Inflation: Official Rate vs. Observed Rate

[CaptTom]

Change in distribution of demand for goods vs services explains a lot of the inflation. I expect if the covid situation is ever resolved, demand patterns will revert back as will inflation.

Wow. That graphic really confirms a lot of what I read about the real problem being the demand side, not the supply chain. Thanks for posting that!!



As for its predictive value, I don't know. That chart would suggest services should be cheaper or at least, more available now. Anyone who has tried to get a plumber or building contractor to talk to them lately might disagree. I did get some auto body work done during the depths of the pandemic shutdown, when the shop wasn't very busy, but we seem to have recovered pretty quickly from that. My regular auto body guy is now turning away work he doesn't feel like doing. We probably all have stories like that about trying to get services done.

 

[Magus]

Does anyone have any data to support the assertion that the “effective minimum wage” is $15 per hours. It sure doesn’t show in the BLS data.

The company I just left is an economy/midscale national hotel company, largely of thousands of entry level associates (front desk, housekeepers, etc). Our average non-mgmt hourly rates are $15/hr and rising $0.10 per month and we are on the low end of pay. It was closer to $13 in Alabama and $18 in California but averages out at $15.

BLS data here has bottom 10% ($11.26/hr) and median ($19.90/hr)
https://www.bls.gov/ect/compensation-percentile-estimates.htm
as of March 2021. If you add 4-5% to that to account for the additional time, that would be ~$11.80 for bottom 10 percentile of hourly workers $20.80 for median. Assuming fairly distributed bell curve around wages, that would put $15-$15.50/hr at around the bottom 25th percentile today - and wages at the low end are currently increasing around 10% - which would mean a year from now the bottom 25% percentile pay will be around $16.50-$17/hr and bottom 10% around $13.

I would hazard a guess based on my experience with my last two companies and other BLS stats, nearly all of the bottom 10 percentile today will be rural low cost areas in low cost states and largely college and high school kids, or folks working for tips that actually make a much higher wage than indicated.

Walmart, Target and Amazon all already have a minimum wages of $15 or higher - amazon warehouses are over $20/hr. Fast food in cities of any size have starting wages signs of $14 to $18/hr everywhere. Hospitality wages are up 12% y/y. This really is a golden time for low end laborers, which after 30 years of being left behind economically, I for one am happy for them on the wages even if it means companies like mine have a decrease in margins all things equal. Unfortunately, inflation is eating up most of it.

 

[Magus]

Change in distribution of demand for goods vs services explains a lot of the inflation. I expect if the covid situation is ever resolved, demand patterns will revert back as will inflation. View attachment 41009

That chart looks a bit dramatic in that format, but that's only about a 5% increase in one section and a 5% decrease in another area since those are indexes. Even the area that has seen decreases consumption relatively is seeing price increases though.

This is certainly a factor, but IMO only one part of the reason for inflation. I'm also not sure 1) we'll be post covid anytime soon 2) even if we are post covid consumer spending will go back to the old way again 3) producers (companies) will go back to the old way of production/pricing/etc

 

[Chuckanut]

Does anyone have any data to support the assertion that the “effective minimum wage” is $15 per hours. It sure doesn’t show in the BLS data.

In my area, which has very high COL expenses especially for housing, the minimum wage is a de-facto $15+ an hour. You can't get a 17 year old to flip burgers for less than that.

 

[Gumby]

I once was a 16 year old burger flipper, in 1975. I made $2.00 per hour, which was the minimum wage. According to this site https://www.bls.gov/data/inflation_calculator.htm that would be like making $10 per hour today. Good for them if they can get $15. It's a crappy job.

 

[GenXguy]

I think he means our minimum wage is effectively $15/hr at this point since the vast majority of entry level jobs start at this or higher now in most of the country and rising rapidly due to high demand for labor and little availability. He’s more or less right overall, certainly cities of any size are basically there.

You are correct the legal minimum wage is lower in most of the country

But, again, it's NOT effectively $15/hr. We're not talking about the 25th percentile or even a year from now. And today, minimum wage is as I stated in my post.

https://www.early-retirement.org/fo...e-vs-observed-rate-111580-12.html#post2695674

It's $7.25 in the U.S. at the federal level. That's 6.3X. In some states and specific locations, it's higher, but it's still less than $15/hr in most places as of today. In my state, it's $11/hr, but ALL surrounding states that border us have a lower minimum wage, with some stuck at the federal minimum... as of today.

In some places, it's higher. And someone can give their own experience from what they see for a company they work for, but that's just anecdotal. And people can play with figures to inflate it by actually referring to something else that is NOT minimum. But minimum wage is what it is per my earlier post. And yes, I know I was right, which is why I corrected the previous poster on the matter.

 

[Turbo29]

I once was a 16 year old burger flipper, in 1975. I made $2.00 per hour, which was the minimum wage. According to this site https://www.bls.gov/data/inflation_calculator.htm that would be like making $10 per hour today. Good for them if they can get $15. It's a crappy job.

If you use the National Average Wage Index, $2.00hr in 1975 is equivalent to $12.89/hr in 2020.


National Average Wage Index


This is used by SS to calculate your PIA
Indexed earnings used to compute initial benefits
When we compute a person's retirement benefit, we use the national average wage indexing series to index that person's earnings. Such indexation ensures that a worker's future benefits reflect the general rise in the standard of living that occurred during his or her working lifetime.

 

[Magus]

But, again, it's NOT effectively $15/hr. We're not talking about the 25th percentile or even a year from now. And today, minimum wage is as I stated in my post.

https://www.early-retirement.org/fo...e-vs-observed-rate-111580-12.html#post2695674

In some places, it's higher. And someone can give their own experience from what they see for a company they work for, but that's just anecdotal. And people can play with figures to inflate it by actually referring to something else that is NOT minimum. But minimum wage is what it is per my earlier post. And yes, I know I was right, which is why I corrected the previous poster on the matter.

Sorry, I disagree, its effectively $15 in the US for anyone (or very close to it) that is actually looking for full time employment and is even a 3 out of 10 on reliability scale currently as a career, which is what the min wage was designed for. Yes, there may be a few college kids on campus making $11/hr working at the library or folks working for their family or church for a lower cost. Yes, there are a few people who have had 30 different jobs in the last 2 years and more of a hassle than they are actually worth as employees and yes there are a few stupidly low cost of living and remote areas where the pay is a bit lower (but rapidly rising), but for most of the country, you won't find ANY workers for less than this. Don't believe me? Go start your retail/hospitality firm and try to staff a store at $12/hr ANYWHERE in the US right now. It will never happen. M

Most markets you will be short staffed at $15, some quite severely. Three years ago, and you could still easily find a ton of employees sub $10/hr in most of the country. You should really read some research analyst reports in hospitality and retail. Wages are #1 thing being discussed by far besides same store sales. I have had access to payroll data given my position for about 10 years going back 20+ years. The last 3 years wages have massively, massively increased. My last company is forecasting $20/hr in 3.5 years after being < $11 4 years ago.

 

[Markola]

Change in distribution of demand for goods vs services explains a lot of the inflation. I expect if the covid situation is ever resolved, demand patterns will revert back as will inflation. View attachment 41009

That’s really interesting. I’m guessing that a lot of the surging “goods” were related to making our houses more comfortable to work from, but it would be interesting to see a breakdown. For whatever unique reasons, inflation seems to have sharp one year spikes like this every decade or so. From today’s NYT:

 

[2177V]

My wife’s biggest expense in her small business is (1) Commercial rent (2) employee pay. She do not expect her commercial rent will be reduced nor can she give her employees a pay cut. My wife raised prices to make her business viable and she can’t lower the price so I do not expect prices will decline. Material cost such as gasoline may decline but just about everything else will not.

 

[Popeye]

This makes me think about previous threads discussing the coming automation of many of these jobs. I wonder if this is quite temporary and if it will speed the automation and elimination of these jobs. I was thinking about it the other day as I had to check myself out at WallyMart.

 

[Koolau]

You'll be able to cherry pick a few things, but if you go by pre-pandemic pricing vs. today, you'll be hard pressed to find decreases. And it's going to get a LOT worse. I stand by that the vast majority of prices are not going to return to pre-pandemic pricing by the time inflation moderates in the years ahead, which could be a while. Open up your pocket book and be prepared to spend more and more.

Yes, so, it's obviously still news to some people.

There have always been some items which fluctuate quite a bit over time. So there are ups but also some downs in price. I'm thinking about petroleum products, many food products (beef, chicken, pork, eggs milk). Additionally, there are consumer electronics which have ALWAYS fallen in price because we can now put 100s of thousands of transistors on a chip - and I was proud to buy a 6 transistor radio for $30 in 1960. Of course, folks still spend a $grand on the latest phone - not because electronics are more expensive but because the new phone has hundreds of new features over the one offered 18 months before. (Arguably, making the phone WAY more valuable than its same-priced predecessor. I don't buy it - well, I DIDN'T buy it - until my flip phone died. Then I bought a knock off Android for $80.)

But I agree that overall, prices haven't fallen much over my life time (of 74 years.) I think the gummint fears deflation way more (almost infinitely more) than inflation. For that reason, I do not believe most prices will ever fall (other than those traditional variable-priced items and a few more.) Inflated prices stay inflated for the most part. They may eventually stop going up (for a while), but prices won't retreat on most things. Exceptions prove the rule and YMMV as always.

 

[Markola]

The contrarian in me thinks, if inflation was expected to rage, it seems like the bond market’s total returns ought to be much worse off than they actually are. Total return of the Vanguard Total Bond Fund is just -1.71% YTD. Negative years are rare for this fund but there have been worse ones. There’s panic in the media, as always, but I don’t see panic in these returns.

https://finance.yahoo.com/quote/VBMFX/performance?p=VBMFX

 

[2HOTinPHX]

This makes me think about previous threads discussing the coming automation of many of these jobs. I wonder if this is quite temporary and if it will speed the automation and elimination of these jobs. I was thinking about it the other day as I had to check myself out at WallyMart.

We were at a Home Depot recently and had to use the self check out while three employees stood by watching us and having a good old time chatting with each other.. Nice work if you can get it...

 

[Koolau]

We were at a Home Depot recently and had to use the self check out while three employees stood by watching us and having a good old time chatting with each other.. Nice work if you can get it...

Heh, heh, did you also notice that there are MORE self check-out lanes every time you go to HD (or McDs or wherever)? Pretty soon those empl*yees will be talking to each other in the unemployment line. I hate self check out and I hate that folks with little skills will be out of a j*b. But I sense that folks often bring about their own downfall and discover it too late. End of mini-rant as YMMV.

 

[2HOTinPHX]

Heh, heh, did you also notice that there are MORE self check-out lanes every time you go to HD (or McDs or wherever)? Pretty soon those empl*yees will be talking to each other in the unemployment line. I hate self check out and I hate that folks with little skills will be out of a j*b. But I sense that folks often bring about their own downfall and discover it too late. End of mini-rant as YMMV.

I hate self check out especially at the Grocery store.....
I wonder how many of these employees see the writing on the wall?

 

[CaptTom]

I'm going out on a limb here to say I prefer self checkout. I like being in control of the process. I can decide which items go in which bag, in which order.

But probably the biggest reason is my horrible luck with lines or queues of any kind.

At the toll booth I'd always get stuck behind someone who didn't have their money ready. At the supermarket it would always be that lady who spent 5 minutes rummaging around the bottom of her purse looking for the exact change. Or the guy who wanted to write a check. Or coupons, food stamps or WIC vouchers.

Why do people start looking for these things AFTER the groceries are all rung up and bagged? Did they forget they were going to have to pay?

So, I was an early adopter of both EZ-Pass and self-checkout aisles. There can still be a wait, but my chances are infinitely better than when I had to choose a lane where one slow person could plug up the works for everyone in line behind them.

At the macro economic level, fewer employees should also help keep prices lower in the long run. I'm good with that, too.

 

[Gumby]

I don't use self check because people should have a job doing that. I don't care if I have to pay a little more so they can. It's good for society.

 

[Yipper]

I'm going out on a limb here to say I prefer self checkout. I like being in control of the process. I can decide which items go in which bag, in which order.

Completely with you on this Captain. I totally prefer self-checkout. In the grocery store I use the portable scanner to ring up and pack my items as I walk through the store.

I'm in New Jersey which is the ONLY place I'm not legally allowed to pump my own fuel into my own car. Because who knows? I live in a 'border' town on the river between NJ and PA and do most of my shopping in PA due to location convenience... and guess where I prefer to purchase my fuel since I can be in charge.

The move to automation in checkout and menial tasks is inevitable... do we still have telephone operators that need to connect our calls? How about all the 'accounting' people in those old photos of people sitting in rows of desks with adding machines before we had computerized accounting systems. Do you remember the 'fun' of rushing to the bank on a Saturday before it closed at Noon so you had enough cash in hand to last through the rest of the weekend? Always a long line at the drive through and in the bank back then - thankfully we created ATMs and credit cards, etc. etc.

Bill Gates and others were talking about taxing robots and other automation technologies as they've displaced workers and using those taxes to compensate the people out of work through retraining education and/or some sort of universal automatic income. I'm not for or against but just thinking it may come to that at some point.

 

[Yipper]

I don't use self check because people should have a job doing that. I don't care if I have to pay a little more so they can. It's good for society.

What about all those out of work telephone operators?

 

[Gumby]

What about all those out of work telephone operators?

I have no ability to directly affect the need for phone operators. I can cause demand for cashiers by eschewing the machine.

 

[Turbo29]

Should have refused to use this, think of the jobs that would have been saved.

 

[Looking4Ward]

What about all those out of work telephone operators?

Those chairs don't look very ergonomic

 

[Koolau]

I've softened my stance on self-checkout somewhat since many (most?) now offer a wand. In the old days (you know, 4 years ago) we had to swipe the 36-can box of soft drinks across the reader. Then we had to move it to a designated area. No way! But now, most check outs allow you to wand the bar code right in your cart. I don't know how they insure we don't make a mistake, but it must be effective because, for instance, Costco is doing it. I notice the lines are getting longer at the self check-out than the regular check outs. I think folks are realizing that self check out IS faster - at least once you get the hang of it.

But, I still resent having to do it myself!

 

[Koolau]

^^^^

Oh, and I HATE paying for bags! YMMV