How worried are you about inflation?

[MichaelB]

“Yes, there will be a lot” is not a meaningful answer. People expressing concern about future very high inflation should also share how high and over what period of time.

I think there’s a fair chance CPI may peak at 3% or a bit higher this year, while average CPI will be below that, and next year average inflation will be below the average for 2021.

US capacity utilization is at 73%, which is low. Europe has a similar level, except Germany, which is higher. China has a level in the same range as US. This means business around the world can increase production without having to add new capacity, which points toward a steady price level.

 

[OldShooter]

“Yes, there will be a lot” is not a meaningful answer. People expressing concern about future very high inflation should also share how high and over what period of time. ...

Really? To be permitted to be concerned, the person must give you a specific scenario? IOW they must predict the future? They must be able to time the inflation market? That's a pretty high bar.

I would not use the phrase "will be" but I would certainly say there "might be." I don't have a clue how much, when, or have a probability number. Pressed, I might offer something like "at least triple the Fed's targets and for a couple of years" as an example of something to be worried about. Or I might set the threshold at 10% plus. But that is not predicting; it is simply identifying possibilities.

I was in Zimbabwe a few years ago and talking to a woman who had lived through their 2007-2009 hyperinflation. She was working in a store at the time and they were repricing three times a day, never really knowing what the right prices were. Some might worry about scenarios like that in the US. I still have a packet of fresh new Zim genuine currency, a billion or two Zim dollars, that I bought for one USD.

 

[Car-Guy]

Really? To be permitted to be concerned, the person must give you a specific scenario? IOW they must predict the future? They must be able to time the inflation market? That's a pretty high bar.

+1


Similar to your Zimbabwe example, back in the day when I was working, I recall the salaries of some of our employees "doubling" one or two years in a row due to run away inflation in their country. (in South America) I remember talking to some of them about how it was affecting so many of their friends and particularly hard on retirees living on fixed incomes in their country... Fortunately for them, the mega corp they were working for kept them near even.


Could it happen here in the US? Absolutely...

 

[MichaelB]

Really? To be permitted to be concerned, the person must give you a specific scenario? IOW they must predict the future? They must be able to time the inflation market? That's a pretty high bar.

You’re just looking for an argument. The intent of my post was clear. “A lot” is far too vague for a discussion that would include measurable or actionable conclusions.

I was in Zimbabwe a few years ago and talking to a woman who had lived through their 2007-2009 hyperinflation. She was working in a store at the time and they were repricing three times a day, never really knowing what the right prices were. Some might worry about scenarios like that in the US. I still have a packet of fresh new Zim genuine currency, a billion or two Zim dollars, that I bought for one USD.

Zimbabwe is often mentioned when the topic is inflation. It has no relevance to the US or any modern industrialized economy.

 

[Badger]

Not worried about something I cannot change. Not concerned, not bothered, not staying up at night.

Two cars that are only 2 yrs old with less than 8k miles, paid for house, Medicare and Tricare, a comfortable nest egg - If inflation hurts us then more than 75% of the people in the country will already have one foot in the toilet. Isn't that how we were supposed to plan for retirement?



Cheers!

 

[youbet]

“Yes, there will be a lot” is not a meaningful answer. People expressing concern about future very high inflation should also share how high and over what period of time.

While I agree that "Yes, there will be a lot" is not meaningful, you might be asking for a level of specificity that would be difficult to express without using broad ranges. For example, I'd say that an average level of 5% CPI increase over 5 years would very negatively impact the youbet household budget, at least on the spending side. But so would 4% over 6 years and 6% over 4 years. Etc.

I think there’s a fair chance CPI may peak at 3% or a bit higher this year, while average CPI will be below that, and next year average inflation will be below the average for 2021.

Well, that seems like a good guess Michael. Our rolling 12 month increase (through March) is 2.6%. March alone was 0.6%.

US capacity utilization is at 73%, which is low. Europe has a similar level, except Germany, which is higher. China has a level in the same range as US. This means business around the world can increase production without having to add new capacity, which points toward a steady price level.

That would only be true if the low capacity utilization is caused by lack of demand, which is not completely true. Much of the capacity utilization issues we have today are being caused by lack of labor and lack of key materials.

I'm not looking for so-called "hyper-inflation." But I do think we're going to have some low-mid single digit levels of inflation for a few years that won't be as transient as Chairman Powell is projecting.

It'll be fun to watch!

 

[MichaelB]

While I agree that "Yes, there will be a lot" is not meaningful, you might be asking for a level of specificity that would be difficult to express without using broad ranges. For example, I'd say that an average level of 5% CPI increase over 5 years would very negatively impact the youbet household budget, at least on the spending side. But so would 4% over 6 years and 6% over 4 years. Etc. Well, that seems like a good guess Michael. Our rolling 12 month increase (through March) is 2.6%. March alone was 0.6%.

There was no expectation of a prediction, just an effort to put some substance to the conversation. Your examples are quite good

That would only be true if the low capacity utilization is caused by lack of demand, which is not completely true. Much of the capacity utilization issues we have today are being caused by lack of labor and lack of key materials.

I agree that right now there are shortages, and if they were to persist, inflation would probably push up higher and stay there longer - to the levels of your earlier example. Our difference is I think that’s not going to happen.

I'm not looking for so-called "hyper-inflation." But I do think we're going to have some low-mid single digit levels of inflation for a few years that won't be as transient as Chairman Powell is projecting.

It'll be fun to watch!

I agree there’s a chance this scenario happens. Just how much fun depends on how portfolios react.

 

[ExFlyBoy5]

“Yes, there will be a lot” is not a meaningful answer. People expressing concern about future very high inflation should also share how high and over what period of time.

Really? I didn't know that we had to come up with concrete numbers to express concern. If the experts can't come up with a number, why should a forum member have to?

You’re just looking for an argument. The intent of my post was clear. “A lot” is far too vague for a discussion that would include measurable or actionable conclusions.

Too vague, eh? How can someone come up with a single concrete number when it involves MANY factors (food, textiles, cars, housing, and how many hundreds more?)...I wouldn't even know where to start.

Really? To be permitted to be concerned, the person must give you a specific scenario? IOW they must predict the future? They must be able to time the inflation market? That's a pretty high bar.

I guess we are now required to use a crystal ball when contributing.

 

[MichaelB]

Snark and sarcasm does not lead to a thoughtful exchange.

 

[ExFlyBoy5]

Snark and sarcasm does not lead to a thoughtful exchange.

OK. Translation lost in the internet, I suppose. I was asking honest questions.

Anyway, so you are adamant that a conversation is useless unless we cite numbers then I "see" inflation of about 5-7% over the next 18 months.

 

[NW-Bound]

That would only be true if the low capacity utilization is caused by lack of demand, which is not completely true. Much of the capacity utilization issues we have today are being caused by lack of labor and lack of key materials.

I'm not looking for so-called "hyper-inflation." But I do think we're going to have some low-mid single digit levels of inflation for a few years that won't be as transient as Chairman Powell is projecting.

It'll be fun to watch!

Speaking of materials, copper price is now $4.5/lb (was 1/2 that last year), and expected to go to almost $6/lb in a few months. And we all know about the higher cost of lumber.

Speaking of labor, there's a headline on the Web about a trucking company offering pay of $14,000/week for truck drivers. Repeat, that's $14K/week, not per month. Crazy!

 

[24601NoMore]

Here are some sobering YTD inflation stats..

Beef: + 12.40%
Poultry: +18.80%
Lean Hogs: +58.52%
Canola: +59.35%
Wheat: +19.48%
Coffee: +16.57%
Sugar: +13.49%
Corn: +57.02%
Wool: +12.64%
Lumber: +90.47% (!!) after a crazy 2020 on top of that..roughly triple 2 years ago
Milk: +21.20%
Gas: +50.03%
Heating Oil: +34.35%

...etc. More at https://tradingeconomics.com/commodity/gasoline

Pretty much, no matter WHAT any of us do with our portfolios or investing strategy, we're all pretty much in a heap of trouble with numbers like that.

And with that many moving pieces and parts, predicting an "average" future rate - or even a range - becomes darn near impossible, IMHO.

In terms of actionable to-dos..I recently bought PIMCO's Inflation Protection (Instl) fund and some IAU (Gold-backed ETF), but wish I bought more of both as they've both increased in price quite a bit since I bought and I'm now wishing I had more than I do of both. I also have little faith in US growth going forward and am pretty convinced we're going to be looking at the mother of all market meltdowns in 2021 or 2022..so am investing in International Value, US Value, China, Utilities and other areas to diversify away from US large-cap growth.

I heard a good analyst say the other day that his strategy (and one he advocates for clients) is to shift from capital growth to capital preservation given what he anticipates coming (also huge market melt-down in the near term). I personally think there's a lot to be said for that and plan to shift my own assets largely this way..

 

[youbet]

Really? I didn't know that we had to come up with concrete numbers to express concern. If the experts can't come up with a number, why should a forum member have to?

I think it's widely known that most economists lurk on this forum to harvest information they later present as their own. If forum members don't "come up with a number," then economists won't have anything to say. Come on ExFlyBoy5, get with the program and contribute!

 

[unclemick]

Try buying plywood or a new car right now if you enjoy sticker shock...

Was going to do some building additions at the Farm plus plus DW is thinking we have 150k miles on our 'city car'. Talking but not actively shopping yet!

Heh heh heh - Back in workerbee days I remember the 70's inflation. I toyed with the Harry Browne portfolio back then with higher doses of gold/pm, RE, and commodities. But toward the end leaned 60/40 with rental RE and coins on the side. Today ?? Expect inflation but a number??

 

[NW-Bound]

Here are some sobering YTD inflation stats..

Beef: + 12.40%
Poultry: +18.80%
Lean Hogs: +58.52%
Canola: +59.35%
Wheat: +19.48%
Coffee: +16.57%
Sugar: +13.49%
Corn: +57.02%
Wool: +12.64%
Lumber: +90.47% (!!) after a crazy 2020 on top of that..roughly triple 2 years ago
Milk: +21.20%
Gas: +50.03%
Heating Oil: +34.35%

...etc. More at https://tradingeconomics.com/commodity/gasoline
...

The above numbers are bad, but I am going to check them against their pre-Covid values.

Many commodities went down because of lack of demand, and their recovery may make the price increase looks bad.

 

[24601NoMore]

The above numbers are bad, but I am going to check them against their pre-Covid values.

Many commodities went down because of lack of demand, and their recovery may make the price increase looks bad.

Fair point..let us know what you find..

That said, pumping trillions of $$s into the economy is gonna have an effect. Another analyst I watched said the other day that COVID created a roughly $800B hole in GDP that was filled with over $6B in spending. And that's BEFORE the $4T+ additional spending currently being talked about..

 

[SnowballCamper]

Perhaps "worry" isn't a very good term in this forum, as most here seem to do their own risk management for retirement funds. If one truly doesn't have any concern about inflation volatility, then it's a simple calculation to determine how much you need for retirement (expenses X planned time horizon = required funds). I see more inflation than the CPI tells me is happening, and as a (mostly) pensioner I wonder how soon I'll have to start drawing down from the retirement investment account. Inflation would have to be pretty high to beat out the typical asset allocation. I'm aware that is a possibility, but the only alternative I'm aware of is TIPS (or I bonds)...too conservative for me.

 

[youbet]

Speaking of materials, copper price is now $4.5/lb (was 1/2 that last year), and expected to go to almost $6/lb in a few months.

I was at Home Depot yesterday picking up a few things. I checked on copper wire prices out of curiosity (ham radio antennas) and found 500 ft spools of #16 stranded at about 16 cents a foot. It seems like a short time ago it was a dime. Sheeesh........ And the CEO of FBX was on CNBC yesterday and was smiling broadly over the share price rising dramatically over the past few months and predicting demand for copper to stay very high.

Speaking of labor, there's a headline on the Web about a trucking company offering pay of $14,000/week for truck drivers. Repeat, that's $14K/week, not per month. Crazy!

I was curious about job demand around here and signed up with a couple of those on-line job services. Being a long retired geezer who hasn't had a penny of earned income in 16 years, I checked some boxes indicating I'd be willing to work as a driver. I wasn't thinking CDL, just delivery or something. My inbox has been flooded with invitations to come in for an interview, many for high paying CDL jobs (for which I'm not qualified). Nothing at $14,000 a week though!

It's rare you drive by a store or restaurant or through the local industrial park that you don't see "help wanted" signs around here. At the Home Depot yesterday, the geezer employee who was helping me (another geezer ) get a heavy object off the shelf apologized for my long wait and said they are less than half staffed.

Interesting times in the economy!

 

[Car-Guy]

My inbox has been flooded with invitations to come in for an interview, many for high paying CDL jobs (for which I'm not qualified). Nothing at $14,000 a week though!

I saw the headlines today for the 14k/wk truck driver but I didn't read the article since it sounded totally absurd to me... Now that would be inflationary.... Or maybe it was for hauling nitro on (IRT) Ice Road Truckers.

 

[GravitySucks]

The above numbers are bad, but I am going to check them against their pre-Covid values.

Many commodities went down because of lack of demand, and their recovery may make the price increase looks bad.

Agreed. Milk is up in 2021 over 2020 when they were giving it away. Some farmers reduced capacity so it is at a probably temporary bump which is about 2019 levels.
I hear people complain about gas prices but it's still in the normal price range (https://www.statista.com/statistics/204740/retail-price-of-gasoline-in-the-united-states-since-1990/) Lumber is way up as everyone trying to remodel and build at the same time right after the mills shut down last March - June thinking demand would be down. Autos are scares as manufacturers told their suppliers to expect reduced demand but that really didn't happen.
I am concerned about inflation as it's a permanent loss on the FI side of the AA. I also see it coming as a devaluation of the dollar instead of simple supply and demand. As Micheal pointed out, we are no where near capacity.

 

[jazz4cash]

I’m surprised there isn’t more inflation. The Fed has been trying for 2% for years with minimal results. Many of the specific examples cited result from a shutdown of the supply chain. Is that inflation? One of the benefits of living in a HCOL area with a paid off home (or a long fixed mortgage) is that you have pretty good insulation from general increases in the cost of living (not new cars). That leaves healthcare and taxes to worry about.

 

[DawgMan]

Not worried necessarily, but it sure feels like we are seeing real inflation hit and how soon it will start to really impact the man on the street, in terms of his buying decisions, not sure. Clearly, demand is still pretty strong, even at the higher prices. The most of the problems stem from the supply side whether it's materials or labor.

I do scratch my head and wonder if THIS TIME, I should move all of my bond allocation into short term treasuries as opposed to my current mix more heavily weighted in mid term bond funds. Oh well, as usual I will probably do nothing.

Anyone really making a strategic move... THIS TIME?

 

[Car-Guy]

I'm wondering if the supply side (or lack of) is driving higher costs as much/more than actual inflation itself... I remember telling the DW in the past few weeks that I've been noticing some of the stores (e.g. Walgreens and Walmart) have been noticeably under stocked and in some cases missing some items/products altogether. At first I thought I had just caught them before the stock boys had caught up but this has been going on a while and I have seldom noticed it before... Now I'm wondering.


Still not worried too much about inflation at my age.... Yet...

 

[DawgMan]

I'm wondering if the supply side (or lack of) is driving higher costs as much/more than actual inflation itself... I remember telling the DW in the past few weeks that I've been noticing some of the stores (e.g. Walgreens and Walmart) have been noticeably under stocked and in some cases missing some items/products altogether. At first I thought I had just caught them before they stock boys had caught up but this has been going on a while and I have seldom noticed it before... Now I'm wondering.

That's my read by looking around/hearing the stories, but most of us here are A-typical. That said, those who are invested in the market, are homeowners and have jobs in industries that are not hospitality/restaurant/store front retail are probably feeling a "wealth effect". That, combined with 12+ months of Covid lock down has created strong demand, and apparently stronger demand to come based on the stock market. You would think once supply catches up, things might settle down, but the pent up demand may continue to stoke price increases until "we get all this demand out of our system!" But what do I know.

 

[NW-Bound]

Here are some sobering YTD inflation stats..

Beef: + 12.40%
Poultry: +18.80%
Lean Hogs: +58.52%
Canola: +59.35%
Wheat: +19.48%
Coffee: +16.57%
Sugar: +13.49%
Corn: +57.02%
Wool: +12.64%
Lumber: +90.47% (!!) after a crazy 2020 on top of that..roughly triple 2 years ago
Milk: +21.20%
Gas: +50.03%
Heating Oil: +34.35%

...etc. More at https://tradingeconomics.com/commodity/gasoline

Pretty much, no matter WHAT any of us do with our portfolios or investing strategy, we're all pretty much in a heap of trouble with numbers like that.

And with that many moving pieces and parts, predicting an "average" future rate - or even a range - becomes darn near impossible, IMHO.

In terms of actionable to-dos..I recently bought PIMCO's Inflation Protection (Instl) fund and some IAU (Gold-backed ETF), but wish I bought more of both as they've both increased in price quite a bit since I bought and I'm now wishing I had more than I do of both. I also have little faith in US growth going forward and am pretty convinced we're going to be looking at the mother of all market meltdowns in 2021 or 2022..so am investing in International Value, US Value, China, Utilities and other areas to diversify away from US large-cap growth.

I heard a good analyst say the other day that his strategy (and one he advocates for clients) is to shift from capital growth to capital preservation given what he anticipates coming (also huge market melt-down in the near term). I personally think there's a lot to be said for that and plan to shift my own assets largely this way..

Instead of YTD increase, I wanted to know the price increase since pre-Covid time.

I went to the above Web site to look at the current prices of the above commodities, plus their prices on Jan 2020 (pre-Covid).

I then computed the price increases shown in the table below. It is bleak, unless you are a user of wool and heating oil.

Commodity	Price 5/6/2021	Price 1/1/2020	% Increase
Beef	20.39	14.21	43%
Poultry	7.14	5.35	34%
Lean Hog	111.4	68.55	63%
Canola	1003	545	84%
Wheat	765	554	38%
Coffee	149	103	45%
Sugar	17.58	13.31	32%
Corn	760	392	32%
Wool	1319	1558	-15%
Lumber	1645	407	304%
Milk	23.57	16.93	39%
Gasoline	2.1171	1.7155	23%
Heating Oil	1.989	2.02	-1.5%
Crude	64.93	63.54	2.2%