Latest Inflation Numbers and Discussion

[Gumby]

It would be a mistake to think that the Fed must somehow "even out" inflation, so that it averages 2% over a long period of time. The strategy is that, once inflation does vary from the goal rate (2% or whatever), they will take action to return it to the goal rate. They do not, nor should they, try to drive inflation below the 2% goal in order to somehow "compensate" those harmed by prior inflation. The Fed's mandates are to maintain order in the financial system, achieve maximum employment and keep prices stable. Their mandate is not to save GenXGuy's (or mine or anyone else's) retirement. They are necessarily forward looking and consider the past only as a tool for helping predict the future.

 

[GenXguy]

They do seek a 2% average, based on the info on their website.

https://www.early-retirement.org/fo...ers-and-discussion-120454-17.html#post3063149

By seeking inflation that averages 2 percent over time, the FOMC will help to ensure longer-run inflation expectations remain well anchored at 2 percent.

 

[Gumby]

Believe what you want, but they are not going to drive inflation to zero to help you out of a jam. As I said, they look forward, not backwards. I think they would be most pleased to have the PCE rate asymptotically slide into 2% and stick there.

 

[CaptTom]

Yes, but if we have a starting point of Jan 2020, (pre-covid) to Feb 2024, according to BLS CPI data it takes $120.29 to buy in Feb 2024 what you could buy for $100 in Jan 2020. That is an average annual rate of 4.63%.

IMO, bad, but not outrageously bad. IOW, if during that 4 year period inflation had been 4.63% annually then there would be a lot less outrage than there is.

If inflation really had been 4.63% over that time period there would be less outrage, too. There are very few things which have "only" gone up 4.63%. If I had to guess, the true rate of inflation over that time period is probably between 20% and 40%. Off-hand, I can think of many, many products which went up a lot more. Some have doubled or even tripled.

...I saw prices going up faster than inflation for so many of my big bills even when inflation was supposedly low based on the gub'ment figures.

Exactly. Anyone who actually participates in the economy can see first-hand how wrong these figures are. I ask myself, who am I going to believe, the economists and politicians isolated in their ivory towers and political offices, or the consumers who are out there actually making purchases?

 

[Gumby]

If it comes down to believing the CPI and the attendant inflation rate as calculated by the BLS or believing the anecdotes of posters on this board, I'll stick with the BLS.

 

[frank05]

Snuffing out the competition. Look what OPEC did with oil for that reason. Also, if you sell a lot more of a product by lowering the price, you could still come out ahead in profits.

Or you could be Apple which in the global cell phone market only sold 18% of cell phones but garnered 85% of the profits.

 

[GenXguy]

Believe what you want, but they are not going to drive inflation to zero to help you out of a jam. As I said, they look forward, not backwards. I think they would be most pleased to have the PCE rate asymptotically slide into 2% and stick there.

Note, I didn't say they would drive inflation to zero. I know they don't want to risk deflation. They do look back some, which was their reason for "letting inflation run hot" a while back, and then they got us into big trouble with high inflation by lack of timely and sufficient response.

 

[MichaelB]

If inflation really had been 4.63% over that time period there would be less outrage, too. There are very few things which have "only" gone up 4.63%. If I had to guess, the true rate of inflation over that time period is probably between 20% and 40%. Off-hand, I can think of many, many products which went up a lot more. Some have doubled or even tripled.

Well, BLS reported around 20% cumulative over that time. It could be a few points more, but It’s not possible for the CPI to have been 40%, or even 30%. If it were 30% it would mean our 2023 economy would have been $2.7 trillion smaller in real terms. This means real output was 10% lower, which equates to millions of jobs. Those people are working, earning, spending, and paying tax, and we see and measure all that. We can measure their employment, production, spending, payroll taxes paid, banking activity. Our 2023 GDP is real, and that means the CPI has to be pretty close to the numbers published.

Many products have risen in price. CPI measures the overall price level of the economy, not the average of individual prices. So, while I have no doubt you do see 40% price hikes, there are many other price changes you aren’t seeing.

 

[pb4uski]

If it comes down to believing the CPI and the attendant inflation rate as calculated by the BLS or believing the anecdotes of posters on this board, I'll stick with the BLS.

+1. While I don't doubt the posters feel that way, I'm skeptical that that's their reality.

 

[Aerides]

Yes, but if we have a starting point of Jan 2020, (pre-covid) to Feb 2024, according to BLS CPI data it takes $120.29 to buy in Feb 2024 what you could buy for $100 in Jan 2020. That is an average annual rate of 4.63%.

IMO, bad, but not outrageously bad. IOW, if during that 4 year period inflation had been 4.63% annually then there would be a lot less outrage than there is.

And if you have a starting point of say 2017, you'd find it was even better (flatter). It's all very easy to look at the start of a hill and say wow that's so high, but it's usually only looks that way after trekking across a valley or plains.

 

[Turbo29]

Note, I didn't say they would drive inflation to zero. I know they don't want to risk deflation. They do look back some, which was their reason for "letting inflation run hot" a while back, and then they got us into big trouble with high inflation by lack of timely and sufficient response.

Exactly. That's what the Fed said a few years back. In 2020 they said that as inflation had run less than 2% since the financial crisis they were going to allow it to run higher than 2% for a while. That looks like "looking back" to me.

 

[MichaelB]

Exactly. That's what the Fed said a few years back. In 2020 they said that as inflation had run less than 2% since the financial crisis they were going to allow it to run higher than 2% for a while. That looks like "looking back" to me.

They did say that, I remember it clearly. They were concerned at the risk of deflation, the economy had spent too long a time close too the zero lower bound.

The Fed will not do the same for inflation because, in its judgement, the risk of 1% too much inflation is less than the risk of 1% too little inflation.

 

[Gumby]

They did say that, I remember it clearly. They were concerned at the risk of deflation, the economy had spent too long a time close too the zero lower bound.

The Fed will not do the same for inflation because, in its judgement, the risk of 1% too much inflation is less than the risk of 1% too little inflation.

Yes, those were the days when some nations in Europe had negative interest rates, which are never good for an economy.

 

[GenXguy]

And if you have a starting point of say 2017, you'd find it was even better (flatter). It's all very easy to look at the start of a hill and say wow that's so high, but it's usually only looks that way after trekking across a valley or plains.

Someone mentioned that inflation was close to 3% over the long term, which is 50% higher than the Fed's 2% target, so you can go back further than the recent big spikes to see we have been trending too high over the long term as well. But since my concern is since the pandemic, I'm going to focus more on this time period starting with the pandemic. But indeed, we were already running a little high over the long term.

Of course, as noted, I always saw much higher increases on my largest expenses than the gub'ment figures, such as 25% increase in homeowner's insurance and 22% increase in car insurance in one year. And a big part of my budget for this time period is home maintenance services and supplies, and those prices have skyrocketed even more than that since the pandemic. I wish I was only looking at official gub'ment figures instead of reality. A drop in the price of the eggs temporarily doesn't make a dent on my total real costs.

The Fed will not do the same for inflation because, in its judgement, the risk of 1% too much inflation is less than the risk of 1% too little inflation.

I would like us to take our chances with a little more risk on the lower side of inflation after the big run up. Think of it as a correction.

 

[Gumby]

In the 12 years prior to the 2021 run up, the compound annual inflation rate was only 1.8%.

CPI Jan 2009 = 211.143
CPI Jan 2021 = 261.582

Annual Inflation rate % = (12 √(261.582/211.143))-1)x100 = 1.8%

Source: https://www.usinflationcalculator.c...and-annual-percent-changes-from-1913-to-2008/

You're entitled to your own opinions, but not your own facts.

 

[Turbo29]

CPI Jan 2009 = 211.143
CPI Jan 2024 = 308.417


(308.417/211.143)^(1/15)=1.02558 or 2.56% for the last 15yr.

When depending on facts of this nature, the starting and ending points matter. What a difference 3yr makes.

 

[Gumby]

CPI Jan 2009 = 211.143
CPI Jan 2024 = 308.417


(308.417/211.143)^(1/15)=1.02558 or 2.56%


When depending on facts of this nature, the starting and ending points matter.

I don't know what point you think you're making.

The claim was that inflation was running high BEFORE the pandemic.

... I'm going to focus more on this time period starting with the pandemic. But indeed, we were already running a little high over the long term....

That is just not true.

 

[Turbo29]

I don't know what point you think you're making.

The claim was that inflation was running high BEFORE the pandemic.

That is just not true.

I agree, inflation was basically a non-issue before the pandemic. Just shows how 12yr of mostly responsible management can be undone by a few years of mismanagement, high spending, and monetary diarrhea.

 

[GenXguy]

In the 12 years prior to the 2021 run up, the compound annual inflation rate was only 1.8%.

CPI Jan 2009 = 211.143
CPI Jan 2021 = 261.582

Annual Inflation rate % = (12 √(261.582/211.143))-1)x100 = 1.8%

Source: https://www.usinflationcalculator.c...and-annual-percent-changes-from-1913-to-2008/

You're entitled to your own opinions, but not your own facts.

This looks like cherry picking trying to find a range where inflation was lower. But in fact, it was someone else, not me, that posted the higher inflation figure over the long term, and it was much longer than 12 years. I assumed they were posting actual facts, they were not "my" facts. Just an FYI.

CPI Jan 2009 = 211.143
CPI Jan 2024 = 308.417

(308.417/211.143)^(1/15)=1.02558 or 2.56% for the last 15yr.

When depending on facts of this nature, the starting and ending points matter. What a difference 3yr makes.

That sounds more like it, but I know someone posted a figure for an even longer time frame that I'm pretty sure was closer to 3%. I don't feel like going back through the posts to find it right now. But I think we could use a correction of lower inflation at this point, especially when factoring in real word inflation that I've been seeing.

 

[Gumby]

This looks like cherry picking trying to find a range where inflation was lower. But in fact, it was someone else, not me, that posted the higher inflation figure over the long term, and it was much longer than 12 years. I assumed they were posting actual facts, they were not "my" facts.
That sounds more like it, but I know someone posted a figure for an even longer time frame that I'm pretty sure was closer to 3%. I don't feel like going back through the posts to find it right now. But I think we could use a correction of lower inflation at this point, especially when factoring in real word inflation that I've been seeing.

I went back to the end of the Great Recession because that seemed a logical point for the current discussion. Earlier (in this post https://www.early-retirement.org/fo...rs-and-discussion-120454-15.html#post30628130) I did calculate compound annual inflation back to May 1981, the month I graduated from college and it was 2.94%, to point out that the inflation rates between the Great Recession and the Covid pandemic were unusually low.

Do you know when the Fed adopted the 2% inflation target? Most people don't, so I'll just tell you. It was in 2012. Before that, they had no inflation target at all, let alone a 2% one. Nothing that occurred before 2012 has anything to do with whether inflation was "above the Fed's target," because there was none.

Here's an article discussing how the 2% target was adopted.

https://time.com/6548908/inflation-target-federal-reserve-essay/

 

[GenXguy]

I went back to the end of the Great Recession because that seemed a logical point for the current discussion. Earlier (in this post https://www.early-retirement.org/fo...rs-and-discussion-120454-15.html#post30628130) I did calculate compound annual inflation back to May 1981, the month I graduated from college and it was 2.94% to point out that the inflation rates between the Great Recession and the Covid pandemic were unusually low.

Do you know when the Fed adopted the 2% inflation target? Most people don't, so I'll just tell you. It was in 2012. Before that, they had no inflation target at all, let alone a 2% one. Nothing that occurred before 2012 has anything to do with whether inflation was "above the Fed's target," because there was none.

Here's an article discussing how the 2% target was adopted.

https://time.com/6548908/inflation-target-federal-reserve-essay/

OK, I knew I had seen it somewhere. Although your link to the post isn't working, you provided the relevant detail here.

 

[Montecfo]

The 2% target is relatively new. I would not be surprised to see a new higher target and I see folks calling for this.

 

[Car-Guy]

^^^^^
I wouldn't be surprise. It will be interesting if JP starts suggesting that at some point in the near future.

 

[audreyh1]

Do you know when the Fed adopted the 2% inflation target? Most people don't, so I'll just tell you. It was in 2012. Before that, they had no inflation target at all, let alone a 2% one. Nothing that occurred before 2012 has anything to do with whether inflation was "above the Fed's target," because there was none.

I remember that change very well.

I remember being shocked after decades of no target/refusing to discuss targets.

 

[Surewhitey]

Sprouts is insanely more than any other place I frequent, except for the manager's specials. Spent $7.50 on 2 heads of purple cauliflower, 5 apples, 2lbs of pears & 2 red bell peppers. Mostly organic to boot.

I can't remember only spending this much anywhere these days.