Economist suggests that inflation may be low for a while

[meierlde]

This article from the economist suggests that inflation will be low for a long time:https://www.economist.com/special-report/2020/10/08/the-eternal-zero


It points out that after pandemics interest rates stay lower than they would have been for up to 20 years (all be it the earlier ones tended to kill more folks off than this one has done so far for example if you scale 1918 up to todays population the death toll would be 200 million, the world population being four times what it was in 1918, and a 50 million toll back then) The article points out that folks are saving more and with the central banks creating lots of money the supply loanable money may exeed the demand.


further on it points out that the world economy may resemble japan for a good while "The upshot is that the world economy increasingly resembles Japan, where even decades of deficits and net public debts of over 150% have not broken a low-inflation, low-interest-rate equilibrium." The artilce points out that part of japans problem is an aging population, but the world will start having one soon starting with Europe.

Indeed this is a part of the thesis of the great wave that population growth is the root level driver of inflation.

 

[audreyh1]

Yes, I expect interest rates may stay low far longer than anyone imagines - het, just like last time!

Seems like we are in a deflationary environment due to economies hampered by the pandemic.

In terms of population age driving the economy - Harry Dent used that model yet his predictions seemed consistently way off.

 

[RunningBum]

In terms of population age driving the economy - Harry Dent used that model yet his predictions seemed consistently way off.

Harry Dent
I remember his book about the Roaring 2000s, just as the bubble burst. I didn't realize ALL of his predictions are bad!

https://www.marottaonmoney.com/harry-dent-has-another-prediction-should-i-follow-his-advice/

Let’s look at some of Harry Dent’s best selling Books:
“The Roaring 2000s Investor” was published in October of 1999 along with “The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History” just as the market was about to experience the Dot Com Bubble for 4.7 years with the S&P 500 down -49.15% and large cap growth losing -68.47% of its value.
“The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2005-2009” predicted another boom. What actually happened was the Financial Crisis crash of 2007-2009 with the markets down -56.78%.
In January 2009, Dent published “The Great Depression Ahead.” Of course this was one of the best times in history to be invested with the S&P 500 up 26.46% (2009) and 15.06% (2010).
In March of 2010, Dent published “How to Prosper in a Downturn: Your Path to Success and Fulfillment in the Next Ten Years.” There of course wasn’t a downturn with the S&P 500 having ten years of stellar returns. Normally about seven out of ten years have positive returns. During this decade nine out of ten had positive returns with 2018 only down -4.38%.
In April of 2011, Dent published “The Great Debt Crisis Ahead” with the cover slogan, “Don’t just survive the economic downturn; prepare to prosper.” Instead of an economic downturn the economy did fine with the S&P 500 up 2.11% (2011), 16.00% (2012), and 32.39% (2013) over the next three years.
Just after 9-11 in September 2011, Dent published “The Great Crash Ahead: Strategies for a World Turned Upside Down.” There was no crash. After an initial downturn the S&P 500 ended up 2.11% (2011), 16.00% (2012), 32.39% (2013), and 13.69% (2014) over the next three years.
In August 2015, Dent published “The Demographic Cliff: How to Survive and Prosper During the Great Deflation Ahead.” There was some mild deflation early in 2015. September 2015 had a -0.04% deflation and then no more deflation for the next five years.
Dent’s track record is terrible. One Amazon reviewer asked the question, “Has no one noticed all his books are like contrary indicators?”
Despite all of this, Dent maintains he can accurately predict the direction of the markets. The biography on one of his recent books reads:

With his track record of accurately predicting Japan’s collapse in 1989, the dot-com bubble-bust in 2000 and the housing bust in 2006 to 2007 (among many other things) …
​

 

[chassis]

Yes, inflation will be low for the foreseeable future.

Whether or not that turns the world into Japan, economically, is doubtful. Investment seeks productivity growth and innovation. These two things occur on a daily basis, usually together.

Japan is a closed/isolationist society, culturally, socially and politically, compared with the rest of the world. I argue this is the cause of their economic reality, in addition to an aging population.

 

[jebmke]

If you get three economists in a room, which of the four opinions do you rely on?

 

[The Cosmic Avenger]

Harry Dent
I remember his book about the Roaring 2000s, just as the bubble burst. I didn't realize ALL of his predictions are bad!

https://www.marottaonmoney.com/harry-dent-has-another-prediction-should-i-follow-his-advice/

Wow, so it sounds like Harry Dent is a really useful guy to listen to -- I'll always do great if I just do the opposite of what Harry Dent advises!

 

[pb4uski]

If you get three economists in a room, which of the four opinions do you rely on?

Might this thread be merged with the "50/50 chance, wrong every time" thread?

 

[enjoyinglife102]

Inflation low for a long time? When does that start? Housing prices are soaring and so are building materials. My grocery store is no indicator of deflation, just the opposite. Another example of government inflation numbers not meaning much, similar to the referenced market predictions.

 

[aleabo]

Inflation low for a long time? When does that start? Housing prices are soaring and so are building materials. My grocery store is no indicator of deflation, just the opposite. Another example of government inflation numbers not meaning much, similar to the referenced market predictions.

Absolutely. Everything goes up - not only food and housing. We already have inflation and it will be worse.

 

[Koolau]

No idea if inflation will be low or rage a la 70's/80s. I just know I no longer trust the inflation numbers that are published. I see what I see and inflation is much higher (here) than the numbers would suggest. It's been that way for several years. YMMV

 

[Closet_Gamer]

One of my all time favorite quotes:

"Economists exist to make fortune telling look like a respectable profession."

On inflation, really who knows?
But since we're tossing opinions out there:

I think average inflation will remain low, particularly when viewed through the lens of value (I get more value for my money) even though absolute costs may increase in many areas.

For example, I once saw an analysis that car inflation is "low" because so much new value has been added to a car over the last 30 years (air bags, GPS, better mileage, quality, etc)...but that doesn't change the fact that absolute costs are up.

Similarly, I think there will be sustained pockets of super high inflation (housing, education, health care). Housing due to low interest rates & scarcity, education & healthcare due to benefits and economic structures.

That will be offset in the aggregate by productivity in other parts of the economy. I think tech (AI, IT, biotech, etc) and the remaining large supply of cheap global labor will help anchor prices down overall.

Net: I predict sustainably low inflation and extreme pockets inflation/deflation.

Hey! I could be an economist! Cool!

 

[cyber888]

Previous inflation was due to crude oil prices at $150 per barrel. Now crude oil is 30+ per barrel, so you could pay 1.90 as oppose to 4.00 per gallon at the pump, unless your state has a heavy tax on gas. I read Movie priced are being offered a 15 cents instead of $17 as a promo for people to go back to the movies. You can still buy 2 mcdonalds cheeseburgers for $2. While,the brand new price of a BMW car could cost $50k-$60k, you could buy a slightly used second-hand BMW for $20K. Asset prices like stocks and houses could go up, but rent could stay low due to unemployment and slow growth in wage rates.

 

[GenXguy]

First, my experienced "real" inflation is higher than what the government figures are for inflation. My homeowners and property taxes are a couple of my largest bills, and they've been going up closer to 7% per year in recent years. Yes, my home's market value in this area has actually dropped in recent years.

The Fed wants to let inflation run hot and are doing what they can to cause it. So 3% inflation is possible (with real inflation actually higher than that.)

Alan Greenspan recently stated that souring inflation is one of his biggest fears.

https://www.newsmax.com/Finance/streettalk/greenspan-inflation-budget-deficit/2020/09/11/id/986421/

From same article, billionaire investor "Druckenmiller added he’s worried inflation could hit 10% in the next four to five years."

And this is at a time when stocks are at near record highs, and CDs/MMs are paying squat. It will be difficult to stay ahead of this inflation.

I have a 3% fixed interest fund through my job retirement account, which looks good today, but if inflation skyrockets as many are predicting, even that will be a loser.

 

[chassis]

Look at the entire basket of goods, not just food and shelter.

Stock trading expenses? Strong deflation.

Energy, as pointed out above, flat to mild deflation.

Grain prices, overall flat with alot of volatility

Prices and inflation are a mixed bag, and the strong housing market shouldn't cloud your lenses.

 

[Koolau]

One of my all time favorite quotes:

"Economists exist to make fortune telling look like a respectable profession."

On inflation, really who knows?
But since we're tossing opinions out there:

I think average inflation will remain low, particularly when viewed through the lens of value (I get more value for my money) even though absolute costs may increase in many areas.

For example, I once saw an analysis that car inflation is "low" because so much new value has been added to a car over the last 30 years (air bags, GPS, better mileage, quality, etc)...but that doesn't change the fact that absolute costs are up.

Similarly, I think there will be sustained pockets of super high inflation (housing, education, health care). Housing due to low interest rates & scarcity, education & healthcare due to benefits and economic structures.

That will be offset in the aggregate by productivity in other parts of the economy. I think tech (AI, IT, biotech, etc) and the remaining large supply of cheap global labor will help anchor prices down overall.

Net: I predict sustainably low inflation and extreme pockets inflation/deflation.

Hey! I could be an economist! Cool!

Yep! You got the "fortune telling" down pat.

 

[cyber888]

First, my experienced "real" inflation is higher than what the government figures are for inflation. My homeowners and property taxes are a couple of my largest bills, and they've been going up closer to 7% per year in recent years. Yes, my home's market value in this area has actually dropped in recent years.

This is clearly not an issue of inflation, but an issue of Taxation. As you said, your home value has dropped .. that's deflation .. if the value of your home keeps dropping, it's now actually much cheaper to buy a housenin your area.

That can be resolved by writing your local tax office and telling them the value of your house has depreciate. I did that in 2008 and my tax rate has remaining the same, so basically 0 tax hike. The value of my home has gone up, but taxes remain the same. This is related to taxes in your state.

 

[Koolau]

First, my experienced "real" inflation is higher than what the government figures are for inflation. My homeowners and property taxes are a couple of my largest bills, and they've been going up closer to 7% per year in recent years. Yes, my home's market value in this area has actually dropped in recent years.

<SNIP>

Yeah, that's what I always whine about. I DON'T buy much gas (even now that it's "cheap.") It seems to me that all the stuff that's "cheap" is so because no one is buying it right now. Stuff everyone actually needs is up. For example, we all have to buy food (either grocery items or sit-down/take-out meals). All are up - way up, locally. I'd say 5 to 20% this year. It could be the Paradise tax thing, but I don't get around much anymore to see what's happening on the mainland so YMMV.

 

[meierlde]

Previous inflation was due to crude oil prices at $150 per barrel. Now crude oil is 30+ per barrel, so you could pay 1.90 as oppose to 4.00 per gallon at the pump, unless your state has a heavy tax on gas. I read Movie priced are being offered a 15 cents instead of $17 as a promo for people to go back to the movies. You can still buy 2 mcdonalds cheeseburgers for $2. While,the brand new price of a BMW car could cost $50k-$60k, you could buy a slightly used second-hand BMW for $20K. Asset prices like stocks and houses could go up, but rent could stay low due to unemployment and slow growth in wage rates.

The simplest demo that cars are better than in the past is the number of digits on the odometer: it used to be 6 and now is 7, which is a strong indication that enough vehicles make it past the rollover point that it made sense to do so (also of course the odometer is digital now). Another evidence is the length of warranty on a new car 3/5 years versus 40 years ago 90 days.

 

[meierlde]

Yeah, that's what I always whine about. I DON'T buy much gas (even now that it's "cheap.") It seems to me that all the stuff that's "cheap" is so because no one is buying it right now. Stuff everyone actually needs is up. For example, we all have to buy food (either grocery items or sit-down/take-out meals). All are up - way up, locally. I'd say 5 to 20% this year. It could be the Paradise tax thing, but I don't get around much anymore to see what's happening on the mainland so YMMV.

Of course the article points out that the low inflation/interest rate raises the value of investments, of which housing is due to the last 20 years viewed at least partly an investment. For at least some food it has fallen from its peak in the june timeframe as meat plants get back on line.

 

[Koolau]

Of course the article points out that the low inflation/interest rate raises the value of investments, of which housing is due to the last 20 years viewed at least partly an investment. For at least some food it has fallen from its peak in the june timeframe as meat plants get back on line.

Heh, heh, I guess that news about the returning meat packers hasn't made it here yet.

 

[MrsHaloFIRE]

I see groceries healthcare and housing going up in my area. What's this deflation talk? My basket of goods is increasing in expense.

 

[meierlde]

Here is a plot of the us consumer price index as well as the total change from 1913
https://en.wikipedia.org/wiki/Consumer_price_index#/media/File:US_Consumer_Price_Index_Graph.svg
All be it that the choice of a linear scale for average consumer price index may not be the best, as perhaps a log scale of something that goes as an exponential always runs in slope.

 

[meierlde]

Heh, heh, I guess that news about the returning meat packers hasn't made it here yet.

the wall street journal claims that the shortage of meat is over and prices are falling "after spring time shortages supermarkets are selling meat for lower prices, as supplies rebound and exports decline". This chart from the bls shows hamburger prices peaking in July and declining in aug. Note that the year over year cpi is up 1.3% Here is a link to the bls report https://www.bls.gov/news.release/cpi.nr0.htm

 

[Koolau]

I see groceries healthcare and housing going up in my area. What's this deflation talk? My basket of goods is increasing in expense.

Stick with me while I suggest a theory 'splainin' why the gummint numbers never match up with my (our??) inflation reality: The gummint "says" we're going to buy "this much" gas, "this much" food, this much movie tickets, "this much" health care, "this much" housing, etc. etc. Here is where I think "they" are wrong: If food and health care go up in price - we still buy 'em, 'cause we really need 'em. If movie tickets, travel, entertainment in general, shoes, etc. etc. go up, we DON'T buy 'em. Folks have only so much money.

So every thing we don't buy may be cheap (and that can be self fulfilling as folks don't buy 'em) but everything we actually need may be expensive (partly because EVERYONE needs 'em.) The gummint doesn't actually notice what we DO buy and what we QUIT buying within a year. So the gummit's estimates look "good" because of their assumptions. "OUR" numbers look "bad" cause we don't follow the assumptions when we have a choice. So there you have it. Ko'olau's theory of gummint vs real inflation. Don't forget, YMMV.

 

[SecondCor521]

Stick with me while I suggest a theory 'splainin' why the gummint numbers never match up with my (our??) inflation reality: The gummint "says" we're going to buy "this much" gas, "this much" food, this much movie tickets, "this much" health care, "this much" housing, etc. etc. Here is where I think "they" are wrong: If food and health care go up in price - we still buy 'em, 'cause we really need 'em. If movie tickets, travel, entertainment in general, shoes, etc. etc. go up, we DON'T buy 'em. Folks have only so much money.

So every thing we don't buy may be cheap (and that can be self fulfilling as folks don't buy 'em) but everything we actually need may be expensive (partly because EVERYONE needs 'em.) The gummint doesn't actually notice what we DO buy and what we QUIT buying within a year. So the gummit's estimates look "good" because of their assumptions. "OUR" numbers look "bad" cause we don't follow the assumptions when we have a choice. So there you have it. Ko'olau's theory of gummint vs real inflation. Don't forget, YMMV.

Except that's not how the CPI is calculated. It's calculated on what people (on average in aggregate) actually buy, not on what the gummint things we buy "this much" of.

See:

https://www.bls.gov/cpi/questions-and-answers.htm#Question_2

and

https://www.bls.gov/cpi/factsheets/averages-and-individual-experiences-differ.htm

It is true that people will substitute goods and that goods have varying demand curves, but that's supposed to be accounted for in the CPI.