Latest Inflation Data and report

[Magus]

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Originally Posted by GenXguy Inflation is the most depressing thing to me right now. I was set to FIRE this spring, but I have delayed FIRE another year due to high inflation, and I'm seeing closer to 15% to 20% increased costs over the last year in my budget with no change in budgeted consumption, just increased costs, compared to the lower government figures for CPI, which have always been lower than what I see in real world cost increases. By the way, if inflation drops from 7% to previous levels in the next few years, that doesn't mean prices will drop, and it doesn't mean prices will stay the same, either. I keep seeing that posted and even in mainstream media. The fact is that prices will continue to increase on average as long as inflation is over 0%. For most prices to drop, we would need deflation. There is NOTHING good about inflation for me. It's completely derailed my FIRE plans.

Ugh I feel you. Main reason I’m less worried about inflation is most of my income I’ll get is rental income and rents are rising quickly while my mortgages are fixed or non existent. It’s a natural inflation hedge. But anything that is not a mortgage is rising very quickly for me. Not a big deal to my current income but will be once I retire.

[Magus]

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Originally Posted by MichaelB There is a bright side to higher inflation, which is the public debt load, in real terms, is falling. Excessive public debt is frequently mentioned here, so I imagine this will be seen as good news.

Yup, I actually think they (DC, both parties) are happy with the situation as it’s the only way to effectively tax the middle class and lower class without technically raising taxes. A few more years of this will no new spending programs and we’d be in much better shape financially as a government/country. I think the Fed was aiming for 4-5% inflation which is a lot less noticeable than the current 7.5-10% and it overshot.

[aja8888]

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Originally Posted by Magus Yup, I actually think they (DC, both parties) are happy with the situation as it’s the only way to effectively tax the middle class and lower class without technically raising taxes. A few more years of this will no new spending programs and we’d be in much better shape financially as a government/country. I think the Fed was aiming for 4-5% inflation which is a lot less noticeable than the current 7.5-10% and it overshot.

The FED has been mentioning 2% inflation as it's goal for the last several years. However, their recent policy decisions have made that unrealistic.

[Magus]

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Originally Posted by aja8888 The FED has been mentioning 2% inflation as it's goal for the last several years. However, their recent policy decisions have made that unrealistic.

Yup but last winter for the first time ever said they were OK going a bit over when we’d been under their goal for a while. They never stated how much over or for how long but I was guessing 4% or so for a couple years

[pjigar]

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Originally Posted by Koolau Maybe you have to find your "bright sides" where you can. Of course, those who lend to the gummint eventually realize they're getting the short end of the stick and demand more interest. What WOULD be the interest on $30 Trillion at, say, 7%. Oh yeah, $2.1 Trillion. IIRC the 2020 budget - last I could easily find - was not quite $7 Trillion. So debt service at 7% would be around 2/7 of the entire budget (Oh, and that doesn't count SS and MC.) What could possibly go wrong? Oh, and YMMV.

I believe all the federal debt is fixed rate aka treasury bonds. So new debt will be issued at a new higher rate (currently about 2%) but the servicing cost of the old debt stays the same (way less than 2% in this case). So the "real" debt is reduced by a larger percent (e.g. 7% in your example) but the serving cost of the old debt is very low in the percent terms and hence devaluing the outstanding debt. Of course our customers (aka foreign bond holders) already know this and can decide to not lend us any new money to fund our life style going forward. No one knows how (or if) the domino will fall some day.

[aja8888]

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Originally Posted by Magus Yup but last winter for the first time ever said they were OK going a bit over when we’d been under their goal for a while. They never stated how much over or for how long but I was guessing 4% or so for a couple years

One thing about the FED is that they won't know the actual inflation rate until the BLS publishes the statistic. So it's kind of like fishing....bait the hook, throw the line in the water and see what it produces!

[USGrant1962]

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Originally Posted by pjigar I believe all the federal debt is fixed rate aka treasury bonds. So new debt will be issued at a new higher rate (currently about 2%) but the servicing cost of the old debt stays the same (way less than 2% in this case). So the "real" debt is reduced by a larger percent (e.g. 7% in your example) but the serving cost of the old debt is very low in the percent terms and hence devaluing the outstanding debt. Of course our customers (aka foreign bond holders) already know this and can decide to not lend us any new money to fund our life style going forward. No one knows how (or if) the domino will fall some day.

Our customers are us. 3/4 of the debt is owned domestically, and no individual country holds more than about five percent. Unless Japan, China, and UK decide to coordinate (not going to happen) your scenario is nonsense. Especially since for many (most?) countries their domestic debt pays even worse than ours.

[Mulligan]

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Originally Posted by GenXguy Inflation is the most depressing thing to me right now. I was set to FIRE this spring, but I have delayed FIRE another year due to high inflation, and I'm seeing closer to 15% to 20% increased costs over the last year in my budget with no change in budgeted consumption, just increased costs, compared to the lower government figures for CPI, which have always been lower than what I see in real world cost increases. By the way, if inflation drops from 7% to previous levels in the next few years, that doesn't mean prices will drop, and it doesn't mean prices will stay the same, either. I keep seeing that posted and even in mainstream media. The fact is that prices will continue to increase on average as long as inflation is over 0%. For most prices to drop, we would need deflation. There is NOTHING good about inflation for me. It's completely derailed my FIRE plans.

GenX sorry about the delayed retirement plans. Hopefully it is very temporary. You mentioned 15%-20% inflation for you. I realize all inflation winds up being a personal inflation, but I cant wrap my head around your number based on my personal experience. How are you coming up with that number from your experiences if you dont mind me asking?

[pjigar]

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Originally Posted by USGrant1962 Our customers are us. 3/4 of the debt is owned domestically, and no individual country holds more than about five percent. Unless Japan, China, and UK decide to coordinate (not going to happen) your scenario is nonsense. Especially since for many (most?) countries their domestic debt pays even worse than ours.

You are right about who holds the debt. Only 7T out of 22T total public debt is held by Foreign and international investors. I guess then everyone lose together!

source: https://www.thebalance.com/who-owns-...l-debt-3306124

[youbet]

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Originally Posted by marko Might we hope for another raise on our SS next year? Best case: two raises in two years and then inflation drops back to previous levels with no claw-back! Ka-ching?!

Nothing to claw back………. A reduction in the rate of inflation only slows the rate of general price increases. It doesn’t mean decreasing prices.

[Koolau]

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Originally Posted by pjigar I believe all the federal debt is fixed rate aka treasury bonds. So new debt will be issued at a new higher rate (currently about 2%) but the servicing cost of the old debt stays the same (way less than 2% in this case). So the "real" debt is reduced by a larger percent (e.g. 7% in your example) but the serving cost of the old debt is very low in the percent terms and hence devaluing the outstanding debt. Of course our customers (aka foreign bond holders) already know this and can decide to not lend us any new money to fund our life style going forward. No one knows how (or if) the domino will fall some day.

It's true that for the life of the "note" the gummint has issued, the rate remains fixed. So if you hold 30 year Treas. bonds, you are kinda SOL. But much of the debt is financed at much lesser time periods I believe. THOSE instruments turn over, and time will come when folks buying in will demand more interest. I have no idea (and not enough, well, "interest") in looking up the mix. BUT I've seen this movie before and the service on the debt back in the 80's was much bigger than defense or domestic spending at one time IIRC.

Now that I've told you way more than I know about the subject, I will return you to our regularly scheduled symposium on "Latest Inflation Data" so YMMV.

[Koolau]

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Originally Posted by 11522914 Nothing a few keyboard taps on the computer can't handle.

I don't have a number pad so I avoid doing math on my computer though YMMV.

[Teacher Terry]

Groceries, medical insurance and car gas are up as well as my electric bill. Luckily no significant impact on my life.

[Magus]

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Originally Posted by Mulligan GenX sorry about the delayed retirement plans. Hopefully it is very temporary. You mentioned 15%-20% inflation for you. I realize all inflation winds up being a personal inflation, but I cant wrap my head around your number based on my personal experience. How are you coming up with that number from your experiences if you dont mind me asking?

Could fairly easily be double digit inflation
1) Be a renter - rents are up 15% y/y nationally and up 30% in some areas
2) Not live in an area where property taxes are limited each year - most of my rentals went up 15% last year if you own
3) Electricity is up 11% y/y on average
4) Gas is up 40%
5) Maintenace on house is up massively - not sure in CPI but my repairs this last year were at least 40% higher than the year before, some double
6) Food is up 7.5% but within that 7.5% could be much, much higher depending on what you normally buy (eg: beef is up 16% y/y)
7) New and used vehicle prices are up 13% and 40% respectively.
8) Hotel prices are up 20%

Now your INCOME might be high enough that the above may not matter as much (like for myself currently) but if you make the typical $70k household income in the US, the above will hurt badly.

[Fermion]

I'm pretty much screwed with 20%/yr inflation if the stock market doesn't keep up. That will kill our portfolio in less than a decade

[luckydude]

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Originally Posted by Fermion I'm pretty much screwed with 20%/yr inflation if the stock market doesn't keep up. That will kill our portfolio in less than a decade

A 20%/year inflation would pretty much kill most people's portfolio in short order. Just because it has never happened historically doesn't mean it won't happen in the future, especially in today's uncertain economic, political and international climates. That's why it's advisable to have some form of hedge (i.e. RE/gold/alternatives) in place above and beyond the traditional 60/40 portfolio.

[Mulligan]

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Originally Posted by Magus Could fairly easily be double digit inflation 1) Be a renter - rents are up 15% y/y nationally and up 30% in some areas 2) Not live in an area where property taxes are limited each year - most of my rentals went up 15% last year if you own 3) Electricity is up 11% y/y on average 4) Gas is up 40% 5) Maintenace on house is up massively - not sure in CPI but my repairs this last year were at least 40% higher than the year before, some double 6) Food is up 7.5% but within that 7.5% could be much, much higher depending on what you normally buy (eg: beef is up 16% y/y) 7) New and used vehicle prices are up 13% and 40% respectively. 8) Hotel prices are up 20% Now your INCOME might be high enough that the above may not matter as much (like for myself currently) but if you make the typical $70k household income in the US, the above will hurt badly.

Its definitely local. My cola was 5% but that more than covered my increased costs, as my expenses havent went up $500 a month.
Gas and I suspect food for me hit your numbers, but gas is a largely immaterial cost. Our utilities have been more muted but we have an integrated low cost utility that produces and distributes the power.
My housing went down because I refinanced last year a 100 bps lower. Car costs went down too, as I traded in my 3 year old car and they gave me several grand more than I paid for it, so my car payment dropped $125 a month with 0% financing. Insurance oddly enough went down also with the new car.
Fortunately I have not had any need for home maintenance as I bet that has shot through the roof. I did have to recently buy a washer and dryer in past few weeks but I used my free CC cash back money earned from last year that paid for it all. I havent bought a washer or dryer in 20 years so I dont know how much they went up recently. I bought the absolute cheapest washer and dryer model made in 1998 and the damn things were still working without a bit of maintenance. So largely that was a discretionary purchase since they were still working fine.
I would say for me the two most noticeable cost increases I have observed for me is gasoline and restaurant menu prices. Everything else hasnt really been noticeable… Just remembered my damn Nicotine lozenges I buy on Ebay have shot up $10 so that is 20% increase. That just happened all at once too.

[cyber888]

I heard the Biden admin is now focusing on solving the supply chain problems and bottlenecks. The rise of nationalism vs globalism, trying to be less reliant on China, the 25% tariffs on Chinese goods are now reflected on the supply chain problem that the pandemic caused. We use to get a lot of goods from China and Asia. Plus we got the Ukraine/Russia thingy .. causing gas prices to go up.

This inflation can't be solved by a monetary policy adjustment. It is a structural supply shortage problem .. and must be corrected by looking at the supply chain.

[Koolau]

As older folks (with a relatively small home) we just don't buy much "stuff" any more. So, we buy mostly every-day consumables such as food, electricity, gasoline, restaurant meals, appliances (replacement) etc.

I've noticed that these items are all up - way up. I haven't done a close check but I think our food is up nearly 20% vs a year ago. Restaurant meals are up 25% or so (and we tip more). Electricity is up 15% or so (without rates going up - and they are going to go up I hear - our "fuel adjustment" is the culprit so far.) Gasoline is up over $1/gallon year over year. We bought a new washer/dryer combo and it's up over 100% from the one we bought at our last place about 13 years ago.

So I guess "all inflation is local" would be the watchword. Realistically such increases don't affect us much as we have "enough" in savings and monthly income. Still, it's a fearful flashback to the 70s/80s. Those were frightening times - and I was still w*rking, so getting rapid raises. Not so much anymore. Our only COLA is SS and that goes to MC. YMMV.

[JoeWras]

A large portion of the "shelter" component of the inflation numbers are based on Owner Equivalent Rent. (OER)

This number tends to move slow because it takes time for people who take the survey to wake up and realize they could charge more rent for the home they own. The wake up call usually happens when they get an insurance bill, tax re-evaluation, go looking for a new home, or just get engaged with the news and market.

We all saw what happened to real estate in 2021. This will take time to wind out through the BLS numbers in 2022 and possibly beyond. Shelter is a HUGE component of the official numbers, so you can be sure the official numbers won't crater this year.