Latest Inflation Numbers and Discussion

[NW-Bound]

And now credit card balances at a record.

And CC interest rates are at or near all time highs.

Thanks.

The data all points to the forecast that consumption will slow down because the consumer is stressed out. On top of that, the economy will slow down because the Fed raising rate.

I think it is highly likely that inflation will ease, and the economy will sputter. Powell has said or hinted several times that killing inflation is worth the risk of a recession.

So, what do I take from this? Simple. I need to reduce my stock AA further from its current 68%

Instead of selling stocks outright, I do this by selling covered calls with strike prices closer to the current prices. If they get assigned, I will sell puts with strike prices further down.

 

[Chuckanut]

Add in an increase in auto loan late payments and defaults. Strong job market combined with rising delinquencies on auto loans. That's not normally what happens,.

These numbers could explain a mystery bedeviling auto lending. Seasonalized rates of severe delinquency for auto loans are the highest since at least 2006, but the jobs market is strong.

Only one new car model now sells below $20,000. But, there are 32 models that sell over $100,000.

 

[Montecfo]

You can also add in repayment of student loans restarting right about now. This will remove a meaningful chunk of discretionary spending (up to $18B per month).

 

[GenXguy]

But apples and oranges on the property tax since it has two elements: the rate and property value.

And we all know property values up sharply over the time period you mentioned.

They're not up for my house - it's down.

And the combination of factors going into the property tax is not relevant, just my total out of pocket, which is way up despite the property value being down.

 

[Montecfo]

They're not up for my house - it's down.

And the combination of factors going into the property tax is not relevant, just my total out of pocket, which is way up despite the property value being down.

Not too many places with housing down over past 3 years. You might be in a market where it is better to rent.

But when housing values are driving taxes up, it is not the same as bread getting more expensive. Because your balance sheet.

 

[MichaelB]

I think it is expectations that require adjustment.

Expectations do need to be adjusted. Decades of very low inflation have led to an underappreciation of the impact of inflation on lifestyle and portfolios.

In addition, because inflation numbers are averages, it’s clear that some people will fall behind and lose from inflation. We can see than in this thread.

It’s also important to keep in mind that incomes are also rising due to inflation, and this is often under appreciated.

The segment of the population at greatest risk is us - retired people. No job combined with lower risk portfolio allocations set the stage for serious loss.

 

[CaptTom]

Snarky posts are no substitute for thoughtful exchange/

Fair enough. I think we're probably talking about different things here.

To me, "real" inflation is when the average of all prices, which average consumers pay, goes up.

I think what others may be talking about here ("gov't numbers") are those which analysts and statisticians watch. Presumably, they consider lots of factors which have no effect on the average consumer. I suppose corporations, the ultra-wealthy and the government all have expenses which heavily influence the "average" being used.

Clearly billionaires don't worry about groceries, fuel, housing, transportation, education, travel, etc. all ticking up 25-40%. To them, maybe it really does look like inflation matches the government figures. Politicians, investment bankers, corporate executives and their accountants and analysts have a very different outlook on what "inflation" means than the average consumer.

Obviously, there's a lot of supposition there. Maybe you can dispute it point by point.

What you won't do is convince me that the prices I'm paying today - across the board - are not between 25 and 40% higher than a year ago. Those are facts I do have, from first-hand experience.

 

[NameTaken2]

Add in an increase in auto loan late payments and defaults. Strong job market combined with rising delinquencies on auto loans. That's not normally what happens,.

Only one new car model now sells below $20,000. But, there are 32 models that sell over $100,000.

And UAW negotiating w/Ford for a 40% raise.

 

[NW-Bound]

...
It’s also important to keep in mind that incomes are also rising due to inflation, and this is often under appreciated.

The segment of the population at greatest risk is us - retired people. No job combined with lower risk portfolio allocations set the stage for serious loss.

Yes, it has been said that inflation is a mechanism to redistribute wealth from old people to workers. Wages tend to keep up with inflation better than investment assets.

On this subject, I just saw an article about workers demanding higher wages.

American workers' "wage floor" - the minimum amount they would accept in a new job - hit a record high of $78,645 in July, says a new survey from the Federal Reserve Bank of New York. A year earlier, that number was $72,900; in July 2021, $69,000.

 

[Mulligan]

Interesting-
Often wonder how many billion $ that our grandparents never spent are now added to family budgets for substantial cell phone/internet/TV bills.
-my FIOS bill went up nearly 18% in May, and cell phone going up about 10%.

A while back, I came across an old budget from early 90s when budgeting was needed. I saw phone bill was $175 a month. But back then everybody we knew and family were all long distance land line calls, ugh! My cell, internet, and Direct TV bill combined today is about $190. With exception of buying TVs, I would guess my phone bill is about the only thing considerably cheaper now than it was 30 years ago.

 

[pb4uski]

Fair enough. I think we're probably talking about different things here.

To me, "real" inflation is when the average of all prices, which average consumers pay, goes up.

I think what others may be talking about here ("gov't numbers") are those which analysts and statisticians watch. Presumably, they consider lots of factors which have no effect on the average consumer. I suppose corporations, the ultra-wealthy and the government all have expenses which heavily influence the "average" being used.

Clearly billionaires don't worry about groceries, fuel, housing, transportation, education, travel, etc. all ticking up 25-40%. To them, maybe it really does look like inflation matches the government figures. Politicians, investment bankers, corporate executives and their accountants and analysts have a very different outlook on what "inflation" means than the average consumer.

Obviously, there's a lot of supposition there. Maybe you can dispute it point by point.

What you won't do is convince me that the prices I'm paying today - across the board - are not between 25 and 40% higher than a year ago. Those are facts I do have, from first-hand experience.

No Cap, you misunderstand how the government calculates inflation. It is based on a so-called "basket of goods".

The US government calculates inflation using the Consumer Price Index (CPI), which is a measure of the average change in prices of a basket of goods and services purchased by consumers. The CPI is calculated by the Bureau of Labor Statistics (BLS), which surveys households across the country to find out what they are spending their money on. The BLS then tracks the prices of those goods and services over time to see how they have changed.

 

[JoeWras]

I want to weigh in on this government numbers thing. It is no secret that I am of the persuasion that would like to see less government, and less government interference. My first instinct is not to defend the government bureaucracy.

That said, I think the government is doing their best with the CPI calculation.

I've said this before, and I'm going to say it again. There is no mystery here. The CPI calculation is there for all to see, including the relative importance of each item. (https://www.bls.gov/news.release/pdf/cpi.pdf) There is some judgement by the buyers of the basket of goods, and the survey samplers, but I believe this washes out over time and buyer turn-over.

Some may say it doesn't reflect their reality. True. Most people don't smoke, but tobacco products are in the CPI. Yet it reflects the reality of the larger population by slowly decreasing in importance through the years.

Even when the numbers are mysterious, the BLS has reports to explain it. Right now, the CPI is enjoying a non-reality number of MINUS 30% for health insurance, year over year. That's crazy. I won't get into why it is this way, but the BLS has explained it. We better hold onto our hats because this is going to reverse in two months.

And shelter is another one. It is calculated completely differently than 40 years ago. This fact absolutely "hid" immediate inflation 2 years ago. Using the old calculations, the CPI would have been over 10% for a few months. But we're paying for it now. The inflation doves are complaining now that shelter is persisting at a higher rate than "they think" it should. Yeah, it works both ways. Hawks and doves complain about the numbers.

And shelter conflates homeowners insurance in a subtle way. It is not directly part of the the CPI. It is part of OER, which is part of shelter. In my opinion, it is one reason I think shelter is going to be hot longer than the doves believe, because OER is getting impacted by the lagging rise in homeowners insurance.

 

[CaptTom]

I can't dispute any of that. But it's all academic. People tweaking spreadsheets.

In science, if you want people to accept your model, it's not enough to demonstrate your methodology. Your model also has produces results which match the real world. I'm not seeing that with any of these inflation models.

 

[MichaelB]

In the US

The average household income is $70784
The average annual salary is $59428
The average height for a man is 5’9” and woman is 5’4”
The average weight for a man is 200 lbs and woman 162 lbs.
The average age is 38.1 years

It’s certain that few forum members fit precisely any of these numbers. Some will be higher, others lower, and in many cases, significantly so. That does not mean the averages are incorrect. It only means that averages cannot be applied to individuals and their personal circumstances.

If the calculated CPI understates real inflation over time, that difference would mean GDP growth is overstated. Real negative GDP is not compatible with growing employment. When employment rises payroll taxes rise alongside. Unemployment measures are not statistical, they are the sum of people applying for unemployment insurance, so the employment numbers are independently supported. The economic growth is real, and the overall CPI is roughly representative of the overall economy.

Economic data is like double entry accounting. A piece of bad data will lead to the accounts somewhere not adding up. That simply is not happening in the US.

People who see their budgets rising faster than the CPI should focus on understanding what makes their situation unique and what can be done to ameliorate the impact. Like someone whose income is below the national average, the problem is not that the average is bad, it means the individual needs to find a way to increase their earnings.

 

[Fermion]

This is a problem

On Monday, the average 30-year fixed mortgage rate reached 7.48%

 

[Gumby]

This is a problem

On Monday, the average 30-year fixed mortgage rate reached 7.48%

When we bought our house in 1992, our 30 yr mortgage was 8.375%, which was just about average. The 90s appeared to go well from that point on, and the average 30 year rate never dropped below 7.3% for the rest of that decade.

 

[ShokWaveRider]

This is a problem

On Monday, the average 30-year fixed mortgage rate reached 7.48%

Only if one needs a mortgage, I would argue that a lot of folks here do not, or are locked in at ~3%

 

[latexman]

American Airline pilots will get 41% raise over 4 years, and a 21% bonus that covers Jan. to July, 2023.

Wow!

I forsee travel outpacing general inflation.

 

[Chuckanut]

The guy who installed my mini-split is doing a few installations on the block, thanks to me. (Alas, no finders fee for me. ) He is the one who told me the cost for all the installation equipment was raised by $1400 in July. His assistant is a new fellow he is training. The guy was making $21/hour a few months ago when he was hired. Now he is making $25/hour. Or $1000 a week gross pay. Not bad, but not nearly enough to buy even a 2 bedroom Condo in my area unless he is blessed with a huge down payment, say 60%.

OTOH, the mild summer has kept my remaining baseboard heaters and the mini-split heat pump mostly off for the past [-]three[/-] four months. I am thankful for a small savings wherever I can get it.

 

[Montecfo]

American Airline pilots will get 41% raise over 4 years, and a 21% bonus that covers Jan. to July, 2023.

Wow!

I forsee travel outpacing general inflation.

It will as long as economy holds up.

And of course these airlines shot themselves in the foot with retirements around covid.

Demographically, airline pilot may be the most promising career for projected earnings growth worldwide.

 

[Fermion]

Only if one needs a mortgage, I would argue that a lot of folks here do not, or are locked in at ~3%

I mean that it supports higher wages which leads to high inflation. If you need a $80,000 income now to afford a starter home because of the high interest rates, then wages will rise to meet that need.

 

[MichaelB]

Numbers... I always like numbers to quantify what we are talking about, instead of hand waving.

Quicken says that ever since I used it to download financial transactions, I have spent 6.8% on food (groceries+restaurants). And this includes toiletries, detergent, and other things we get at these stores. I bought beer from grocery stores, but not most wine and hard liquor.

For the last 3 years, it's 7.2%.

You spending less than the national average on food is no surprise. If your household size is smaller than the average (2.6 or 3.4) or your income is higher the % needed for food will be lower.

 

[MichaelB]

Food spending as a % of household or disposable income has increased over the past 2 years. This is not healthy and not a good sign. Food inflation and spending is regressive, it affects lower income households disproportionately. Even for middle income households it leaves less for discretionary spending and saving. For now it looks like the increase is being paid for by reducing savings. If it continues it will soon lead to reduced spending elsewhere. From the Dept of Agriculture (here)

..

 

[JoeWras]

Economic data is like double entry accounting. A piece of bad data will lead to the accounts somewhere not adding up.

Good stuff! Great way to describe it.

 

[JoeWras]

When we bought our house in 1992, our 30 yr mortgage was 8.375%, which was just about average. The 90s appeared to go well from that point on, and the average 30 year rate never dropped below 7.3% for the rest of that decade.

It is like everything else, Gumby. People call everything "unprecedented" these days. Yeah, maybe in their meager adult lifetime.

A whole generation has experienced one kind of economics of free money. This is not normal. So the rise is "unprecedented" to them.

I could talk about weather events but I'd be banned.