Latest Inflation Numbers and Discussion

[Gumby]

I see the headlines today, too.

But have any of these people been to a supermarket lately? Some products are up 400% this year. Many 200%. Most at least 50-75%. A few only 25%.

I'll be glad if it's true that inflation is finally abating. But I still can't wrap my head around these insanely low numbers being reported. I could probably count on one hand the number of things I buy which "only" increased 7-8%.

Nothing I can do about the rise in prices that has already happened. I'm much more concerned with what will happen to prices in the year ahead. The current inflation rate is the slope of the line of the CPI graph, which is small right now.

 

[CarbonaNotGlue]

Nice to see the downward trend. Let’s hope it continues. Surprisingly, this forecasting site I’ve been following for the past year has been spot on. They nailed it again for October’s numbers. Hopefully, they get it wrong with their projected bounce back up slightly next September

 

[NW-Bound]

... Since core CPI is still hot, I don't expect the Fed to do a sudden reversal. Instead, the market is seeing a pause or easing, maybe not next month, but early next year.

The Fed is not done with spanking the naughty market.

From CNBC:

Federal Reserve officials welcomed Thursday’s news that inflation might have peaked, but cautioned against getting too excited by the data.

“It’s far from a victory,” San Francisco Fed President Mary Daly said.

Dallas Fed President Lorie Logan called the CPI report “a welcome relief” but noted more rate increases probably are coming, albeit at a slower pace.

From WSJ:

The October inflation report is likely to keep Federal Reserve officials on track to approve a half-percentage-point interest-rate increase next month, stepping down from the recent pace of unusually hefty rate rises...

 

[Samsung4321]

A minor statistical flutter.

Look at 1967 - 1983:

https://www.nytimes.com/2022/11/10/business/economy/october-inflation-data.html?smid=url-share

Inflation could halve then, after the 'All Clear' and relieved reduction of interest rates, redouble.

 

[Gumby]

The Fed is not done with spanking the naughty market. ....

Inflation fighting is like street fighting - once you knock him on the ground, you need to kick him in the head to make sure he stays there

 

[audreyh1]

Inflation fighting is like street fighting - once you knock him on the ground, you need to kick him in the head to make sure he stays there

Good one!

 

[youbet]

Nice to see the downward trend. Let’s hope it continues. Surprisingly, this forecasting site I’ve been following for the past year has been spot on. They nailed it again for October’s numbers. Hopefully, they get it wrong with their projected bounce back up slightly next September

That's kinda sad. With their "most likely" projection never making it down below 4%, and most of the time significantly above that for the next 12 months, it appears the same basket of goods I'm buying now will cost me a LOT more this time next year. Something we need to prepare for I guess.

 

[38Chevy454]

That's kinda sad. With their "most likely" projection never making it down below 4%, and most of the time significantly above that for the next 12 months, it appears the same basket of goods I'm buying now will cost me a LOT more this time next year. Something we need to prepare for I guess.

And therein lies the truth. Inflation rate is still higher than what everyone has been accustomed to. Also higher than what govt would like.

I am not happy about the increasing prices for almost everything I buy. Don't see that changing anytime in near future.

 

[Samsung4321]

not happy about the increasing prices for almost everything I buy.

As I don't buy much, I don't mind.

What I do mind is being taxed on imaginary (inflationary) returns when nominal income increases such that marginal tax rate increases from 0%.

With cessation of financial repression, bank deposit nominal interest rates will return to about:
= central_bank_cash_rate / (1 - highest_marginal_tax _rate) / (1 - inflation_rate)

 

[Koolau]

Captain: you have to dig into the numbers. Also keep in mind the year-over-year and month-over-month concepts.

Food is still hot at .6% month over month, extrapolated to over 7% per year. It just isn't as hot as it was, which is a good thing.

On the other side, used cars are showing their first significant drop at -2.4% month over month. Used cars are almost 4% of the CPI, so it has an important impact.

Looking even deeper, there are a whole host of "little stuff" items, with the biggest of them being smart phones (minus 6% MoM), showing significant drops. I believe this reflects the resolution of the shipping crunch, along with the decrease in consumer buying due to the pandemic easing, and less free cash.

See: https://www.bls.gov/news.release/pdf/cpi.pdf

As for the bond market knee-jerk reacting: well, they are doing what markets do and that is react hard and fast at first, then digest. The market will continue to adjust. Since core CPI is still hot, I don't expect the Fed to do a sudden reversal. Instead, the market is seeing a pause or easing, maybe not next month, but early next year.

Yes, personal inflation is so dependent on you buying habits. We are "down" one car (for the past year) but haven't even looked because used-car prices are insane. After that year, DW and I have all but decided not to replace the car. It will save a $grand/year on tags and insurance. We may even be able to rent out our parking spot for a $grand. How great is that?!

So NOT buying a car, means our personal inflation is actually reduced - especially since we're saving the fixed costs of the 2nd car. HUH??

 

[JoeWras]

Yes, personal inflation is so dependent on you buying habits. We are "down" one car (for the past year) but haven't even looked because used-car prices are insane. After that year, DW and I have all but decided not to replace the car. It will save a $grand/year on tags and insurance. We may even be able to rent out our parking spot for a $grand. How great is that?!

So NOT buying a car, means our personal inflation is actually reduced - especially since we're saving the fixed costs of the 2nd car. HUH??

Our cars are 12 and 13 years old, and we're sticking with them for now. It is a bit of a sacrifice since we don't have the latest bells and whistles.

I've been doing a lot of volunteer construction and a truck or van would be nice. Do I really need it, though? No, because I won't be doing this for more than 7 years or so.

Turns out I can rely on friends, use the pass-thru from the trunk, or just get materials delivered. I can have 100 Home Depot delivery charges and not even come close to the up-charge they are asking these days for these kind of vehicles. Plus it saves lifting.

 

[copyright1997reloaded]

I have no doubt that inflation will "moderate" in the upcoming months. While it might seem like it, that isn't the battle.

Inflation isn't just rising prices, it is how people behave. If their expectations are that prices will be higher, it will shift (increase) the demand curve, because of those expectations. That behavior did NOT exist in the 2012 to early 2020 timeframe (for many goods and services that had minimal/negative inflation due to technological advances and increased use of offshore labor). This recent inflation and supply disruption has (at least to some extent) changed our expectations.

Early this year my thesis was that inflation would run, followed by a moderation, followed by a pivot as the economy deteriorated, but that it (inflation) would run again if/when stimulus was reapplied. I said that (the pivot) would happen by year end (and then said maybe even by the election). I think that thesis is still in play (although not sure about the year end part).

We are starting to see an acceleration of layoffs and employment reductions, and there have been a ton of them (e.g. Facebook) which have occurred just in the last couple days ("coincidentally" announced post election).

Having said the above, my thesis could be wrong (eh, I've been wrong before). But so far I will be sticking with it, meaning no need to lock in long term rates (e.g. 10/20 year fixed), keep some inflation plays (hopefully companies with pricing power)/keep equities (about 50%), and so on.

 

[jldavid47]

Early this year my thesis was that inflation would run, followed by a moderation, followed by a pivot as the economy deteriorated, but that it (inflation) would run again if/when stimulus was reapplied. I said that (the pivot) would happen by year end (and then said maybe even by the election). I think that thesis is still in play (although not sure about the year end part).

This is pretty much what happened in the 1970s and why Powell and the Fed have been consistent in their messaging. Just because the rate of inflation appears to be slowing doesn't mean the Fed can declare victory. Arthur Burns made that mistake. Powell seems determined not to (although the Fed is likely to make other mistakes lol).

 

[CarbonaNotGlue]

For a more optimistic set of predictions, you can view the general consensus forecast as well as the most updated conference board forecast (just click on the available forecast to see it in the chart). The conference board forecast has inflation going under 3% during the 2nd quarter of 2023 and remaining there. Who knows which one of these will get it right going forward, but as I mentioned earlier, I’ve been following all for the past 18 months and the Moore inflation predictor has been the most accurate so far. Who knows if that will hold going forward, but just wanted to share some more optimistic projections by the various economists/think tanks.

Click here for the link to the forecasting site and you can click on all of the available forecasting data - https://econforecasting.com/forecast-cpi

 

[JoeWras]

Inflation isn't just rising prices, it is how people behave. If their expectations are that prices will be higher, it will shift (increase) the demand curve, because of those expectations. That behavior did NOT exist in the 2012 to early 2020 timeframe (for many goods and services that had minimal/negative inflation due to technological advances and increased use of offshore labor). This recent inflation and supply disruption has (at least to some extent) changed our expectations.

<snip>

We are starting to see an acceleration of layoffs and employment reductions, and there have been a ton of them (e.g. Facebook) which have occurred just in the last couple days ("coincidentally" announced post election).

Add into it the expectation for wage increases. That became very significant in the late 70s.

This time, especially in the tech world, increasing wages went for a wild ride the last few years. The expectation was increasing wages, RSUs, etc. Or job hop for a bigger gain.

The latest cooling on tech employment might temper the anticipation in that industry, but I think the wage-employment spiral is still very much more broadly in force and will push inflation for a while.

 

[CarbonaNotGlue]

Here is he latest Moore Inflation Predictor model, updated as of yesterday -

From the article “ Based on current projections, if all goes well, annual inflation could theoretically fall to 3% by next June. But that is unlikely… most likely, it will still be above 4%, which (although still high) is considerably better than over 8%.”

Read more of their analysis here - https://fintrend.com/charts/moore-inflation-predictor-mip/#Current

It’s trending in the right direction. Hopefully it stays that way.

 

[Montecfo]

Either 3% or 4% would be fabulous at that timing for spending and for stocks.

And of for bonds for those who have been extending durations.

No so much for ST bond investors.

 

[11522914]

Here is another reason to be wary of this recent CPI report.

https://wolfstreet.com/2022/11/10/s...gest-ever-adjustment-of-health-insurance-cpi/

Services Inflation Spiked to Second Highest in 4 Decades, Would Have Spiked to Highest, If Not Slowed by Biggest-Ever Mega-Adjustment of Health Insurance CPI

But there won’t be an adjustment for the Fed-favored “core PCE” price index that will come out before the next Fed meeting.

 

[Koolau]

Our cars are 12 and 13 years old, and we're sticking with them for now. It is a bit of a sacrifice since we don't have the latest bells and whistles.

I've been doing a lot of volunteer construction and a truck or van would be nice. Do I really need it, though? No, because I won't be doing this for more than 7 years or so.

Turns out I can rely on friends, use the pass-thru from the trunk, or just get materials delivered. I can have 100 Home Depot delivery charges and not even come close to the up-charge they are asking these days for these kind of vehicles. Plus it saves lifting.

Spoken like a true FIRE veteran! We know where to spend and we know where to save.

 

[MichaelB]

That's kinda sad. With their "most likely" projection never making it down below 4%, and most of the time significantly above that for the next 12 months, it appears the same basket of goods I'm buying now will cost me a LOT more this time next year. Something we need to prepare for I guess.

Next year and all that follow. That’s the thing about inflation - it’s stealthy and persistent. So, 7% last year, another 7% this year, 4-5% nest year. Not everyone feels that whole bite yet, including some ER Forum members, but this inflation will continue to work its way through the economy - for years to come - until it has reached every corner.

Hopefully, forum members who have enjoyed strong portfolio returns over the past decade have saved some of that excess return.

 

[11522914]

Spoken like a true FIRE veteran! We know where to spend and we know where to save.

Exactly. That's what makes this site far, far above anything else out there.

We all understand [emoji16]

 

[JoeWras]

Hopefully, forum members who have enjoyed strong portfolio returns over the past decade have saved some of that excess return.

I'm OK as long as I stay off the "Blow that Dough" thread.

 

[Koolau]

Here is another reason to be wary of this recent CPI report.

https://wolfstreet.com/2022/11/10/s...gest-ever-adjustment-of-health-insurance-cpi/

Services Inflation Spiked to Second Highest in 4 Decades, Would Have Spiked to Highest, If Not Slowed by Biggest-Ever Mega-Adjustment of Health Insurance CPI

But there won’t be an adjustment for the Fed-favored “core PCE” price index that will come out before the next Fed meeting.

Yeah, even if you trust the folks using "fudge factors" you might not trust the "fudge." I think using these factors to tweak things when everything is "normal" may be appropriate, but fudge factors get out of whack when the whole system is more or less out of control. I guess in a year or two, we'll see if anyone has called it right. As a glass-half-empty kinda guy, I'm convinced that only a fairly deep recession will "cure" the inflation disease. I hope I'm wrong.

 

[JoeWras]

I was wondering what was going on with health insurance. I'm still wondering, but it least the wild swings are explained. It was off the charts earlier, and now negative.

I'm not saying it is a conspiracy, please understand. I would just hope the BLS can fix this kind of problem, because it is a problem.

 

[NW-Bound]

I don't think anyone disputes the effect of various stimulus injections of money during the pandemic on the recent rise in inflation. The following WSJ video pointed out another factor: people could not spend money during the lockdown period, and they are now spending it down. The amount of extra savings during the pandemic is said to be $2.3 trillion.

We also know that many workers retire early. With fewer workers, the production of goods and services is reduced while the pent-up demand is released. Bingo, high inflation.

So, the Fed can be excused for thinking that this is "transitory". Perhaps it is, but it just stretches out longer than people expect. When people spend up their savings, there's no more where that comes from. No more inflation.

Here hoping that we will get back to normal in a year or so.