Latest Inflation Numbers and Discussion

[Freedom56]

If the market has priced in a cut this year, that is silly. Nothing I've heard or seen should have created that expectation. An easing of increases, possible a hold by EOY, at best.

A quarter or two of normal inflation should be a good marker to stop the increases and then decide where to go after that.

Here is the silly market in action.

"Market-based expectations are for the Fed to cut rates by roughly a half-percentage point in the latter half of the year, according to derivatives prices via FactSet. Yet some policy makers have pushed back on the chance of any rate decreases in 2023, saying borrowing costs will have to stay high for some time to bring down inflation."


https://www.wsj.com/articles/global-stocks-markets-dow-update-01-12-2023-11673523999

 

[Koolau]

I don't know where inflation is going down. I don't see any sign of lower prices in iowa. everybody thought the minimum wage should be 15. per hour, but with the current prices, that still is not a living wage even if both are working.

It's true that most prices have not headed down. Gasoline is the only thing I can think of locally though I'm sure I've missed something.

As I'm sure you are aware, the minimum wage has never been considered a "living wage." It's more like a minimum "starter" wage or "entry" wage. It's true that some folks who have no other empl*yment opportunity are stuck with minimum wage.

If two in a household make $15/hour AND are blessed with 40 hour j*bs, that's over $62K/year. Current median household income is in the vicinity of $79K/year according to https://seekingalpha.com/article/4561749-median-household-income-in-october-2022

So $62K is hardly a fortune, but hardly poverty. Combined with strategic location, it's a living wage. We have several folks here on the Forum who survive on much less than that.

Probably not a fair comparison since we already own our home, but DW and I could survive on $62K here in the Islands. As always, YMMV.

 

[JoeWras]

Energy overwhelmed this recent report.

Core inflation (no energy, no food) is still over the 2% Fed target if you extrapolate the 0.3% December number to 3.6% annual.

Energy deflation appears to have stopped for now, so next month won't be overwhelmed by it.

Shelter is still really high (0.8% MoM). I thought by now we'd see it slow down. There's a lag, but this lag is going on a long time.

Autos are deflating (used) or steady (new). A little more deflation there will help. And I think we'll see it. Not necessarily with lower MSRP, but more with drops in actual transaction prices.

Details, details. I think core along with wages will have the Fed continuing something (25 or 50, who knows?) for a while.

 

[JoeWras]

One last thing on this latest report. Has anyone read about the "Health Insurance" component of the CPI?

It is completely bonkers and messed up. The BLS is having a hard time coming up with a number.

Last spring, it made inflation look much worse. Now, it is showing deflation. It is almost 1% of the CPI so it is not trivial to have it be -3.4% MoM.

More on the problem here:
https://www.cnbc.com/2022/12/14/heres-how-health-insurance-is-helping-to-cool-inflation.html

Health insurance is helping cool inflation. But ‘it’s not a very good reflection’ of what people pay, cautions economist

However, that deflationary dynamic may not square with consumers’ actual financial experience with health premiums. That decline in prices on paper is due to the unique way in which the BLS calculates health insurance inflation, economists said.

“It’s not a very good reflection of prices consumers are going to be seeing,” said Andrew Hunter, senior U.S. economist at Capital Economics.

...

“The CPI has been unable to consistently control for changes in quality such as policy benefits and risk factors,” the BLS writes of its calculation. “Price changebetween health plans of varying quality cannot be compared, and any quality adjustment methods to facilitate price comparison would be difficult and subjective.”

 

[Freedom56]

One last thing on this latest report. Has anyone read about the "Health Insurance" component of the CPI?

It is completely bonkers and messed up. The BLS is having a hard time coming up with a number.

Last spring, it made inflation look much worse. Now, it is showing deflation. It is almost 1% of the CPI so it is not trivial to have it be -3.4% MoM.

More on the problem here:
https://www.cnbc.com/2022/12/14/heres-how-health-insurance-is-helping-to-cool-inflation.html

We are paying $1853 a month this year for a Bronze PPO versus $1599 last year.

 

[Gumby]

50 bp has never been considered moderate except in light of last year's unprecedented series of 75 bp increases.

But yes directionally this is correct. But you have to think about the fact that the increases for the last 6 months have not had time to trickle through the economy.

So at this point I am concerned they are overshooting, as is usually the case.

No one at the Fed wants to repeat the mistakes of G. William Miller in 1978/79.

 

[bobandsherry]

I don't know where inflation is going down. I don't see any sign of lower prices in iowa. everybody thought the minimum wage should be 15. per hour, but with the current prices, that still is not a living wage even if both are working.

Low or no inflation doesn't reduce current prices, only reduces the forward growth of those prices. Deflation is what drops prices, and recession is another way. Neither of those are considered positive to the broader economic conditions.

Water seeks it's own level, and seems inflation does too. After years of low/no inflation we have now played catch-up to get back to that 2+% level, which many economists think is a healthy rate.

 

[explanade]

China is expected to consume more oil now since they ended Zero Covid.

So oil prices may go back up, meaning also higher gas prices.

 

[Montecfo]

No one at the Fed wants to repeat the mistakes of G. William Miller in 1978/79.

Nor Arthur Burns. Yet but mistakes are likely one way or the other.

 

[Samsung4321]

No one at the Fed wants to repeat the mistakes of G. William Miller in 1978/79.

Failing to cause interest rates to exceed inflation rate in the belief that would be contractionary on demand side, while not being expansionary on supply side?


Waiting for supply side expansionary policies that did not immediately eventuate?

 

[Koolau]

Failing to cause interest rates to exceed inflation rate in the belief that would be contractionary on demand side, while not being expansionary on supply side?


Waiting for supply side expansionary policies that did not immediately eventuate?

Heh, heh, thanks for making that clear.

 

[Samsung4321]

Heh, heh, thanks for making that clear.

If Fed squeamish about squishing demand and 2022 USA federal revenue $4.90 trillion and expenditure $6.27 trillion how could USA federal government stimulate supply?

 

[GenXguy]

Yep, true inflation is still very high. I should be used to this, but I went into a different store today, and was shocked again seeing such high prices - like double over two years.

Just got gas - $3.59.9/gallon. That still seems very high to me. And I just found out our water bills are going to be jumping up quite a bit to fund some new changes to the system.

Lower inflation doesn't mean lower prices - it just means they aren't skyrocketing up as quickly as they were. But as long as they go up at all, it's just more pain for a lot of people.

 

[GenXguy]

Probably not a fair comparison since we already own our home, but DW and I could survive on $62K here in the Islands. As always, YMMV.

Before the pandemic and rampant inflation, my barebones expenses here in the midwest added up to about $15,250/yr.

 

[wmc1000]

Will be interesting to see how 2023 compares to 2022 totals. I happened to remember that back around 1983 I first calculated how much we would need each year in retirement for regular expenses and calculated it would be a whopping $17,000 per year.

Plugged $17,000 into an inflation calculator to see what it would be in 2023 dollars and it showed just over $51,000.

Our total expense level last year was a bit over $45,000 so I guess we are doing better than young me expected!

 

[audreyh1]

I had just updated one of my spreadsheets that tracks with inflation.

Yeah it’s pretty incredible looking at that 6.45% for 2022 and realizing that only 0.16% of that occurred in the second half of 2022.

 

[Koolau]

Before the pandemic and rampant inflation, my barebones expenses here in the midwest added up to about $15,250/yr.

Yeah, now that we are without kids, I think we could do about the same in the Midwest. I don't think we would, but we could. For instance our rent on the mainland (we maintain a place there) costs half our HOA fees here in Paradise. That blows my mind.

And speaking of inflation, our rent in the Midwest hasn't gone up in 10 years but (full disclosure) family is involved so YMMV.

 

[GenXguy]

Yeah, now that we are without kids, I think we could do about the same in the Midwest. I don't think we would, but we could. For instance our rent on the mainland (we maintain a place there) costs half our HOA fees here in Paradise. That blows my mind.

And speaking of inflation, our rent in the Midwest hasn't gone up in 10 years but (full disclosure) family is involved so YMMV.

Well, it's up to about $18,000/yr now, but that's barebones for one person. I spend a little more than that due to discretionary spending (some dining out, entertainment, etc). I know rent is going up around here, but my house is paid for, so I'm just stuck paying the soaring prices of homeowner's insurance and property taxes.

 

[Closet_Gamer]

As I'm sure you are aware, the minimum wage has never been considered a "living wage." It's more like a minimum "starter" wage or "entry" wage. It's true that some folks who have no other empl*yment opportunity are stuck with minimum wage.

I don't think many people are truly stuck with a minimum wage job.

Every large company in America who brings people in at minimum wage needs supervisors, then managers, etc. Those minimum wage jobs are training grounds for basic career skills and most large companies have tuition and other career assistance. My brother-in-law teaches classes for a big box retailer that pays for their front line employees to learn how to code so they can get better jobs.

My megacorp hires loads of front line people. We start at higher than the minimum wage, but you can easily join right out of high school and then climb.

I met one of our young employees a few weeks ago. 27 years old. Joined us right out of high school in a hands on, front line job. Super energeitc person. He's now making $80k/year still in a front line job but handling more sophisticated technology and customers.

How?

As he himself said (and he tells his co-workers), its really not hard. Show up on time, do a good job, say "Yes, Sir" and "Yes, Maam" when doing the work, take advantage of training opportunities and executive interactions to learn.

Oh, and he's currently buying his second rental property...kid will be able to FIRE in his 40s if he wants to.

The formula for making more than the minimum wage is far from unknown or unrepeatable.

 

[Midpack]

I don't think many people are truly stuck with a minimum wage job.

Even lower than I’d guessed.

In 2021, 76.1 million workers age 16 and older in the United States were paid at hourly rates, representing 55.8 percent of all wage and salary workers. Among those paid by the hour, 181,000 workers earned exactly the prevailing federal minimum wage of $7.25 per hour. About 910,000 workers had wages below the federal minimum. Together, these 1.1 million workers with wages at or below the federal minimum made up 1.4 percent of all hourly paid workers.

 

[Koolau]

Even lower than I’d guessed.

Yeah, it seems the smaller the problem the louder people scream about it but YMMV.

 

[Freedom56]

Inflation varies by region. We flew into Florida yesterday and notice a disparity in prices between Southern California. The obvious was gas prices at $3.18 per gallon (regular unleaded) versus $4.25 per gallon in California. However when we went to a Publix supermarket in Palm Beach County, we noticed that fruits and vegetables are about 40-120% higher than Southern California and most of it was imported versus home grown. Meats were on average 48% higher than Southern California. Dairy prices were 38% higher.

 

[Koolau]

Inflation varies by region. We flew into Florida yesterday and notice a disparity in prices between Southern California. The obvious was gas prices at $3.18 per gallon (regular unleaded) versus $4.25 per gallon in California. However when we went to a Publix supermarket in Palm Beach County, we noticed that fruits and vegetables are about 40-120% higher than Southern California and most of it was imported versus home grown. Meats were on average 48% higher than Southern California. Dairy prices were 38% higher.

Heh, heh, welcome to my world - except the gas here is still $4.25 as well. Paradise has a price.

 

[Montecfo]

Headline PCE came in at 5.0% in December, down from 5.5% in Nov and well below expectations of 5.5%.

So-called core PCE, the Fed's favored gauge, came in at 4.4%, down from 4.7% in Nov.

Personal consumption declined in December.

All continuing to suggest reduced inflation pressure and suggesting a coming recession.

https://www.cnbc.com/2023/01/27/pce-inflation-december-2022-.html

 

[MichaelB]

I’ve read economic research (and posted about it previously) that says 5% inflation is a “threshold number”. When inflation hits 5% the level of public awareness and concern grows dramatically, and when it falls below, the relevance falls and public concerns shift to other matters.

This seems to be happening right now.