Latest Inflation Data and report

[misanman]

Just listened to a WSJ podcast this morning that mentioned that the analysts do have trouble valuing some changes that occur. For example, if a hotel is no longer cleaning your room every day, how is that valued? Or if a car dealer has added a required option to your new car purchase that you wouldn't otherwise purchase (examples such as extended warranty, fabric protection or winter floor mats seem dated but I'm not up to speed on what the current scams to increase the sales price might be.) Or could be a component substitution that lowers overall quality.

 

[Dtail]

By rights the Fed Funds rate should be 6-8% by now. Remember the 90's. Pandering to the stock market thinks me. (Yoda)

Agree, plus the interest on the Fed debt would be......

 

[Dtail]

Might we hope for another raise on our SS next year? Best case: two raises in two years and then inflation drops back to previous levels with no claw-back! Ka-ching?!

Basically stating a different version in a previous post about having the ability to lock in some higher yields due to temporary yield increases.

 

[MichaelB]

Might we hope for another raise on our SS next year? Best case: two raises in two years and then inflation drops back to previous levels with no claw-back! Ka-ching?!

Well, if inflation drops back to previous levels after 2 years of current rates (7%+), the higher prices stay at the current high levels, they just won’t go up any more. They won’t fall back to levels of 2 years ago. So that $30k car that now costs closer to $40k is going to stay at that new higher price. Same for restaurants and groceries.

For years we’ve been saying we needed higher inflation. Now that we have what we asked for, we don’t want it. I’ve always believed there are only two kinds of inflation: too high or too low. There is no Goldilocks level of inflation. And right now it is definitely too high.

 

[MichaelB]

There is a bright side to higher inflation, which is the public debt load, in real terms, is falling. Excessive public debt is frequently mentioned here, so I imagine this will be seen as good news.

 

[Koolau]

There is a bright side to higher inflation, which is the public debt load, in real terms, is falling. Excessive public debt is frequently mentioned here, so I imagine this will be seen as good news.

Maybe you have to find your "bright sides" where you can. Of course, those who lend to the gummint eventually realize they're getting the short end of the stick and demand more interest. What WOULD be the interest on $30 Trillion at, say, 7%. Oh yeah, $2.1 Trillion. IIRC the 2020 budget - last I could easily find - was not quite $7 Trillion. So debt service at 7% would be around 2/7 of the entire budget (Oh, and that doesn't count SS and MC.) What could possibly go wrong? Oh, and YMMV.

 

[11522914]

What WOULD be the interest on $30 Trillion at, say, 7%. Oh yeah, $2.1 Trillion. IIRC the 2020 budget - last I could easily find - was not quite $7 Trillion. So debt service at 7% would be around 2/7 of the entire budget (Oh, and that doesn't count SS and MC.) What could possibly go wrong? Oh, and YMMV.

Nothing a few keyboard taps on the computer can't handle.

 

[GenXguy]

Inflation is the most depressing thing to me right now. I was set to FIRE this spring, but I have delayed FIRE another year due to high inflation, and I'm seeing closer to 15% to 20% increased costs over the last year in my budget with no change in budgeted consumption, just increased costs, compared to the lower government figures for CPI, which have always been lower than what I see in real world cost increases.

By the way, if inflation drops from 7% to previous levels in the next few years, that doesn't mean prices will drop, and it doesn't mean prices will stay the same, either. I keep seeing that posted and even in mainstream media. The fact is that prices will continue to increase on average as long as inflation is over 0%. For most prices to drop, we would need deflation.

There is NOTHING good about inflation for me. It's completely derailed my FIRE plans.

 

[luckydude]

Inflation is the most depressing thing to me right now. I was set to FIRE this spring, but I have delayed FIRE another year due to high inflation, and I'm seeing closer to 15% to 20% increased costs over the last year in my budget with no change in budgeted consumption, just increased costs, compared to the lower government figures for CPI, which have always been lower than what I see in real world cost increases.

By the way, if inflation drops from 7% to previous levels in the next few years, that doesn't mean prices will drop, and it doesn't mean prices will stay the same, either. I keep seeing that posted and even in mainstream media. The fact is that prices will continue to increase on average as long as inflation is over 0%. For most prices to drop, we would need deflation.

There is NOTHING good about inflation for me. It's completely derailed my FIRE plans.

Sorry to hear about your derailed FIRE plan.

I imagine anyone planning to FIRE now would think hard and think twice before pulling the trigger due to a double whammy of 1) declines in portfolio value from market downturns and 2) loss of purchasing power of said portfolio due to high inflation.

 

[Closet_Gamer]

I think the real risk is that it gets rolling into compensation as well.

Inflation where wages don't move is painful but ultimately will be a level of self-correction. People don't have the money so they don't buy, demand getss reduced, prices have to chase demand back down.

But if wages really get moving to chase prices, this thing could run longer and hotter.

My company just decided to put through a 5% wage increase for our employees making less than $40k per year. This explicitly to help offset inflation. I'm really glad we're watching out for lower earning employees, but I think it portends that this inflation has legs.

 

[Magus]

Inflation is the most depressing thing to me right now. I was set to FIRE this spring, but I have delayed FIRE another year due to high inflation, and I'm seeing closer to 15% to 20% increased costs over the last year in my budget with no change in budgeted consumption, just increased costs, compared to the lower government figures for CPI, which have always been lower than what I see in real world cost increases.

By the way, if inflation drops from 7% to previous levels in the next few years, that doesn't mean prices will drop, and it doesn't mean prices will stay the same, either. I keep seeing that posted and even in mainstream media. The fact is that prices will continue to increase on average as long as inflation is over 0%. For most prices to drop, we would need deflation.

There is NOTHING good about inflation for me. It's completely derailed my FIRE plans.

Ugh I feel you. Main reason I’m less worried about inflation is most of my income I’ll get is rental income and rents are rising quickly while my mortgages are fixed or non existent. It’s a natural inflation hedge. But anything that is not a mortgage is rising very quickly for me. Not a big deal to my current income but will be once I retire.

 

[Magus]

There is a bright side to higher inflation, which is the public debt load, in real terms, is falling. Excessive public debt is frequently mentioned here, so I imagine this will be seen as good news.

Yup, I actually think they (DC, both parties) are happy with the situation as it’s the only way to effectively tax the middle class and lower class without technically raising taxes. A few more years of this will no new spending programs and we’d be in much better shape financially as a government/country. I think the Fed was aiming for 4-5% inflation which is a lot less noticeable than the current 7.5-10% and it overshot.

 

[aja8888]

Yup, I actually think they (DC, both parties) are happy with the situation as it’s the only way to effectively tax the middle class and lower class without technically raising taxes. A few more years of this will no new spending programs and we’d be in much better shape financially as a government/country. I think the Fed was aiming for 4-5% inflation which is a lot less noticeable than the current 7.5-10% and it overshot.

The FED has been mentioning 2% inflation as it's goal for the last several years. However, their recent policy decisions have made that unrealistic.

 

[Magus]

The FED has been mentioning 2% inflation as it's goal for the last several years. However, their recent policy decisions have made that unrealistic.

Yup but last winter for the first time ever said they were OK going a bit over when we’d been under their goal for a while. They never stated how much over or for how long but I was guessing 4% or so for a couple years

 

[pjigar]

Maybe you have to find your "bright sides" where you can. Of course, those who lend to the gummint eventually realize they're getting the short end of the stick and demand more interest. What WOULD be the interest on $30 Trillion at, say, 7%. Oh yeah, $2.1 Trillion. IIRC the 2020 budget - last I could easily find - was not quite $7 Trillion. So debt service at 7% would be around 2/7 of the entire budget (Oh, and that doesn't count SS and MC.) What could possibly go wrong? Oh, and YMMV.

I believe all the federal debt is fixed rate aka treasury bonds. So new debt will be issued at a new higher rate (currently about 2%) but the servicing cost of the old debt stays the same (way less than 2% in this case). So the "real" debt is reduced by a larger percent (e.g. 7% in your example) but the serving cost of the old debt is very low in the percent terms and hence devaluing the outstanding debt. Of course our customers (aka foreign bond holders) already know this and can decide to not lend us any new money to fund our life style going forward. No one knows how (or if) the domino will fall some day.

 

[aja8888]

Yup but last winter for the first time ever said they were OK going a bit over when we’d been under their goal for a while. They never stated how much over or for how long but I was guessing 4% or so for a couple years

One thing about the FED is that they won't know the actual inflation rate until the BLS publishes the statistic. So it's kind of like fishing....bait the hook, throw the line in the water and see what it produces!

 

[USGrant1962]

I believe all the federal debt is fixed rate aka treasury bonds. So new debt will be issued at a new higher rate (currently about 2%) but the servicing cost of the old debt stays the same (way less than 2% in this case). So the "real" debt is reduced by a larger percent (e.g. 7% in your example) but the serving cost of the old debt is very low in the percent terms and hence devaluing the outstanding debt. Of course our customers (aka foreign bond holders) already know this and can decide to not lend us any new money to fund our life style going forward. No one knows how (or if) the domino will fall some day.

Our customers are us. 3/4 of the debt is owned domestically, and no individual country holds more than about five percent. Unless Japan, China, and UK decide to coordinate (not going to happen) your scenario is nonsense. Especially since for many (most?) countries their domestic debt pays even worse than ours.

 

[Mulligan]

Inflation is the most depressing thing to me right now. I was set to FIRE this spring, but I have delayed FIRE another year due to high inflation, and I'm seeing closer to 15% to 20% increased costs over the last year in my budget with no change in budgeted consumption, just increased costs, compared to the lower government figures for CPI, which have always been lower than what I see in real world cost increases.

By the way, if inflation drops from 7% to previous levels in the next few years, that doesn't mean prices will drop, and it doesn't mean prices will stay the same, either. I keep seeing that posted and even in mainstream media. The fact is that prices will continue to increase on average as long as inflation is over 0%. For most prices to drop, we would need deflation.

There is NOTHING good about inflation for me. It's completely derailed my FIRE plans.

GenX sorry about the delayed retirement plans. Hopefully it is very temporary. You mentioned 15%-20% inflation for you. I realize all inflation winds up being a personal inflation, but I cant wrap my head around your number based on my personal experience. How are you coming up with that number from your experiences if you dont mind me asking?

 

[pjigar]

Our customers are us. 3/4 of the debt is owned domestically, and no individual country holds more than about five percent. Unless Japan, China, and UK decide to coordinate (not going to happen) your scenario is nonsense. Especially since for many (most?) countries their domestic debt pays even worse than ours.

You are right about who holds the debt. Only 7T out of 22T total public debt is held by Foreign and international investors. I guess then everyone lose together!

source: https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124

 

[youbet]

Might we hope for another raise on our SS next year? Best case: two raises in two years and then inflation drops back to previous levels with no claw-back! Ka-ching?!

Nothing to claw back………. A reduction in the rate of inflation only slows the rate of general price increases. It doesn’t mean decreasing prices.

 

[Koolau]

I believe all the federal debt is fixed rate aka treasury bonds. So new debt will be issued at a new higher rate (currently about 2%) but the servicing cost of the old debt stays the same (way less than 2% in this case). So the "real" debt is reduced by a larger percent (e.g. 7% in your example) but the serving cost of the old debt is very low in the percent terms and hence devaluing the outstanding debt. Of course our customers (aka foreign bond holders) already know this and can decide to not lend us any new money to fund our life style going forward. No one knows how (or if) the domino will fall some day.

It's true that for the life of the "note" the gummint has issued, the rate remains fixed. So if you hold 30 year Treas. bonds, you are kinda SOL. But much of the debt is financed at much lesser time periods I believe. THOSE instruments turn over, and time will come when folks buying in will demand more interest. I have no idea (and not enough, well, "interest") in looking up the mix. BUT I've seen this movie before and the service on the debt back in the 80's was much bigger than defense or domestic spending at one time IIRC.

Now that I've told you way more than I know about the subject, I will return you to our regularly scheduled symposium on "Latest Inflation Data" so YMMV.

 

[Koolau]

Nothing a few keyboard taps on the computer can't handle.

I don't have a number pad so I avoid doing math on my computer though YMMV.

 

[Teacher Terry]

Groceries, medical insurance and car gas are up as well as my electric bill. Luckily no significant impact on my life.

 

[Magus]

GenX sorry about the delayed retirement plans. Hopefully it is very temporary. You mentioned 15%-20% inflation for you. I realize all inflation winds up being a personal inflation, but I cant wrap my head around your number based on my personal experience. How are you coming up with that number from your experiences if you dont mind me asking?

Could fairly easily be double digit inflation
1) Be a renter - rents are up 15% y/y nationally and up 30% in some areas
2) Not live in an area where property taxes are limited each year - most of my rentals went up 15% last year if you own
3) Electricity is up 11% y/y on average
4) Gas is up 40%
5) Maintenace on house is up massively - not sure in CPI but my repairs this last year were at least 40% higher than the year before, some double
6) Food is up 7.5% but within that 7.5% could be much, much higher depending on what you normally buy (eg: beef is up 16% y/y)
7) New and used vehicle prices are up 13% and 40% respectively.
8) Hotel prices are up 20%

Now your INCOME might be high enough that the above may not matter as much (like for myself currently) but if you make the typical $70k household income in the US, the above will hurt badly.

 

[Fermion]

I'm pretty much screwed with 20%/yr inflation if the stock market doesn't keep up. That will kill our portfolio in less than a decade