once the SPR cannot be drained to manipulate gasoline costs, things will get interesting.
Seeing as oil is now around $70 a barrel, they can refill it for a profit.
Refill it with oil where from where?
US annual inflation declines to 7.1% in November vs. 7.3% expected
121–130 of 163 posts
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#122Earlier quoted context omitted.
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.
Similarly, I find myself laughing when people describe this as a high-rate environment. Or when they blame the relatively brief Covid ZIRP for wide ills. The ZIRP of the 2010s is still confusing people.
There are 35 year olds now that were only just graduating college in 2009 (I'd argue before then most people are largely oblivious to economics) and don't know anything other than ZIRP plus the pandemic.
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#123Earlier quoted context omitted.
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.
We've been below the target inflation rate for 15 years. We haven't had CPI consistently above 2% in the US since the 1980s. I don't see how this can be a "correction"
The 15-year average temperature of a building could easily be within a normal, safe range, but if it is currently on fire, the past 15 years don't really matter, do they?
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#124Earlier quoted context omitted.
This is it, the economy is grinding to a halt. Not good either.
You can't slow inflation by raising interest rates without slowing the economy. There are no rainbow unicorns here. The best outcome here is a so-called "soft-landing" in which growth slows but we don't have a recession or spike in unemployment. Taking the recent jobs report and this CPI report, we might just get that soft landing we need. Also, fyi, while wages overall did not keep up with inflation, they did in the…
We're not going to get a soft landing. They're going to push unemployment up to 6-8% to accomplish their policy goals of containing wage inflation and breaking the back of unionization drives (probably closer to 8% after something like CMBS detonates in about a year or so). That wage inflation in lower paying jobs is actually what concerns policymakers.
Talk about a "soft landing" is very 2006-ish.
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#125Earlier quoted context omitted.
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 inflatio…
Who is the tailgater in this scenario?
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#126Earlier quoted context omitted.
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.
Any evidence for your claim that deflation following a period of inflation has fewer (or none) of the harms associated with deflation? Any reason to believe that central bankers are in a good position to fine tune to get just the right amount of deflation and not overdo it, given that they already struggle with the same for inflation? Any reason to believe that the dynamics of a car diving in a line are comparable to…
If you're waiting for undisputable hard evidence of any macroeconomic theory, you'll be waiting a long time. The global economy is constantly changing and evolving and nations interact and trade in different ways over time.
I have no faith in central banks to engineer a perfect landing, that's not the argument, it's simply that the concept of "deflation = bad" is not necessarily a universal truth.
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#127Earlier quoted context omitted.
As expected. As interest rates rise more capital that would otherwise be allocated on businesses, real estate, stocks, etcetera is redirected into safer and now more attractive bets like bonds and interest rates tied instruments
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.
>It’s amazing seeing all of society stumbling towards re-learning basic economics
You mean capital will follow the best rates to fight inflation? Crazy!
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#128Reminder: 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…
If the price of tacos doubles, and the price of toilet paper halves, in a universe with only those two commodities, what is inflation?
It's (2, 0.5).
You could turn this into a scalar if you want to. But you have to throw away information to do so. Or, to put it another way, you have to select a subset of the information.
You can't interpret the inflation vector as a direction, because inflation space is not a metric space (or something - the particular genre of vector spaces where geometric concepts are meaningful).
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#129Earlier quoted context omitted.
Actually, consumers very much do delay purchases, especially of big ticket items like white goods, cars, and houses in deflationary regimes, just as in periods of hyperinflation they do the opposite. This is easy to look up as there are many examples through history (especially of the latter — Brazil is an excellent and frightening example). Groceries, sure, but then as a consumer you are still impacted because suppl…
And indeed if consumers didn't delay purchases, we wouldn't see deflation. Businesses don't collectively decide to reduce prices month after month out of generosity. They do it because the economy is in a position where none of them are selling enough at the current price. If everyone is selling less stuff at lower prices, then sooner or later the problem becomes the employees'...
Very good and strangely non-obvious point.
Re: US annual inflation declines to 7.1% in November vs. 7.3% expected
#130Earlier quoted context omitted.
When considered logically the correct amount of inflation should be 0% - neither inflation nor deflation. This would give us stable prices and make it much easier to calculate what is increasing or decreasing in price without this other fuzzy “inflation” metric affecting it. However governments / central banks have convinced us that 2% is “correct” despite no evidence or research. It does help them print money and ba…
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.
There should not be a penalty for saving money. Furthermore you can give your money to the bank as a deposit (loan) and the bank will pay you some rate based upon what they can invest it on. Nowhere here does this require any level of inflation.