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U.S. inflation reached a new four-decade high of 8.6% in May

wsj.com

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Re: U.S. inflation reached a new four-decade high of 8.6% in May

#11

Post by refurb »

voisin wrote: post #8
seibelj wrote: post #5

Earlier quoted context omitted.

They can't raise interest rates quickly because it would nuke the easy-money economy (i.e. the entire economy) that has become addicted to low rates. They have to slowly raise them to keep stuff from falling apart. The ruling party also doesn't want to get hurt worse than they already are, and a stagflation recession would clobber them. So easy money and high inflation will remain for at least another year.

> They can't raise interest rates quickly because it would nuke the easy-money economy (i.e. the entire economy) that has become addicted to low rates. This is exactly why the easy-money economy should never have been allowed to occur and persist for so long.

The amazing thing is many were predicting this back in 2008.

If anyone wants to listen to a prescient conversation about the feds actions post-2008 and inflation today, take a listen to this podcast. It was recorded in 2009.

https://www.econtalk.org/meltzer-on-inflation/

It’s an interview with Prof Meltzer from Carnegie Mellon who has done extensive research on the federal reserve system and who wrote the de facto official history of the reserve going back to its creation.

Cliff notes (all future tense):

- As a result of the 2008 crisis the fed expanded the money supply to a degree never seen before

- Rather than drive inflation, the “new money’s” effect will be muted due to skittish banks who will decide to just take the funds and hold as cash/treasuries (maintaining strong reserves) until more positive economic indicators emerge (this process could be paused by the bank if economic sentiment turned negative); this was actually seen at least in consumer spending - it was flat for years beyond the massive expansion in money supply

- Once economic forecasts turn more optimistic, the money will be deployed (through bank lending) into investments and assets leading to inflation in those prices first

- Eventually the excess supply will spill over into consumer lending and consumer spending in the classic indicators of inflation like CPI

- However the fed will be under immense political pressure to not drive the “fragile” economy into a recession (Covid anyone?) so any tightening will be far too late and inflation will overshoot targets by a huge margin

- Similar to the 70’s, until strong monetary contraction is brought in, inflation will run very hot despite other efforts to control it

Pretty accurate so far.

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#12

Post by readthenotes1 »

voisin wrote: post #4
mariojv wrote: post #3

Anyone have opinions on how long this inflation spike will last, or what the peak will be? I seriously thought we had maybe peaked earlier this year, and it looks like the peak so far was in March for core inflation excluding food and energy. However, maybe high energy prices will feed back into other consumer prices eventually, triggering more inflation. The producer price index (PPI) is still really wild, so maybe…

It’ll last until money supply tightens.

And more gasoline is produced.

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#13

Post by s1artibartfast »

ren_engineer wrote: post #9
mariojv wrote: post #3

Anyone have opinions on how long this inflation spike will last, or what the peak will be? I seriously thought we had maybe peaked earlier this year, and it looks like the peak so far was in March for core inflation excluding food and energy. However, maybe high energy prices will feed back into other consumer prices eventually, triggering more inflation. The producer price index (PPI) is still really wild, so maybe…

it will last much longer and will get worse, because everything is dependent on energy to be created/transported. There's also the fact that many retailers admitted to eating losses to try and keep customers happy assuming that inflation would be "transitory", pretty soon many of these retailers will be forced to raise prices to reflect reality

If Energy prices are driving it we are in for a long haul. Electricity costs in California is up 50% in the last five years. Efforts to on Shore manufacturing will drive it up higher

https://www.paloaltoonline.com/blogs/p/2022/03/06/when-will-...

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#14

Post by anonuser123456 »

refurb wrote: post #10
mariojv wrote: post #3

Anyone have opinions on how long this inflation spike will last, or what the peak will be? I seriously thought we had maybe peaked earlier this year, and it looks like the peak so far was in March for core inflation excluding food and energy. However, maybe high energy prices will feed back into other consumer prices eventually, triggering more inflation. The producer price index (PPI) is still really wild, so maybe…

It took close to a decade ('74 - '84) last time inflation was rampant. That said, a lot of things were tried before Volcker came in under Reagan and shrank the money supply aggressively, even through a subsequent recession. Nixon tried wage controls, price controls, changing energy policy, etc. It resulted in stagflation - poor economic growth despite high inflation.

Volcker was appointed by Carter, not Reagan.

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#15

Post by [deleted] »

refurb wrote: post #10
mariojv wrote: post #3

Anyone have opinions on how long this inflation spike will last, or what the peak will be? I seriously thought we had maybe peaked earlier this year, and it looks like the peak so far was in March for core inflation excluding food and energy. However, maybe high energy prices will feed back into other consumer prices eventually, triggering more inflation. The producer price index (PPI) is still really wild, so maybe…

It took close to a decade ('74 - '84) last time inflation was rampant. That said, a lot of things were tried before Volcker came in under Reagan and shrank the money supply aggressively, even through a subsequent recession. Nixon tried wage controls, price controls, changing energy policy, etc. It resulted in stagflation - poor economic growth despite high inflation.

[deleted]

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#16

Post by Kon-Peki »

anonuser123456 wrote: post #14
refurb wrote: post #10

Earlier quoted context omitted.

It took close to a decade ('74 - '84) last time inflation was rampant. That said, a lot of things were tried before Volcker came in under Reagan and shrank the money supply aggressively, even through a subsequent recession. Nixon tried wage controls, price controls, changing energy policy, etc. It resulted in stagflation - poor economic growth despite high inflation.

Volcker was appointed by Carter, not Reagan.

Reagan stacked the Fed with loyalists and forced Volcker to resign.

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#17

Post by hedora »

s1artibartfast wrote: post #13
ren_engineer wrote: post #9

Earlier quoted context omitted.

it will last much longer and will get worse, because everything is dependent on energy to be created/transported. There's also the fact that many retailers admitted to eating losses to try and keep customers happy assuming that inflation would be "transitory", pretty soon many of these retailers will be forced to raise prices to reflect reality

If Energy prices are driving it we are in for a long haul. Electricity costs in California is up 50% in the last five years. Efforts to on Shore manufacturing will drive it up higher https://www.paloaltoonline.com/blogs/p/2022/03/06/when-will-...

Our solar array is providing electricity for $0.06-$0.13 per kWh, assuming 30 year depreciation. Over half that cost was for a beefy grid tied battery. (We average over one power outage per month in my area. PG&E sucks more than usual here.). Also, because we overprovisioned for storms, we basically get two EVs worth of overproduced electricity at that price. Miles driven from that electricity is cheaper than the gasoline equivalent too.

Solar panel prices did go up a bit in the last few months, but that's because the commerce department inadvertently created a shortage while enforcing the China tarrifs.

On the other hand, I was at the car dealer yesterday, and got to compare used EV prices from January and today. Yikes!

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#18

Post by refurb »

anonuser123456 wrote: post #14
refurb wrote: post #10

Earlier quoted context omitted.

It took close to a decade ('74 - '84) last time inflation was rampant. That said, a lot of things were tried before Volcker came in under Reagan and shrank the money supply aggressively, even through a subsequent recession. Nixon tried wage controls, price controls, changing energy policy, etc. It resulted in stagflation - poor economic growth despite high inflation.

Volcker was appointed by Carter, not Reagan.

He was first appointed to the treasury by Nixon in ‘73 and was instrumental in ending the gold standard.

Then appointed by Carter in ‘79 to the Federal Reserve.

But most of his interest rate tightening happened under Reagan with a peak tightening in ‘81 with fed funds rate at 20%.

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#19

Post by refurb »

Kon-Peki wrote: post #16
anonuser123456 wrote: post #14

Earlier quoted context omitted.

Volcker was appointed by Carter, not Reagan.

Reagan stacked the Fed with loyalists and forced Volcker to resign.

How does the President “force” someone to resign when they are in charge of selecting the person for that role?

Re: U.S. inflation reached a new four-decade high of 8.6% in May

#20

Post by voisin »

refurb wrote: post #11
voisin wrote: post #8

Earlier quoted context omitted.

> They can't raise interest rates quickly because it would nuke the easy-money economy (i.e. the entire economy) that has become addicted to low rates. This is exactly why the easy-money economy should never have been allowed to occur and persist for so long.

The amazing thing is many were predicting this back in 2008. If anyone wants to listen to a prescient conversation about the feds actions post-2008 and inflation today, take a listen to this podcast. It was recorded in 2009. https://www.econtalk.org/meltzer-on-inflation/ It’s an interview with Prof Meltzer from Carnegie Mellon who has done extensive research on the federal reserve system and who wrote the de facto of…

Thanks for sharing. This is largely why I think we are fooling ourselves with the idea that a few rate rises will be sufficient and this will be short lived with a soft landing. I think we are going to need high single digit rates to contain inflation and it will lead to a recession (I think we are already in one). Generally higher levels of indebtedness (public and private) will lead to widespread pain. I am normally an optimistic person but don’t find any reason to be optimistic about getting out of this economic hole we’ve spent decades digging.
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