Latest Inflation Numbers and Discussion

[Montecfo]

According to the Richmond Fed, discussions about a target, with no consensus on whether there should be one much less what it should be, began in the mid 1990s. Long story short, that debate continued right up until the time the 2% target was adopted in 2012.

The Origins of the 2 Percent Inflation Target

The FOMC established its explicit inflation target in January 2012 after a decades-long deliberation. It came in part from the Richmond Fed.

www.richmondfed.org

 

[latexman]

Historical Inflation Rates

1914-2024 inflation averaged 3.27%. The median was 2.75%.

A 2% goal will provide a bias towards lower cost. It is close, but not higher than, the "historical averages", so not unreasonable.

 

[ncbill]

3% is a more realistic target for the Fed nowadays.

Unless everybody wants another Great Recession.

 

[latexman]

It needs more research than I've given it, but 3% is above the 1914-2024 median. So, theoretically, for more than half those 110 years, if 3% was the target, the "Fed" would have been trying to raise inflation?

I think not.

Also, if the goal is moved to accommodate . . . recent trends, people, any reason actually . . . the Fed will have a credibility problem.

 

[Montecfo]

I think it should actually be a range which was one of the Fed's discussion points over the years.

 

[ShokWaveRider]

I just looked at historical inflation rates. Honestly, we are not really doing that bad. This is a simple average of the year 2000 - 2023 divided by 23. That = 2.7%

For 33 years 1990 to 2023 the same simple calculation reveals and average of 2.75%

So IMHO (This is not intended to get political) all the fuss being made in the media is purely because we are in an election year and should be ignored. Unfortunately, both folks and media like to blame someone or some entity for the issues that face them at any moment in time. These results are perfectly normal, and we need to simply move on and just deal with them and no one is to blame. People (and the Media) tend to look no further than their noses before they voice their opinions.

I do think though that good old American greed does encourage business' to take advantage and increase prices. However, I think we are seeing these increases taper off seen as $3 and $5 FF meals coming back.

Insurance costs are NOT Inflation IMHO they are mostly a result of companies trying to recoup their losses from Litigation and the proliferation of Natural Disaster in the last few years. Car Price & Parts increases etc.

I am happy with an average of 2.75% which is probably where the FEDS target should be.

Here is where the numbers came from.

U.S. Inflation Rate by Year: 1929 to 2024

By looking at the inflation rate each year, you can gain insight into how prices changed and how events around the globe impacted the average U.S. consumer.

www.investopedia.com

 

[GenXguy]

I am happy with an average of 2.75% which is probably where the FEDS target should be.

That doesn't make me happy. The closer to 0% while avoiding deflation is what I like to see. The 2% target is a compromise, and hate to see it edge above that at all, but even more so after such a large run up in prices, which many things doubling or tripling in price over a few years. What's worse is that true inflation I'm seeing across all bills is actually MUCH MUCH higher than the government figures, particularly on my largest bills!

 

[ShokWaveRider]

0% or very close to 0% is impractical for a 1st world economy to keep moving forward. Some kind of inflation is one of those simple facts of life. We all would like to see a 1 - 2% rate, but I am quite sure we will never see it again.

 

[MichaelB]

That doesn't make me happy. The closer to 0% while avoiding deflation is what I like to see. The 2% target is a compromise, and hate to see it edge above that at all, but even more so after such a large run up in prices, which many things doubling or tripling in price over a few years. What's worse is that true inflation I'm seeing across all bills is actually MUCH MUCH higher than the government figures, particularly on my largest bills!

The big surge in inflation was in 2021 and 2022. It is now past and the current rate of inflation is much lower.

 

[Golden Mean]

That doesn't make me happy. The closer to 0% while avoiding deflation is what I like to see. The 2% target is a compromise, and hate to see it edge above that at all, but even more so after such a large run up in prices, which many things doubling or tripling in price over a few years. What's worse is that true inflation I'm seeing across all bills is actually MUCH MUCH higher than the government figures, particularly on my largest bills!

Isn't your portfolio up way more than any bill increases? I'm up 20% this year alone.

 

[MichaelB]

0% or very close to 0% is impractical for a 1st world economy to keep moving forward. Some kind of inflation is one of those simple facts of life. We all would like to see a 1 - 2% rate, but I am quite sure we will never see it again.

I agree 0 is not achievable, but 1% is too low and would reflect an excess of capital and lack of investment opportunity. We’d be back to the “war on savers that made most folks here unhappy. Better 2%-3% in my opinion.

 

[Qs Laptop]

I agree 0 is not achievable, but 1% is too low and would reflect an excess of capital and lack of investment opportunity. We’d be back to the “war on savers that made most folks here unhappy. Better 2%-3% in my opinion.

Not too mention that people that still work would get miniscule raises if inflation was near 0% or 1%.

 

[Dtail]

0% or very close to 0% is impractical for a 1st world economy to keep moving forward. Some kind of inflation is one of those simple facts of life. We all would like to see a 1 - 2% rate, but I am quite sure we will never see it again.

Plus an investor such as yourself who is not invested in the stock market can now do well on the 5%+ low risk fixed income investments.

 

[AudiDudi]

I started Medicare in 2017 - Part B was ~$105 and Part G was ~$97. Part D about $15. Now, Part D is $6, Part B is $174 and Part G is $178. That's my costs - my DWs are slightly higher so I am now paying ~65% more that I was 7 yrs ago. Make me darn glad I waited until 70 to start SS.

 

[Chuckanut]

Plus an investor such as yourself who is not invested in the stock market can now do well on the 5%+ low risk fixed income investments.

+1

Let’s not forget what we affectionately called the War On Savers when interest rates were in the 1 to 2 percent area.

 

[Montecfo]

That doesn't make me happy. The closer to 0% while avoiding deflation is what I like to see. The 2% target is a compromise, and hate to see it edge above that at all, but even more so after such a large run up in prices, which many things doubling or tripling in price over a few years. What's worse is that true inflation I'm seeing across all bills is actually MUCH MUCH higher than the government figures, particularly on my largest bills!

I sympathize. But I would also think the payoff for moving to a lower cost market would be very high. And to a state which is better financed possibly.

 

[Aerides]

Any MacroEcon class would tell you that 0% inflation is the sign of an unhealthy economy. That means no growth, no income increases, and nothing close to where retirement accounts can grow as they've done over the past quarter century.

2% is also historically not that common. While we had that coming out of the recession, which no one wants to repeat, before that the longer average from the 80's to then was more in the 3's.

 

[Montecfo]

The Fed has made many mistakes they can't fix. And I expect lower rates over time. But things seem right at the moment.

But obviously the economy is slowing and to many Americans it feels like recession right now. So I do think the Fed could seem to cut suddenly if we continue with softer labor demand and soft GDP.

 

[explanade]

The Fed has made many mistakes they can't fix. And I expect lower rates over time. But things seem right at the moment.

But obviously the economy is slowing and to many Americans it feels like recession right now. So I do think the Fed could seem to cut suddenly if we continue with softer labor demand and soft GDP.

Any MacroEcon class would tell you that 0% inflation is the sign of an unhealthy economy. That means no growth, no income increases, and nothing close to where retirement accounts can grow as they've done over the past quarter century.

2% is also historically not that common. While we had that coming out of the recession, which no one wants to repeat, before that the longer average from the 80's to then was more in the 3's.

So most of us here at ER.org follow the published data on inflation. We can look up historical trends as well.

But most of the population are just looking at prices at the stores, gas pumps, restaurants, etc.

That may be why Americans "feel" things are bad. A poll came out this week and most of those polled say that the economy is in recession, that unemployment is high and that the stock market is well down.

Now is it not paying attention? Is it being dishonest with pollsters? Because it turns out 62% of Americans have investments in the markets so if they've peeked at their statements or logged in occasionally, they'd see their balances going up and up, probably to all-time highs, in the last 12-18 months.

So people are ignoring this macroeconomic data or disregarding it in favor of their specific observations of the price of goods and services or something else subjective.

 

[Montecfo]

So most of us here at ER.org follow the published data on inflation. We can look up historical trends as well.

But most of the population are just looking at prices at the stores, gas pumps, restaurants, etc.

That may be why Americans "feel" things are bad. A poll came out this week and most of those polled say that the economy is in recession, that unemployment is high and that the stock market is well down.

Now is it not paying attention? Is it being dishonest with pollsters? Because it turns out 62% of Americans have investments in the markets so if they've peeked at their statements or logged in occasionally, they'd see their balances going up and up, probably to all-time highs, in the last 12-18 months.

So people are ignoring this macroeconomic data or disregarding it in favor of their specific observations of the price of goods and services or something else subjective.

Good points. Most people as you point out are collecting their own data points.

And think about hardworking folks trying to rationalize prices up 20% since 2020. So finances tighter, might need 2nd or 3rd job.

That will put your household in recession right quick. And we here are the outliers. Most folks spend what they make or maybe a bit more or a bit less.

 

[USGrant1962]

This Axios article has an interesting observation that when economists say "inflation" they mean the recent year-over-year inflation rate, while normal people mean prices (compared to some baseline, though the article doesn't explicitly say that). Hence economists talk about 3.4% annualized, but normal people are doing the math in the grocery aisle and seeing ~20% since 2021. So normal people are calling the cumulative effect inflation.

https://www.axios.com/2024/05/26/inflation-definition-evolution-high-prices

 

[AudiDudi]

OFC, everyone realizes that the way infltion is calculated was changed in 1980 and again in 1990 - so any comparison over longer term may not have accurate reaults as compared to todays methodology. Using the 1980 method of calculating inflation, current inflation is a tad north of 10%. Data on Shadowstats.com. OFC, the government needs to report low(er) inflation to keep SS COLAs low.

 

[Turbo29]

So most of us here at ER.org follow the published data on inflation. We can look up historical trends as well.

But most of the population are just looking at prices at the stores, gas pumps, restaurants, etc.

That may be why Americans "feel" things are bad. A poll came out this week and most of those polled say that the economy is in recession, that unemployment is high and that the stock market is well down.

Now is it not paying attention? Is it being dishonest with pollsters? Because it turns out 62% of Americans have investments in the markets so if they've peeked at their statements or logged in occasionally, they'd see their balances going up and up, probably to all-time highs, in the last 12-18 months.

So people are ignoring this macroeconomic data or disregarding it in favor of their specific observations of the price of goods and services or something else subjective.

That statistic, 62% of Americans have investments in the market, is not the whole story. It also turns out that the top 10% own 93% of the stocks and the bottom 50% own 1% of the stocks. If one is in the lower levels, the increase in their investment balances does not come close to covering the increase in their cost of living.

The wealthiest 10% of Americans own 93% of stocks even with market participation at a record high

 

[MichaelB]

OFC, everyone realizes that the way infltion is calculated was changed in 1980 and again in 1990 - so any comparison over longer term may not have accurate reaults as compared to today’s methodology. Using the 1980 method of calculating inflation, current inflation is a tad north of 10%. Data on Shadowstats.com. OFC, the government needs to report low(er) inflation to keep SS COLAs low.

This has been a very good thread discussion, with timely, quality data and solid analysis. Let’s not derail it by bringing in views from shadowstats. Their analyses and conclusions were debunked over a decade and the math doesn’t add up - and never did.

If you want to talk about shadowstats please take it to another thread.

 

[Qs Laptop]

That statistic, 62% of Americans have investments in the market, is not the whole story. It also turns out that the top 10% own 93% of the stocks and the bottom 50% own 1% of the stocks. If one is in the lower levels, the increase in their investment balances does not come close to covering the increase in their cost of living.

The wealthiest 10% of Americans own 93% of stocks even with market participation at a record high

Sorry, but I simply don't believe that the bottom 50% own only 1% of the stocks.

Exactly what statistic is being expressed here?

Is it the bottom 50% of the 62% of Americans that own stocks only own 1% of the stocks?

Is it the bottom 50% of wealthiest Americans only own 1% of the stocks?

Is it that 1% of the total cumulative values of the stocks in the investment world is owned by the bottom 50% of wealthiest people?

Are children included in these numbers? (They are "Americans", after all...)

This article is hot mess of confusion.

I would submit that the bottom 50% of wages earners must own more than 1% of the stocks since many (most?) of them have 401k plans.