"Biflation"

[ziggy29]

So there *is* a word for this phenomenon we discuss from time to time:

Biflation - Wikipedia, the free encyclopedia

Quote:

With biflation on the other hand, the economy is tempered by increasing unemployment and decreasing purchasing power. As a result, a greater amount of money is directed toward buying essential items and directed away from buying non-essential items. Debt-based assets (mega-houses, high-end automobiles and stocks) become less essential and increasingly fall into lower demand. As a result, the prices for them fall due to the decreased volume of money chasing them. The decreasing costs to purchase these non-essential assets is the price-deflationary arm of biflation.

That about covers it. Biflation is a killer for people on moderate incomes tied to the CPI. Almost all of the stuff they buy rises in price, but their monthly income isn't growing because the price of a cruise vacation is falling. And "biflation" is how one can feel like their standard of living is falling despite being told there is no inflation.

[samclem]

Great find! I think we're gonna have another "CPI is rigged vs CPI is legit" discussion now.

Of course, there will be spinoffs:
Bibikeflation (Alt: Buybikeflaton): Prices for regular commodities declines due to low demand, but the populace is so poor that they eschew automobiles and seek out bicycles as replacements, driving up the price of two-wheeled transportation. (Derivative: Increase in bicycle thefts due to increased demand: Byebikeflation)
Triflation: The cost of luxury goods and nonessential declines, the price of essential staples increases, and the price of items which are nonessential but which may bring solace in tough economic times (MD 20-20, fishing gear, etc) escalates still more.

Sorry, hope I didn't cr*p on a perfectly good thread.

[ziggy29]

Quote:

Originally Posted by samclem Great find! I think we're gonna have another "CPI is rigged vs CPI is legit" discussion now. .... Sorry, hope I didn't cr*p on a perfectly good thread.

But should I rent or buy?

[John Galt III]

Thanks very much for posting that! I'm one of those folks who are tired of hearing that inflation is low. Using my local beer prices as an example of inflation, I have noticed the cheap beer has gone up about 15 % over the last 2 years but the expensive stuff has gone up a good 25% over the last 2 years. The typical $7.99 per case stuff is now $9.25 and the typical $23.99 a case stuff is now $30.99. Interestingly, I have started buying more of the expensive beer than I used to. I look for one of the expensive beers that has risen less than the others in price, and buy it.

I used to buy a locally brewed beer for $6.99 a case of 24 bottles 5 years ago. The very same case now costs $11.99. I stopped buying it when it hit $10.99 a case.

[REWahoo]

Quote:

Originally Posted by ziggy29 But should I rent or buy?

I think you should bi....

[Koolau]

So, if I understand the term "biflation", I suppose the appropriate response would be "Let them eat cake".

But seriously, I've always had an issue with the gummint's inflation numbers. They sure don't square with my experience.

[Rustic23]

2 liter Walmart soda, $.50 two years ago, $.72 yesterday, thats a 44% increase!

[kyounge1956]

Quote:

Originally Posted by samclem Great find! I think we're gonna have another "CPI is rigged vs CPI is legit" discussion now.(snip)

Instead, let's have an "investing strategies to cope with biflation" discussion. Not TIPs, because they are linked to the CPI, not the "EPPI" (essential purchases price index). Somebody mentioned in another thread (I don't recall which one at the moment) that they had bought stock in their local utility and were now receiving more in dividends than they were paying on their bill. That made me wonder if the same thing couldn't be done aimed at the ever-worrisome health-care expense. I suspect it might be possible also to arrange a portfolio that would track the EPPI in the same way, by tilting it toward the relevant industries. Suppose a big portion of a portfolio is in sector funds that include the things on the EPPI: food, health care, housing, transportation, utilities, consumer staples and so on. If these are going up, wouldn't profits be expected to rise along with prices, resulting in a portfolio that tracked the EPPI rather than the CPI?

[Rustic23]

"With biflation on the other hand, the economy is tempered by increasing unemployment and decreasing purchasing power"

"In economics, the term stagflation refers to the situation when both the inflation rate and the unemployment rate are high. "

Is there a difference? Seems to me Biflation is a rename of Stagflation.

[Gumby]

I would think basic consumer goods could do well in that environment -- PG, CLX, BUD, MO, KFT

[ziggy29]

Quote:

Originally Posted by Rustic23 "With biflation on the other hand, the economy is tempered by increasing unemployment and decreasing purchasing power" "In economics, the term stagflation refers to the situation when both the inflation rate and the unemployment rate are high. " Is there a difference? Seems to me Biflation is a rename of Stagflation.

Not quite, because in traditional stagflation, the price of everything is rising and the CPI will be "hot". With biflation, two distinct subsets of the economy are moving in opposite directions so the CPI will appear much tamer.

And in reality, someone on Social Security or a COLA'd pension would likely prefer to have full blown inflation or stagflation than biflation, because with biflation their true cost of living is probably rising but their monthly check isn't. At least when the price of *everything* is rising, so too will their CPI-indexed income stream.

[dex]

Quote:

Originally Posted by ziggy29 So there *is* a word for this phenomenon we discuss from time to time: Biflation - Wikipedia, the free encyclopedia That about covers it. Biflation is a killer for people on moderate incomes tied to the CPI. Almost all of the stuff they buy rises in price, but their monthly income isn't growing because the price of a cruise vacation is falling. And "biflation" is how one can feel like their standard of living is falling despite being told there is no inflation.

I'm not sure if I agree with the article on a couple of points or maybe it is just the explanation.

Quote:

Since most essential commodity-based assets (food, energy, clothing) remain in high demand, the price for them rises due to the increased volume of money chasing them. The increasing costs to purchase these essential assets is the price-inflationary arm of Biflation

The demand for the items mentioned above is inelastic. So, the volume of money will not affect the demand. But, if there is a speculative surge, flight to safety into those items or a decrease in the value of the $; I could see the prices rising. (Not mentioned)

I would agree with the statement that the cost of the items above remain relatively constant while the items mentioned below decrease in price - they have an elastic demand curve.

Quote:

As a result, a greater amount of money is directed toward buying essential items and directed away from buying non-essential items. Debt-based assets (mega-houses, high-end automobiles and stocks) become less essential and increasingly fall into lower demand.

[RonBoyd]

Quote:

Originally Posted by REWahoo I think you should bi....

Until the price hits $10.99.

[RonBoyd]

Quote:

Originally Posted by samclem Great find!

+1

[fritz]

Quote:

Originally Posted by samclem Great find! I think we're gonna have another "CPI is rigged vs CPI is legit" discussion now. Of course, there will be spinoffs: Bibikeflation (Alt: Buybikeflaton): Prices for regular commodities declines due to low demand, but the populace is so poor that they eschew automobiles and seek out bicycles as replacements, driving up the price of two-wheeled transportation. (Derivative: Increase in bicycle thefts due to increased demand: Byebikeflation) Triflation: The cost of luxury goods and nonessential declines, the price of essential staples increases, and the price of items which are nonessential but which may bring solace in tough economic times (MD 20-20, fishing gear, etc) escalates still more. Sorry, hope I didn't cr*p on a perfectly good thread.

Wouldn't the price of items which are nonessential but which may bring solace in tough economic times - be dependent on what you could carry while still able to ride the bike

[W2R]

Whatever name we want to pin on it, I think the concept is right on the money.

Prices are rising at my grocery store, but when I hired a well regarded local landscaping company to take down a tree and do some very labor-intensive landscaping work this week, the price was about 1/2 to 1/3 of what I think they would have charged several years ago. (This is not a national company, but a local family-owned small business).

Surely the reason for the low price is that they are having a hard time finding work lately and their laborers are willing to work for lower wages. Landscaping is usually something one can put off, but grocery shopping isn't.

I don't expect to receive cost of living increases in my federal pension or Social Security, once I claim it, for years. If COLA'd pensions don't get a COLA, then it seems to me that they are on a similar footing as non-COLA'd pensions. Interesting.

The only thing that doesn't seem to fit with this Biflation model, is that rents do not seem to be rising very fast. Well, they are not rising fast in my area, anyway.

[Amethyst]

$69 three years ago to have someone come to look at a non-working major appliance.
$112 today. This was just the "come to the door" price - everything else extra.

Amethyst

[W2R]

Quote:

Originally Posted by Amethyst $69 three years ago to have someone come to look at a non-working major appliance. $112 today. This was just the "come to the door" price - everything else extra.

Wow! I'm glad I don't live where you live, in the D.C. suburbs according to your profile. That's so exorbitant.

Here, all my estimates for "fix-up" work to prepare my house for selling, have been not only free, but prompt. I guess that's a regional difference maybe.

[REWahoo]

Quote:

Originally Posted by samclem Of course, there will be spinoffs: Bibikeflation (Alt: Buybikeflaton): Prices for regular commodities declines due to low demand, but the populace is so poor that they eschew automobiles and seek out bicycles as replacements, driving up the price of two-wheeled transportation. (Derivative: Increase in bicycle thefts due to increased demand: Byebikeflation)

You omitted the most obvious...

Bifurked: What we is.

[ziggy29]

Quote:

Originally Posted by W2R Wow! I'm glad I don't live where you live, in the D.C. suburbs according to your profile. That's so exorbitant.

Of course, the D.C. area is highly recession-resistant when you consider their main industry...