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US annual inflation declines to 7.1% in November vs. 7.3% expected

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Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#61

Post by boringg »

jalopy wrote: post #44

It's more helpful to look at a graph to see trends: https://fred.stlouisfed.org/graph/?g=XCAY As one can see, the CPI was fairly steep during the period from Jan 2021 till June 2022; from there it has visibly flattened. EDIT: A rolling 6 month annualized rate makes the drop pretty obvious: https://docs.google.com/spreadsheets/d/1VCEwEDWCAaWhmbosXIcD...

Look at that hockey stick curve - up and to the right! It looks like the step in inflation from 2020 onwards was quite large but over the longer time horizon it looks back to a more reasonable rate. Funny to look at rising prices over the long term.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#62

Post by listenallyall »

runako wrote: post #24
ChuckNorris89 wrote: post #17

Earlier quoted context omitted.

Can someone please school me on why that would be bad?

If the expectation is that everything will be cheaper next month than this month, that creates an incentive for everyone (and every business) to delay purchases as long as possible (because they will save money buying in the future). When everyone slows spending at once, it can lead to severe a recession or depression.

I think you have to put every scenario in context with what came before. Yes, traditionally, widespread deflation can sometimes lead to recession. But when the economy has been running overheated for years, it's more of a correction to cool things off.

If you're driving at 120 mph and tap the brakes, that's different than driving the speed limit and braking, the latter is much more likely to cause a traffic jam.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#63

Post by woodruffw »

zppln wrote: post #41
runako wrote: post #24

Earlier quoted context omitted.

If the expectation is that everything will be cheaper next month than this month, that creates an incentive for everyone (and every business) to delay purchases as long as possible (because they will save money buying in the future). When everyone slows spending at once, it can lead to severe a recession or depression.

I'm not sure I buy (heh) into this. I usually buy things because I need them, or want them in the moment. I'm not gonna postpone buying a washing machine because it might be cheaper next month. I'm not gonna pass on getting wasted because drinks are cheaper next month. I'm not gonna starve myself because food might be cheaper next week.

These are market trends, not individual behavioral trends. We know that people do spend money during periods of inflation, because they understand that the relative purchasing power of their money is decreasing. The contrapositive of that is that they don't spend as much during periods of deflation, because their relative purchasing power is going up.

(There's also an error in assigning unit purchases like washing machines as a proxy for consumer behavior: consumers select within a purchasing category more frequently that then opt out of categories. In other words: deflation and inflation can determine how much you're willing to spend on a washing machine, rather than breaking your commitment to already purchase one.)

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#64

Post by coliveira »

Wowfunhappy wrote: post #7
josephcsible wrote: post #4

Remember that "declines" in this context just means that prices are going up slightly slower than they were before. It doesn't mean anything's getting any cheaper.

Yes, if things were actually getting cheaper that would be "deflation" and it would probably be bad.

Not right after a steep inflationary period like we're living. Some deflation would actually be a concrete sign of things going back to normal. Slightly lower inflation as we see will do little to help families for the next few months or years, and it is clearly inflationary.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#65

Post by jonnycomputer »

standardUser wrote: post #16
n8cpdx wrote: post #11

Earlier quoted context omitted.

It’s amazing seeing all of society stumbling towards re-learning basic economics after being in a collective fugue/mass delusion for 2020-2021. Fed discovers relationship between interest rates and inflation, more at 11.

People have been "delusional" in a sense since the late 90's when inflation slowed to a crawl and everyone got used to stable prices. If inflation had been ~1% higher over these last decades, prices wouldn't be far off from where they are now and people wouldn't have flipped out so dramatically over the sudden adjustment.

And we'd likely have had more economic growth, higher employment, and better investment in US infrastructure and education.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#66

Post by mistrial9 »

godelski wrote: post #43
ChuckNorris89 wrote: post #17

Earlier quoted context omitted.

Can someone please school me on why that would be bad?

A consumer based society requires people to consume, or buy things. Because of this you want a low level of inflation so that people buy things now rather than next year and keep the money in the system moving around (ironically this theory of money also makes people that have more money than they can spend unhealthy to the system). You want the money constantly moving through the system instead of pooling up.

people always consume and buy things.. the situation in the USA is that there has been money printing, asset inflation, cheap products from China and cheap gas for decades.. the system is exhausted in some parts, yet money isnt being exchanged the way it used to be, at small retail, among individuals.. some intermediaries have made so much money in the last two decades that they go into "castle" mode, while people who tried to work for a living, saw their income drop, wages actually go down in many industries due to "illegal" workers and "gig work" setups .. and essential costs of living like medical, housing and some others.. costs are much higher now. This is well documented.

Since covid, whole industries in retail, food and travel have shut down almost completely.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#67

Post by [deleted] »

nimbius wrote: post #47
josephcsible wrote: post #4

Remember that "declines" in this context just means that prices are going up slightly slower than they were before. It doesn't mean anything's getting any cheaper.

two tenths of a percent decline is barely a remarkable, let alone laudable achievement. This might be a sobering sentiment but US inflation is still out of control. ideal inflation is 2% and policy handbrakes like increases in the prime rate are too little too late as we should have sought percentage point increases a year ago as opposed to the fractional increments we saw last november. Arguably the half-percent mod…

[deleted]

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#68

Post by slg »

cjbgkagh wrote: post #45
slg wrote: post #38

Earlier quoted context omitted.

0% inflation would mean there is no penalty for sitting on your money. People putting their cash under their mattress instead of in savings accounts, CDs, bonds, and the like is bad for the economy. That is why economists generally prefer a small positive rate of inflation. It adds more incentive to both spend and invest.

Inflation is not interest rates, it’s perfectly normal and proper to have higher interest rates than inflation. They’re only linked due to rehypothecation of money supply which is a problem in an of itself. But it gets a little complex to explain. Edit: my brain skipped over the ‘cash’ part and assumed ‘risk free’ interest would still be collected.

Can you explain why you think this disputes my point?

The real interest rate is the nominal interest rate minus inflation. When there is inflation, the real interest rate for holding cash is negative. When there is no inflation, that real interest rate is 0%. The disincentive to holding cash disappears and therefore more people hold cash.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#69

Post by runako »

geye1234 wrote: post #37
runako wrote: post #24

Earlier quoted context omitted.

If the expectation is that everything will be cheaper next month than this month, that creates an incentive for everyone (and every business) to delay purchases as long as possible (because they will save money buying in the future). When everyone slows spending at once, it can lead to severe a recession or depression.

Perhaps for businesses this may be true. It's hard to imagine for a consumer. I'm not going to delay the purchase of groceries, a fridge, a new roof or (if I'm feeling rich) a new car just because they may be 3% cheaper next year. I'm not saying this conventional wisdom is wrong, but it's not obviously right.

> delay the purchase of groceries

This will obviously not mean skipping eating, but will manifest more as fewer "special" meals like steak or lobster or whatever.

> a fridge, a new roof

If you are a homeowner, you know that most equipment failures are a decision to either repair or replace. In a deflationary environment, owners will bias toward patching things as long as they can. (The opposite is true in an inflationary environment.)

> a new car

You may be extremely fortunate. Most people would try to make it through (say) a year of public transit/rideshare/etc. if they could save (say) 8% on a car. Average price of a new car in 2022 is ~$48k; saving 8% on that is something like half a month's pay at the average American salary, which is larger than the annual raises most people get at even good jobs, even in good times. Don't underestimate the sacrifice people will make to earn another few hundred $/mo.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#70

Post by msbarnett »

sprash wrote: post #28
oneoff786 wrote: post #23

Earlier quoted context omitted.

You’re incentivized to avoid spending money.

Why would that be bad?

You only have to look at Japan for the last few decades to see what the long term effects of deflation look like. Negative economic growth, few job opportunities for young people, investment and lending are de-incentivized so innovation and industry growth moves to other countries, while owning property becomes a liability, etc. Managed decline is about the best case scenario for a deflationary economy.
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