Latest Inflation Numbers and Discussion

[ShokWaveRider]

Getting down to that 2% level is going to be a challenge. I have always used 3% as an inflation rate. Federal spending is still out of control adding well over a trillion dollars a year to the deficit. I would love 2% inflation, but I just can’t see it in the next year or two. I am preparing for 3+% inflation for the rest of my hopefully long life. I hope I am wrong.

I do think that people need to realized that our current government insured savings rates are in a much more normal range today than the 0.2 to 2 percent range of five years ago.

I agree, I think keeping rates at "Normal" Levels AKA ~5% mortgages and car loans is more realistic and prevents folks who cannot really afford to buy a home or new car from doing so. We all need to learn to live within our means. It would be better for the country and all in the long run.

 

[Closet_Gamer]

I've always used 3% for modeling purposes.

I may bump that up to 3.5% or even 4%.

That's not as a result of recency bias, but due to the global decoupling/reshoring effort and the government spending. I think the latter will continue to drive demand even as the former moves suppliers from low cost labor/mfg markets to higher priced areas. Those costs will flow into a supply chain that has a lot of demand being driven by forces that are price inelastic.

Note that I'm not making a moral comment on either of those things. Its just how I see the world working for quite a long time.

The good news is that stocks should more-or-less rise with the inflation as those price pressures find their way through company financials. That's not a real gain, of course, but should help the assets keep pace over time. Interest rates will likely stay higher too.

If I had my druthers, the Fed would press on for 2% and damn the torpedos.

 

[yhoomajor]

Actually deficit is now increasing at much faster rate than that. Like $1 Trillion every 100 days.

https://www.cnbc.com/2024/03/01/the...t load of the,U.S. Department of the Treasury.

Getting down to that 2% level is going to be a challenge. I have always used 3% as an inflation rate. Federal spending is still out of control adding well over a trillion dollars a year to the deficit. I would love 2% inflation, but I just can’t see it in the next year or two. I am preparing for 3+% inflation for the rest of my hopefully long life. I hope I am wrong.

I do think that people need to realized that our current government insured savings rates are in a much more normal range today than the 0.2 to 2 percent range of five years ago.

 

[Montecfo]

Yes. Government spending has been at cross purposes with the Fed for a long time.

 

[Surewhitey]

Wendy's Baconator (double with cheese & bacon)...over 8 bucks. I'll wait another couple years passing through a small town to repeat that one.

 

[DJRR]

Actually deficit is now increasing at much faster rate than that. Like $1 Trillion every 100 days.

https://www.cnbc.com/2024/03/01/the...t load of the,U.S. Department of the Treasury.

Thats just an anomaly based on when the government receives tax receipts. No way the current deficit is $3.65 Trillion annually. It is less than half that I believe. Still historically high given the state of the economy.

 

[GenXguy]

Personally, I do not see how we can see a 20 to 25% jump (what they called 9%) and then imagine 2.5% a year later and call all clear on that. So, that's why they aren't I'd imagine.

Right, we need a long string of years of inflation close to zero to make up for such a run up in prices. It's like a different world we live in these days when looking at bills / prices compared to just a few years ago.

Getting down to that 2% level is going to be a challenge.

Yes, it's a challenge. But dropping interest rates isn't going to make it any easier.

Most of us on this forum can get by with this high inflation by cutting back on our discretionary spending to pay for required spending, but record numbers of Americans are drawing early from retirement plans to get by along with increased credit card debt. It's unsustainable.

 

[Montecfo]

If inflation went to zero the Fed would cut to zero again. And the economy would be flat on its back.

Careful what you wish for.

 

[GenXguy]

If inflation went to zero the Fed would cut to zero again. And the economy would be flat on its back.

Careful what you wish for.

Who said inflation dropping all the way to zero? I sure didn't. I said close to zero, so even 0.5% would be a big improvement.

Having said that, there are historical references where some deflation didn't hurt the economy. I'm really not worried about inflation being too low. Continued high inflation is the much bigger concern.

 

[Montecfo]

Who said inflation dropping all the way to zero? I sure didn't. I said close to zero, so even 0.5% would be a big improvement.

Having said that, there are historical references where some deflation didn't hurt the economy. I'm really not worried about inflation being too low. Continued high inflation is the much bigger concern.

Well the problem with that is economists and the Fed see deflation as the much more serious threat. We battled deflation risk post the financial crisis which is why we got near zero interest rates. Do you remember that? You should have loved that historically low inflation for about a decade. But recency bias seems to have stolen your joy.

If you are hoping for zero or near zero inflation you will be disappointed. Which means you will continue to whine about the terrible inflation when the Fed's preferred measure is below 3% and in fact at or even below what has been typical on average.

 

[GenXguy]

Well the problem with that is economists and the Fed see deflation as the much more serious threat. We battled deflation risk post the financial crisis which is why we got near zero interest rates. Do you remember that? You should have loved that historically low inflation for about a decade. But recency bias seems to have stolen your joy.

I remember people saying it, but I never saw anywhere near zero percent inflation in my expenses. Home insurance, property taxes, etc. always went up, which were some of my biggest expenses, so my spending was always going up quite a bit in those "so called" low inflation years. I can only wish I saw 1% inflation or less. I have done budgets going back many years, so recency "bias" is not relevant, it's just recency experience that has made the problem exponentially bad.

If you are hoping for zero or near zero inflation you will be disappointed. Which means you will continue to whine about the terrible inflation when the Fed's preferred measure is below 3% and in fact at or even below what has been typical on average.

I didn't say I hoped for zero inflation, not sure why you are still thinking that. It just needs to be very low for a sustained time to make up for the extremely high inflation over the last few years. The fed's preferred inflation index it still significantly higher than their 2% target. Even if it dropped to 2% for a year, the average over the last few years would still be very high. After this long run of especially high inflation that is hurting so many Americans, it's even more critical for inflation to run extra low. I am not worried about deflation - I've never seen it, and I don't think it would hurt the economy in context of what has happened and based on some historical references. Again, just because inflation has run higher than an average 2% for most years doesn't mean the fed should give up on reaching the preferred 2% target they state that they are trying to achieve, now more than ever.

Montecfo, you should stop whining about people pointing out the facts about inflation and the Fed's own view on what their target rate is.

Personally, I do not see how we can see a 20 to 25% jump (what they called 9%) and then imagine 2.5% a year later and call all clear on that. So, that's why they aren't I'd imagine.

Well said.

 

[Chuckanut]

Here’s the opinion of the Tips Watch author. Nothing strikingly new here other than his estimates of the what might be the new rates on TIPS and Ibonds. If he’s right there is good reason to hang on to your 5% treasuries and CDs for a while longer. And, perhaps, lock in that 1.3% fixed rate on today’s Ibond. Every little bit helps.

https://tipswatch.com/2024/03/12/february-inflation-again-slides-higher-than-expectations/

For TIPS. The February inflation index means that principal balances for all TIPS will increase 0.62% in April, after rising 0.54% in January. While these might seem like outsized numbers, this result follows the typical trend at the beginning of each year, when non-seasonally adjusted numbers run higher than the “official” adjusted indexes. Here are the new April Index Ratios for all TIPS.

For I Bonds. The February inflation report is the fifth of a six-month string that will determine the I Bond’s new inflation-adjusted variable rate, to be reset May 1 and eventually roll into effect for all I Bonds. As of February, with one month to go, inflation has increased 0.82% over the five months. That would translate to a variable rate of 1.64%, much lower than the current variable rate of 3.94%.

One month remains, and it is likely we could see non-seasonal inflation in the range of 0.4% to 0.6% for March. That would boost the variable rate to somewhere in the range of 2.4% to 2.8%.

 

[CaptTom]

I'm happy with 0% inflation. Frankly the economy would be quite comfortable "flat on its back" instead of frantically chasing spiraling growth at the top.

I think sometimes people here assume everyone has their fortunes tied to investments. The reality is most people would be perfectly happy if prices remained flat and the only wage increases they got were when they got a promotion or a better job.

 

[GenXguy]

I'm happy with 0% inflation. Frankly the economy would be quite comfortable "flat on its back" instead of frantically chasing spiraling growth at the top.

I think sometimes people here assume everyone has their fortunes tied to investments. The reality is most people would be perfectly happy if prices remained flat and the only wage increases they got were when they got a promotion or a better job.

That's true. So many people can't think outside of their own box and see that many millions of Americans are suffering with these high prices, pulling early from their 401K plans, running up the credit card debt, defaulting on loans, etc.

 

[Montecfo]

I'm happy with 0% inflation. Frankly the economy would be quite comfortable "flat on its back" instead of frantically chasing spiraling growth at the top.

I think sometimes people here assume everyone has their fortunes tied to investments. The reality is most people would be perfectly happy if prices remained flat and the only wage increases they got were when they got a promotion or a better job.

It is not primarily about investments. It is about having stable price growth consistent with a healthy growing economy.

You know for all Americans, including our kids who need jobs for their livelihoods and their mortgages, and for folks to pay into SS, so businesses have money to pay off bonds that we have invested in, etc.

Deflation creates incentives to wait for lower prices which can become a downward spiral of an ever weakening economy and lower and lower prices.

No country tries to gamble with that scenario these days as an ill considered make up for inflation.

 

[SecondCor521]

It just needs to be very low for a sustained time to make up for the extremely high inflation over the last few years. The fed's preferred inflation index it still significantly higher than their 2% target. Even if it dropped to 2% for a year, the average over the last few years would still be very high. After this long run of especially high inflation that is hurting so many Americans, it's even more critical for inflation to run extra low. I am not worried about deflation - I've never seen it, and I don't think it would hurt the economy in context of what has happened and based on some historical references. Again, just because inflation has run higher than an average 2% for most years doesn't mean the fed should give up on reaching the preferred 2% target they state that they are trying to achieve, now more than ever.

Everyone is welcome to their preferences and opinions, of course.

I have never heard Chair Powell say anything about attempting to lower inflation below the 2% target for any length of time in order to make up for the high inflation we had for a while.

I do think Chair Powell and the Federal Reserve does worry considerably about deflation, which I think is why they set 2% as a target. 2% inflation is relative stability on prices but provides a buffer to avoid deflation.

My understanding of their target is that they attempt to get inflation to 2% all the time but ignore any past inflation when doing so. If inflation drops to 2%, I fully expect the Fed to ease to try to keep it at 2% and not drop below that. No idea when or if that will happen, but that's what I think their goal is and approach will be based on what they have said (and not said).

 

[GenXguy]

It is not primarily about investments. It is about having stable price growth consistent with a healthy growing economy.

You know for all Americans, including our kids who need jobs for their livelihoods and their mortgages, and for folks to pay into SS, so businesses have money to pay off bonds that we have invested in, etc.

Deflation creates incentives to wait for lower prices which can become a downward spiral of an ever weakening economy and lower and lower prices.

No country tries to gamble with that scenario these days as an ill considered make up for inflation.

Well, the alternative would be inflation that's slightly above zero, then prices aren't actually falling but aren't going up so quickly, either.

 

[GenXguy]

Everyone is welcome to their preferences and opinions, of course.

I have never heard Chair Powell say anything about attempting to lower inflation below the 2% target for any length of time in order to make up for the high inflation we had for a while.

I do think Chair Powell and the Federal Reserve does worry considerably about deflation, which I think is why they set 2% as a target. 2% inflation is relative stability on prices but provides a buffer to avoid deflation.

My understanding of their target is that they attempt to get inflation to 2% all the time but ignore any past inflation when doing so. If inflation drops to 2%, I fully expect the Fed to ease to try to keep it at 2% and not drop below that. No idea when or if that will happen, but that's what I think their goal is and approach will be based on what they have said (and not said).

I think you are misunderstand what I think would be best with what the fed will do. Yeah, they won't "try" to get inflation below 2%, but I'm saying they shouldn't give up easily and cut rates prior to reaching that target, and it would take years of lower than 2% to make up for the long run of high inflation.

With inflation for CPI still running about double their PCE Core target of 2%, I really doubt deflation is their top worry these days.

Despite what the gub'ment figures are, I've never seen real deflation in my expenses - inflation always runs higher than those figures. And this is hurting a lot of Americans, but not many on this forum with multi-million dollar portfolios, COLA pensions, and inheritances.

 

[Montecfo]

You are correct. The Fed's big challenge is not to kill the economy with a too restrictive policy at a time when the rate of inflation has dropped sharply and is approaching the "target".

My guess is they will be fine with the status quo until they see evidence they have been restrictive for too long, such as a sharper hike in the unemployment rate or continued weak jobs growth.

I hope I am wrong about that.

As an aside, you have in fact seen deflation in several categories of goods, but clearly in gasoline prices.

 

[GenXguy]

As an aside, you have in fact seen deflation in several categories of goods, but clearly in gasoline prices.

Gas prices are $3.79 here at most gas stations. I was paying a little over $2/gal before the pandemic. And it was about 50 cents less several weeks ago. Definitely not what I would call deflation.

I haven't had a single thing / expense drop in price at this point - even eggs went back up. But that's because we have inflation, and disinflation isn't the same thing as deflation, so prices are continuing to go up as expected on most items.

Deflation is not the issue these days. We are about 4% points above that.

 

[MichaelB]

My understanding of the 2% target rate is it’s not exactly 2%, it’s “around 2%”. The Fed wants this average rate going forward and doesn’t look at the average of recent history. If they see the opportunity to reach the 2% without provoking a recession, they will pursue it. This is where we are today.

2% is considered the lowest sustainable policy rate of inflation that does not fall into deflation. When inflation falls below that level the risk of deflation rises quickly.

Deflation almost always leads to increased unemployment, which leads to more deflation, and it quickly becomes a self sustaining cycle downwards. One result will always be a debt crisis, where outstanding debt cannot be repaid.

As inflation falls, the real interest rate rises. I suspect the Fed wants to cut rates to keep the real rate flat, but needs to wait until they are sure inflation is at least flat and stable.

 

[frank05]

Wendy's Baconator (double with cheese & bacon)...over 8 bucks. I'll wait another couple years passing through a small town to repeat that one.

I find as I get older, I am more than satisfied with a Wendy’s single or a son of a Baconator.

 

[CaptTom]

It is not primarily about investments. It is about having stable price growth consistent with a healthy growing economy.

Who decided that growth is "healthy"?

Whose growth? Corporations? Investors?

To me, a healthy economy is one which offers good-paying jobs for all and ever-increasing productivity, meaning a higher standard of living for all. That kind of "growth" is good. For everyone.

The accumulation of wealth at an ever-faster pace by those at the very top doesn't really seem all that "healthy" to me.

Deflation, in the long term, needn't cause a downward spiral. As some goods get cheaper (due to productivity gains) consumers have more money to spend on other goods. Innovators are quick to capitalize on those new markets. Everyone wins.

Deflation, in the short term, would be even better right now. Going back to the prices of around 2-3 years ago, before the inflation spike, would be more like a correction.

Again, the only ones who would lose are those who gained the most, at everyone else's expense. No sympathy here. Even though I am probably one of them. It's only a "gamble" if you're a corporate executive, or one of the politicians they employ, who benefits from the current situation.

 

[GenXguy]

Regarding the Fed's 2% target, it is 2% over time that they target, not one and done.

https://www.federalreserve.gov/faqs/economy_14400.htm

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.

Deflation, in the long term, needn't cause a downward spiral. As some goods get cheaper (due to productivity gains) consumers have more money to spend on other goods. Innovators are quick to capitalize on those new markets. Everyone wins.

Deflation, in the short term, would be even better right now. Going back to the prices of around 2-3 years ago, before the inflation spike, would be more like a correction.

Yeah, that's basically my view, but we continue going in the direction of too high inflation for now.

 

[Qs Laptop]

Deflation, in the long term, needn't cause a downward spiral. As some goods get cheaper (due to productivity gains) consumers have more money to spend on other goods. Innovators are quick to capitalize on those new markets. Everyone wins.

Deflation, in the short term, would be even better right now. Going back to the prices of around 2-3 years ago, before the inflation spike, would be more like a correction.

Yeah, that's basically my view, but we continue going in the direction of too high inflation for now.

Deflation is not merely going back to lower prices. Deflation is dangerous, especially long term deflation, because it builds up the expectation that prices are going to continue to decrease, therefore people don't spend money and then the economy dramatically slows down. Why buy a car if the prices have been going down for the past 8 months? Just wait another couple of months and they will be even less expensive.

Now project that attitude out across a wide spectrum of goods and services. Pretty soon companies aren't selling very much stuff, profits decline, cash flow withers, so they have to lay off people. Unemployed people don't buy much stuff either. It's a vicious cycle that feeds on itself, paralyzing the economy.