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Old 12-17-2011, 11:01 AM   #21
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The 3.5% is definitely the reality of the past 12 months ( though on the things I spend money on it seems more). But the expectations of the current and immediate future are less.
Your expectations for future inflation may be less, but not mine. I believe we're going to continue to see a brisk inflation rate in the 3% to 4% range. In particular, I'm planning on paying more for energy, food, health care and taxes over the next few years.
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Old 12-17-2011, 11:11 AM   #22
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Your expectations for future inflation may be less, but not mine. I believe we're going to continue to see a brisk inflation rate in the 3% to 4% range. In particular, I'm planning on paying more for energy, food, health care and taxes over the next few years.
Actually, I agree with you, as I trust my true cost of living more than CPI figures, as that is what is most relevant in my life. As far as predicting bond movement in realtion to all of this... Its above my pay grade!
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Old 12-17-2011, 11:19 AM   #23
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Actually, I agree with you, as I trust my true cost of living more than CPI figures, as that is what is most relevant in my life. As far as predicting bond movement in realtion to all of this... Its above my pay grade!
Me too!

It's entirely possible, as demonstrated this past year, to have inflation in the prices of things we spend money on everyday (food, energy, health care, taxes, etc.) while wages stagnate and interest rates on CD's, treasuries and such are very low.
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Old 12-17-2011, 07:50 PM   #24
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Me too!

It's entirely possible, as demonstrated this past year, to have inflation in the prices of things we spend money on everyday (food, energy, health care, taxes, etc.) while wages stagnate and interest rates on CD's, treasuries and such are very low.
There are a couple of things going on here. The inflation rate for retirees is expected to be higher than that of the general population largely because retirees use more health services which have a higher inflation rate as we all know. But the other effect is that people overestimate their own inflation rate because of the "availability bias" of some data, such as food. The average US household spends only about 8% of its income for food. So, even if food prices do go up somewhat faster than other costs it is not likely to affect the whole household budget that much. However, people make a lot more food spending transactions in a month than they do health care or housing. So, they recall the food transactions more readily and overweight them in estimating their total inflation rate.

The US cumulative inflation rate for the last three years has been about 4.5% or 1.5% per year. Not high.
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Old 12-18-2011, 12:20 PM   #25
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Originally Posted by Khufu

There are a couple of things going on here. The inflation rate for retirees is expected to be higher than that of the general population largely because retirees use more health services which have a higher inflation rate as we all know. But the other effect is that people overestimate their own inflation rate because of the "availability bias" of some data, such as food. The average US household spends only about 8% of its income for food. So, even if food prices do go up somewhat faster than other costs it is not likely to affect the whole household budget that much. However, people make a lot more food spending transactions in a month than they do health care or housing. So, they recall the food transactions more readily and overweight them in estimating their total inflation rate.

The US cumulative inflation rate for the last three years has been about 4.5% or 1.5% per year. Not high.
Looks like Im about average as I spend about 8% (of net income). Am I correct in assuming government factors in consumer substitution of products in inflation formula? If that is true, then my inflation is higher, because I refuse to substitute my hamburger for chicken gizzards!
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Old 12-18-2011, 12:52 PM   #26
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If that is true, then my inflation is higher, because I refuse to substitute my hamburger for chicken gizzards!
Listen up my friend, chicken gizzards are a step up from most hamburger. And livers and hearts? Unbeatable!

You can get enough chicken livers to give you a heart attack for $2.50.
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Old 12-18-2011, 01:14 PM   #27
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Listen up my friend, chicken gizzards are a step up from most hamburger. And livers and hearts? Unbeatable!

You can get enough chicken livers to give you a heart attack for $2.50.
Ha, you may be correct, but I will never know, because I cant get over what they are and look like to know what they taste like!
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Old 12-18-2011, 10:16 PM   #28
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Ha, you may be correct, but I will never know, because I cant get over what they are and look like to know what they taste like!
Mulligan, this shows how different some places are from other places. When I was in high school there was a German beer garden where we went during the warm months. One of the specialties of the place was fried chicken livers with onions and garlic. We'd sit out there and eat chicken livers and drink beer on warm nights.

The place is still there, and they still serve fried chicken livers. But the beer garden has given way to an expansion of indoor seating.

Ha
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Old 12-21-2011, 08:03 AM   #29
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The speculation in commodities - gold, oil, etc. - has likely made inflation look worse than it really is.
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Old 12-21-2011, 08:36 AM   #30
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The inflation crowd has been dead wrong for years now and they will continue to be wrong for years to come. They are generals fighting the last war. With Europe headed into a recession and possibly the USl, too, it's hard to see a wage/price spiral getting started. Labor market participation has continued to decline in the US even with slow GDP growth. Inflation is not going to happen. At least not soon.
Can quote you on that?
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Old 12-21-2011, 09:11 AM   #31
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The inflation crowd has been dead wrong for years now and they will continue to be wrong for years to come. They are generals fighting the last war. With Europe headed into a recession and possibly the USl, too, it's hard to see a wage/price spiral getting started. Labor market participation has continued to decline in the US even with slow GDP growth. Inflation is not going to happen. At least not soon.
I can agree with not soon, but I think it's inevitable longer term given the economic actions of the past few years. You can't just print money indefinitely without some corresponding increase in GDP, but you can stall the impact for years at least. We're not Japan (yet).
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Old 12-21-2011, 11:47 AM   #32
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There are a couple of things going on here. The inflation rate for retirees is expected to be higher than that of the general population largely because retirees use more health services which have a higher inflation rate as we all know. But the other effect is that people overestimate their own inflation rate because of the "availability bias" of some data, such as food. The average US household spends only about 8% of its income for food. So, even if food prices do go up somewhat faster than other costs it is not likely to affect the whole household budget that much. However, people make a lot more food spending transactions in a month than they do health care or housing. So, they recall the food transactions more readily and overweight them in estimating their total inflation rate.

The US cumulative inflation rate for the last three years has been about 4.5% or 1.5% per year. Not high.
Bottom line, you're ageeing....... We can have inflation while wages and interest rates paid on bonds and CD's stagnate. And I agree with you, inflation these past three years has been relatively modest, and so have wage increases and opportunities to earn interest.
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Old 12-21-2011, 11:53 AM   #33
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The speculation in commodities - gold, oil, etc. - has likely made inflation look worse than it really is.
Even modest levels of inflation compound to significant levels over time. Would you be nervous of the prospect of your income being constant for the next decade vs. whatever inflation levels will be? Personally, I'm assuming that a decade from now that the prices I'll have to pay for life's essentials will be signigicantly higher than they are today. Between now and then we may not have any spikes in inflation, but it will add up. Hey 2% here, 3% there, maybe a 4% year thrown in and before ya know it, with compounding, you better be able to pay a third more for the stuff you need to live........

The cries of "deflation is coming" are highly overstated and for most ER types, inflation is much more of a threat. Folks not preparing for this may experience some interesting times.......
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Old 12-22-2011, 10:32 AM   #34
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Even modest levels of inflation compound to significant levels over time. Would you be nervous of the prospect of your income being constant for the next decade vs. whatever inflation levels will be? Personally, I'm assuming that a decade from now that the prices I'll have to pay for life's essentials will be signigicantly higher than they are today. Between now and then we may not have any spikes in inflation, but it will add up. Hey 2% here, 3% there, maybe a 4% year thrown in and before ya know it, with compounding, you better be able to pay a third more for the stuff you need to live........

The cries of "deflation is coming" are highly overstated and for most ER types, inflation is much more of a threat. Folks not preparing for this may experience some interesting times.......
Personal inflation is certainly not the CPI, though it's a good fudge number, I suppose... My property taxes have been flat for 11 years, a gallon of milk is $2.38, gas here is back below $3/gal. I don't track as closely as some, but I don't see too much in the way of personal inflation. Doesn't mean there's none, of course.

Deflation is more a macro issue. If the economy is shrinking, that might put my j*b in jeopardy, affect my portfolio, and reduce my home equity. So death by one cut, or a thousand...

Still, I think speculation and/or paranoia has lead to commodity pricing being a temporary artifact of the Great Recession, and people's/government's/central bank's reaction to it, so it's hard to find the "real" value of stuff these days. Oil was "skyrocketing" even as demand was dropping. Supply and demand has become disconnected.

So, all the liquidity sloshing around will likely someday lead to inflation, but then, I'm one who has been expecting bond yields to go back up for a few years now... I'll be right eventually!
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Old 12-22-2011, 01:12 PM   #35
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The current inflation rate is over 3% and MM funds and 1 year T-bills yield almost nothing. IMHO, we are already seeing high inflation relative to what we can earn on conservative investments.
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Old 12-22-2011, 10:42 PM   #36
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I can agree with not soon, but I think it's inevitable longer term given the economic actions of the past few years. You can't just print money indefinitely without some corresponding increase in GDP, but you can stall the impact for years at least. We're not Japan (yet).
I know you deeply believe that, but where is your evidence? Do you believe that economic effects in the US differ fundamentally from those in Japan?

Here's a graph of the relationship between money supply and inflation. What you apparently don't understand is that if the Fed can increase reserves it can also decrease them.

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Old 12-22-2011, 10:49 PM   #37
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The current inflation rate is over 3% and MM funds and 1 year T-bills yield almost nothing. IMHO, we are already seeing high inflation relative to what we can earn on conservative investments.
You are referencing the one-year inflation rate. The shorter time period the more noise. Here's Krugman's graph of the three-year and four-year rates.

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Old 12-22-2011, 10:52 PM   #38
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Can quote you on that?
Quote on what? Labor market participation rate? Decline of industrialized economies?
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Old 12-22-2011, 11:04 PM   #39
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Even modest levels of inflation compound to significant levels over time. Would you be nervous of the prospect of your income being constant for the next decade vs. whatever inflation levels will be? Personally, I'm assuming that a decade from now that the prices I'll have to pay for life's essentials will be signigicantly higher than they are today. Between now and then we may not have any spikes in inflation, but it will add up. Hey 2% here, 3% there, maybe a 4% year thrown in and before ya know it, with compounding, you better be able to pay a third more for the stuff you need to live........

The cries of "deflation is coming" are highly overstated and for most ER types, inflation is much more of a threat. Folks not preparing for this may experience some interesting times.......
For the last three years that I lived in Manhattan before moving away, my rent went down each year to a total of 13% less. That meant that several budget items like food and entertainment were effectively free.

Actual inflation did not last it's true. At a first approximation expect the economy to be like Japan, which also had a credit bubble, property bubble and stock bubble. That means periods of low deflation and low inflation. For longer than people expect. I don't known how long, but it could be very long.

All of us have lived our adult lives in an economy where inflation was persistent and sometimes very high. So, everyone here seems to believe it will go on forever. But the history of US inflation doesn't look like that. Inflation may return at some point, but not during the long recovery from a major financial crisis. Or the future may be quite different. The late nineteenth century showed persistent deflation.

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Old 12-23-2011, 08:52 AM   #40
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I know you deeply believe that, but where is your evidence? Do you believe that economic effects in the US differ fundamentally from those in Japan?

Here's a graph of the relationship between money supply and inflation. What you apparently don't understand is that if the Fed can increase reserves it can also decrease them.
Let's agree to disagree. You can find endless current articles, papers, books showing the correlation between money supply and inflation - though there are other factors certainly. I acknowledged it's not a foregone conclusion short term, we agree on that. In the long term, are you saying we can print money indefinitely and never be concerned about deficits and debt? That sure makes things easy, not only for us but the ECB. From the start, I referenced QE...

It is not clear to me that our deficit issues will be resolved soon or substantially, which may force us to print money when we can't "sell" debt. China has already told Europe 'no thanks.' Time will tell...
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Quantitative easing may cause higher inflation than desired if the amount of easing required is overestimated, and too much money is created. On the other hand, it can fail if banks remain reluctant to lend money to small business and households in order to spur demand. Quantitative easing can effectively ease the process of deleveraging as it lowers yields. But in the context of a global economy, lower interest rates may contribute to asset bubbles in other economies.

An increase in money supply has an inflationary effect (as indicated by an increase in the annual rate of inflation). There is a time lag between money growth and inflation, inflationary pressures associated with money growth from QE could build before the central bank acts to counter them. Inflationary risks are mitigated if the system's economy outgrows the pace of the increase of the money supply from the easing. If production in an economy increases because of the increased money supply, the value of a unit of currency may also increase, even though there is more currency available. For example, if a nation's economy were to spur a significant increase in output at a rate at least as high as the amount of debt monetized, the inflationary pressures would be equalized. This can only happen if member banks actually lend the excess money out instead of hoarding the extra cash. During times of high economic output, the central bank always has the option of restoring the reserves back to higher levels through raising of interest rates or other means, effectively reversing the easing steps taken.
Quantitative easing - Wikipedia, the free encyclopedia there are countless other links/sources as well.
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