How worried are you about inflation?

[W2R]

Worry is one thing, and in one sense I would say we are not worried.

But like many here, we are engineers and used to developing contingency plans in case they are needed. Frank and I often discuss what we would or could do in case of inflation. In fact, we had a great discussion along those lines last night. We have both been nearly broke earlier in life, and learned some pretty extreme LBYM behaviors at that time. We are OK with reverting to that type of life for a while if need be due to hyper-inflation.

We decided that if inflation is so bad that even the two of us can't get through it, it will be the end of civilization anyway and we'll just do what we can. Meanwhile we are not stressed or worried about it, just thinking and planning our "what if"s .

 

[24601NoMore]

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%

Beat me to it..I just got around to trying to do the same thing.

Bleak indeed for those of us in ER. If you're still working, hopefully your career and salary is keeping pace with double digit inflation across many different categories of commodities - most importantly, key food groups..

Short of Bitcoin or getting super lucky on some very risky investment, not sure how anyone's investment portfolio is gonna keep us with something like this. Hopefully it cools off and gets back more to 'normal', or it's gonna be "Welcome back, 70s!" time. Most of us "old coots" remember the 70s all too well..but there's a whole generation or two that have no idea what's about to hit them..

 

[braumeister]

Inflation has been prominent in my mind for many decades because I saw my grandfather retire in the 60s. He was relatively well off, but inflation pretty much wiped him out.

The graph below shows the enormous spikes of inflation in those years, and the two arrows show when he retired and when he died.



For myself, I'm OK because the bulk of my spending comes from pension and SocSec, both of which have a COLA. But I absolutely understand the concern of anyone who doesn't have that backup.

 

[Fermion]

I don't know the answer to how to combat inflation with one's portfolio, especially with interest rates at 1% to 2% for short term. Eventually, stocks *should* catch up with inflation but a lot of stocks are pretty dang pricey right now. I guess gold is still relatively cheap, if gold even still works.

 

[OldShooter]

... Eventually, stocks *should* catch up with inflation ...

I think it will vary by sector. Consumer Staples will get hit in the P&L as prices lag inflation but will probably recover fairly quickly. Consumer durables, probably not so fast as people postpone purchases. Manufacturing probably hurts as raw material inputs become more expensive. Agriculture will do well if the dollar weakens and our exports become more competitive.

Longer term, assuming a weakened dollar, US manufacturing from Boeing on down will become more competitive on the world market despite inputs (aluminum, etc.) becoming more expensive.

But I think the connection between stock prices and inflation will be laggy and spotty. Even TIPS will lag by 6 months due to the way they are adjusted.

 

[Running_Man]

Inflation is a relative term, the best definiton is the cost of goods, and inflation happens when too much money chases too few goods causing prices to increase. GDP of the US is 21 Trillion, everyone knows that government debt has risen to 27 trillion What does that money do? Well look at the ratio of the value of companies in the economy versus the economy:

GDP Market Cap % to GDP
1995 7.5 6 80%
2001 10.5 13 124%
2008 14.3 16 112%
2011 15.5 24 155%
2021 21.0 64 305%


GDP has grown 13.5 Trillion in 25 years, the value of stock for the companies producing that GDP has grown 58 Trillion. If it could be cashed in for market price it would consume all the production of the economy for 3 years. The elimination of the bond market as an investment for everyone but Central Banks has aided this and when a few trillion start leaking out to crypto currencies and housing, the average person who is speculating is making spectacular prices on this transfer of asset dollars. It is a beautiful thing to watch. It gives everyone confidence in their investing abilities. Let's just hope they don't start looking for hard goods.

 

[GenXguy]

Inflation of my primary highest expenses had already been high, with my property tax and homeowners insurance going up 7% or so per year in recent years, even more this year, despite whatever the understated government figures for CPI were. My health insurance went up 60% with a 150% increase in my deductible. Car registration fee went up about 50%. Gas is way up. Now it seems like hyperinflation of everything else on top of the high inflation I've been experiencing on my largest bills for years.

 

[Montecfo]

With all of this rampant (though anecdotal) inflation, it certainly is curious that the 10 year Treasury yields under 1.6%, signaling exceedingly low inflation expectation.

 

[Fermion]

With all of this rampant (though anecdotal) inflation, it certainly is curious that the 10 year Treasury yields under 1.6%, signaling exceedingly low inflation expectation.

Does it though? Does the Treasury yield even mean anything anymore in regards to inflation?

This feels like February of 2020 when everyone was still OK with that flu thing that China was having a problem with and just shrugging it off.

 

[yhoomajor]

Treasury yield is controlled around 1.6% because Federal Reserve keeps buying it. It's not a rate that correlates to real inflation in real world out there. At least not in this era of Fed managed economy.

In other words - don't expect (this time) to get 10%+ on your CD deposits even when real inflation rate is much higher than that.

That's like a kick to the guts of Savers of modest means. They get crushed by real inflation, yet have no other way but to risk it in more risky assets. "But they can eat cake".. aka invest in equities.

 

[rk911]

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

This ^

 

[Montecfo]

Treasury yield is controlled around 1.6% because Federal Reserve keeps buying it. It's not a rate that correlates to real inflation in real world out there. At least not in this era of Fed managed economy.

In other words - don't expect (this time) to get 10%+ on your CD deposits even when real inflation rate is much higher than that.

That's like a kick to the guts of Savers of modest means. They get crushed by real inflation, yet have no other way but to risk it in more risky assets. "But they can eat cake".. aka invest in equities.

10 year Treasury is up about a point in the last 9 months so it seems to not be sufficiently "controlled". And of course there are corporates and the CPI.

But of course none of these data points defeat anecdotes.

 

[yhoomajor]

10 year Treasury is up about a point in the last 9 months so it seems to not be sufficiently "controlled". And of course there are corporates and the CPI.

But of course none of these data points defeat anecdotes.

More power to you if you think treasury moved to 1.6 percent from 0.6% against Fed's will and/or against Fed's intention. Or that if you think Fed can't bring Treasury yield down to 0.6% or even lower if it wants to.

CPI number doesn't put food on most american people's dinner table. The actual inflation is much higher. They have to source that food with "anecdotal" priced groceries. New Corporate bonds issuance is minuscule compared to Treasury market.

 

[Montecfo]

More power to you if you think treasury moved to 1.6 percent from 0.6% against Fed's will and/or against Fed's intention. Or that if you think Fed can't bring Treasury yield down to 0.6% or even lower if it wants to.

CPI number doesn't put food on most american people's dinner table. The actual inflation is much higher. They have to source that food with "anecdotal" priced groceries. New Corporate bonds issuance is minuscule compared to Treasury market.

It does beg the question how would you ever know anything factual about inflation? All real data is judged to be eerily suspect, and can simply be dismissed. Corporate bond issuance is "miniscule", therefore the low low rates buyers are willing to accept can be ignored, apparently.

If anecdotes and emotion are your measure, then we certainly have massive inflation already.

Otherwise, not or at least not yet.

 

[DawgMan]

It does beg the question how would you ever know anything factual about inflation? All real data is judged to be eerily suspect, and can simply be dismissed. Corporate bond issuance is "miniscule", therefore the low low rates buyers are willing to accept can be ignored, apparently.

If anecdotes and emotion are your measure, then we certainly have massive inflation already.

Otherwise, not or at least not yet.

While general inflation at the macro level generally starts to "shift the boat" of the national economy, I tend to believe it really boils down to "personal inflation" and how that ends up affecting our buying decisions. Most of us here are perhaps exposed mainly to increase in property taxes, food, clothing, and transportation... which you could argue the last 2/3 items we have some control over. In my case, 10 years ago, I would have been subject to much more personal inflation with 4 kids in the nest, college/private school, and the general cost of food/clothing/shelter for 6 people. Today, with everything paid for, kids on their own, I perceive my biggest risk of personal inflation to be my discretionary expenses (i.e. travel, home improvement, entertainment, buying cars sooner than normal)... this I can manage and helps reduce my concerns of inflation.

All this said, I do realize there is a whole world out there living paycheck to paycheck and in most cases over extended with no margin, who are much more exposed to general inflation. The question is when/what buying changes do they make in mass that shifts the boat? Or, do they just borrow their way to the next Big Short??

 

[Gumby]

I suspect there are several countervailing forces that will work to hold down inflation.

1. The national eviction moratorium will end, either in June as currently scheduled or perhaps sooner if Judge Freidrich's decision yesterday is not stayed. Once people have to pay rent, they will no longer have funds to drive up the price of other things.

2. COVIS stimulus will end and enhanced unemployment benefits will end, which means people will need to return to work. That should help on the supply end.

3. Raw material shortages and supply chain disruptions caused by COVID will work themselves out as restrictions are lifted.

4. While there may be some pent up demand for a bit, a lot of people have discovered new ways of living in COVID that simply involve buying fewer things. For example, I don't expect to spend as much on restaurant dining as we did before COVID. I'm sure others have discovered there are many spending items that they previously took for granted but have discovered they can easily forgo.

5. There also will be structural changes to the world of work. People have discovered the joys of working from home, and companies may have discovered financial benefits from encouraging that. Since probably 2010 we haven't really needed to travel across country to have in-person work meetings (with all the associated spending), but it took a pandemic to break old habits. When I was with the big law firm in NYC, the two biggest cost drivers were associate salaries and rent. If you can minimize the amount of Class A office space you need in midtown Manhattan, you can greatly cut costs. Also, if associates don't have to commute into the City, you may be able to pay them less. Hence, lower spending on clothing, lunch at a restaurant, hotels, transportation, etc. And maybe lower legal costs (or, cynically, richer partners)



I could be wrong about all of this, but it is something to consider.

 

[jollystomper]

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

Agree. It is simply something we will plan for and deal with as best as possible. I do not see it instantly evolving into a zombie apocalypse type scenario that many seem to fear.

 

[Out of Steam]

I’m concerned, but I retired in 2007 and survived that stretch. What bothers me now is things are not available. I ordered some reloading tools in March, the company said it may be 6 months to fill the order.

The supply chain things are really unpredictable right now. There's a Hyundai dealer at the exit to our neighborhood, and their storage lot is back to being almost empty, as it was earlier in the pandemic.

I'm looking at replacing some hiking gear with lightweight items from smaller manufacturers, and many of my choices are out of stock because of fabric shortages.

 

[Out of Steam]

2. COVIS stimulus will end and enhanced unemployment benefits will end, which means people will need to return to work. That should help on the supply end.

Since workman's compensation for COVID has proven to be almost impossible to get, I believe that people would have decided that very low-wage work wasn't worth the COVID risk whether there was stimulus/enhanced unemployment or not. Dumpster diving and food bank lines are probably not high-risk.

Similar to firefighters and cancer, a legal presumption that any case of COVID in someone with a public-facing job was caught because of work would have been a huge help.

 

[Gumby]

Since workman's compensation for COVID has proven to be almost impossible to get, I believe that people would have decided that very low-wage work wasn't worth the COVID risk whether there was stimulus/enhanced unemployment or not. Dumpster diving and food bank lines are probably not high-risk.

Similar to firefighters and cancer, a legal presumption that any case of COVID in someone with a public-facing job was caught because of work would have been a huge help.

That makes sense, but I think the end result is the same; as the risk abates, those people will return to work, labor costs will ease and more stuff will get produced.

 

[Out of Steam]

That makes sense, but I think the end result is the same; as the risk abates, those people will return to work, labor costs will ease and more stuff will get produced.

I agree, I'm not especially worried about inflation in the long term.

I do believe that we are seeing a step increase in pay at the bottom of the wage scale that will be permanent, though it may have as much to do with a leveling-off in immigration than anything else. Increasing immigration doesn't appear to be an issue that the administration is willing to take on.

 

[Running_Man]

Since workman's compensation for COVID has proven to be almost impossible to get, I believe that people would have decided that very low-wage work wasn't worth the COVID risk whether there was stimulus/enhanced unemployment or not. Dumpster diving and food bank lines are probably not high-risk.

Similar to firefighters and cancer, a legal presumption that any case of COVID in someone with a public-facing job was caught because of work would have been a huge help.

This is deceptive, the FMLA provided under the Families First act PAID leave for 2 weeks for anyone with COVID or having to care for someone with COVID got up to $5,111 for sick leave. On top of that someone couild get paid if child care was not available. "Emergency Family and Medical Leave Expansion Act (EFMLEA), which requires that certain employers provide up to 10 weeks of paid, and 2 weeks unpaid, emergency family and medical leave to eligible employees if the employee is caring for his or her son or daughter whose school or place of care is closed or whose child care provider is unavailable for reasons related to COVID-19."

However a year at $930 a week, the amount of unemployment someone in Indiana was able to get, present $690 by saying you are afraid of getting Covid (you are not required to take a job offer if you are concerned about your health), is far better than making $600 a week at a $15 an hour job. Even at $25 an hour having tax free 35K-45K 70-90K if a couple and getting $6,000 in stimulus money as a couple, means getting that job at a restaurant can wait. With the new $300 a month for each child tax credit paid monthly there is incredible disincentive to work and instead stay with unemployment as long as possible especially in families where both parents were working. At present in Indiana someone on unemployment in a family with a child is getting about $3,300 a month more than twice what the average retiree receives from Social Security. It is simply the logical best decision made possible by present laws.

 

[HoneyBadger]

I don't know the answer to how to combat inflation with one's portfolio, especially with interest rates at 1% to 2% for short term. Eventually, stocks *should* catch up with inflation but a lot of stocks are pretty dang pricey right now. I guess gold is still relatively cheap, if gold even still works.

Well, real estate was once a great way to beat inflation, especially with 80% leverage...rents go up with inflation, while the mortgage stays the same, and the value of the property goes up with the rent. But with real estate prices skyrocketing and cap rates falling, even that doesn't work right now.

 

[FIYes]

I remember the 70’s and early 80’s so I recognize what impact inflation can have. I won’t say that I am worried, but I do realize the potential impact of inflation. We have been lulled into complacency by recent years of low inflation.

 

[ExFlyBoy5]

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!

I can't speak as to the need for CDL drivers, but I know that the legal/lawyer headhunters are blowing up my email. Bonuses, excellent wages, etc...all while we have been told for years that there are WAY TOO many lawyers (jokes not withstanding)