haha]

Quote:

Originally Posted by DoingHomework Health care costs are going up because there is greater demand for it.

And in the US, because we have devised and insist on keeping a uniquely dysfunctional health care system.

Ha

[traineeinvestor]

My initial reaction to the question was that it feels like we have:

1. an inflationary bias for things which are necessities - like health care, education costs for my children, utilities, housing and a lot of food items

2. a deflationary for things which are strictly optional - like tvs, books

However, it didn't take much effort to come with with a list of optional items for which prices have increased (e.g airtickets, movie tickets, good wine, jewellery, taxi fares). What I couldn't do was come up with many exampels of necessities which have actually decreased. In fact, the only one I could come up with was rates (due to government waivers).

So I guess I fall in the inflationary camp based on personal experience.

Given the generally held perception that deflation is worse than inflation and the ability of central banks to inflate the money supply more or less at will, my expectation is that inflation is more likely than deflation going forward.

As far as the question of whether the selection of goods and services used to calculate CPI results in inflation being understated or not - while there is certainly plenty of room to to be suspicious, I view it as being something of an irrelevancy.

My retirement plan is built around an expectation that my personal cost of living is likely to increase at a rate higher than the average level of inflation because a significant part of my expenses will be weighted towards things which are (i) necessities and/or (ii) subject to price inelasticity and/or (iii) are supplied by monopolies or oligopolies which are not regulated by an anti-trust regulator.

[harley]

Quote:

Originally Posted by M Paquette With the tighter credit and shrinking money supply, we'll likely have net deflation in the near term, the next year or so. Oh, some things like medical expenses will continue to inflate, but between personal and regional business and government belt tightening, there aren't any inflationary pressures, so I would expect the shrinking money supply to lead to slight deflation.

Quote:

Originally Posted by clifp I pray for inflation. The greatest collapse since the great depression has caused deflation. In the short term I don't see much inflation pressure either in fact just the opposite as people are accepting jobs (when they can find them) at lower wages than they were use and business are having a very hard time raising prices. Part of the reason I bought bank stocks a couple of years, was because like endthefed I was confident that cozy relation between bankers and the Fed would mean long sustained profits for banks. Obviously we were all wrong,. Despite the best effort of the all bankers in the world to inject money into the system, the increase in the money supply has not been nearly enough to compensate for the even larger decrease in the velocity. We are even seeing things like Americans (at least the 80% or so with jobs) save money, this is another bad sign of deflation and a significant factor in the 0-1% rates we are seeing.

I would love to see some statistics backing any of this up. How do y'all determine that we have a shrinking money supply? Didn't the Fed just create a few trillion dollars? Poof? Out of nothing? And government belt tightening? Isn't that like limited nuclear war? Americans are saving money? Geithner Still Claims Savings Rates Are Up. Savings Rates Still Ain't Up. - Hit & Run : Reason Magazine

And I'm especially incensed by the statement "Despite the best effort of the all bankers in the world to inject money into the system". Where do you get that? All I'm reading is about the incredible difficulty individuals and small businesses are having getting credit, due to the banks having received all the bailout money at basically no interest, buying gov't bonds with it at 3+%, and stockpiling the profits.

It sounds like y'all and I are not living in the same reality. Of course, I've had that problem in the past, but I haven't done any of that stuff recently.

[FIREd]

Quote:

Originally Posted by ejman Not a scientific process but since ER in December 2002 my standard of living is about the same and I do the same things i.e. I eat out about as often, travel about as often, I buy about the same things each year etc. And. thanks to the magic of Quicken TADA! expenses are also about the same for the last 8 years ergo no inflation ( and no deflation either). My Health insurance has gone up pretty consistently though... $400 8 years ago, now $600 but my deductible is way up! ( Thank God I've not tested it).

Same experience here:

http://www.early-retirement.org/foru...ate-50336.html

[endthefed]

Quote:

Originally Posted by harley I would love to see some statistics backing any of this up. How do y'all determine that we have a shrinking money supply? Didn't the Fed just create a few trillion dollars? Poof? Out of nothing? And government belt tightening? Isn't that like limited nuclear war? Americans are saving money? Geithner Still Claims Savings Rates Are Up. Savings Rates Still Ain't Up. - Hit & Run : Reason Magazine And I'm especially incensed by the statement "Despite the best effort of the all bankers in the world to inject money into the system". Where do you get that? All I'm reading is about the incredible difficulty individuals and small businesses are having getting credit, due to the banks having received all the bailout money at basically no interest, buying gov't bonds with it at 3+%, and stockpiling the profits. It sounds like y'all and I are not living in the same reality. Of course, I've had that problem in the past, but I haven't done any of that stuff recently.

you are correct. the banks are sitting on the (our) money. it's on deposit at the fed or buying US govt bonds. when you can borrow at zero percent, why take any risk?

secondary benefit -it keeps the economy sluggish and unemployment high. this keeps velocity down - which hides their monetary inflation and provides friction against rising prices (the public's definition of inflation).

the potential energy (pent up money) is huge -- rising prices will take off as soon as velocity returns to normal.

[samclem]

Quote:

Originally Posted by haha And in the US, because we have devised and insist on keeping a uniquely dysfunctional health care system. Ha

I'll agree our health care "system" is dysfunctional. But lots of countries with the centrally-managed or single-payer systems have experienced higher medical inflation than the US has, so I don't think we can lay the blame entirely on how our "system" is set up. (Yes, our per person costs are still higher than almost any other country). Source: Business Week, Sep 09

[endthefed]

this is why we need a free market solution to HC. get the government and their schemes/anticompetitive regulations out of it. the natural condition of a free market is falling prices....as processes and output is streamlined over time.

single payer or the US hmo + fed govt model are both anti-free market...and the results show that.

[haha]

Quote:

Originally Posted by samclem I'll agree our health care "system" is dysfunctional. But lots of countries with the centrally-managed or single-payer systems have experienced higher medical inflation than the US has, so I don't think we can lay the blame entirely on how our "system" is set up. (Yes, our per person costs are still higher than almost any other country). Source: Business Week, Sep 09

I view this as a natural outcome of these countries having a smaller base expense. Just like it is easier for Nevada to grow population very rapidly than it is for California.

Ha

[Meadbh]

This morning, the Bank of Canada became the first G8 central bank to raise interest rates, by 25 basis points, to 0.5%. But Mark Carney did not indicate that this would necessarily be the first of many increases. He thinks there are inflationary pressures but that the global economy is not out of the woods yet.

Bank of Canada hikes interest rates - The Globe and Mail



This doesn't look like deflation to me....

[DoingHomework]

Quote:

Originally Posted by haha And in the US, because we have devised and insist on keeping a uniquely dysfunctional health care system. Ha

Of course. I agree 100%. But increasing demand due to an aging population is also a factor. Realistically, if prices doubled, most people could not avoid healthcare. The most they could do to signal displeasure with prices would be to accept more risk and take on less insurance or accept higher deductibles. I have personally come to believe that we need much more regulation of health care even though I am generally against government involvement.

Increasing demand also explains why college costs are going up. When colleges can raise tuition by 25% in a year and not measurably affect demand (enrollment) I think that is clear evidence that costs can still go up. It is unfortunate for those paying though.

[ziggy29]

Quote:

Originally Posted by DoingHomework Increasing demand also explains why college costs are going up. When colleges can raise tuition by 25% in a year and not measurably affect demand (enrollment) I think that is clear evidence that costs can still go up. It is unfortunate for those paying though.

It's also testimony to the staying power of the myth that college ensures "earning power" and not going to college ensures poverty.

[endthefed]

Quote:

Originally Posted by DoingHomework Of course. I agree 100%. But increasing demand due to an aging population is also a factor. Realistically, if prices doubled, most people could not avoid healthcare. The most they could do to signal displeasure with prices would be to accept more risk and take on less insurance or accept higher deductibles. I have personally come to believe that we need much more regulation of health care even though I am generally against government involvement. Increasing demand also explains why college costs are going up. When colleges can raise tuition by 25% in a year and not measurably affect demand (enrollment) I think that is clear evidence that costs can still go up. It is unfortunate for those paying though.

government in the market is what is driving up prices - exactly like housing.

sallie mae = freddie/fannie

artificially low interest rates subsidized by the federal government + free tuition to targeted groups = unchecked rising prices.

if the students actually had to pay, we wouldnt be seeing the meteoric rise.