Latest Inflation Numbers and Discussion

[Chuckanut]

I wonder how those people who bought negative yield German bonds are feeling today.

I should send them my thanks. The negative interest rates in Europe and Asia helped me to decide to dump my long and medium term bond funds several years ago. Maybe getting a thank you card will make them feel better. Or maybe not.

While the massive Covid spending spree is over, we are not over other spending sprees, IMO. We currently have the Inflation Reduction Act which is a huge spending spree, IMO. Then there is the student debt cancellation which, if it holds, is another huge expense. And, somebody has to pay for all the military equipment we are sending to Ukraine as well as arming for possible future military problems. I see no reason to think the current Congress will show restraint. Deficit Hawks have gone the way of the Dodo bird.

 

[pb4uski]

I should send them my thanks. The negative interest rates in Europe and Asia helped me to decide to dump my long and medium term bond funds several years ago. ...

+1 when interest rates were so low for so long and the Fed was on record that they were not going negative with interest rates it was apparent to me that there was no way for interest rates to go but up meaning that the value of bond funds would go down so I bailed on bond funds.

Luckily, about the same time the credit unions were running CD specials offering 3.0-3.5% 5-year CDs with 180 day early withdrawal penalties effectively limiting the downside risk to 1.5-1.75% compared to much more with a bond fund with a 5-7 year duration.

 

[Montecfo]

+1 when interest rates were so low for so long and the Fed was on record that they were not going negative with interest rates it was apparent to me that there was no way for interest rates to go but up meaning that the value of bond funds would go down so I bailed on bond funds.



Luckily, about the same time the credit unions were running CD specials offering 3.0-3.5% 5-year CDs with 180 day early withdrawal penalties effectively limiting the downside risk to 1.5-1.75% compared to much more with a bond fund with a 5-7 year duration.

Yes. I did not bail on bond funds but I bailed on duration. That was the big risk in a rapidly rising rate environment.

 

[MichaelB]

I mean, it’s really not difficult to delineate. Governments, including ours, stuffed the economy with emergency cash, conjured from nothing, to combat the pandemic - and inflation soon soared. Even noble intentions during an emergency have consequences. Do you really think there’s a free lunch anywhere in economics?

Changes in the supply of money are not the same as fiscal spending and they are not interchangeable. You may believe an increase in money supply leads to inflation but that direct link has not been shown. If there were we would have seen much more inflation over the past 2 decades. Fiscal spending, OTOH, is clearly a driver, as everyone saw last year.

 

[pb4uski]

... Fiscal spending, OTOH, is clearly a driver, as everyone saw last year.

And even government spending impact can be small in certain circumstances, for example if government spending increases during a recession it just replaced declining consumer and business spending so overall demand is not impacted as much.

 

[11522914]

I wonder how those people who bought negative yield German bonds are feeling today.

Conversely, those people who borrowed for a mortgage with negative interest rate are still getting paid.

https://www.theguardian.com/money/2...-worlds-first-negative-interest-rate-mortgage

Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan

I wonder how they are feeling today?

 

[Chuckanut]

Conversely, those people who borrowed for a mortgage with negative interest rate are still getting paid.

https://www.theguardian.com/money/2...-worlds-first-negative-interest-rate-mortgage

Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan

I wonder how they are feeling today?

Not quite as good as a negative interest mortgage but.....

I know of a couple who bought a house a few years ago at 1 7/8% for a 15 year mortgage. Whenever I am near them I notice the aura pegs any nearby gloat-o-meter at it's highest reading.

 

[Koolau]

Looks like Ben Bernanke was right, the "zero lower bound" runaway deflation problem can always be fixed with monetary and fiscal stimulation. What a change a few years makes in monetary theory. A few years ago they had "pushing on a string" concerns that the 0% rate in deflation would make for high real rates that couldn't be cured. I wonder how those people who bought negative yield German bonds are feeling today.

They should feel like idiots.

Kinda makes one think of the coming ice age in the 70s.

 

[Koolau]

Not quite as good as a negative interest mortgage but.....

I know of a couple who bought a house a few years ago at 1 7/8% for a 15 year mortgage. Whenever I am near them I notice the aura pegs any nearby gloat-o-meter at it's highest reading.

Just keep telling yourself: "It's better to be lucky than good."

 

[audreyh1]

Not quite as good as a negative interest mortgage but.....

I know of a couple who bought a house a few years ago at 1 7/8% for a 15 year mortgage. Whenever I am near them I notice the aura pegs any nearby gloat-o-meter at it's highest reading.

Not only that, but I’m sure their property has appreciated a great deal such that their loan was based in a much lower selling price. What a deal!!

 

[jldavid47]

Conversely, those people who borrowed for a mortgage with negative interest rate are still getting paid.

https://www.theguardian.com/money/2...-worlds-first-negative-interest-rate-mortgage

Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan

I wonder how they are feeling today?

The borrowers feel great.

However, this only helps show that most banks are run by idiots.

 

[Gumby]

CPI release for March 2023

CPI-U for March 2023 was 301.836

Inflation year-over-year = 5%
Inflation since June 2022 annualized = 2.48%
Inflation since September 2022 annualized 3.39%
One month unadjusted = 0.3%
One month seasonally adjusted = 0.1%


Of note: "The food at home index fell 0.3 percent over the month, the first
decline in that index since September 2020."

 

[Montecfo]

Thanks Gumby.

Nice to see things continuing to moderate.

 

[Car-Guy]

CPI-U for March 2023 was 301.836

Inflation year-over-year = 5%
Inflation since June 2022 annualized = 2.48%
Inflation since September 2022 annualized 3.39%
One month unadjusted = 0.3%
One month seasonally adjusted = 0.1%


Of note: "The food at home index fell 0.3 percent over the month, the first
decline in that index since September 2020."

Thanks for the info... Sure "feels" like more...

Of note: Our monthly food bill was the highest it's ever been in March/23 in dollars spent. I don't typically watch such things (I just pay the bills) but I noticed it. I guess 0.3 isn't enough and/or it just takes time for increases/decreases to work through the system and add up. So maybe we have seen the peaks.

 

[zekeboz]

CPI for March 2023 was 301.836

Inflation since June 2022 annualized = 2.48%
"

Interesting to see it below 2.5%. I had been modeling at 3.5% to be safe and never thought it would trend this low over a 9+ month time period. Good news I believe.

 

[HarryHawk]

THe 5% figure doesn't sound so bad, however

Food at home 8.4%
Electricity 10.2%
Shelter 8.2%

Gas was down 17.4%, but on the rise

https://www.bls.gov/news.release/cpi.nr0.htm

Inflation struck a particularly cruel blow last month, the cost of the early bird steak dinner went up from $10.99 to $11.99

 

[Car-Guy]

THe 5% figure doesn't sound so bad, however

Food at home 8.4%
Electricity 10.2%
Shelter 8.2%

Gas was down 17.4%, but on the rise

https://www.bls.gov/news.release/cpi.nr0.htm

Fuel (gas/diesel) cost is definitely going up around here. Maybe up 30 to 40 cents in the past few weeks. From my simple POV, increasing fuel cost means just about everything will be going up.

 

[audreyh1]

Oil has been going up and down, up and down over the last 5 months mostly within a $70-$80 range and far far below the prices of last summer.

 

[Car-Guy]

^^^^^


True, it's just noticeable when it moves 30 to 40 cents at the pump in just a few weeks.

 

[Marc]

CPI-U for March 2023 was 301.836

Inflation year-over-year = 5%
Inflation since June 2022 annualized = 2.48%
Inflation since September 2022 annualized 3.39%
One month unadjusted = 0.3%
One month seasonally adjusted = 0.1%


Of note: "The food at home index fell 0.3 percent over the month, the first
decline in that index since September 2020."

CPI-U Jun 22: 296.311; Jul 22: 296.276; Aug 22: 296.171.

I wouldn't be surprised if victory is declared after the June 2023 report only to have inflation Y/Y number jump up again with July and August reports.

 

[Montecfo]

CPI-U Jun 22: 296.311; Jul 22: 296.276; Aug 22: 296.171.



I wouldn't be surprised if victory is declared after the June 2023 report only to have inflation Y/Y number jump up again with July and August reports.

I do not expect a declaration of victory but a pause surely seems in order.

Rent is 33 percent of CPI and it is falling in the real world. But because of quirks it is rising in the CPI. This will roll off in the fall.

Unless something changes we are heading back to 2-3 percent on a rather steady basis just looking at the data since June and rent path.

 

[audreyh1]

I don’t think the Fed is going to verbally declare victory, and as a precaution they will keep rates high a long time before they do any cutting.

 

[Gumby]

CPI-U Jun 22: 296.311; Jul 22: 296.276; Aug 22: 296.171.

I wouldn't be surprised if victory is declared after the June 2023 report only to have inflation Y/Y number jump up again with July and August reports.

Let's look at the numbers. If you mean by "victory is declared" that the CPI year-over-year is 2%, that means the CPI for June 2023 is 1.02 x June 2022 = 303.237

If prices stay the same in July and August, then the reported year-over-year inflation for July would be 303.237/296.276 = 2.35%, for August would be 2.39% If inflation is actually running at a 2% annual rate in June 2023, that is equivalent to 0.167% per month. Assuming that prices inflate at that rate, then July 2023 CPI will be 303.776, August will be 304.284. Year over year inflation will be reported as 2.53% and August will be reported as 2.92%.

Those who know how these numbers are derived will understand that this is an artifact of last year and not an indication that inflation is actually increasing again. Those who don't know, a group that sadly includes far too many "journalists," can be expected to run their mouths once again.

 

[Marc]

Those who know how these numbers are derived will understand that this is an artifact of last year and not an indication that inflation is actually increasing again. Those who don't know, a group that sadly includes far too many "journalists," can be expected to run their mouths once again.

By the same token, those (in the media and others) could claim we have reached 2% in June only to be smitten by an artifact of last year and not an indication that inflation is actually at 2% when it may be actually closer to 3%.

 

[Gumby]

By the same token, those (in the media and others) could claim we have reached 2% in June only to be smitten by an artifact of last year and not an indication that inflation is actually at 2% when it may be actually closer to 3%.

It doesn't work that way.