How worried are you about inflation?

[RobLJ]

I guess it depends on how much inflation. The stock market can do pretty well even under moderate inflation. The scary thing is the fed does not have a lot of arrows left in its quiver to deal with a large spike in inflation, and that scares me more than the inflation itself.

I'm sorry--the Fed could raise rates 2-3% and we and CNBC would wail, gnash our teeth, and beat our breasts like Job.
More accurately, the Fed has not a lot of arrows against deflation, since interest rates are... almost zero. Congress has arrows with further fiscal policy, but won't do much.

Come on, people. This is almost comical. And yes we will probably see some inflation over the next year as economies recover. Get over it.
This is my last word of mockery on the inflation Sasquatch, I promise. But it does remind me of my grandparents talking about how expensive Hershey bars have become versus the good old 1930s.

And yes copper and lumber are expensive. That's a good thing.

 

[MichaelB]

The scary thing is the fed does not have a lot of arrows left in its quiver to deal with a large spike in inflation, and that scares me more than the inflation itself.

The Fed may not have many good tools to battle deflation, but it is a proven inflation killer. Just remember back to Paul Volker in ‘79. It’s painful but effective.

 

[gooddog]

While I'm not concerned about inflation, I'm thinking the average retiree should be. Those of us on the forums here are in a position to absorb 10%/year inflation, but those living on just social security are going to have a hard time when they find their SS is worth less than the new minimum wage.


Some will say that since the fed has kept interest rates low that there is room there to fight inflation by moving interest rates. That might have been true a few years ago, but with ~80% of all USD being created in the last 18 months and the debt that has gone with it, a small increase in interest rates can make servicing the debt difficult.


Decades ago there used to be a saying about being able to retire - a person could retire and have steaks every night, but that inflation would drive them to only being able to afford hamburger after 20 years. *Know I don't have that exactly right.* It may take only 5 years now to go from steaks to hamburger.

 

[audreyh1]

The Fed may not have many good tools to battle deflation, but it is a proven inflation killer. Just remember back to Paul Volker in ‘79. It’s painful but effective.

Exactly!

 

[Surewhitey]

Are they planning to raise their pricing by 10-15%, or are they expecting their costs to rise by 10-15% (or both)?

Commercial lines insurance is a funny thing. They were making the comment to prepare for it. They typically don't make their profits on policies. Their profits are more tied to investments and downstream insurance (think catastrophic secondary). Also on being efficient in handling claims properly. I'm sure they'll take advantage of the situation...

Just interesting they mentioned it. Got DW thinking about it...

 

[youbet]

The scary thing is the fed does not have a lot of arrows left in its quiver to deal with a large spike in inflation.

You may have that turned around 180 degrees.........

 

[Fermion]

Decades ago there used to be a saying about being able to retirement - a person could retire and have steaks every night, but that inflation would drive them to only being able to afford hamburger after 20 years. *Know I don't have that exactly right.* It may take only 5 years now to go from steaks to hamburger.

I actually like hamburger.

Not a big fan of ramen though...

 

[Dtail]

I actually like hamburger.

Not a big fan of ramen though...

Or cat food I presume.

 

[Fermion]

Or cat food I presume.

I think ramen is a lot cheaper....cat food is like $0.30 a can for the good stuff with lots of melamine in it.

 

[youbet]

DW tells me that I'm a bit of a curmudgeon.

She would know. It's really just speculation for us. So, OK, you're a curmudgeon.

But, man, could we have used all you inflationistas in the war against deflation for, oh, the last 30 years or so.

Since we haven't had any appreciable deflation in the last 30 years or so, it appears the war went well! Of the last 30 years, only 2009 was deflationary at -0.36%.

 

[steelyman]

Sometimes I think too much media coverage isn’t that good for us.

This afternoon I had a Drs appt and passed by several gas stations. The lines were nuts (granted, I live in the Southeast but still…).

 

[bolt]

What happens to all the office space? How will that factor into inflation? Will they be converted into residential space? In the meantime how will the mortgages on these be paid if they’re left empty and fall into disrepair and what impact will that have on the real estate market?

I'd speculate it will become multi-use(residential-commercial) R.E.
Most commercial R.E has certainly become unessessary after C19's work from home experiences for both employers and employees.

Where as IIRC I saw residential R.E adopt a downward slope last few yrs. from numerous sources analysis.

Good luck & Best wishes...

 

[2177V]

Thankfully, I already own my house and cars but some of the items on this list are definitely concerning with regards to inflation that impacts my budget. Gas, certain meats, truck driving (shipping in general). I find it hard to believe that inflation is going to remain low, at least in the near term.

https://www.businessinsider.com/why...ventory-chips-lumber-cars-toilet-paper-2021-5

I am not worried about inflation because last year I re-allocated my portfolio to approximately 25% equities, 25% treasuries, 25% income producing rental real estate and 25% precious metals and rare earth material needed for the green economy. Inflation can be triggered by mass hysteria....if everyone believes inflation will occur. When some prices of goods and services do start to rise, people will start buying BEFORE the prices continue to rise. When public demand exceeds supply, greedy sellers raise prices and the cycle continues. Prediction of this occurring is difficult but it made sense for me to be cautious and re-structure my portfolio to account for inflation. I belong to the camp who believes that inflation is more likely than the other camp who believes it is less likely.

 

[jeffmete]

I remember the inflation of the late 70’s early 80’s. It was scary stuff! We bought a house in early 80’s at 16.5% interest. That hurt.

 

[jazz4cash]

But what can we do about it, though? I'm not being snarky, I'm genuinely asking. Let's say we're looking at a period of elevated inflation. What do we actually do about that, as individuals?

The “official” numbers are not meant to reflect what individuals experience. Individuals should assess their specific needs and act accordingly. It’s too late if you need to buy a home but refi rates are still fantastic.
Maybe you could buy several years worth of consumer products with long shelf lives. Paper, cleaning, personal hygiene products, etc. Buy 2 or 3X what you’d normally buy. Go very short on all fixed income assets in anticipation of higher rates on CDs and bonds.

I’m not worried and don’t feel we are going to have an inflation problem but these are things I’d be comfortable doing anyway.

 

[Delawaredave5]

With stocks, we on this board generally do not try to "time the market".

Inflation seems even more unpredictable than the stock market.

So I don't see how/why one would do a whole lot of "inflation precautions". Financially, the times I've been "sure about something" have been the times I've been proven clueless....

 

[aleabo]

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..

I see food prices up but can tell you absolutely that coffee what I'm buying for years (Illy, Lavazza) so far didn't go up. My family consumes 1 can per week so I'm watching prices very closely.
In terms of actionable to-dos.. I don't know. How good TIPS in 5-10% inflation we don't know. I read that good inflation protection are small caps and value funds, but how good? Basically all companies who can pass prices to consumer should be ok - food, utilities, basic necessity.

 

[Old Microbiologist]

Personally, while ordinary inflation is expected I am terrified of hyper-inflation. We have also been seeing slimflation a lot with the repackaging of stuff at lower quantities in the same containers for higher prices. This is "hidden" inflation. We see it here in things like sour cream that used to be 1 kg container but now only has 800g in it but for the same price. Butter was 250 grams and is now 180 grams in a pack. I bought chlorine and acid for our pool and the muriatic acid last year was 50% strength but now it is 15% but the same price. I recall before leaving the US in 2009 that a 2x4 was actually a 1.5x3 so this has been going on for a while now.

The Fed has pumped more than $9 trillion into the economy at a rate of $160 Billon a day which is the only reason we are seeing the market at record highs.

https://needtoknow.news/2020/03/the...d-now-is-offering-banks-another-1-5-trillion/

At some point, the music has to stop and interest rates must go up. The only result that is possible is a massive devaluation of the US dollar. We live in Europe and all our income is US dollars (4 pensions and all our money is tied into the market as equities or cash). With that in mind, we are moving half our cash to Swiss Francs which are the only actual stable currency in the world. However, we cannot open any accounts in Switzerland as it is only for Swiss citizens living inside Switzerland. But, we can have local accounts that are in foreign currency (we already have a US dollar and Euro account).

Oil is already back at highs of $70 a barrel and is expected to go up to $100 a barrel later this year. The interest on the debt will be unsustainable. MMT is a farce and economic gravity will force things to re-balance. The US still imports the vast majority of manufactured goods and the money the Fed is pumping generally ends up in China and Russia (as well as other Asian manufacturing countries).

So, we have put ourselves into the same economic position as the Weimar Republic before its collapse. It is very scary to me and there is not much we can do about it.

 

[jazz4cash]

The “official” numbers are not meant to reflect what individuals experience. Individuals should assess their specific needs and act accordingly. It’s too late if you need to buy a home but refi rates are still fantastic.
Maybe you could buy several years worth of consumer products with long shelf lives. Paper, cleaning, personal hygiene products, etc. Buy 2 or 3X what you’d normally buy. Go very short on all fixed income assets in anticipation of higher rates on CDs and bonds.

I’m not worried and don’t feel we are going to have an inflation problem but these are things I’d be comfortable doing anyway.

I thought about this some more and realized it’s a terrible idea. If everyone buys 2-3X what they normally buy it will only increase inflationary pressure which judging buy this thread may already be a self fulfilling reality for some. I was looking at pressure treated lumber and noticed prices have retreated 25% from a recent peak.

 

[Davis65]

When the Fed cranked up the (figurative) printing presses to deal with the 2008 Global Financial Crisis to pump trillions of dollars into the economy through quantitative easing, we saw the same predictions of runaway inflation. Why did that never happen? Because in 2013, the Fed responded to signs of rising inflation by "tapering" -- taking money out of the economy to counter inflationary pressure. Inflation in the US never rise above 2.5%.

Why would the Fed not do the same thing again?

It is easy to cite examples of prices going up without mentioning prices that are going down, but that doesn't give a true picture of inflation, does it? The plural of 'anecdote' is not 'data'. Your personal inflation rate will differ from the consumer price inflation depending on your spending patterns, of course, but statistics are not propaganda.

The sky has never fallen before, and it isn't falling now, now matter how much some people enjoy getting worked up about the idea that the sky could fall.

 

[audreyh1]

OK, consumer prices up 4.2% over past 12 months so I’m sure there will be a lot of market buzz today. From CNBC:

Inflation accelerated at its fastest pace in more than 12 years for April as the U.S. economic recovery kicked into gear and energy prices jumped higher, the Labor Department reported Wednesday.

The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose 4.2% from a year ago, compared to the Dow Jones estimate for a 3.6% increase. The monthly gain was 0.8%, against the expected 0.2%.

Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis. The respective estimates were 2.3% and 0.3%.

It’s a very noisy signal.

 

[Davis65]

Fair point. Let's see how the Fed responds. In the 1970s, 4.2% would have been considered to be very low inflation.

 

[audreyh1]

Oh, the Fed is not going to respond to one month of data other than answering questions. They are playing a longer game and seem to be mostly focused on the continuing economic disruption from the pandemic.

 

[24601NoMore]

Fair point. Let's see how the Fed responds. In the 1970s, 4.2% would have been considered to be very low inflation.

True, but compared to the very low inflation of the past 40 YEARS, 4.2% is a pretty big deal.

PS: for those that may still be thinking inflation won't negatively affect equities, futures are once again (not surprisingly, IMHO) cratering on the news.

 

[USGrant1962]

True, but compared to the very low inflation of the past 40 YEARS, 4.2% is a pretty big deal.

PS: for those that may still be thinking inflation won't negatively affect equities, futures are once again (not surprisingly, IMHO) cratering on the news.

What? At 10 mins to open Dow futures down ~0.3%, S&P down ~0.6%. Cratering?