Latest Inflation Numbers and Discussion

[Car-Guy]

This is a problem

On Monday, the average 30-year fixed mortgage rate reached 7.48%

My first house had a 10.5% mortgage rate back in the late 70's. I lived there about 15 years and never financed another home.

 

[bobandsherry]

This is a problem



On Monday, the average 30-year fixed mortgage rate reached 7.48%

Not sure what the problem is, look past the last 15 years, that being prior to the housing crisis of 2008 and not really unusual. Recall the late 70s and early 80s and you'll think today's rates are a bargain. [emoji13]

 

[pb4uski]

I can't dispute any of that. But it's all academic. People tweaking spreadsheets.

In science, if you want people to accept your model, it's not enough to demonstrate your methodology. Your model also has produces results which match the real world. I'm not seeing that with any of these inflation models.

Have you thought that perhaps it is you that are the outlier and not the BLS's measurement of CPI?

 

[milford]

It will as long as economy holds up.

And of course these airlines shot themselves in the foot with retirements around covid.

Demographically, airline pilot may be the most promising career for projected earnings growth worldwide.

UPS workers aren't doing too shabby themselves too. It looks like we have entered a new era of higher wages... which does not bode well for taming inflation.

https://www.cnbc.com/2023/08/22/ups-workers-approve-new-labor-contract.html

 

[NW-Bound]

On Monday, the average 30-year fixed mortgage rate reached 7.48%

I bought my 1st home in April 1980, paying 14% for a 30-year mortgage. When it reached 18.5% later, I patted myself on the back for scoring a good deal.

The builder from whom I bought the new home had some already built sitting on the market, and he sweetened the deal to move them. He offered me $3K in free draperies and carpet upgrades. Needless to say, new home construction was just dead.

Did the stock market keep up with inflation? No. It dropped in nominal value, meaning it was even worse after inflation adjustment.

Yes, there was a recession and the unemployment rate got higher than 10%. The misery index at that time was the highest in history, and has not been exceeded.

I was young, in my new job, and just married. I did not know enough to be scared at that time.

 

[GenXguy]

I can't dispute any of that. But it's all academic. People tweaking spreadsheets.

In science, if you want people to accept your model, it's not enough to demonstrate your methodology. Your model also has produces results which match the real world. I'm not seeing that with any of these inflation models.

Well said.

 

[MichaelB]

UPS workers aren't doing too shabby themselves too. It looks like we have entered a new era of higher wages... which does not bode well for taming inflation.

https://www.cnbc.com/2023/08/22/ups-workers-approve-new-labor-contract.html

Good point. Contrast this with a report from todays WSJ

Wages, especially for people who changed jobs, climbed in recent years as companies competed for workers to fill pandemic-induced labor shortages. Now, as the job market cools and businesses become more cautious in their hiring, many companies are paying new recruits less than they did just months ago—in some cases, much less.

Among postings for more than 20,000 job titles on ZipRecruiter’s site this year, the average pay for a majority of roles has declined from last year. Some of the steepest drops have been in technology, transportation and other sectors that experienced frenzied hiring sprees in 2021 and early 2022.

If wages for new hires do fall, it may take longer to impact the overall economy, but at the same time it’s impact may be greater.

Either way, I think wage inflation is now more important than prices and more likely to affect Fed actions.

 

[NW-Bound]

...

If the calculated CPI understates real inflation over time, that difference would mean GDP growth is overstated. Real negative GDP is not compatible with growing employment. When employment rises payroll taxes rise alongside. Unemployment measures are not statistical, they are the sum of people applying for unemployment insurance, so the employment numbers are independently supported. The economic growth is real, and the overall CPI is roughly representative of the overall economy.

Economic data is like double entry accounting. A piece of bad data will lead to the accounts somewhere not adding up. That simply is not happening in the US...

Good points.

I remember that people complained about the CPI not being accurate forever. However, inflation is cumulative. If the CPI understates the real inflation by a few percents each year, after a couple of decades, the cumulative inflation would be off by 100%.

I don't think we see that cumulative error. Have we?

 

[Fermion]

With the median home price around $416,000, a 14% interest rate would mean you were paying $56,000 a year in interest. The median family income is $70,000.

So just paying interest only you would only have 14,000 left for everything else.

 

[CaptTom]

I'm still trying to reconcile what I see for prices with the official numbers. I really do want to understand.

So, take a working family. Average incomes, average number of kids. What are their most significant expenses? (Their "basket of goods.") Housing. Food. Transportation. Taxes. Those have to be the big requirements. Discretionary spending like travel and education. Clothing is somewhere in between. Required, but discretionary.

All of those things have gone up dramatically more than the rates I'm seeing batted around. Why the difference?

 

[JoeWras]

Captain:
It may be better to run a chart from the St. Louis Fed. I think the way CPI comes out, month by month, discussion by discussion, makes it difficult to see the big picture.

For most of us, the big picture right now is 3 years.

From this St. Louis Fed site you can visualize items better: https://fred.stlouisfed.org/categories/9

You can pick and add all kinds of items to this graph.

Here's an example of me playing with new and used cars. Take used cars, for example. In 2020, the index was 139. This month it is 196. For a $20,000 car in 2020, it is $28200. To me, this comes across better than percentage this, or percentage that.

 

[NW-Bound]

With the median home price around $416,000, a 14% interest rate would mean you were paying $56,000 a year in interest. The median family income is $70,000.

So just paying interest only you would only have 14,000 left for everything else.

Is the $70K gross income or take-home pay?

Back in 1980, my first home was only $64K. It was a 4BR with 1960 sq.ft. The monthly payment PITI was either $814 or $840, I am not sure. It was slightly higher than my biweekly take-home check, as I recall. I still had a bit less than 1/2 my take-home pay after the mortgage. My wife made less than I did, but without her income we would not qualify for the loan.

In today's dollars, the $64K would be $241K.

I just looked up Zillow. My first home is estimated at $401K, which is roughly the average home price of $416K above. The home has appreciated a lot more than the cumulative inflation.

When interest rate is low as it has been, it inflates all asset prices, homes as well as equities and bonds. In the future, we will not see our wealth increasing as fast with the interest rate back to its historical average. The heyday is over.

PS. SS shows my 1980 W2 income as $25K. In today's dollars, it's $94K using the official cumulative inflation number.

 

[NW-Bound]

You spending less than the national average on food is no surprise. If your household size is smaller than the average (2.6 or 3.4) or your income is higher the % needed for food will be lower.

This discussion is helpful because it caused me to dig deeper. According to zippia.com, AZ has a lower food cost than many other states. NH is surprisingly cheap. Check out zippia.com to see if you agree.

Zippia.com also shows that as of Feb 2023, the average food cost per person in AZ is $302.8/month. That works out to $7267 annually for 2 persons.

We are spending significantly less than the above number. I think my wife gets her medal back.

Source: https://www.zippia.com/advice/average-cost-of-groceries-by-state/

 

[Koolau]

Add in an increase in auto loan late payments and defaults. Strong job market combined with rising delinquencies on auto loans. That's not normally what happens,.

Only one new car model now sells below $20,000. But, there are 32 models that sell over $100,000.

I've been thinking the same thing: Everyone is focusing on the jobs numbers while everything else (well a lot of things) are signaling all kinds of trouble ahead. I don't know what's gonna happen, but I wouldn't be surprised if it gets unpleasant within the next year.

 

[Koolau]

Fair enough. I think we're probably talking about different things here.

To me, "real" inflation is when the average of all prices, which average consumers pay, goes up.

I think what others may be talking about here ("gov't numbers") are those which analysts and statisticians watch. Presumably, they consider lots of factors which have no effect on the average consumer. I suppose corporations, the ultra-wealthy and the government all have expenses which heavily influence the "average" being used.

Clearly billionaires don't worry about groceries, fuel, housing, transportation, education, travel, etc. all ticking up 25-40%. To them, maybe it really does look like inflation matches the government figures. Politicians, investment bankers, corporate executives and their accountants and analysts have a very different outlook on what "inflation" means than the average consumer.

Obviously, there's a lot of supposition there. Maybe you can dispute it point by point.

What you won't do is convince me that the prices I'm paying today - across the board - are not between 25 and 40% higher than a year ago. Those are facts I do have, from first-hand experience.

Hear, hear.



Maybe I just buy all the wrong stuff but my inflation is not what the figures are saying. Not even close. Not even in the ball park. If I'm skeptical about gummint numbers it's because the folks who tout them have the most to gain by the numbers being "good." I'm trying not to be cynical - only skeptical. YMMV

 

[Koolau]

American Airline pilots will get 41% raise over 4 years, and a 21% bonus that covers Jan. to July, 2023.

Wow!

I forsee travel outpacing general inflation.

Heh, heh, it already is.

 

[Koolau]

You spending less than the national average on food is no surprise. If your household size is smaller than the average (2.6 or 3.4) or your income is higher the % needed for food will be lower.

I'm on a diet.

 

[Koolau]

Have you thought that perhaps it is you that are the outlier and not the BLS's measurement of CPI?

Add me to the outliers then. Big time.

 

[JoeWras]

I just looked up Zillow. My first home is estimated at $401K, which is roughly the average home price of $416K above. The home has appreciated a lot more than the cumulative inflation.

Not your imagination. From the St. Louis Fed site I referenced above.

 

[Koolau]

With the median home price around $416,000, a 14% interest rate would mean you were paying $56,000 a year in interest. The median family income is $70,000.

So just paying interest only you would only have 14,000 left for everything else.

Heh, heh, just wait until that happens to our gummint. (Biggest budget item could soon be servicing our massive debt.)

 

[Chuckanut]

With the median home price around $416,000, a 14% interest rate would mean you were paying $56,000 a year in interest. The median family income is $70,000.

So just paying interest only you would only have 14,000 left for everything else.

Back in 1980's, I had a mortgage that was a fixed 12 3/4%. The home sold for about $72,000. Eventually, I refinanced into a variable rate mortgage that was 1.6% over the one year T-bill rate on the yearly recalculation date. I kept my mouth shut and paid on time.

Above we see the good and the bad of that era.

 

[Montecfo]

Job growth restated lower by 300k jobs.

Other indicators point to softening of economy.

https://www.investors.com/news/econ...well-big-speech-may-be-upstaged-by-jobs-data/

 

[Winemaker]

Just talked to my tenant; she is the produce manager at the local grocery store, large multi state grocer. She said that her store hired 30 new employees, under union wages and benefits contract, 3 weeks ago. 28 have quit already.

 

[Gumby]

I'm going to guess that it's probably not a pay issue. Was there some sort of upfront signing bonus? Some scam related to unemployment benefits?

 

[pb4uski]

Add me to the outliers then. Big time.

And I'm surprised