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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

#111

Post by rendang »

crazygringo wrote: post #84
mikewarot wrote: post #35

Reminder: Inflation is a vector, not a scalar. Ignore the abstraction at your own risk. Inflation is the rise in price of every single item for sale across a market, not just the "basket" of goods selected to be a good example, and subject to adjustment and correction over time. It is entirely possible that inflation that averages out to 10% for a year may double the cost of living for some people, and actually make…

I'm racking my brain to try imagine what you could possibly mean, and I've got nothing. Scalars are 1-dimensional. Inflation is very much a one-dimensional number, ranging from positive to negative. Vectors have 2 or more dimensions, interpretable as a scalar with a rotational direction. So how would that describe inflation exactly...? And if you're trying to say that inflation changes over time, that doesn't turn it…

I believe the point is that the price of each individual good or service is a dimension. They all can move independently of one another, CPI is just an estimate of the total effect of inflation by using a weighted sample of particular items.

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

#112

Post by A4ET8a8uTh0 »

runako wrote: post #104
A4ET8a8uTh0 wrote: post #102

Earlier quoted context omitted.

It is possible I am working with old mental models, but first search result defines it as: "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency. It can be driven by an increase in productivity and the abundance of goods and services, by a decrease in total or aggregate demand, or by a decrease in the supply of money and credit." If prices increase (…

> "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency..." The first part of that sentence says that prices decrease. They do not increase at a lower rate, they actually fall in deflation. Deflation is negative inflation, if you want to think of it that way. Deflation is _not_ small positive inflation. Since we are on a tech-focused site, the best e…

We may be talking past one another and seem in agreement mostly except for your opening assessment.

The original if clause may be true( "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"), but it is not applicable to the current environment as we are not experiencing deflation, but inflation. As in, business are not expecting lower cheaper ( lower prices ). They will be expecting less high prices. If they will curtail spending it is because got prohibitively expensive. If anything, they will save money buy stocking up, while the price is low. I personally think your interpretation model for what is happening is off here.

Hope that makes more sense now.

Let me see if I can sum up the main argument until now:

You post >> 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).

I post >> [ but ] Nothing will be cheaper ( decrease in price ) [ next month ]

You post >> I strongly recommend you review the definition of deflation.

I post >> "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency. It can be driven by an increase in productivity and the abundance of goods and services, by a decrease in total or aggregate demand, or by a decrease in the supply of money and credit."

You post >> "Deflation is negative inflation, if you want to think of it that way. Deflation is _not_ small positive inflation."

I post >> this post since we seem to saying the same thing so I revisit initial assumptions

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

#113

Post by id_240 »

algoatecorn wrote: post #87
propogandist wrote: post #18

once the SPR cannot be drained to manipulate gasoline costs, things will get interesting.

Indeed, we have seen a ~35% reduction is SPR this year and are not far from 1980s level. I'm also not sure how the US is planning to restore these values given our refinery capacity and poor relationships with other top suppliers. Not the mention, CPI is one thing, and how the average American feels is another. If you poll random people on the street, this "slowdown" in inflation is not perceived by individuals' wall…

Actually, inflation expectations as polled by the New York Fed [1] is down in the short, medium, and long (1-year, 3-year, 5-year) term.

[1] https://www.newyorkfed.org/newsevents/news/research/2022/202...

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

#114

Post by temp2022acc »

dragonwriter wrote: post #78
zppln wrote: post #41

Earlier quoted context omitted.

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.

> 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. There’s a reason n =1 samples aren't usually the basis for general descriptions of behavioral trends.

N=2 with me but yeah I can understand. Obviously that's why economic niches still exist and broad models only explain broad trends.

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

#115

Post by jjk166 »

listenallyall wrote: post #62
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 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.

Conversely, if someone is tailgating you then tapping the breaks at 120 mph is much more dangerous than at low speeds, as they have less time to react. Likewise the sudden shock of going straight from inflation to deflation could be much worse than deflation after a long period of stagnancy, as not only do you suffer all the issues of deflation but you also have the delayed response of things adapting to the inflation.

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

#116

Post by runako »

A4ET8a8uTh0 wrote: post #112
runako wrote: post #104

Earlier quoted context omitted.

> "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency..." The first part of that sentence says that prices decrease. They do not increase at a lower rate, they actually fall in deflation. Deflation is negative inflation, if you want to think of it that way. Deflation is _not_ small positive inflation. Since we are on a tech-focused site, the best e…

We may be talking past one another and seem in agreement mostly except for your opening assessment. The original if clause may be true( "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 "), but it is not applicable to the current environ…

You are correct, this entire thread is a response to a question specifically about deflation (not inflation). So the discussion in the thread is about decreasing prices. Which, as you point out, is not what we have now.

You may want to join the top-level thread, which is about the current inflationary environment.

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

#117

Post by AnimalMuppet »

ChuckNorris89 wrote: post #17
Wowfunhappy wrote: post #7

Earlier quoted context omitted.

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

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

Deflation is bad because some people owe money.

Lets say I buy a house for $500,000. I put $25,000 down and get a mortgage for $475,000. Then deflation hits. It's not just that my house becomes worth less in dollar terms (though it does), but also that I'm paying my mortgage with more expensive dollars. (In a real deflation, your salary can decrease.) That hurts. Some people lose their houses. The mortgage holders sell the houses for what they can get, which does two things. It drives down the price of houses. Also, it decreases the amount of dollars that are theoretically in the economy, so dollars become more valuable, and the deflation continues. Historically, this has caused enormous amounts of damage, wiping out businesses and families.

Now, 1% deflation this month won't do any of that. The problem is that the deflation can gain momentum and be very difficult to stop (similar to inflation in fact, but deflation can happen faster). So the Fed prefers to stay away from deflation, preferring something like 2% inflation to give them a bit of margin to work with. And they've been nervous since 2008 because they couldn't get back up to 2% inflation.

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

#118

Post by saurik »

ClumsyPilot wrote: post #106
runako wrote: post #69

Earlier quoted context omitted.

> 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 inflatio…

> owners will bias toward patching things as long as they can So if we live more sustainably, the economic system colapses? Is that a bug or a feature? I just had my landlord throw away the dishwasher because replacing the tiny pump was not worth the effort. Myfriend threw away a fridge because replacing a single part, the compressor, was not worth the trouble.

Yeah: heaven forbid anyone save money or resources... we all need to be as rapidly indulgent and wasteful as possible, because that moves the most money around the system the fastest, which is the primary goal of humanity.

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

#119

Post by algoatecorn »

id_240 wrote: post #113
algoatecorn wrote: post #87

Earlier quoted context omitted.

Indeed, we have seen a ~35% reduction is SPR this year and are not far from 1980s level. I'm also not sure how the US is planning to restore these values given our refinery capacity and poor relationships with other top suppliers. Not the mention, CPI is one thing, and how the average American feels is another. If you poll random people on the street, this "slowdown" in inflation is not perceived by individuals' wall…

Actually, inflation expectations as polled by the New York Fed [1] is down in the short, medium, and long (1-year, 3-year, 5-year) term. [1] https://www.newyorkfed.org/newsevents/news/research/2022/202...

Expectations are not the same as consumer behavior which is reflected in sales revenue.

On average, wages have not kept up with inflation.

This means the average person will either cut back, or they will make the sub-optimal decision to not change their spending habits.

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

#120

Post by djg321 »

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.

Interestingly enough, prices don't even need to become cheaper month to month for there to be an incentive to delay spending. Having access to a positive (real) interest bearing account does the same thing: why spend $1000 today when you can spend $1000 a year from now and keep the $30 in interest (assuming a 3% real interest rate).
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