How worried are you about inflation?

[ExFlyBoy5]

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%

Another one that a friend that is in the manufacturing business shared with me. This is price of hot rolled, cold rolled, galvanized and plate steel from 9/20 to 5/21.

 

[youbet]

We have been lulled into complacency by recent years of low inflation.

Yes indeed.

Lots of folks seem to underestimate how early inflation can be more detrimental to FIRE portfolios than early poor performance of the markets. Once general price levels rise, there is very seldom a recovery. That is, there is very seldom deflation. Once up, general price levels tend to stay high. But markets seem to always recover....... at least eventually.

 

[34rlsa]

Yes indeed.

Lots of folks seem to underestimate how early inflation can be more detrimental to FIRE portfolios than early poor performance of the markets. Once general price levels rise, there is very seldom a recovery. That is, there is very seldom deflation. Once up, general price levels tend to stay high. But markets seem to always recover....... at least eventually.

And why I'm not buying the FEDs opinion this is transitory.

 

[stepford]

Those of us with no heirs have a secret weapon against inflation - our impending deaths. I'm actually semi-serious. In my 60s, every year I age means my savings has to last roughly 3% less long. So that means I have 3% more spending power, right? Automatic inflation protection.

Heck, if I get a terminal illness then I'll really have it made.

 

[NW-Bound]

Another one that a friend that is in the manufacturing business shared with me. This is price of hot rolled, cold rolled, galvanized and plate steel from 9/20 to 5/21.

Holy mackerel!

Iron ore price has been going up, but "only" to 2.1x the price on Jan 2020!

My mining stocks have been doing so well, I wish I bought more.

 

[Al in Ohio]

Very little. Never can I remember it being this low for so long.

 

[24601NoMore]

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.

BIL is a mechanic for Daimler Chrysler. Was talking w/him just last week and he said "I'd hate to be a sales guy right now - we have almost NO CARS to sell".

Thank heavens wife and I have leases that will take us a few years out..sure would not want to buy OR lease a car right now..

 

[24601NoMore]

And why I'm not buying the FEDs opinion this is transitory.

Ten thousand, million billion (TM - Randy Jackson) hearty "AMENS" to that!

This is NOT "transitory".

Federal spending (like drunken sailors), fiscal, tax and other government policy is causing what we are seeing.

Until the policies change, the inflation is here to stay.

And it could easily get to 70s style inflation, which would crush most of us and the savings we've worked a lifetime to squirrel away.

And here I HAD a great plan that gets us to age 90+. Time to rework that, I guess. Never in a million years thought we'd go back to the 70s in terms of inflation, and that is almost certainly where we are headed. (Anyone doubts that, go read upthread on the increase in commodity prices of various categories since 1/1/20. That's NOT due to COVID since COVID obviously hit Mar-Apr, 2020. Nope. It's due to federal spending, flooding the money supply and related governmental policies. Pumping Trillions and Trillions into the economy and discouraging people to work is gonna obviously have an impact..for example - I wanted to buy some mulch to do our gardens. Prices of mulch are way up. But the kicker? Delivery. Up 50% from what we used to pay. Mulch supplier's reason? "We can't find workers to do deliveries, and the cost of gas is up 50+%") I still think they were yankin' us and we wound up going with someone more reasonable, but still..

 

[jazz4cash]

So what was the driving factor of the 70’s style inflation? I remember some of it but not the cause. I was in college and IIR the general concedes was that life as we knew it was over.

 

[daylatedollarshort]

I made a spreadsheet that could model high inflation before we retired and in our circumstances, using a matching strategy, we would likely come out ahead if inflation went up. Our home with Prop 13 property taxes would likely increase in value but our property taxes would stay low, our TIPS would make more money, and our fixed rate mortgage won't change. The only long term fixed income we have are some 4% Treasuries and a couple of pensions that aren't inflation adjusted but they are somewhat offset by the fixed rate mortgage. The pensions won't go up but the mortgage also won't go up, either, and will soon decrease when our current refinancing closes. We're taking some cash out to lock in borrowing at what could be historic low rates. In high inflation years interest rates often rise, too, so fixed income investment rates should improve over time as well. I'm more concerned with real interest rates remaining low.

Plus, there is general inflation, and then there is our personal inflation rate. Our expenses tend to go down every year because I have a long list of sustainable living / frugal projects we continually implement and we have a lot of big projects yet to complete, like insulation and xeriscaping. Current low real interest rates have put more of a crimp in our retirement strategy than inflation would, but like the Borg we're adapting to those, too, and will have to modify our asset allocation going forward accordingly if real interest rates continue to remain low.

Nominal and real interest rates have been dropping worldwide for decades so I'm not really convinced any deficit borrowing the U.S does is really going to change that or shoot inflation up here but we will still try to our best to be prepared for any investment scenario.

 

[foxfirev5]

Ten thousand, million billion (TM - Randy Jackson) hearty "AMENS" to that!

This is NOT "transitory".

Federal spending (like drunken sailors), fiscal, tax and other government policy is causing what we are seeing.

Until the policies change, the inflation is here to stay.

And it could easily get to 70s style inflation, which would crush most of us and the savings we've worked a lifetime to squirrel away.

And here I HAD a great plan that gets us to age 90+. Time to rework that, I guess. Never in a million years thought we'd go back to the 70s in terms of inflation, and that is almost certainly where we are headed. (Anyone doubts that, go read upthread on the increase in commodity prices of various categories since 1/1/20. That's NOT due to COVID since COVID obviously hit Mar-Apr, 2020. Nope. It's due to federal spending, flooding the money supply and related governmental policies. Pumping Trillions and Trillions into the economy and discouraging people to work is gonna obviously have an impact..for example - I wanted to buy some mulch to do our gardens. Prices of mulch are way up. But the kicker? Delivery. Up 50% from what we used to pay. Mulch supplier's reason? "We can't find workers to do deliveries, and the cost of gas is up 50+%") I still think they were yankin' us and we wound up going with someone more reasonable, but still..

Agree 100%. It's getting idiotic. The number of new decks being installed in our neigborhood is crazy. Lumber up 300% so let's put in a new deck

I've ALWAYS purchased improvements during downturns but I guess none of that matters anymore.

On top of that I've also maintained my two story deck to ensure a long life and not have to deal with frequent replacement.

 

[NW-Bound]

Agree 100%. It's getting idiotic. The number of new decks being installed in our neigborhood is crazy. Lumber up 300% so let's put in a new deck

That's inflation for you; "Let's hurry up and put in a new deck we've always wanted, before the price is up another 300%".

Inflation causes people to buy, buy, buy now, before the money loses more value. I am no economist, but understand why they say a bit of inflation like 3% is good to get the money moving. The problem is when they get more inflation than they bargain for.

Still, some say too much inflation is easier to cure than deflation. You can raise interest rate to 19% as in 1981 to kill inflation, and it surely did.

But with deflation, you can lower the interest rate to 0%, then what more can you do? Institute negative interest rates like some European countries have done?

 

[NW-Bound]

So what was the driving factor of the 70’s style inflation? I remember some of it but not the cause. I was in college and IIR the general concedes was that life as we knew it was over.

I think the big factors were the Vietnam war and the OPEC oil embargo. These caused poor productivity, and prices went up.

 

[Amethyst]

Transitory, are factors like COVID shutdowns (although that still has a "tail" to work itself out) and the Suez Canal container blockade which caused some commodity shortages.

Long-term, are factors like paying for financial stimuli/eviction moratoriums/Large Government Programs; a monster trade deficit; and expenses related to the low birth rate versus relentless aging of our population.

(Not arguing on either side of the Big Programs, since I can see economic pro's as well as con's, and anyway it's not allowed on the forum. Just saying that it's a lot of money pumped into the economy, all of which must be paid for somehow).

Ten thousand, million billion (TM - Randy Jackson) hearty "AMENS" to that!

This is NOT "transitory".

Federal spending (like drunken sailors), fiscal, tax and other government policy is causing what we are seeing.

Until the policies change, the inflation is here to stay.

And it could easily get to 70s style inflation, which would crush most of us and the savings we've worked a lifetime to squirrel away.

And here I HAD a great plan that gets us to age 90+. Time to rework that, I guess. Never in a million years thought we'd go back to the 70s in terms of inflation, and that is almost certainly where we are headed. (Anyone doubts that, go read upthread on the increase in commodity prices of various categories since 1/1/20. That's NOT due to COVID since COVID obviously hit Mar-Apr, 2020. Nope. It's due to federal spending, flooding the money supply and related governmental policies. Pumping Trillions and Trillions into the economy and discouraging people to work is gonna obviously have an impact..for example - I wanted to buy some mulch to do our gardens. Prices of mulch are way up. But the kicker? Delivery. Up 50% from what we used to pay. Mulch supplier's reason? "We can't find workers to do deliveries, and the cost of gas is up 50+%") I still think they were yankin' us and we wound up going with someone more reasonable, but still..

 

[Out of Steam]

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.

You can design all sorts of scenarios where people get large sums of money from government benefits. Mostly, people who make collecting benefits their primary effort in life collect, and others don't. My sister had a long period of unemployment that ended early in the pandemic, and she had extreme difficulty with receiving benefits both before and during the pandemic.

 

[Amethyst]

The Vietnam debacle was also very expensive to conduct, and we got nothing out of it as a country. There is an ongoing, fairly large $$ tail of rightful compensation to injured veterans and their families. And then there were the hot wars in the Middle East, and of course Afghanistan.

Come to think of it, with all the war expenses since I was a little kid, it is a wonder we have managed to have as many prosperous and low-inflation years, as we have had!

I think the big factors were the Vietnam war and the OPEC oil embargo. These caused poor productivity, and prices went up.

 

[Fermion]

Looking at the 1970s charts, I am kind of expecting gold to triple from here over the next decade (or sooner).

I only have 3 ounces

Maybe should fix that...

 

[RobLJ]

Not very, but expect a demand surge over the next year as the economy normalizes.
The millenials are finally having kids and buying houses, so housing may be on fire, until interest rates increase.

Demographics suggest inflation may not be long-lasting, however.

I've heard the deficit fears/inflation for the last 40 years and while the cycle may have turned, I've heard pundits predicting it as inevitable for the last 40 years, so color me skeptical. A lot of factories were shut down during COVID and cars?--see the chip shortages which will take a year or two. Natty/gasoline were also shut in during the COVID demand collapse, at least by those drillers who could afford to do so by not being overleveraged. Those shut-in or uncompleted wells will begin to come online over the next year, if demand continues.

Eventually, perhaps when I'm dead, we may again see '70s style inflation, admittedly. Eventually.

 

[daylatedollarshort]

I've heard the deficit fears/inflation for the last 40 years and while the cycle may have turned, I've heard pundits predicting it as inevitable for the last 40 years, so color me skeptical.

The chart in this article from 2015 shows historical economical forecasts vs. long term interest rates illustrates your point. Not exactly inflation, but interest rates have been declining for decades while the economic forecasts never predict this and generally predict a rise in rates.

The Decline in Long Term Interest Rates
https://obamawhitehouse.archives.gov/blog/2015/07/14/decline-long-term-interest-rates

 

[Out_the_Door]

Not worried about something I cannot change. Not concerned, not bothered, not staying up at night.
There are other things to worry about. . .

Exactly. Although my personal inflation rate is low and I've never bought lumber, I find that too much worry is counterproductive and besides when I was 10 years old (1975) my dad was making $75 a week and somehow managed to raised three boys with a stay at home wife. According to the inflation calculator that is the equivalent of $19,200 a year in 2021. I make much more than that now and I don't have a wife and kids to deal with.

 

[Closet_Gamer]

I believe there will be more significant inflation than we've seen in a long time. For all the reasons mentioned, the world seems primed for inflation to run a bit and the US government may desperately need to inflate away some of the pesky debt.

Even 3-4% per year will feel super abnormal. 5-7% will feel like the apocolypse.

Over time, asset owners should be fine. Those inflated dollars will flow through corporations. Those higher real estate prices will flow through REITs who will also capture rents. Bonds will take a drubbing but provided the Fed does let rates rise, those bonds will roll over and be re-invested at higher rates. Even cash positions will be somewhat protected if rate rises flow through to banking products.

As always, the people who will get really pounded are wage earners living paycheck to paycheck.

 

[NW-Bound]

When I started full-time work in 1980 after grad school, the inflation was so bad my megacorp was giving raises every 6 months instead of yearly. There was talk of existing engineers making the same or not much more than new hires, and the corp had to give everyone raises. They had to, in order to retain employees.

That was the effect of 15% inflation. The 30-year mortgage rate was 14% when I bought my home in 1980, and I do not remember if that included the 1/2% mortgage insurance. A year later, the mortgage rate reached 18.63%, according to Federal Reserve data.

 

[Closet_Gamer]

Here's a note from Schwab related to this topic. Interesting view on asset class performance under different historic inflation levels. These are 12 month performance views which I think is pretty useless for most of us who tend to buy and hold/rebalance but interesting nonetheless.

https://www.schwab.com/resource-cen...tion-what-it-means-tips-and-other-investments

 

[youbet]

So what was the driving factor of the 70’s style inflation? I remember some of it but not the cause. I was in college and IIR the general concedes was that life as we knew it was over.

I wrote my senior year independent study (econ major) titled "The Present and Probable Effects of the War in Viet Nam on the Economy of the United States" in 1969. Indeed, spending on the so-called war was an important factor driving the inflation of that period.

 

[Masquernom]

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%

It would be interesting to see the price increase from 1/1/2019 to 1/1/2021 instead. That should smooth out the commodities dip due to Covid.