Inflationary factors?

[Amethyst]

Some posters in the "down market" threads made ominous inflation predictions.

Well, there's the ballooning U.S. national debt - borrowing 2X as much as last year, I think I read.

Any other factors causing some to posit higher inflation?

 

[OldShooter]

The only function of economic forecasting is to make astrology look respectable.
---John Kenneth Galbraith

 

[truenorth418]

Low unemployment rate could lead to higher wages, which could push prices up?

Lower taxes could lead to higher consumer spending, which could lead to higher prices?

There are a lot of “coulds”.

Also, I “could” list some compelling reasons we “won’t” have higher inflation.

 

[audreyh1]

Some posters in the "down market" threads made ominous inflation predictions.

Well, there's the ballooning U.S. national debt - borrowing 2X as much as last year, I think I read.

Any other factors causing some to posit higher inflation?

Well that’s certainly putting pressure on the bond market (intermediate and longer term interest rates), especially as is the Fed letting their bond holdings shrink at the same time, but I don’t think in and of itself that is inflationary. Higher interest rates tend to act as an economic drag.

Wages took a big jump in Jan, like up 2.9%. That probably spooked the markets more than anything. Wages have been way behind for a long time, but if they finally improve - great for the working guy, not so good for corporate profits.

Oil prices have been steadily creeping up over the past year and seem to have stabilized at higher prices, so no more breaks from big drops in fuel prices.

Dollar weakening means we import some inflation. That’s part of the oil price rise as well.

 

[Senator]

Some posters in the "down market" threads made ominous inflation predictions.

Well, there's the ballooning U.S. national debt - borrowing 2X as much as last year, I think I read.

Any other factors causing some to posit higher inflation?

The definition of inflation is "too much money chasing too few goods." It has nothing to do with national debt, or any deficit spending, or even printing money. It it did, we would have much higher inflation than we do.

People are getting bonuses in the tune of multi-millions, a $1,000 at a time. Nearly everyone in the USA gets a tax cut and that puts more money in people hands. It puts a lot of money in the system. Upward wage pressure are starting.

People are feeling 'rich' due to the previous market run-up.

Maybe people will save and pay down debt. History shows otherwise. Get ready for inflation.

 

[Amethyst]

Not to derail my own thread, but this struck a small nerve...OPM took it upon themselves to "increase" our pension checks by a total of more than $400 a month, by reducing the Federal withholding. Yet every online calculator says the Amethysts will not see any tax savings at all, and may even pay a bit more.

I requested increased withholding to cover the difference, but it makes me wonder how many annuitants simply say, "Oh, lovely! A bigger check!" thus setting themselves up for an unpleasant tax surprise in 2019.

People are getting bonuses in the tune of multi-millions, a $1,000 at a time. Nearly everyone in the USA gets a tax cut and that puts more money in people hands. It puts a lot of money in the system. Upward wage pressure are starting.

.

 

[jazz4cash]

Not to derail my own thread, but this struck a small nerve...OPM took it upon themselves to "increase" our pension checks by a total of more than $400 a month, by reducing the Federal withholding. Yet every online calculator says the Amethysts will not see any tax savings at all, and may even pay a bit more.

I requested increased withholding to cover the difference, but it makes me wonder how many annuitants simply say, "Oh, lovely! A bigger check!" thus setting themselves up for an unpleasant tax surprise in 2019.

Thanks for this feedback. Under withholding due to revisions is something I've been worried about since we will actually pay more with the SALT limitations but I never got around to checking pay stubs to gauge the impact. I've always had to withhold extra anyway so it's not like the old tables fit us either.

 

[Amethyst]

I believe systematic under-withholding, to enhance citizens' universal appreciation of our latest big tax break, was at the request of a Mr. Smith over at Minitrue.

Thanks for this feedback. Under withholding due to revisions is something I've been worried about since we will actually pay more with the SALT limitations but I never got around to checking pay stubs to gauge the impact. I've always had to withhold extra anyway so it's not like the old tables fit is either.

 

[W2R]

Not to derail my own thread, but this struck a small nerve...OPM took it upon themselves to "increase" our pension checks by a total of more than $400 a month, by reducing the Federal withholding. Yet every online calculator says the Amethysts will not see any tax savings at all, and may even pay a bit more.

I requested increased withholding to cover the difference, but it makes me wonder how many annuitants simply say, "Oh, lovely! A bigger check!" thus setting themselves up for an unpleasant tax surprise in 2019.

They don't withhold anything at all from my mini-pension deposits. Instead, I just do it myself with estimated tax payments. I think I will determine my estimated taxes as though the tax laws were not changing, just to play it safe, but if I do that then I will probably get a nice refund next year.

 

[donheff]

Not to derail my own thread, but this struck a small nerve...OPM took it upon themselves to "increase" our pension checks by a total of more than $400 a month, by reducing the Federal withholding. Yet every online calculator says the Amethysts will not see any tax savings at all, and may even pay a bit more.

I requested increased withholding to cover the difference, but it makes me wonder how many annuitants simply say, "Oh, lovely! A bigger check!" thus setting themselves up for an unpleasant tax surprise in 2019.

I hadn't checked but now I see mine is up a bit also. I was going to have to adjust withholding down a little anyway so I will probably let it ride for a while.

 

[marko]

I"m no economist by any stretch.
Can someone explain the connection between inflation and the national debt? I don't see it, but that doesn't mean there isn't one.
I do know that when there's more money floating around that could lead to inflation...everyone getting a bonus etc.

 

[NW-Bound]

The definition of inflation is "too much money chasing too few goods." It has nothing to do with national debt, or any deficit spending, or even printing money. It it did, we would have much higher inflation than we do.

People are getting bonuses in the tune of multi-millions, a $1,000 at a time. Nearly everyone in the USA gets a tax cut and that puts more money in people hands. It puts a lot of money in the system. Upward wage pressure are starting.

People are feeling 'rich' due to the previous market run-up.

Maybe people will save and pay down debt. History shows otherwise. Get ready for inflation.

When even the tightwads of this forum talk about "blowing some dough", one still wonders about the source of inflation?

It will not come immediately though. And once it's here, a bout of recession might handily fix it. No problem.

 

[Hamlet]

The definition of inflation is "too much money chasing too few goods." It has nothing to do with national debt, or any deficit spending, or even printing money. It it did, we would have much higher inflation than we do.

People are getting bonuses in the tune of multi-millions, a $1,000 at a time. Nearly everyone in the USA gets a tax cut and that puts more money in people hands. It puts a lot of money in the system. Upward wage pressure are starting.

People are feeling 'rich' due to the previous market run-up.

Maybe people will save and pay down debt. History shows otherwise. Get ready for inflation.

If you look at the fine print of most of those "$1000" bonuses, they are often based on years of service. Walmart's is actually $50/year of service. Not exactly meaningful in a macroeconomic sense.

We are seeing mild wage inflation that may actually push us above the Fed's 2% target. However, interest rates are still extraordinarily low. A couple of extra rate hikes will tamp down inflation IMO.

Absent a supply-side shock or the Fed falling asleep at the wheel, I'm not too fearful of high inflation.

 

[Senator]

If you look at the fine print of most of those "$1000" bonuses, they are often based on years of service. Walmart's is actually $50/year of service. Not exactly meaningful in a macroeconomic sense.

We are seeing mild wage inflation that may actually push us above the Fed's 2% target. However, interest rates are still extraordinarily low. A couple of extra rate hikes will tamp down inflation IMO.

Absent a supply-side shock or the Fed falling asleep at the wheel, I'm not too fearful of high inflation.

I was unaware of the bonus schedule, so I looked it up. Home Depot has a similar, almost identical payout schedule.

You are 100% correct, in the scheme of things, it's a small percent of GDP. It does help if you are the one receiving the $200.

That is why the corporate tax cuts will have the most impact and why they were permanent. A corporation can take that larger amount of money and produce more jobs. A single job produced paying $15 an hour, will put as much money into the economy as 150 workers getting $200. The job will likely last longer than a year and have a much larger residual effect.

More than 20 years of service: $1,000
15 to 19 years of service: $750
10 to 14 years of service: $400
5 to 9 years of service: $300
2 to 4 years of service: $250
Less than 2 years of service: $200

 

[Mr._Graybeard]

I believe systematic under-withholding, to enhance citizens' universal appreciation of our latest big tax break, was at the request of a Mr. Smith over at Minitrue.

I saw what you did there!

 

[Hamlet]

I was unaware of the bonus schedule, so I looked it up. Home Depot has a similar, almost identical payout schedule.

You are 100% correct, in the scheme of things, it's a small percent of GDP. It does help if you are the one receiving the $200.

That is why the corporate tax cuts will have the most impact and why they were permanent. A corporation can take that larger amount of money and produce more jobs. A single job produced paying $15 an hour, will put as much money into the economy as 150 workers getting $200. The job will likely last longer than a year and have a much larger residual effect.

Except that most big companies had huge amounts of cash on hand already. Lack of cash was not limiting their investment. What has been limiting their investment is lack of demand, which the corporate tax cut will have only a modest effect on, IMO. Which is why Walmart cut a bunch of jobs at the same time they announced their wage hikes.

The economy has slowly been improving, so wage increases may change that, but I wouldn't expect a huge spike in inflation. The Fed has huge amounts of room to raise rates to tamp down inflation. If history is any judge, they are just as likely to raise too quickly and cause a recession that makes us worry about deflation as they are to get wildly behind the curve.

The only way I see inflation getting crazy is if there is some shock to supply. The 70s oil crisis is the quintessential example.

Otherwise, if inflation spikes up the Fed has all the tools to nip it in the bud. If we hit a recession with rates already low, on the other hand....

 

[DrRoy]

Wages took a jump in Jan, up 2.9%. If they finally improve - great for the working guy, not so good for corporate profits.

Oil prices have been steadily creeping up over the past year and seem to have stabilized at higher prices, so no more breaks from big drops in fuel prices.

Dollar weakening means we import some inflation. That’s part of the oil price rise as well.

+1

 

[RAE]

Not to derail my own thread, but this struck a small nerve...OPM took it upon themselves to "increase" our pension checks by a total of more than $400 a month, by reducing the Federal withholding. Yet every online calculator says the Amethysts will not see any tax savings at all, and may even pay a bit more.

I requested increased withholding to cover the difference, but it makes me wonder how many annuitants simply say, "Oh, lovely! A bigger check!" thus setting themselves up for an unpleasant tax surprise in 2019.

That's interesting. I assume you noticed this when you got your January fed. pension check earlier this month? I just checked my fed. pension check and statement for Jan. 2018, and the withholding is the same as I had it for 2017. The check had increased a little bit (due to the 2% COLA), but that's it. I'm wondering why the difference?

 

[GrayHare]

It's not higher wages alone that lead to inflation, the velocity of money, how quickly money moves from person to person, is also important. If people simply deposit higher wages into savings, that generally does not boost inflation. However if people increasingly quickly spend their increasing wages, that is fuel for inflation.

 

[Amethyst]

Actually RAE, we both got "annuity adjustment" notices for February. They didn't look "right", especially since I was expecting a lower number because the new (higher) FEHB and dental deductions always show up in Feb (not Jan). So I went online and compared with January's annuity numbers. Definitely more than $200 additional for each of us.

If it had been a tiny difference, I would not have noticed.

Even if this only affects the House of the Purple Gem for some reason, I have been telling people about it so they will be aware, and will maybe check the online calculators or ask their tax professional. Although many people are getting a tax decrease...for those who aren't, the last thing we need is a nasty surprise in 2019, that could have been avoided.

That's interesting. I assume you noticed this when you got your January fed. pension check earlier this month? I just checked my fed. pension check and statement for Jan. 2018, and the withholding is the same as I had it for 2017. The check had increased a little bit (due to the 2% COLA), but that's it. I'm wondering why the difference?

 

[RAE]

Actually RAE, we both got "annuity adjustment" notices for February. They didn't look "right", especially since I was expecting a lower number because the new (higher) FEHB and dental deductions always show up in Feb (not Jan). So I went online and compared with January's annuity numbers. Definitely more than $200 additional for each of us.

If it had been a tiny difference, I would not have noticed.

Yes, I meant to say February, not January. I checked my Feb. statement again, and there is no change in federal withholding at all from what I had in there for 2017. I'm pretty sure OPM is not supposed to make any changes to that kind of thing (for federal pensioners) unless you request it. Strange that they just decided to decrease your withholding for some reason.

 

[OldShooter]

... Can someone explain the connection between inflation and the national debt? I don't see it, but that doesn't mean there isn't one. ...

I don't think this question got answered.

There are a couple of things, one IMO kind of cosmetic and one fairly important:

First, the debt as a % of GDP will go down because the debt is a fixed dollar amount and inflation increases apparent GDP. A country's debt is usually evaluated as % of GDP so this makes us look better. The flip side of this, though, is that the wastrels in Washington might look at a declining debt/GDP ratio as an opportunity to take on more debt.

More importantly, inflation lets us pay debt off with depreciated dollars -- essentially a discount for us and a significant one at that. This may also permit other countries who have borrowed in dollars to also pay their debts at a discount, though it's subject to the question of how their own currency exchange rates change relative to the dollar.

So the short answer to your question is: Yes, the two are connected in a way that makes inflation good.

 

[Hamlet]

I don't think this question got answered.

There are a couple of things, one IMO kind of cosmetic and one fairly important:

First, the debt as a % of GDP will go down because the debt is a fixed dollar amount and inflation increases apparent GDP. A country's debt is usually evaluated as % of GDP so this makes us look better. The flip side of this, though, is that the wastrels in Washington might look at a declining debt/GDP ratio as an opportunity to take on more debt.

More importantly, inflation lets us pay debt off with depreciated dollars -- essentially a discount for us and a significant one at that. This may also permit other countries who have borrowed in dollars to also pay their debts at a discount, though it's subject to the question of how their own currency exchange rates change relative to the dollar.

So the short answer to your question is: Yes, the two are connected in a way that makes inflation good.

Except that higher inflation pushes interest rates up, which makes the debt more expensive. Trying to inflate our way out of debt can backfire.

 

[OldShooter]

Except that higher inflation pushes interest rates up, which makes the debt more expensive. Trying to inflate our way out of debt can backfire.

Everything is connected, of course. But I think this effect exists only for new debt and existing TIPS, not for the bulk of the (fixed rate) debt already out there. So as we roll over debt, our inflation history will affect the rates buyers will demand and they will of course go up. I was fortunate enough to get a lock-in week of education on international finance from a couple of Harvard professors (thank you megacorp) and their feeling was that inflating our way out of the debt would be effective.

 

[NW-Bound]

Yes, inflation will make paying old debts a piece of cake. However, if you still need to borrow money and the new debts now have that higher interest rate, how do you unwind it?

Of course, one can stop getting new debts, but what is the chance of that? If you were able to not borrow money, you would not have problems in the first place.