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U.S. Inflation Accelerates to 40-Year High

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Re: U.S. Inflation Accelerates to 40-Year High

#161

Post by jcadam »

skdlllaaa wrote: post #71
jquery wrote: post #57

Earlier quoted context omitted.

Armchair financiers on HN are always full of energy. Considering what we were threatened with at the beginning of the COVID-19 pandemic (total economic meltdown), 7.5% inflation is downright relaxing.

> 7.5% inflation is downright relaxing COVID didn't cause inflation. Helicopter money did. My liquid net worth almost doubled in the middle of a crisis and my inflation hedge (my house) is worth twice what I bought it for. The average blue collar person doesn't have the benefits we do and can't play the game. 7.5% "inflation" (if you want to call CPI that) is panic inducing for basically anyone else.

I've taken the amount of cash held in my savings account down to very little and am pushing my usual savings budget into stocks, silver, and crypto. Holding USD seems.... ill-advised.

Re: U.S. Inflation Accelerates to 40-Year High

#162

Post by pessimizer »

bko wrote: post #30
marricks wrote: post #14

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another. Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing. EDIT: I'd like to add, wage gr…

Believe it or not, but wealthy people have more debt relative to income than the poor. For instance, I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income. That's wh…

> And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.

The wages of the poor go up with inflation.

> I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income.

That's why family annihilators are dominated by middle-class dads who lost their jobs and couldn't find another. Middle-class people can accumulate an ungodly amount of debt before the runway runs out.

Re: U.S. Inflation Accelerates to 40-Year High

#163

Post by hedora »

danielmarkbruce wrote: post #76
recursivedoubts wrote: post #7

We are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything. I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger. It's a good reas…

This isn't right. The fed basically controls the very short end of the curve. The 30 year rate is above 2 (it briefly touched around 1.3 or something during the start of the covid panic). No one is/was discounting cashflows 10 years into the future at 0 so "all cash flows" didn't have infinite net present value.

I just refinanced a mortgage, and discounted the cashflow on assuming an effective interest rate of -2% to -5%, pre-inflation, assuming the borrowed cash is in a diversified portfolio.

Maybe I'm an idiot, but if so, I'm not alone. Multiple major investment firms are recommending this to their clients.

Anyway, I gotta go count my Krugerrands.

Re: U.S. Inflation Accelerates to 40-Year High

#164

Post by mFixman »

jesusthatsgreat wrote: post #110
JaimeThompson wrote: post #90

I would think that the impact of rising prices would be reflected in reduced profits but it seems like most of the major companies are reporting rather large profits. Could it be some of the inflation is simply companies taking advantage to raise prices not because they need to but simply because they can?

Absolutely. If cost of goods goes up 7.8%, most companies will round prices up by 10%. Increased costs is a great excuse to not only pass costs on to the consumer, but sneak in some additional "while we're at it" price rises too.

Most goods didn't go up in price in the years before the pandemic despite consistent ~2.5% inflation.

Companies try to raise prices as little as possible, which means accounting for inflation in previous and following years.

Re: U.S. Inflation Accelerates to 40-Year High

#165

Post by jcadam »

recursivedoubts wrote: post #7

We are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything. I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger. It's a good reas…

Given the current debt, the Fed simply can't raise rates to the degree Paul Volcker did the last time we had inflation like this. So they're going to play around with rates in the low single digits and then go back to zero when the economy starts sputtering.

Re: U.S. Inflation Accelerates to 40-Year High

#166

Post by eldavido »

squidlogic wrote: post #131
eldavido wrote: post #27

Earlier quoted context omitted.

> a good reason to never let rates get this low in the first place My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people. You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting o…

>asset prices don't matter to ordinary people. Can you provide some data on this assertion? I would be surprised to learn that the majority of ordinary people (assuming you mean something like 'net worth < $1MM USD') do not care about housing costs and car costs, which are both assets.

The median net worth in the United States is approximately zero (assets less student loans, mortgage debt, etc). The median 401k balance in the US is something like 100k. I'm probably right of many people here politically but will readily admit, there's a lot less wealth out there than you'd think, and what there is, is held by a pretty small number of people.

Also, speaking broadly, I don't think the economics profession really understands the connection between house prices and rents. It's a complex topic with a lot of conflicting information. I definitely wouldn't take it as an article of faith that more expensive housing necessarily implies higher rents. There are all kinds of complex subsidies like mortgage interest deductions, factors like credit availability, short-term fluctuations in material and labor prices, etc that make a straight-through 1:1 correlation too clean.

As a general comment, it helps to disaggregate when thinking about huge topics like rental inflation. Rent is growing fast in western/mountain markets (e.g. Idaho) and places like Miami, while hardly budging in places like Cleveland or St. Louis. I'm sorry not to have citations on a lot of this, it mostly comes from firsthand experience and a lot of reading -- I read the economist cover-to-cover every week, manage 12 rental units, and talk to friends and family spread across the US (Seattle, DC, Chicago, Indiana, etc) almost every week.

Re: U.S. Inflation Accelerates to 40-Year High

#167

Post by pessimizer »

yobbo wrote: post #54
marricks wrote: post #14

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another. Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing. EDIT: I'd like to add, wage gr…

> Inflation is a good thing for people with a lot of debt Iff their income increases faster than their interest rate. > I'd like to add, wage growth is outpacing inflation Only applicable if it refers to median income (not mean income.)

Mean income is a statistic skewed towards the wealthy, so that just re-enforces the point.

Re: U.S. Inflation Accelerates to 40-Year High

#168

Post by MuffinFlavored »

eldavido wrote: post #27
recursivedoubts wrote: post #7

We are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything. I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger. It's a good reas…

> a good reason to never let rates get this low in the first place My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people. You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting o…

> Full employment is going great

Is it? I thought we still have a labor shortage and the unemployment metric is skewed because it doesn't tell the full story of people who just left the labor market.

Re: U.S. Inflation Accelerates to 40-Year High

#169

Post by [deleted] »

teraflop wrote: post #49

As usual, take headlines about inflation with a grain of salt. Yes, the year-over-year inflation reached a new peak. But the month-over-month inflation rate has actually been declining since last October: https://www.bls.gov/news.release/cpi.nr0.htm So when organizations publish a new article every month saying inflation is "accelerating", they're being incredibly misleading.

[deleted]

Re: U.S. Inflation Accelerates to 40-Year High

#170

Post by mostlysimilar »

ren_engineer wrote: post #21
newyankee wrote: post #3

This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?

>I wonder though what happens now, is hyperinflation a real possibility It will happen if the Dollar loses global reserve currency status. China, Russia, and a few allies could pull the rug out from under the US pretty easily. A lot of countries are tired of the US exporting their inflation

Would you mind expanding a little on this for me? I'm curious but don't know much about this topic.

If having reserve currency status gives a country a tool of "exporting inflation" and countries are tired of the US doing it, it seems unlikely those countries would willingly put that tool in the hands of Russia or China, whom they presumably trust much less. (Assuming we're talking about western Europe.)

Devil you know or devil you don't?

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