Latest Inflation Numbers and Discussion

[Gumby]

Back in the days of Paul Volcker, it took 34 months to go from the peak of 14.2% to 3.5% inflation. We're not even at the one year point from the recent peak.

 

[Beststash]

Industrial chemist since 1972, actually worked in the industry since 1966. My guess, price gouging by everyone involved, they had tons of stock. My guess, they will do it until they can't. Yea, getting very cynical in my old age.
Oldmike

Sounds more like realism than cynicism to me. Prices will not fall because corporations are concerned about inflation.

 

[GenXguy]

It "feels" much higher, but my mix of goods and services is (admittedly) different from the CPI-U mix for calculation.

Some things lately have simply blown me away. One mechanic I've used because they are close wanted $95 to patch a nail hole in a tire. Say WHAT? (Got it free at a tire store apparently where it was originally purchased.) But airfare to the mainland was up 50% this year. That's an extra grand I wasn't planning on.

Insurance of all kinds is up - way up.

Heh, heh, Vanguard wants $25/account for mailing me stuff.

ON and on. Sorry, just venting - again.

Yes, not only "feels" higher, what I'm seeing is higher. I just paid my two highest annual bills, for property tax and insurance. And they were up double digits, well above the gubmint artificially low figures, which are still double or so the target rate. That's not good news, and we know it's really higher.

I read a comment from someone about rent being down, which was interesting, because I just saw a newly posted article stating the opposite.

Other costs, especially rent, are still climbing.

and another place

Rent continued rising rapidly at 0.5% in May and 8.7% on a yearly basis.

And NBC national news just said rent was up 8.7% year over year as well.

Gas is still way up from what it was in 2020, and the only food price I've seen drop (excluding sales) has been eggs, but that's only because they were so highly inflated due to Avian flu issues, so I don't like to include that outsider.

I hate to see the Fed tap the brakes when they were so late to the game with inflation still double what the target rate is on top of the massive inflation we've already had the last couple years, with the economy still roaring along.

 

[Koolau]

Well, “these guys” have managed to cut inflation in half and get it to just above 4% without a recession. That’s quite an achievement, one which no one thought possible a year ago. I’m don’t remember the last time the Fed was able to do that.

So far. And I sincerely hope you are right and I am wrong. Sincerely!

 

[MichaelB]

And they did it in an era of stimulative federal spending and lingering COVID related benefits.

Indeed, and the inflation we had was overwhelmingly caused by the fiscal spending, not monetary policy, but no one at the Fed complained.

Back in the days of Paul Volcker, it took 34 months to go from the peak of 14.2% to 3.5% inflation. We're not even at the one year point from the recent peak.

Yes, 34 months and a world of hurt. Unemployment rose to over 10%, putting 11 million people out of work.

 

[Koolau]

Let's remember he was saying over two years ago, that inflation was transitory and kept rates "near" zero. I "guess" transitory is really a relative term.


Of course I don't think I could have done any better. My crystal ball is really cloudy and I was never a good dart player.

Yeah, I sorta picked up on all the Yellen yellin' too and maybe I expect too much of the Feds. BUT, even if they've done a good j*b fixing the problem (based on Michael B's post, I'll now withhold judgment), I consider the Feds the main reason we have the problem.

True enough, fiscal policy is in play (not to mention that thing called Covid) but I expect the Feds to mind the store before it gets robbed. When administrations dump trillions of dollars into the economy, the Feds gotta know that the path for inflation has been laid out. A quick quarter point would have alerted the helicopter-money-droppers to slow it down a bit. Even though much of the money from heaven was authorized by Congress, the administration has a lot of discretion on how quickly it is to be unleashed from the air.

As usual, I have now told you way more than I know, so treat accordingly as YMMV.

 

[Koolau]

Indeed, and the inflation we had was overwhelmingly caused by the fiscal spending, not monetary policy, but no one at the Fed complained.


Yes, 34 months and a world of hurt. Unemployment rose to over 10%, putting 11 million people out of work.

Ripping the bandage off.

 

[Dtail]

Back in the days of Paul Volcker, it took 34 months to go from the peak of 14.2% to 3.5% inflation. We're not even at the one year point from the recent peak.

Certain folks get overly positive reputations over time.

 

[Koolau]

Certain folks get overly positive reputations over time.

Ya know, they sure do.

 

[JoeWras]

I see people say inflation "feels higher." This is usually when Gumby comes in and gives the numbers as they are, and he's right. The numbers don't lie.

But I think for us -- retirees -- the feeling comes from important factors. The first one being that many of us own our own home free and clear. Therefore, a full 1/3 of the CPI index does not apply to us. It doesn't matter what "shelter" does, for the most part, and how we feel about it.

We do care about services. We're at a time in life where maybe we let someone else cut the grass. Maybe some of our socialization is going out to have our hair done. We enjoy socializing by eating out. We care about the look of our home and hire people to fix it up.

We don't care about work clothes, and maybe a little less about gasoline due to a lack of commute.

We do care about insurance of all kinds. We care about eating out. We care about our automobiles. All are being hit with continued increases.

There's a "personal rate," and I'll add that there's a "demographic rate" too.

When you drill down the numbers looking for high hitter items, the one that pops out at me is motor vehicle insurance which is 2.0% month to month and 17.1% year over year. Ouch! No wonder threads have been opened for that item.

Car insurance is not the same as flour, which is also year over year at 17.1%. I mean, car insurance is a real, tangible, important portion of my spending each year. I notice it, and my eyes continue to pop out of my head.

 

[Koolau]

I see people say inflation "feels higher." This is usually when Gumby comes in and gives the numbers as they are, and he's right. The numbers don't lie.

But I think for us -- retirees -- the feeling comes from important factors. The first one being that many of us own our own home free and clear. Therefore, a full 1/3 of the CPI index does not apply to us. It doesn't matter what "shelter" does, for the most part, and how we feel about it.

We do care about services. We're at a time in life where maybe we let someone else cut the grass. Maybe some of our socialization is going out to have our hair done. We enjoy socializing by eating out. We care about the look of our home and hire people to fix it up.

We don't care about work clothes, and maybe a little less about gasoline due to a lack of commute.

We do care about insurance of all kinds. We care about eating out. We care about our automobiles. All are being hit with continued increases.

There's a "personal rate," and I'll add that there's a "demographic rate" too.

When you drill down the numbers looking for high hitter items, the one that pops out at me is motor vehicle insurance which is 2.0% month to month and 17.1% year over year. Ouch! No wonder threads have been opened for that item.

Car insurance is not the same as flour, which is also year over year at 17.1%. I mean, car insurance is a real, tangible, important portion of my spending each year. I notice it, and my eyes continue to pop out of my head.

Well said.

I've also heard it stated that we each have our own rate of inflation. Old people like me consume a lot of health care. It's sky rocketed, even though I have MC and a supplement. Both cost more and now have higher deductibles and co-pays. We need more "service" from (as you point out - lawn care) to handy man to Vanguard sending paper reports

I submit (without evidence) that my current inflation is way more than 4%. As usual, all the normal people have 4% inflation right now.

 

[madatrub]

Speaking of other CPI influences, like services, CNBC reported that healthcare dropped 20% ? How on earth is that possible?

 

[GenXguy]

Speaking of other CPI influences, like services, CNBC reported that healthcare dropped 20% ? How on earth is that possible?

I assume that's actual health services, but is that insurance negotiated prices, Medicare services pricing, non-insured pricing?

Insurance sure seems to be going up. I've always had good coverage through my employer. But my health care deductible is 400% of what it was last year.

That's with the same insurance company, same employer, higher premiums, same co-insurance. I've heard rumors from management that could be 800% next year of what it was last year!

Oh, and that's for services through local hospital system, it's even higher for "in network" and higher yet for "out of network".

 

[madatrub]

Not sure, here's the blurb on it by Brian Sullivan. He mentioned it during his show

https://twitter.com/x/status/1668696596853190656

This includes the bls calc.

 

[RobLJ]

Well, “these guys” have managed to cut inflation in half and get it to just above 4% without a recession. That’s quite an achievement, one which no one thought possible a year ago. I’m don’t remember the last time the Fed was able to do that.

My fear is that the Fed will keep raising to force a recession. My view is that the US, largely based on demographics, is in a long-term disinflation curve. This was interrupted by COVID and the supply chain (and yes fiscal policy to avoid a depression in COVID, so I'll throw a bone to the doomers on here). But I fear deflation a lot more than continued inflation, which has been painful. The most recent numbers indicate that yes indeed, inflation is going down, and that a good part of it was supply-chain, COVID, and suppressed demand as well as energy which was primarily impacted by the banks and market refusing to fund drillers who continually leveraged up in the face of the last 3 downturns and reneged on their easy money bonds.



As a rant on gasoline prices, you now will have to show a positive cash flow if you are a driller, which is long past due; it should have happened 12 years ago but didn't; the COVID crash finally burned the banks and bond market for the 3rd time in 15 years. I grew up in the oil patch and worked in Houston, so energy prices here in the US were subsidized by cheap lending that went bankrupt in the crashes. I couldn't believe the banks and markets kept bankrolling it, but they did. No more. Essentially, stupid banks and the bond market were subsidizing your gasoline price for the last 20 years. Daddy Warbucks ran out of money to waste in wildcatters. If you read the presentations of US drillers now, they are all about positive cash flow, which is as it should be. Go back and read Chesapeake's presentations 10 years ago, for a laugh; they were negative cash flow and leveraging to the hilt.Small wonder the CEO ran his car into a wall outside of Tulsa. Natural gas prices, however, will stay low, since the Ukraine/Europe demand is increasingly contained, although the US will be exporting LNG increasingly to Europe, which will keep a bottom on natty gas. The temperate winter helped in Europe and the Eastern US (it was cold here in the West US)


Due to our having EV and PHEV, solar panels, and not being able to splurge on travel during COVID, actually inflation hasn't affected us much, but I'm quite aware that it has affected most, painfully. If the market had been affected more, we would have felt it, a lot more than inflation. I'm aware that we are not the norm here on the blawg or elsewhere.
I painfully remember the Volker years in my 20s and this inflation is not your father's Volker inflation. Sorry.

 

[JoeWras]

Speaking of other CPI influences, like services, CNBC reported that healthcare dropped 20% ? How on earth is that possible?

Not sure, here's the blurb on it by Brian Sullivan. He mentioned it during his show

https://twitter.com/x/status/1668696596853190656

This includes the bls calc.

Yes, I've discussed this upstream. Upshot? Expect heath insurance CPI to be negative until October 2023.

Just like people complain about how "shelter" doesn't reflect today's reality, you can say the same about this component. What we are seeing is twofold:
- A lag from 18 months ago
- A change in the way BLS computes the component

The computation is... uh... interesting. It essentially removes part of the profits from the expense. I don't completely understand this because perhaps we should remove retained earnings (profits) from car manufacturers too?

In any case, for detailed reading from the BLS, look here:
https://www.bls.gov/cpi/factsheets/medical-care.htm#A2

An easier to understand is this article from CNBC:
CNBC How Health Insurance Is Helping To Cool Inflation

 

[jldavid47]

So, is it possible (or even helpful) to do an estimate of the CPI-W change using the 2Q2022 3 month average vs 2Q2023 Estimated Average ??

CPI-W From BLS Website
April May June Average
2022 284.575 288.022 292.542 ~288.3
2023 297.730

https://www.ssa.gov/oact/STATS/cpiw.html

The April/May/June average is irrelevant. The calculation for Social Security purposes is done using the CPI-W index averages for the 3rd quarter (July/August/September) year over year. The 3rd quarter average for 3Q2022 was 291.901. What the 3Q2023 average will be is anyone's guess. We'll know in mid-October.

 

[jldavid47]

I see people say inflation "feels higher." This is usually when Gumby comes in and gives the numbers as they are, and he's right. The numbers don't lie.

Figures don't lie but liars figure.

The CPI indexes are based on a large number of calculations and assumptions. The final number is whatever it is. If the assumptions or calculations (such as Owners Equivalent Rent) are bad (or worse, manipulated) then the final number is a fiction. If the assumptions are good, then the final number is valid. But to think that the CPI indexes reveal some kind of "truth" just because "numbers don't lie" is simply laughable.

 

[JoeWras]

But to think that the CPI indexes reveal some kind of "truth" just because "numbers don't lie" is simply laughable.

So you mean to tell me that the calculation for health insurance is suspect?

This makes perfect sense to me (yes my sarcasm meter is high):

https://www.bls.gov/cpi/factsheets/medical-care.htm#A2
Total benefits paid out in year T are subtracted from total premiums income in year T to get the retained earnings.

1. Total benefits paid out in year T are subtracted from total premiums income in year T to get the retained earnings.

The retained earnings is divided by total benefits to get a ratio of retained earnings to benefits.

2. The retained earnings is divided by total benefits to get a ratio of retained earnings to benefits.

The Retention-Benefit Ratio for year T is divided by the Retention-Benefit Ratio for year T-1 to get the retained earnings ratio.

3. The Retention-Benefit Ratio for year T is divided by the Retention-Benefit Ratio for year T-1 to get the retained earnings ratio.


The 1.09666 relative change, or 9.67 percent, is the annual increase in the retained earnings ratio. In other words, assuming benefits paid out has remained constant, the health insurance company has retained 9.67 percent more premiums income than in the previous year.
Spreading this annual change equally over 12 months is done by taking the twelfth root of the retained earnings ratio.

4. Spreading this annual change equally over 12 months is done by taking the twelfth root of the retained earnings ratio.

This 1.007719 relative, or 0.77 percent, is the monthly retained earnings relative.

Ah, the old "twelfth root of the retained earnings ratio".

 

[ShokWaveRider]

I have noticed it considerably down, for food at least. I paid $1.32 for a dozen Extra Large Eggs.

 

[Montecfo]

Certainly overall price increases have moderated. Of course anyone can cherry pick anecdotes but this does not really speak to overall levels of pricing increases.

 

[Gumby]

My fear is that the Fed will keep raising to force a recession. ...

Why would the Fed want to force a recession? I'm sure that if they could achieve their goals of stable prices, maximum employment and moderate interest rates without any recession, they would prefer to do that.

 

[FiveDriver]

The April/May/June average is irrelevant. The calculation for Social Security purposes is done using the CPI-W index averages for the 3rd quarter (July/August/September) year over year. The 3rd quarter average for 3Q2022 was 291.901. What the 3Q2023 average will be is anyone's guess. We'll know in mid-October.

:Yes, I realize the SS Calculation is based on 3rd Qtr averages, and I should have stated that in my original post.

I don't think this year's numbers are going to change significantly over the next few months and I was just comparing CPI-W data from the same months this year to last.

I used round-number math to come up with a 2.5% increase as a ballpark figure. There was an article on Investopedia this morning that stated the increase could be around 2.7%.

That would give my SS Check a nice bump.

 

[MichaelB]

There’s a lot of methodology in these numbers, so the month to month variations don’t map well to the price changes we observe. Smoothed 6 or 12 month rolling averages are much better. They are still averages.

For me there are only 2 levels of inflation: too high or too low. No goldilocks “just right” here. We spent over a decade with “too low” and now we’re running too hot. My guess is the rolling average will continue to decline through Q3 and perhaps part of Q4, then start to pick up again.

 

[Gumby]

The April/May/June average is irrelevant. The calculation for Social Security purposes is done using the CPI-W index averages for the 3rd quarter (July/August/September) year over year. The 3rd quarter average for 3Q2022 was 291.901. What the 3Q2023 average will be is anyone's guess. We'll know in mid-October.

Not "irrelevant" and not "anyone's guess". As I noted earlier, if prices remained unchanged from here (i.e. - if CPI stays the same) then you can say that the 2023 COLA will be 2.2%. Absent actual deflation in the next 4 months, that is the minimum. As far as an estimate for what the COLA actually will be -- if the current trend continues (and they usually do), it will be slightly higher than 2.2% because there will still be some inflation in the months ahead. I think 2.5 - 2.6% is a reasonable estimate for the COLA. I am very confident that it will be at least 2.2%