Latest Inflation Numbers and Discussion

[GenXguy]

This year's 3.4% is higher than all but one year prior to the 2020 Covid induced inflation over the last 30 years.
40 of the last 110 years have been under 2% inflation. 22 of the 110 were over 5%, so that 20% of the time the inflation rate is more than twice the target of the Federal Reserve, Kind of like filling a 20 gallon fish tank with 40 gallons of water, they have a little bit of spillage in their operation, it is not a controlled system.

3.4% is really way too high compared to the target 2% for year over year inflation, especially after such high inflation we have had in recent years jacked up prices so much. And as mentioned, historically it has been running too hot, so I would like to see the opposite happen for some years. All this inflation just piles on price increases on top of price increases. Few things ever drop in price except temporarily for sales / clearance, expiring, or becoming outdated somehow. And also sadly, is that most people say they are experiencing higher inflation than the gub'ment numbers. I know I always have been, even when inflation was supposedly less than 2%. I wish. lol

Hopefully those inflationary pressures we are seeing again now won't drive inflation back up.

 

[Chuckanut]

3.4% is really way too high compared to the target 2% for year over year inflation, especially after such high inflation we have had in recent years jacked up prices so much.

Getting to 3% or so is the easy part. Getting to 2% inflation will be more challenging. I think this is often called the 80/20 rule. The easiest 80% of a task takes as much if not more effort than the hardest 20%.


While I am glad to see us on a glidepath to lower inflation, I think the last 1% or so will be harder. Still, it beat the heck out of 8+ percent.

 

[pb4uski]

You said:

Your comment implied to me that very low Fed funds rates (i.e. war on savers) caused the historically low inflation.

You read something into it... I never mentioned or inferred anything about Fed funds rates one way or the other.

Besides, in theory a low Fed funds rate would lead to higher inflation, not lower inflation... that is why the Fed increased the Fed funds rate to lower inflation in 2023.

 

[Gumby]

If it makes any difference, it sounded to me like you guys were saying the same thing.

 

[audreyh1]

You read something into it... I never mentioned or inferred anything about Fed funds rates one way or the other.

Besides, in theory a low Fed funds rate would lead to higher inflation, not lower inflation... that is why the Fed increased the Fed funds rate to lower inflation in 2023.

What does “war on savers” mean other than the Fed keeping the Fed Funds Rate low?

In the 2010s global economic environment a low Fed Funds Rate didn’t lead to higher inflation. In fact various economies at times were experiencing deflation, which is why rates stayed so low for so long.

 

[Bigdawg]

Mine too. I don't actually own gas producing property, just shares in a natural gas royalty trust (SJT).

I've got about 12% of my play money stash in SJT. Not happy about the trajectory the last 12 months. Oh well. Staying in and collecting the div. On the other hand, I have about 25% of my play money stash in HE which has be going up nicely. I bought after the fire drop below $10.

 

[pb4uski]

What does “war on savers” mean other than the Fed keeping the Fed Funds Rate low?

In the 2010s global economic environment a low Fed Funds Rate didn’t lead to higher inflation. In fact various economies at times were experiencing deflation, which is why rates stayed so low for so long.

I think of war on savers as low real fixed income returns. I realize that in the 2010s that the low Fed funds rate didn't lead to inflation which is why I prefaced that comment with "in theory".

I guess put another way, when real fixed income returns are low or negative, it impacts savers whether the cause is Fed action or other causes... it still hurts savers.

"War on savers" is a term used to describe a series of economic policies and trends that have made it more challenging for people to earn returns on their savings in recent years. This can be seen as a disadvantage for people relying on savings for retirement, emergency funds, or simply building wealth.

Here are some key aspects of the "war on savers":

• Low interest rates: Central banks like the Federal Reserve have kept interest rates near record lows since the 2008 financial crisis. This is done to stimulate economic growth by making it cheaper for businesses and individuals to borrow money. However, it also means that people receive minimal returns on their savings accounts, certificates of deposit (CDs), and other safe investments.
• Negative real interest rates: In some cases, inflation rises faster than interest rates, meaning that the purchasing power of savings actually decreases over time. This is happening in many countries right now, further eroding the value of cash savings.
• Reduced demand for bonds: When interest rates are low, there is less demand for government bonds, which traditionally offered higher returns than savings accounts. This can push bond prices down and make it difficult for investors to earn decent returns.
• Limited alternative options: With traditional safe investments offering low returns, some people are pushed towards riskier assets like stocks and real estate. These can offer higher returns, but also come with greater risk of losses.

The "war on savers" has sparked debate about the impact of economic policies on different income groups. Some argue that these policies primarily benefit borrowers and asset owners, while leaving savers worse off. Others argue that low interest rates are necessary to support economic recovery and that savers can still find other ways to invest their money.

Ultimately, the term "war on savers" is a way to capture the challenges faced by people who rely on safe investments to earn returns. Whether it's an actual "war" is debatable, but there is no doubt that the current economic environment presents unique challenges for savers.

 

[audreyh1]

It pretty much seems to come down to the Fed dropping rates and then keeping them low because of weak economic conditions whether US or global as long as inflation stays very low. This drives T-bills, MM Funds, high yield savings, shorter term CD rates - many of the traditional “safe” savings venues. Impact on longer rates depends on the economic outlook.

 

[Montecfo]

It pretty much seems to come down to the Fed dropping rates and then keeping them low because of weak economic conditions whether US or global as long as inflation stays very low. This drives T-bills, MM Funds, high yield savings, shorter term CD rates - many of the traditional “safe” savings venues. Impact on longer rates depends on the economic outlook.

Exactly. And calling it a "war on savers" really misplaces the goals of Fed policy.

I guess anything can be viewed as a "war" on something if you want to be inflammatory.

 

[explanade]

PPI down .1% in December.


Deflation in several categories.

Prices declined in 2023 in categories such as physical goods, groceries and energy, according to the December consumer price index.

Supply and demand have normalized and a stronger U.S. dollar makes it cheaper to import goods.

https://www.cnbc.com/2024/01/12/def...ices-fell-in-december-2023-in-one-chart-.html


Good charts at the link.

 

[audreyh1]

Thanks!

PPI release pdf version: https://www.bls.gov/news.release/pdf/ppi.pdf

 

[Montecfo]

PPI down .1% in December.


Deflation in several categories.


url]https://www.cnbc.com/2024/01/12/deflation-heres-where-prices-fell-in-december-2023-in-one-chart-.html[/url]


Good charts at the link.

The year over year figure is 0.98%. Most view the PPI as a leading indicator of consumer price trends.

Seperately, Barclys now expect the Fed to cut in March.

 

[38Chevy454]

I think one item that is nice to see in the discussion here, for the most part, is correctly labeling the trend as a reduction in the rate of inflation. As opposed to deflation as the media likes to use. It is not deflation, it is a reduction in the amount of increase. Lower inflation is good, I am happy to see the rate going down, but it is not deflation.

The part that gets lost in the discussion is that prices for many things most people spend money on that have increased in recent past are not coming down. They are just not going up as fast. Being happy that the grocery bill that used to be $150, and then increased to $200, but is currently $200 doesn't feel any better to most.

 

[Gumby]

I think one item that is nice to see in the discussion here, for the most part, is correctly labeling the trend as a reduction in the rate of inflation. As opposed to deflation as the media likes to use. It is not deflation, it is a reduction in the amount of increase. Lower inflation is good, I am happy to see the rate going down, but it is not deflation.

The part that gets lost in the discussion is that prices for many things most people spend money on that have increased in recent past are not coming down. They are just not going up as fast. Being happy that the grocery bill that used to be $150, and then increased to $200, but is currently $200 doesn't feel any better to most.

So all the negative numbers in this report are illusory? https://www.cnbc.com/2024/01/12/def...ices-fell-in-december-2023-in-one-chart-.html If the price of apples, for example, is almost 6% less than the price was last month, is that deflation over the course of a month or a lower rate of inflation? And if the CPI this May is lower than the 304.127 that it was last May, will you call that deflation or just "lower inflation"? These terms have real definitions that are determined solely by numbers, not anyone's feelings.

 

[Winemaker]

Personally, I would say that the price of apples went down because the recent US crop just hit the market. Just my opinion, not fact.

 

[Gumby]

Personally, I would say that the price of apples went down because the recent US crop just hit the market. Just my opinion, not fact.

The reason the price is rising or falling, including seasonal factors such as harvests, may give us some insight as to whether the price will increase or decrease further, reverse the current trend or stay the same, but that's different than measuring the price between time A and time B and noting whether the change is positive or negative.

Inflation is just the rate of price change over a specified time expressed as a percentage of the original price. >> I = dx/dt. If I is positive, we have inflation, if I is negative, we have deflation. Most people think of inflation/deflation in one year increments. But you can measure inflation/deflation over any period of time you want. So you can simultaneously have inflation over the last year and deflation over the past 4 months (as is the case with the CPI numbers just released)*


* for those who wonder about seasonal adjustment - The BLS tries to take into account the fact that certain (not all) components of the CPI have a seasonal pattern. The CPI number is just based on the data the BLS collects and the methodology it uses to combine that data. CPI itself is not modified for seasonality, but when comparing two periods less than a year apart, the BLS will adjust the rate of change to reflect seasonality for those components where it is present, fold that into the larger calculation and will present the unadjusted and adjusted rates of change, usually over the past month. So in the most recent report, BLS reported a 0.3 % seasonally adjusted monthly increase for December, even though the CPI itself decreased by .1% (307.051 to 306.746) Over a one year period, there is no seasonal adjustment, because we will have completed a full seasonal cycle.

The BLS cautions against using the seasonally adjusted numbers for most things that are modified by the rate of inflation, such as wages, pensions and such. Thus, social security COLAs and I-bond variable rates are not seasonally adjusted in any way.

Here is a helpful link for those who want to dive deeper: https://www.bls.gov/cpi/seasonal-adjustment/methodology.htm

 

[Ian S]

Some seem to bemoan the fact that as inflation drops to a more desirable level, there will still be some inflation and that, overall, prices will still be climbing. I sense that those folks would like to see some extensive DEflation to bring overall prices to the level of a past era. While a few folks might make out ok in such a scenario, the overall economy would almost certainly not: there was plenty of deflation in the years 1930-33 but I doubt anyone seriously would want to return to those times!

 

[Chuckanut]

Personally, I would say that the price of apples went down because the recent US crop just hit the market. Just my opinion, not fact.

You might be right. Food prices, especially produce and meat vary a lot even from week to week.

 

[SecondCor521]

The way I've heard terms used:

Deflation is a decrease in general price levels over time.

Disinflation is a decrease in the rate of increase. Prices are still going up, but more slowly than they were before.

At least that's how the CNBC talking heads seem to use them.

 

[Gumby]

The way I've heard terms used:

Deflation is a decrease in general price levels over time.

Disinflation is a decrease in the rate of increase. Prices are still going up, but more slowly than they were before.

At least that's how the CNBC talking heads seem to use them.

That is also my understanding.

 

[GenXguy]

I think one item that is nice to see in the discussion here, for the most part, is correctly labeling the trend as a reduction in the rate of inflation. As opposed to deflation as the media likes to use. It is not deflation, it is a reduction in the amount of increase. Lower inflation is good, I am happy to see the rate going down, but it is not deflation.

The part that gets lost in the discussion is that prices for many things most people spend money on that have increased in recent past are not coming down. They are just not going up as fast. Being happy that the grocery bill that used to be $150, and then increased to $200, but is currently $200 doesn't feel any better to most.

Right. This is a point I've tried to make many times. Often I've seen in the media where they talk about prices coming down in respect to a drop in inflation, but that's deflation, not disinflation. They don't understand it, neither do a lot of politicians it seems, and I bet most people don't. They hear inflation is coming down, so they expect prices to drop. But no, that's not how it works.

I'm mostly focused in on year over year where you can get a better sense of the full inflation picture without the temporary "noise" and seasonal changes. We're still way over the Fed target on year over year inflation. 3.4% is still way too high. And as mentioned, prices will continue to go up on average even if they hit that target.

I saw apples mentioned. I was just mentioning to someone how apples have gotten a lot more expensive.

 

[Gumby]

Any retirement plan that does not assume some level of inflation (at least 2% and, even better, 3%) is a defective plan. The economy needs some level of inflation to function properly, and sustained deflation is particularly harmful, as Ian mentioned earlier. So if a person assumed prices would never inflate, they assumed wrongly.

 

[audreyh1]

The way I've heard terms used:

Deflation is a decrease in general price levels over time.

Disinflation is a decrease in the rate of increase. Prices are still going up, but more slowly than they were before.

At least that's how the CNBC talking heads seem to use them.

Yep.

What Gumby was showing earlier really is deflation. The CPI is lower compared to 4 months ago. However, seasonal patterns may override this and the CPI may start increasing again. We’ll just have to see.

 

[Chuckanut]

Just to put things in perspective, from today’s (01/13/24) WSJ:

With many Chinese worried about the economic outlook and unwilling to spend, consumer prices fell for a third straight month in December, official data showed Friday. Prices charged by manufacturers dropped for the 15th month in a row.

The FED may get some help reaching 2% inflation, if Chinese manufacturers start doing some serious price cutting on items exported outside their borders. Possible?

 

[pb4uski]

Seems very possible. Sounds like China is an economic mess which is good for us as long as it doesn't get out of hand.