Latest Inflation Numbers and Discussion

[copyright1997reloaded]

I think it will vary by sector. Take tech, for instance. I've personally seen those $200k-$400k and more tech workers who take pride in the fact they've proven to their employer that they can work remotely from anywhere in the world without ever having to step foot in an office.

Unfortunately, they've also proven that someone else could do that remotely for perhaps half the cost. Tech companies are getting squeezed financially and are looking for big cost savings. What's this guy Steve in Austin do that we are paying $300k a year? Work from home? Not anymore.......

THIS!

I was there when the first huge outsourcing of tech skills occurred. Fortunately for me, I wasn't outsourced but saw the decision making up close and personal in terms of what organizations/executives did. It worked out for me because those remote/outsourced/other country skills were good at generating code, but not so good at scaling and building mission critical 24x7x365 systems. So I had lots of opportunities to help when things went to sh*t.

Fast forward to me teaching (Computer Science). One of the things I mention to students is the great advantages they have: Free compilers, cheap computer equipment, tons of free software and documentation, instant turn around on source code problems, and so on. All compared to when I learned when it was a multi-million dollar scarce resource in some big data center.

Then I mention the big disadvantage: Their competition, all around the world, has those same things. And they are HUNGRY to better themselves. I have to be careful here about what I say, but suffice it that they aren't worried about their feelings, or how their ancestors were unfairly treated, or how they didn't get the right participation trophy. No, they are out to better their lives, and are willing to work long and hard to do so.

I typically wrap that up that any job that can be done remotely over a phone or zoom or email can thus be done by someone else, in another country, at the cheapest cost for that skill. And that THEY are their real competition.

I've tried to talk my son into becoming a plumber/electrician/trade skill but so far to no avail.

 

[copyright1997reloaded]

I do disagree that high wages by themselves fuel inflation. They are evidence of inflation. But absent a growing money supply, overall inflation (meaning prices rising overall) cannot rise. Instead, other prices must decline in turn if money supply is stagnant. Milton Friedman told me .

This should be on a giant sticky note and pasted on every modern day economists forehead.

 

[connor77]

THIS!


Then I mention the big disadvantage: Their competition, all around the world, has those same things. And they are HUNGRY to better themselves. I have to be careful here about what I say, but suffice it that they aren't worried about their feelings, or how their ancestors were unfairly treated, or how they didn't get the right participation trophy. No, they are out to better their lives, and are willing to work long and hard to do so.

I typically wrap that up that any job that can be done remotely over a phone or zoom or email can thus be done by someone else, in another country, at the cheapest cost for that skill. And that THEY are their real competition.

I've tried to talk my son into becoming a plumber/electrician/trade skill but so far to no avail.

Wow. Impressive to read what you share with your students...
Keep working on your son. Trade jobs are soon going to pay better than high paying white collar jobs. In some areas they already are.

 

[Gumby]

CPI-U as of this morning is 296.808. The reported annual inflation rate is 8.2%, but prices have been up only 0.17% over the past four months, which on an annualized basis would be only 0.5%

 

[Big_Hitter]

CPI-U as of this morning is 296.808. The reported annual inflation rate is 8.2%, but prices have been up only 0.17% over the past four months, which on an annualized basis would be only 0.5%

but last month was 0.4%, that annualizes to just under 5%

 

[Gumby]

but last month was 0.4%, that annualizes to just under 5%

August CPI was 296.171. September CPI was 296.808, which was 0.2% higher or 2.4% annualized. Your 0.4% is "seasonally adjusted", a process that can create its own inaccuracies. Regardless, I think it is fair to say that inflation is abating and that the headline 8.2% number is misleading.

 

[ShokWaveRider]

Do we think a .75bp increase in the FED rate is baked in for November?

 

[Gumby]

If I were them, I would just go ahead and do it. Then wait and see for a while.

 

[Freedom56]

Do we think a .75bp increase in the FED rate is baked in for November?

It's already priced in. The terminal rate is now pricing 4.85% vs 4.6% which is just $250 difference in income for every $100K invested. The Fed is now expected to hold rates at these levels through 2024. They will likely stop QT before lowering rates. The war on savers is now on pause. Things are reverting back to normal where investors don't have to play the stock market casino to earn income. This whole passive investment bubble with equities and fixed income ETFs is starting to unravel. People will go back to buying CDs, Treasuries, and bonds like they used to, which is a good thing.

 

[Chuckanut]

The Labor Department on Thursday said that the so-called core measure of the consumer price index—which excludes volatile energy and food prices—gained 6.6% in September from a year earlier, up from 6.3% in August. That marked the biggest increase since August 1982.

Not so good.

 

[Freedom56]

August CPI was 296.171. September CPI was 296.808, which was 0.2% higher or 2.4% annualized. Your 0.4% is "seasonally adjusted", a process that can create its own inaccuracies. Regardless, I think it is fair to say that inflation is abating and that the headline 8.2% number is misleading.

You are correct. I don't understand how they compute the drop in the price of apparel given how much retailers are discounting. I hope they are not using a 2 year moving average.

 

[Sunset]

I think it will vary by sector. Take tech, for instance. I've personally seen those $200k-$400k and more tech workers who take pride in the fact they've proven to their employer that they can work remotely from anywhere in the world without ever having to step foot in an office.

Unfortunately, they've also proven that someone else could do that remotely for perhaps half the cost. Tech companies are getting squeezed financially and are looking for big cost savings. What's this guy Steve in Austin do that we are paying $300k a year? Work from home? Not anymore.......

This has always for the past 20 years been a threat to high tech workers, (and others, like x-ray readers)
Once a company decides remote workers are fine, they can be found for a tiny fraction of USA wages.

I experienced this, where the company replaced me with 5 offshore workers in India and it still cost less than what they paid for me. It would have to be a considerable savings to take the risk.
I guess offshore costs about 10% or less of USA rates.

 

[Big_Hitter]

Regardless, I think it is fair to say that inflation is abating and that the headline 8.2% number is misleading.

I agree your calculations are correct; I got lazy this morning and just looked at the headline (which was where I got the 0.4%) - even if CPI came in at 0.0% last month, ttm inflation would still be near 8% - those big numbers will drop off eventually

 

[aja8888]

Here's a nice summary of recent inflation numbers

It's clear that inflation in services os leading the pack. Food inflation is not that bad, but it's not going away. If it wasn't for gasoline price falling last month, this could have been a lot uglier. It's not over folks, unless services inflation can get under control.

https://wolfstreet.com/2022/10/13/s...nomy-some-goods-prices-fall-gasoline-plunges/

Nearly two-thirds of consumer spending goes to services. And they’re now the driver of inflation. The CPI for services spiked in September for the 13th month in a row, and by the most since 1982, and it accelerated month-to-month. Housing costs spiked, but also all kinds of other services, such as health insurance (+2.1% month-to-month and +28% year-over-year).

“Core CPI,” which excludes food and energy, was the worst since 1982. Food prices spiked again, but spiked slightly less than the prior month which had been the worst since 1979. But some relief came from a decline in prices of used vehicles and consumer electronics, and from gasoline, which plunged.

 

[milford]

It's clear that inflation in services os leading the pack. Food inflation is not that bad, but it's not going away. If it wasn't for gasoline price falling last month, this could have been a lot uglier. It's not over folks, unless services inflation can get under control.

https://wolfstreet.com/2022/10/13/s...nomy-some-goods-prices-fall-gasoline-plunges/

Its going to get a lot uglier since OPEC announced that they will be cutting crude production starting November. Stagflation to me seems inevitable right now.

 

[Sunset]

This summer, we stayed at a Motel, no pool but did include a breakfast. It was in a town, about 60 miles outside of Ottawa, Canada.
The cost was $170 USD per night !!! and it was NOT crowded at all.

The cost should have been maybe $70 USD (that would be about $98 CDN).

Hotels closer to Ottawa were even more.

 

[copyright1997reloaded]

This summer, we stayed at a Motel, no pool but did include a breakfast. It was in a town, about 60 miles outside of Ottawa, Canada.
The cost was $170 USD per night !!! and it was NOT crowded at all.

The cost should have been maybe $70 USD (that would be about $98 CDN).

Hotels closer to Ottawa were even more.

I'm seeing similar kinds of things. Places that were typically $120 or so (pre-Covid) are now at $160-$180. This is not at "destinations", rather various North Eastern small/mid-sized towns. (Yes, this is anecdotal just based on a set of recent trips.)

 

[audreyh1]

Its going to get a lot uglier since OPEC announced that they will be cutting crude production starting November. Stagflation to me seems inevitable right now.

Honestly, I think they are looking ahead at reduced demand, plus it won’t hold 100% as it usually doesn’t these days. There has already been demand destruction. I don’t see this as a major driver.

 

[jldavid47]

Its going to get a lot uglier since OPEC announced that they will be cutting crude production starting November. Stagflation to me seems inevitable right now.

Actually, they announced they were reducing the production cap. Actual production has been below the cap for some time. Also, OPEC members tend to cheat when it serves their purposes so from a practical perspective the announced "cuts" will probably amount to nothing when all is said and done.

 

[Chuckanut]

Actually, they announced they were reducing the production cap. Actual production has been below the cap for some time. Also, OPEC members tend to cheat when it serves their purposes so from a practical perspective the announced "cuts" will probably amount to nothing when all is said and done.

+1

Yet prices jumped up even before OPEC's decision. That is not a good sign.

 

[jldavid47]

Yet prices jumped up even before OPEC's decision. That is not a good sign.

Well, that's true but oil prices peaked basically the day of the announcement. November Crude Oil Futures are down about $8 a barrel in the past week as are December futures. If the market thought a drop in the cap was going to have an effect we wouldn't be seeing basically an 8.5% drop in those prices this week.

 

[copyright1997reloaded]

Actually, they announced they were reducing the production cap. Actual production has been below the cap for some time. Also, OPEC members tend to cheat when it serves their purposes so from a practical perspective the announced "cuts" will probably amount to nothing when all is said and done.

Then again we are down to something like a 22 day supply in the SPR (22 days assuming it is being used for everything).

So, pretty soon instead of drawing down 1-2 million barrels a day, there will be no drawdowns.

WASHINGTON, Oct 7 (Reuters) - The United States has sold a 10.15 million barrel batch of oil from the Strategic Petroleum Reserve to eight companies, the Department of Energy said on Friday.

...
The administration has now sold about 165 million barrels of the sale, the largest ever from the SPR, since May. Deliveries will take place in November.[/QUOTE]
https://www.reuters.com/markets/commodities/us-sells-oil-emergency-reserve-marathon-equinor-others-2022-10-07/

 

[Chuckanut]

On a personal level this is the 2nd year in a row where my COLA-lite pension will not keep up inflation. The COLA is capped quite a bit below last year's and this year's inflation rate. Yes, I realize that's still better than no pension or a non-COLA'd pension. I estimate my pension has been reduced by about 8% in real terms over the last two years. I add this only to accentuate that inflation is a direct threat to our financial well being.

Thankfully, I never bought one of those fixed annuities that some of my peers bought when they retired. There was a big push to get teachers to use funds from an optional delayed compensation plan to do just that. Not so good, IMO.

 

[Chuckanut]

Well, that's true but oil prices peaked basically the day of the announcement. November Crude Oil Futures are down about $8 a barrel in the past week as are December futures. If the market thought a drop in the cap was going to have an effect we wouldn't be seeing basically an 8.5% drop in those prices this week.

Gas has dropped about 15 to 20 cents a gallon in the past week. That's better than a kick in the pants, but prices are still well above $5 a gallon at most stations. Two months ago, gasoline had come down the low to mid $4 range. So we are still nearly a dollar a gallon higher than the summer.

Coming off record highs the price drop is far less than the price increases of this year. Thankfully, as a retired guy with a hybrid vehicle I can survive it since I don't drive that much other than a recent road trip.

 

[jim584672]

Walmart cola yesterday $0.96, today $1.18, only 22.9% in one hop.