Future Inflation

[meierlde]

If you believe the Great Wave (David Hackett Fisher) https://willrwright.wordpress.com/2...art-i-the-great-wave-by-david-hackett-fisher/

Inflation requires a growing population to go high. We note that Japan has had a long period of deflation and a shrinking population.
Hackett Fishers says population growth leads to money supply growth, as prices for necessities begin to rise (food fuel housing etc) Then the standard of living of the poor begins to decrease, and this leads to a decline in population growth and thus a decrease in demand for food fuel housing which means they become cheaper. This then leads to decreases in inequality which rose during the period of inflation.
While not all things seem to match given that we have passed thru a period of rapid population growth, and now are seeing a slowing of it, and now commodities in general have crashed (oil, copper, grains etc). It seems that we might be on the verge of a price stability period. Just like no one expected the high inflation of the 60s 70s and 80s, few seem to expect the potential low inflation period we are entering.
Given how hard it is for the fed to get inflation to 2% the deflation in Japan, the coming population shrinkage in China, etc, I do wonder if a lot of folks are relying on recent experience to predict the future?

 

[nash031]

I have thought about the impact of population stagnation on economic growth, particularly in this country. I believe there is an impact, however it's tough to tell what the impact will be given the fact that immigration continues to grow the population here. It's plausible that a factor of inflation and economic growth in the period you mentioned was in part a result of the baby boom. Will we see a reversal or stagflation because the birth rate is now just below 1:1 (1.88 births per woman)? I don't know.

 

[samclem]

If you believe the Great Wave (David Hackett Fisher) https://willrwright.wordpress.com/2...art-i-the-great-wave-by-david-hackett-fisher/

Inflation requires a growing population to go high.

I haven't read the book, but we can all think of plenty of examples of inflation and hyperinflation that were not the result of population growth.
Zimbabwe: Had effectively zero population growth between 2002 and 2008.

Weimar Germany--Hyperinflation, the result of currency printing, not population growth.

Again, I haven't read the book, but high inflation can exist without population growth.

 

[NW-Bound]

The above chart stops at 2008. It was much more exciting after that.

From Wikipedia:

Hyperinflation in Zimbabwe was a period of currency instability that began in the late 1990s, shortly after the confiscation of private farms from landowners, towards the end of Zimbabwean involvement in the Second Congo War. During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe's hyperinflation because the government of Zimbabwe stopped filing official inflation statistics. However, Zimbabwe's peak month of inflation is estimated at 79.6 billion percent in mid-November 2008.

In 2009, Zimbabwe stopped printing its currency, with currencies from other countries being used.​

 

[ArkTinkerer]

I remember reading a book that talked about the effect of the baby boomers aging cycle. One thing that stuck with me was the prediction that as the boomers began to liquidate investments the stock market would stagnate then drop due to the higher number of sellers than buyers. Seems rational until you realize its an international market.

 

[Senator]

As long as wages do not go up, there will be no inflation. The future demographics point to lower wages, not higher wages.

Inflation is dead for a long time. I use ~2.5% as my parameter.

 

[dallas27]

Zimbabwe is in deflation


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[papadad111]

I have thought about the impact of population stagnation on economic growth, particularly in this country. I believe there is an impact, however it's tough to tell what the impact will be given the fact that immigration continues to grow the population here. It's plausible that a factor of inflation and economic growth in the period you mentioned was in part a result of the baby boom. Will we see a reversal or stagflation because the birth rate is now just below 1:1 (1.88 births per woman)? I don't know.

In USA. I think we will see two things. For older population, inflation will come by way of elder care medical expenses - nursing homes. Retirement living and other geared toward senior costs will grow in expense - medicine- pharma etc.

We also see growth in expenses for things that millennial generation prefer - example is rental rates, and eventually all things suburban as they finally "adult" on their own for real this time ...

Inflation depends on the basket of goods being measured. The official basket is not often matching what is being regularly purchased

Immigration should have little to no impact. It's quite small actually

China is going to be interesting. The population is indeed slowing and graying, but the more compelling story is the migration from rural to urban and the impact that is having on city housing costs, on labor cost, and on food costs. China is decelerating at the hands of a weaker Euro zone and exports. Oil is keeping other commodities in check for now but I don't thing that can last for years. As the economy swings more and more toward internal consumption, I can see a mega- spike in certain areas of inflation there... Which will drive global inflation back up.

 

[kcowan]

We use 4% for our personal inflation rate. We ignore CPI because it does not apply to us.

Several moves reduced the base budget but then the inflation kicks in. So far it has been more than adequate (12 years). The decline in oil has produced an aberration. But then so has the low Fed rate. Costs of air travel have balanced out.

 

[Fermion]

The point about personal inflation rate is a good one. Someone without a car, on subsidized healthcare, doesn't have the same inflation rate as others because they don't see those increases or decreases.

Our personal inflation rate will actually be negative next year as we go from paying for healthcare out of pocket to paying a much reduced cost shared, subsidized rate. Plus we have sold our work vehicles and reduced driving by 90%.

 

[marko]

As long as wages do not go up, there will be no inflation. The future demographics point to lower wages, not higher wages.

You must be missing the current nationwide drumbeat for $15 minimum wage.

 

[audreyh1]

Future inflation expectations as reported on a recent M* thread:

TIPs/Treasury inflation estimates over timeframes:

5yrs: 1.15% 10yrs: 1.44% 30yrs: 1.61%

So market participants are expecting sub-2% inflation for a very long time.

Surprising Forward Rates

 

[Independent]

From the end of the civil war to 1900, the US had generally falling prices with a growing population.

The population nearly doubled from 1870 to 1900, but prices were steady or falling.
The money supply wasn't growing as fast as real output. (Remember "Cross of Gold"?)

 

[foxfirev5]

I remember reading a book that talked about the effect of the baby boomers aging cycle. One thing that stuck with me was the prediction that as the boomers began to liquidate investments the stock market would stagnate then drop due to the higher number of sellers than buyers. Seems rational until you realize its an international market.

Another point is that most of the boomer's don't have huge amounts in equities, as evidenced by the relatively low retirement acct balances. The minority that hold the bulk of equities don't need to sell very much at all. Just an observation, I certainly won't spend the time trying to prove my point.

 

[Senator]

You must be missing the current nationwide drumbeat for $15 minimum wage.

I have seen this, but when wages go up, people work less. And lower income people do not get hired. Or jobs get exported. Or robots get used more.

If we get a $15 minimum natiional wage, technology investments will increase exponentially.

 

[dallas27]

Well, except 15 isn't higher than past min wages when pure in real dollars.

Understand government policy decide what slice of the pie goes to workers, and what slice to capitalists. The pendulum has gotten way off to one side. Balance is good, in all things.


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[marko]

I have seen this, but when wages go up, people work less. And lower income people do not get hired. Or jobs get exported. Or robots get used more.

If we get a $15 minimum natiional wage, technology investments will increase exponentially.

Oh, ok. Good to know.

 

[marko]

So if the general consensus is that inflation will be near or below 1% for the foreseeable future, does that mean that the SWR of 4% gets recalculated to 5%-6% as 2% was planned to be eaten up by inflation?

 

[marko]

...but doesn't the $ trillions in debt (we owe China a billion $ a week in interest IIRC) devalue the buying power of our dollar?

 

[Davis65]

Inflation is the result of decisions made about monetary policy by a country's central bank. In Zimbabwe, the central bank printed money wildly to fuel government spending. In the U.S., the Federal Reserve is committed to price stability, which it targets as being 2% growth in the Personal Consumption Expenditure index. Economists and central bankers have learned a lot about monetary policy since the bad old days of the 1970s. In particular, they now understand that you cannot inflate your way out of a recession, and so they have stopped trying. The result is PCE inflation is the U.S. has always been less than 2.5% a year for the last 20 years.

Your mileage might vary. If, like the Bureau of Economic Analysis, you track the prices of a large basket of your expenditures and find that prices are rising faster or slower than the PCE, then use that number. But beware of people who cite prices of a few random items as proof that inflation is higher than what is reported.

 

[cooch96]

So if the general consensus is that inflation will be near or below 1% for the foreseeable future, does that mean that the SWR of 4% gets recalculated to 5%-6% as 2% was planned to be eaten up by inflation?

I understand 4% SWR was back tested to last 30 years in all but the very worst economic cycles (with a few caveats and other assumptions). So if one assumes a less bad cycle for one's future, then yes, a higher WR is in order. The discussion about how Safe that is is endless.

 

[dallas27]

I just read a new article where the fed heads are talking about how watching europe use slighty negative rates has changed their minds about the danger of such policy, and they would consider it in the future. Scary stuff. We are already negative real, but to push nominal as well, a theorists dream come true.


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[jim584672]

The Treasury can always issue trillion dollar coins if needed, no problem with currency debasement.

https://en.wikipedia.org/wiki/Trillion_dollar_coin

 

[VFK57]

I agree with the statement that inflation often has no relation to a population grow. USSR last year of existence and many of newly independent states after the collapse had hyper inflation due to the economic collapse and /or foolish Government actions on monetary / economy policies.