Latest Inflation Numbers and Discussion

[MichaelB]

I think a little "maintaining the level" would be a very good thing.

The rates aren't crazy now. People got used to free money. 2009 reinforced the idea that after a quick raise, the rates will crash to zero again. Really, we don't want that because it is bad news. We want stability, then a slow drift down to balance inflation in the 2 to 3 percent range.

Totally agree that the “free money”, or zero bound rates, are unhealthy. They indicate a serious imbalance in the economy.

We should expect rates to remain at their current level until the economy slows so much it begins to contract or show signs of falling back to 0. Once inflation stabilizes, though, if real rates are too high they could be reduced. That’s critical for a heavily leveraged economy such as ours.

 

[Montecfo]

There was a very good interview with Chicago Fed President Austan Goolsbee in todays FT. It’s behind a paywall, here. He didn’t mince words.

Not a fan of his but this seems spot on.

 

[MichaelB]

The Employment Cost Index for the 3Q was released today (here). This is the most precise measure of compensation cost and change, and is also the Fed’s preferred measure.

For the 3 months ending in September total costs were up 1.1% and for the 12 months ending September total costs were up 4.3%. Below is a nice graph by Jason Furman.

This index shows compensation cost is still growing, the YoY rate of growth is slowing, the current rate of growth would be compatible with inflation somewhere between 3%-4%

 

[GenXguy]

Yeah, anything where you "must" buy something will send your personal inflation rate to the moon. It's "easy" to cut back on eating out but not so easy to wait to repair a broken drain pipe. (I know form personal experience on the latter.) YMMV

Well, it depends. YMMV for certain. For me, it's not easy to cut back on eating out because I basically almost never do it, especially with inflation and wages being so high driving up prices for eating out. So what I do spend eating out is insignificant.

 

[audreyh1]

No Fed rate increase today. I was kind expecting another 0.25% due to recent strong economic numbers.

I haven’t watched the press conference.

 

[Car-Guy]

Powell just finished his talk and Q&A's. Sounded to me like another future rate hike is still on the table but "only maybe" now. (More data needed of course) Holding rates "as is" sounded more probable near term and rate cuts maybe even a little further out than I was thinking before this meeting. So sounds to me like "holding steady" for a while is the name of the game. How long is a while?

 

[aja8888]

Powell just finished his talk and Q&A's. Sounded to me like another future rate hike is still on the table but "only maybe" now. (More data needed of course) Holding rates "as is" sounded more probable near term and rate cuts maybe even a little further out than I was thinking before this meeting. So sounds to me like "holding steady" for a while is the name of the game. How long is a while?

Inflation is here to stay for a while. I read McDonald's CEO comments about their terrific quarter and he boasted about how well their price increases were absorbed by the masses. So maybe they will push prices higher?

It's stuff like this that keeps the inflation flames burning.

 

[Car-Guy]

I think you are right but a few extra bucks for a couple of burgers doesn't really faze me (other than to complain) but an extra 30 or 40k for a new vehicle does make me pause. Of course YMMV

 

[Montecfo]

No Fed rate increase today. I was kind expecting another 0.25% due to recent strong economic numbers.

I haven’t watched the press conference.

Everything the Fed does is well signaled. The no change has been baked in the cake for quite a while.

 

[MichaelB]

Inflation is here to stay for a while. I read McDonald's CEO comments about their terrific quarter and he boasted about how well their price increases were absorbed by the masses. So maybe they will push prices higher?

It's stuff like this that keeps the inflation flames burning.

I think you make a good point - inflation is here to stay. For a couple of decades business was reluctant to raise prices, afraid of losing business. They learned during the pandemic that they can raise prices and still grow, or at least not lose business.

Businesses raising prices was the norm for most of the second half of the 20th century. It could be we are returning to than norm.

 

[bobandsherry]

I think you make a good point - inflation is here to stay. For a couple of decades business was reluctant to raise prices, afraid of losing business. They learned during the pandemic that they can raise prices and still grow, or at least not lose business.



Businesses raising prices was the norm for most of the second half of the 20th century. It could be we are returning to than norm.

Not so much inflation here to stay, that would indicate prices continue to rise. Rather the results of prior inflation are here to stay, prices not decreasing which wouldn't be a good economic indicator either.

 

[audreyh1]

Everything the Fed does is well signaled. The no change has been baked in the cake for quite a while.

Been traveling and not paying much attention recently.

Rates dropped considerably today for intermediate and long treasuries.

 

[JoeWras]

I think you are right but a few extra bucks for a couple of burgers doesn't really faze me (other than to complain) but an extra 30 or 40k for a new vehicle does make me pause. Of course YMMV

The following comment is on ICE cars, not EVs. The EV market is still going through growing pains and fluctuating until it finds a level.

Yes, same can be said about auto makers. Customers were not fazed.

There is hope at the dealer level, though. They added stuff like the $999 prep fees, ADM, etc. Some of those are disappearing and people are even reporting dealing below MSRP, depending on brand and model. Supply on lots is now back to March 2021 levels which was right at the cusp of the supply crisis showing.

Lowering MSRP is highly unlikely, excepting Tesla and possibly other EVs.

 

[GenXguy]

No Fed rate increase today. I was kind expecting another 0.25% due to recent strong economic numbers.

Yeah, pretty disappointing they are not doing a good job bringing down inflation - it's still wayyyy above the target 2% year over year. And all this inflation that's built into current prices is never going away, even if inflation ever returns to the 2% target. Prices will till be very high.

Not so much inflation here to stay, that would indicate prices continue to rise. Rather the results of prior inflation are here to stay, prices not decreasing which wouldn't be a good economic indicator either.

No, both. High prices are here to stay, and inflation will continue to increase prices on average over time, even if we get an occasional decrease in some prices. It's unlikely we are ever going to see sustained 0% inflation or deflation, so be prepared for prices to keep going up on average as the years pass.

 

[Montecfo]

I am seeing more credible folks suggesting recession and lower rates may arrive rather soon.

Jeffery Gundlach cited hiring trends and recent steepening of the 2-10 yield curve in predicting recession beginning early next year.

https://www.cnbc.com/2023/11/01/gun...to-fall-as-recession-lands-in-early-2024.html

 

[bobandsherry]

Yeah, pretty disappointing they are not doing a good job bringing down inflation - it's still wayyyy above the target 2% year over year. And all this inflation that's built into current prices is never going away, even if inflation ever returns to the 2% target. Prices will till be very high.

Not sure where the fed pulls 2% target from. Over the past 50 years inflation has averaged above 3%. Inflation over the past 25 years has been close to 4%. And over the past 25 years inflation has been above 2% for 15 of those years. So not sure why fed sets 2% and expects that to be valid target.

No, both. High prices are here to stay, and inflation will continue to increase prices on average over time, even if we get an occasional decrease in some prices. It's unlikely we are ever going to see sustained 0% inflation or deflation, so be prepared for prices to keep going up on average as the years pass.

Yeah, my bad, I meant to say high inflation. But I guess who determines what's high?

 

[bobandsherry]

I am seeing more credible folks suggesting recession and lower rates may arrive rather soon.

Jeffery Gundlach cited hiring trends and recent steepening of the 2-10 yield curve in predicting recession beginning early next year.

https://www.cnbc.com/2023/11/01/gun...to-fall-as-recession-lands-in-early-2024.html

I saw credible folks suggesting we'd be in a recession once we hit inverted yield curve.... And then by early 2022, then mid 2022, then late 2022, then definitely by early 2023 and well, you get the point. These people are credible until the facts prove them wrong. And few, if any, of them step forward to acknowledge how wrong they were.

 

[TheCaptain67]

Inflation is here to stay for a while. I read McDonald's CEO comments about their terrific quarter and he boasted about how well their price increases were absorbed by the masses. So maybe they will push prices higher?

McDonald's expects to raise menu prices by about 10% this year — on top of a 10% increase last year……
https://apple.news/AhD6BobhLQ6OOTeNlpEGDnQ

 

[Montecfo]

I saw credible folks suggesting we'd be in a recession once we hit inverted yield curve.... And then by early 2022, then mid 2022, then late 2022, then definitely by early 2023 and well, you get the point. These people are credible until the facts prove them wrong. And few, if any, of them step forward to acknowledge how wrong they were.

Yeah I don't think anyone suggested the inverted yield curve would mean immediate recession. That has certainly not been the pattern.

I just think Gundlach is not a pundit per se. And you have JPow forecasting it. These are not talking heads, but of course they could be wrong.

But when the oft-predicted recession does arrive, if it does, many will still be caught off guard.

 

[Markola]

I’m hearing various market forecasters, including on the Goldman Sachs podcast today, counting heavily on economic growth from AI saving our bacon for the next decade.

 

[USGrant1962]

Not sure where the fed pulls 2% target from. Over the past 50 years inflation has averaged above 3%. Inflation over the past 25 years has been close to 4%. And over the past 25 years inflation has been above 2% for 15 of those years. So not sure why fed sets 2% and expects that to be valid target.
...

Your numbers look off to me. First, any inflation data that starts 50 years go is starting with the biggest inflation event in US history, and so is grossly distorted. Why ignore the 50 years of relatively low average, though highly variable, inflation before that? It was well below 2% for 50 years prior to the early 1970s.

But, your claimed almost 4% over 25 years is what caught my eye. It seems wrong.

One calculator I found says we had 2.14% annualized over the last 25 years before the current spike (Feb 1996 to Feb 2021). 2.00% seems like a reasonable target to me. https://www.calculator.net/inflatio...2&coutyear1=2021&calctype=1&x=Calculate#uscpi

Even including the current inflation, we only see an average of 2.56% over 25 years. https://www.calculator.net/inflatio...9&coutyear1=2023&calctype=1&x=Calculate#uscpi

If your source is just doing (CPI2023-CPI1998)/25 it is ignoring compounding and doing the math wrong. The quote attributed to Einstein:

Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.

also unfortunately applies to inflation. A 2% annual target, COMPOUNDED, really adds up.

 

[audreyh1]

Cumulative inflation by decade from inflation data.com

Long term average 1913-2020 is 3.10%. Looks like they haven’t updated past 2020 yet.

This handy chart shows by decade.

I believe the 2% target comes from the lowest inflation that seems historically to allow economic growth. Below that economic stagnation or misery usually occurs. So this indicates that in developed countries you need a little bit of inflation to feel OK economically. We are also generally dependent on an expanding population, so there are challenges.

 

[bobandsherry]

Your numbers look off to me. First, any inflation data that starts 50 years go is starting with the biggest inflation event in US history, and so is grossly distorted. Why ignore the 50 years of relatively low average, though highly variable, inflation before that? It was well below 2% for 50 years prior to the early 1970s.



But, your claimed almost 4% over 25 years is what caught my eye. It seems wrong.



One calculator I found says we had 2.14% annualized over the last 25 years before the current spike (Feb 1996 to Feb 2021). 2.00% seems like a reasonable target to me. https://www.calculator.net/inflatio...2&coutyear1=2021&calctype=1&x=Calculate#uscpi



Even including the current inflation, we only see an average of 2.56% over 25 years. https://www.calculator.net/inflatio...9&coutyear1=2023&calctype=1&x=Calculate#uscpi



If your source is just doing (CPI2023-CPI1998)/25 it is ignoring compounding and doing the math wrong. The quote attributed to Einstein:







also unfortunately applies to inflation. A 2% annual target, COMPOUNDED, really adds up.

I just asked Bing to summarize and report. They referenced this as one source.

https://www.worlddata.info/america/...tion period from,year inflation rate was 3.7%.

I didn't calculate and compute, figured Bing would be close enough.

I selected last 50 years as it probably more reflective of current economic and political scene than the prior 50 years. I also summarized the other periods and saw similar rates so just called it a day. I assume what Bing provided was close enough for government work. However feel free to do more analysis.

 

[GravitySucks]

I believe we’re in for a run of inflation well over 2%. Financing a few proxy wars with debt, less people in the labor pool, re-shoring critical industries, and there’s still pent up demand out there from 2020. I also don’t think there’s an appetite to really stomp down on Main Street with 10+% interest rates if inflation runs 3 to 5%.

As always- just my opinion. YMMV

 

[audreyh1]

The 5 yr TIPS I bought recently has an inflation break even rate of 2.51%. We’ll see if inflation exceeds or goes lower on average over the next 5 years. I’m inclined to think it will exceed, but maybe by just a little.