Latest Inflation Numbers and Discussion

[ivinsfan]

I just bought a cherry pie this morning. It is normally a $9 cherry pie but it has been marked down to $4 because it expires tomorrow, giving me only two days to eat it. Even if I through half the pie away, it's still less expensive than buying a fresh pie.

As a warrior in the fight against inflation, I will eat at least half of the pie over the next two days, and thus do my part to bring down the inflation rate. Somebody has to make the sacrifice.

This is why God made freezers...and the pie won't really expire tomorrow either....actually I don't know what makes a pie expire.

 

[aja8888]

This is why God made freezers...and the pie won't really expire tomorrow either....actually I don't know what makes a pie expire.

The grocery store puts dates on so you will run down and buy another as the first pie's date "expired". I buy leftover pastries (past expire date) for the ROMEO group meetings and they are usually consumed a few days after the expiration date. No complaints from the group. But, then again, these are hungry old men....

 

[Chuckanut]

Chuck, if you really were sacrificing, you would eat the whole pie in two days. Why waste good food?

I may freeze the remainder. I can heat it up in the air fryer as long as it's in a bowl shape container. The AF is great for reheating stuff with a crust.

They actually had a pile of pies all expiring tomorrow. Most were apple pies with various forms of sugary drizzle topping on them. Too much sugar for me. But, all marked down from $9 to $4 - a 56% price reduction.

 

[ivinsfan]

Fertilizer prices are through the roof. We pre payed cash in entirety for all our fertilizer needs on Jan 1. Fast forward through crappiest wettest Spring in decades finally get the crop in and get a balance due bill for well over 5K. Wait we thought we paid in full. Not so fast some tax initiatives both state and federal have been applied to Fert purchases. And it's a % tax not a ton tax, isn't that fun. In prior years we would send a balance to the fert company and pay a small % of our booked tons. I'm guessing the our big prepay and the increased tax just made for a wow moment.



State tax is so we don't pollute the earth and stuff like that. Who can complain about that? Fed tax is meant to help pay for subsidy on federal crop insurance and spreads it around all farmers not just the ones who use the insurance. Both noble ideas but it was definitely some sticker shock.


So in essence we paid tax on inflation...

 

[ivinsfan]

The grocery store puts dates on so you will run down and buy another as the first pie's date "expired". I buy leftover pastries (past expire date) for the ROMEO group meetings and they are usually consumed a few days after the expiration date. No complaints from the group. But, then again, these are hungry old men....

Our big grocery store in town had a thing going where they donated expired food to non profits donated at retail for a writeoff and then they didn't compete with their own bakery on the markdowns.


For a whole year our church got all the weekend markdowns on Sunday morning everything from bread to fancy unsold cakes. Frankly I was glad when it stopped because I was needing to buy bigger pants.

 

[Helen]

The price of eggs rising is a great example of how this inflation is hitting the lower income groups harder. Eggs are a great source of many things we need including complete proteins. And, they used to be cheap (closer to $1 a dozen than $2 a dozen). What source of inexpensive protein is next? Peanut butter? Forget I wrote that. We don't want to give the gubmint any more ideas about how to help us.

I've been thinking about this too. There must be a lot of very stressed out people who were barely getting by before.

I think we will donate heavily to the food bank this year. We have been buying toys for kids that go to a school that caters to "housing insecure" kids, but I think the money will be better spent on food.

I've read these summer months are when the demand for food from food banks are the highest since the kids aren't in school to get the free breakfast and lunch meals.

 

[ivinsfan]

Egg producers live in a feast or famine world. Now that prices are high you might think they are feasting but Avian flu has been a problem for egg production. We live in a turkey county and are seeing lots of early turkey barns so that's another thing not coming to your Thanksgiving table

 

[tmm99]

Is Two Buck Chuck still two bucks? Perhaps the bottle got smaller? (I moved to Canada in 2016 so I have no idea...)

 

[daylatedollarshort]

I keep a spreadsheet with ideas on how to lower our personal inflation rate every year. I always did that just to have more money to save or spend, even in lower inflation years, but this year it should be extra helpful. Last year we refinanced the mortgage, DH switched to a less expensive hair stylist, we dropped the local TV channels, ordered a senior discount card for the trains (62% off - woohoo!), and a bunch more.

Projects this year include selling some old domains to reduce the registration fees and then investing the money; insulating the house; getting an energy audit; and hiring a landscape designer for a drought tolerant landscape plan.

 

[jurgs01]

Fighting 9-15% inflation with 1% interest rates is like fighting a forest fire with a garden hose. They may be able to prick some asset bubbles and trick the CPI for a while, but the cost of what you need will continue to go up.

 

[NW-Bound]

[-][/-]

...
So in essence we paid tax on inflation...

That's the same with higher interest rates on bonds and CDs that you pay taxes on.

Take I bond for example. The difference between inflation rate and I bond rate at 2% vs. both inflation rate and I bond rate at 10% is that you pay more taxes on the 10% rate which is not a real gain.

 

[NW-Bound]

According to this BBC article, up 50% over the last two years: https://www.bbc.com/news/business-61466479

If I get a chance, I will ask my nephew in law who has a farm.

According to that BBC article, people in the UK are raising chicken at home for the meat. Ah, that's a lot of work, butchering and cleaning a chicken.

On the other hand picking up the eggs each morning is a easy job.

 

[daylatedollarshort]

Fighting 9-15% inflation with 1% interest rates is like fighting a forest fire with a garden hose. They may be able to prick some asset bubbles and trick the CPI for a while, but the cost of what you need will continue to go up.

The Fed had 6 - 7 interest rate increases planned for this year. We've only seen the results of 2 so far. They know what Volker did to overcome stagflation in the past, so they are aware of what works.

"... if the Fed wishes to avoid a replay of the stagflation of the late 1970s and early 1980s, it needs to recognize the extraordinary gulf between Volcker’s 4.4% real interest rate and Powell’s -2.25%. It is delusional to believe that such a wildly accommodative policy trajectory can solve America’s worst inflation problem in a generation."

Jerome Powell is no Paul Volker
https://www.marketwatch.com/story/i...-jerome-powell-is-no-paul-volcker-11653500709

 

[aja8888]

According to that BBC article, people in the UK are raising chicken at home for the meat. Ah, that's a lot of work, butchering and cleaning a chicken.

On the other hand picking up the eggs each morning is a easy job.

When I was a toddler and Dad was in the South Pacific on a ship in WWII, my Mom and I lived in Pennsylvania with grandma in an old "coal company" house (Dad and his father were miners). All we had to eat were chickens in from the back yard coup. Grandma would handle the chore (kill, clean, cook). Even now I still remember that and the outhouse.

 

[JoeWras]

When I was a toddler and Dad was in the South Pacific on a ship in WWII, my Mom and I lived in Pennsylvania with grandma in an old "coal company" house (Dad and his father were miners). All we had to eat were chickens in from the back yard coup. Grandma would handle the chore (kill, clean, cook). Even now I still remember that and the outhouse.

My mom never liked chicken for most of her life. This came from her early childhood when she tended them, watched her dad slaughter them, and then she had to do the cleaning and dressing. It changed her.

We have neighbors who raise chickens for eggs. I gave it a thought, but I don't like the idea of not being able to get away. And with the resurgence of foxes and coyotes here, the coops need to be full structures with predator proof roofs. It is a lot of work.

 

[John Galt III]

Is Two Buck Chuck still two bucks? Perhaps the bottle got smaller? (I moved to Canada in 2016 so I have no idea...)

Five years ago I got some 2 buck chuck in a NJ Trader Joe's and it was $2.99. And still a normal size 5th of a gallon bottle. Probably higher nowadays?

 

[luckydude]

We went to a party last night and sometimes I mentioned I’m flying down south on Sunday to see family. Reactions were consistently like, “OMG, how much did you pay for tickets?!” Truth is, I shopped around and found a normal price on Delta, but I was surprised how concerned people were about flight prices. One family of four canceled their summer trip to Thailand, because tix were outta sight.

I found a normal ticket price but the rental car is double the usual price for this trip, and I’m sure restaurants will be more expensive.

On vacation in Paris now. Tons of Americans and Europeans everywhere we go. Higher prices don’t seem to be deterring people from traveling and having a good time here.

 

[NW-Bound]

On vacation in Paris now. Tons of Americans and Europeans everywhere we go. Higher prices don’t seem to be deterring people from traveling and having a good time here.

I think it's still pent-up demand from 2.5 years of Covid. Once people spend the money that they saved in that period, the hard reality sets in, and they will cut back.

 

[Running_Man]

The Fed has announced they are going to stop buying mortgages and may sell bonds. What people should be able to borrow at may come as a shock. On Friday 30 year qualified mortgages are selling for 6.25%. Suddenly when the government is not backing the mortgage, the average homeowner is no longer worth 3% but 6% even with 10 year treasury only gaining 1.25 percent. If the Fed actually sells mortgages rates will quickly get over the inflation rate (currently 8.3%).

Since inflation has become a thing the overnight repo operations by the Fed is now exceeding 2 Trillion. What this means is banks do not trust the balance sheets of other banks to hold their excess liquidity overnight and require US FED guarantee for their excess funds, they do not want to have funds in a private institution if it were to blow up. When 10% of US GDP is overnight sent back to government for safekeeping, that is something. This is the same distrust banks are showing of citizens seeking mortgages, the risks are much greater than the interest rate, which I think all of us intriniscally knew. It is a hell of a thing.
Friday broke the narrative that inflation is not affecting the real economy, it is blowing up the mortgage market which will force the FED back onto QE or accept mortgage rates that will send house prices into the cellar due to unaffordability.

 

[USGrant1962]

I think it's still pent-up demand from 2.5 years of Covid. Once people spend the money that they saved in that period, the hard reality sets in, and they will cut back.

I think the pent-up demand is definitely there and being satisfied now. I'm not sure pandemic-saved money has much to do with American travel to Europe - folks that do that can generally afford it anyway. I think it is just reaction to the 2-year virtual ban on travel - so we're seeing 3 years of planned/hoped-for trips stacked up.

If inflation keeps roaring even folks that can afford travel may cut back.

 

[NW-Bound]

I think the pent-up demand is definitely there and being satisfied now. I'm not sure pandemic-saved money has much to do with American travel to Europe - folks that do that can generally afford it anyway. I think it is just reaction to the 2-year virtual ban on travel - so we're seeing 3 years of planned/hoped-for trips stacked up.

If inflation keeps roaring even folks that can afford travel may cut back.

I think the saved money allows them to splurge more, and not cringe at the higher costs of everything.

 

[daylatedollarshort]

If the Fed actually sells mortgages rates will quickly get over the inflation rate (currently 8.3%)....Friday broke the narrative that inflation is not affecting the real economy, it is blowing up the mortgage market which will force the FED back onto QE or accept mortgage rates that will send house prices into the cellar due to unaffordability.

I don't think the markets and financial pundits are really getting what The Fed is saying about how high they are planning to raise rates:

Fed minutes point to more rate hikes that go further than the market anticipates: Fed minutes: May 2022 - Monetary policy may move into restrictive territory (cnbc.com) -

• Fed minutes released Wednesday indicated that officials are prepared to move ahead with multiple 50 basis points interest rate increases.

• In addition, the Federal Open Market Committee said policy may have to move past “neutral” and into “restrictive” territory.

 

[ivinsfan]

I don't think the markets and financial pundits are really getting what The Fed is saying about how high they are planning to raise rates:

Fed minutes point to more rate hikes that go further than the market anticipates: Fed minutes: May 2022 - Monetary policy may move into restrictive territory (cnbc.com) -

• Fed minutes released Wednesday indicated that officials are prepared to move ahead with multiple 50 basis points interest rate increases.

• In addition, the Federal Open Market Committee said policy may have to move past “neutral” and into “restrictive” territory.

Hello housing market now it's your turn to go down... so that should help inflation numbers.

 

[copyright1997reloaded]

The Fed has announced they are going to stop buying mortgages and may sell bonds. What people should be able to borrow at may come as a shock. On Friday 30 year qualified mortgages are selling for 6.25%. Suddenly when the government is not backing the mortgage, the average homeowner is no longer worth 3% but 6% even with 10 year treasury only gaining 1.25 percent. If the Fed actually sells mortgages rates will quickly get over the inflation rate (currently 8.3%).

Since inflation has become a thing the overnight repo operations by the Fed is now exceeding 2 Trillion. What this means is banks do not trust the balance sheets of other banks to hold their excess liquidity overnight and require US FED guarantee for their excess funds, they do not want to have funds in a private institution if it were to blow up. When 10% of US GDP is overnight sent back to government for safekeeping, that is something. This is the same distrust banks are showing of citizens seeking mortgages, the risks are much greater than the interest rate, which I think all of us intriniscally knew. It is a hell of a thing.
Friday broke the narrative that inflation is not affecting the real economy, it is blowing up the mortgage market which will force the FED back onto QE or accept mortgage rates that will send house prices into the cellar due to unaffordability.

Interesting analysis that sync's with my thesis, which means I agree with it. (ha ha). That is, the Fed will be forced to give up on QT sooner than most people think. (I originally stated by the end of the year but it might even be sooner than that.) As things deteriorate, they will grasp onto some "good" news regarding inflation, declare victory and pivot.

One thing that will quickly get their attention (and force them to change course) is evidence that liquidity is drying up in what are thought to be "safe" parts of the financial markets - things like money market funds and as you note inter-bank excess reserves placement.

 

[aja8888]

The Fed has announced they are going to stop buying mortgages and may sell bonds. What people should be able to borrow at may come as a shock. On Friday 30 year qualified mortgages are selling for 6.25%. Suddenly when the government is not backing the mortgage, the average homeowner is no longer worth 3% but 6% even with 10 year treasury only gaining 1.25 percent. If the Fed actually sells mortgages rates will quickly get over the inflation rate (currently 8.3%).

Since inflation has become a thing the overnight repo operations by the Fed is now exceeding 2 Trillion. What this means is banks do not trust the balance sheets of other banks to hold their excess liquidity overnight and require US FED guarantee for their excess funds, they do not want to have funds in a private institution if it were to blow up. When 10% of US GDP is overnight sent back to government for safekeeping, that is something. This is the same distrust banks are showing of citizens seeking mortgages, the risks are much greater than the interest rate, which I think all of us intriniscally knew. It is a hell of a thing.
Friday broke the narrative that inflation is not affecting the real economy, it is blowing up the mortgage market which will force the FED back onto QE or accept mortgage rates that will send house prices into the cellar due to unaffordability.

The FED is certainly backed into a corner. They have been kicking this can down the road since 2009. But now that inflation (for whatever reason) is rearing its ugly head, the politicians are demanding it be stopped. If the FED actually paid attention to the Taylor Rule, they would raise Fed Funds Rates higher than the inflation rate. But that would kill the economy and cause a recession. So they are soft peddling the downturn of the economy with minuscule rate increases.

With QT starting, the FED will allow bonds to roll off as they mature and not reissue new ones. That will destroy liquidity in the system. The plan is to do the same with the mortgages they are paid off, but that process may take a long time. The FED has said they will sell the mortgages if need be.

QE is off the table for now as the real important politicians and FED governors have had time to get out of the equity market and a big market crash will not affect their fortunes. LOL

It will be interesting to see if when the market crashes soon as to whether or not the President will start screaming at Powell to drop rates as the previous President did. Ahh....shades of QE again?