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The Ultimate Guide to Inflation

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Re: The Ultimate Guide to Inflation

#71

Post by alex_smart »

cortesoft wrote: post #34

I've wondered what the effect our modern digital economy has had on consumer price inflation. Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available. This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix s…

>The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage.

Yeah, I don't think that that argument works at all. The price does not increase due to "shortage", it increases due to an increase in consumers' willingness to pay. Going by the Netflix example, if Netflix realizes that not too many people will cancel their subscriptions if they were to increase the price by, say, 1 dollar, they would certainly increase the price.

Consumers' WTP is the reason why digital goods are priced differently in different markets. Many digital goods are sold for much cheaper in India compared to developed countries because the Indian market is much more price sensitive. For instance, Netflix costs only about half as much in India as it does in America.

Re: The Ultimate Guide to Inflation

#73

Post by cortesoft »

gruez wrote: post #63
cortesoft wrote: post #34

I've wondered what the effect our modern digital economy has had on consumer price inflation. Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available. This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix s…

>I am curious how much of our current "low inflation even with an increasing money supply" is caused by our increasing spending on non-exclusionary goods. Not much? Based on the CPI weights given by the BLS[1] at least 82.238% of the CPI is from non digital goods. This is based on summing up the top level categories which are definitely not digital, ie. Food and beverages, Housing, Apparel, Transportation, Medical ca…

Yeah, that doesn't say how much of actual consumer spending goes into the goods that are included in the CPI. Even if the CPI were based 100% on non-digital goods, the percentage of purchases that go towards CPI goods could be falling.

Re: The Ultimate Guide to Inflation

#74

Post by kebman »

Edman274 wrote: post #65
kebman wrote: post #45

Earlier quoted context omitted.

Yes, don't worry guys. The Federal Reserve has got you covered. And if things get too expensive, you can always just ask for a raise, amirite! :) Anyway, here's a cash crop chart for corn that has more than doubled in price since last year. Once the cost of making finished products with these crops increase, you can be sure that shop prices will also reflect it. Some of these charts are even growing exponentially. ^1…

If you zoom out to 20 years it shows that back in 2011 the same thing happened; did we have hyperinflation in 2011 or huge price increases in food in 2011?

I didn't say we'd have hyper-inflation. I said we'd have inflation, and the banks are saying that too, btw. What we're seeing now isn't just some seasonal pump, but a huge across the board pump. Of course, if wages also reflect that increase, then there's not much of a problem. But what we're facing today is massive unemployment, and a massive amount of money sitting un-touched in banks, sometimes with negative interest. Negative interest plus more inflation equals less purchasing power for you either way you try to argue. So what we're witnessing now is a massive transfer of wealth. The only thing most normies can hope for, is a higher price on Doge. But yes, if the printing gets out of hand, we'll have hyper-inflation too. Some of these charts are already going exponential.

Re: The Ultimate Guide to Inflation

#75

Post by xyzzyz »

deanak wrote: post #49

So far it's a lot of words and graphs with a tenuous grip on reality in a few places: > There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expe…

> If you think someone in a low tax bracket on fixed income has the spare money to invest in anything, you're not understanding the words "low income" or "fixed."

The low fixed income often comes from investment. For example, you save money in 401k, then as you near retirement, you shift investments into safer instruments ie. bonds. The result is exactly low fixed income and vulnerability to inflation.

Re: The Ultimate Guide to Inflation

#76

Post by alex_smart »

cortesoft wrote: post #70
lupire wrote: post #40

Earlier quoted context omitted.

Businesses charge what customers are willing to pay. If they have more money, they are willing to pay more. Competitiuis the countervailing force, but Netflix has exclusives and serials and network effects (fandoms and friends)

Sure, but that doesn't say anything about inflation. The standard formula for profit is (units sold * price per unit) - (fixed costs + marginal costs * units sold).... Netflix, like every other company, wants to maximize that profit. For most non-digital companies, the marginal cost is significant, and follows a u-shaped curve... at first, marginal costs decrease as you sell more units, since you can get intermediate…

It means that in your formula, the (units sold * price per unit) term dominates the profit formula. So, the price is mostly determined by the consumer's willing to pay.

Re: The Ultimate Guide to Inflation

#77

Post by anm89 »

deanak wrote: post #49

So far it's a lot of words and graphs with a tenuous grip on reality in a few places: > There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expe…

This is culture war baiting.

The whole appeal of someone like Alden is that she isn't playing for either team, shes just trying to step back and analyze. And it is a much more useful an interesting perspective on the world than turning every single discussion into team sports politics.

The fact that the parent is one of the more upvoted comments I've ever written seems to indicate that I'm not alone.

A final point is that her publicly listed example portfolio performance seems to indicate the she has an exceptionally solid grasp on reality.

Re: The Ultimate Guide to Inflation

#78

Post by base698 »

cortesoft wrote: post #34

I've wondered what the effect our modern digital economy has had on consumer price inflation. Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available. This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix s…

Cantillion effect:

> Cantillion wrote:

> “The river, which runs and winds about in its bed, will not flow with double the speed when the amount of water is doubled.”

> Inflation is not simply an average rise in prices. Prices do not rise proportionally or simultaneously. This results in arbitrary benefit to some who have not created any economic value and detriment to others who have not destroyed anything of economic value by destroying savings for example. This is the Cantillion effect.

Re: The Ultimate Guide to Inflation

#79

Post by jpmattia »

The section on owner's equivalent rent (OER) is worth finding in the long article: OER accounts for about 1/3 of the CPI. However, when you view OER in light of the housing bubble around 2006, CPI was negligibly affected.

IMHO, it is a large signal that CPI fails to accurately describe consumer inflation for a large segment of the population.

Re: The Ultimate Guide to Inflation

#80

Post by aazaa »

> Inflation: During periods of moderate to high inflation, gold and commodities tend to do extremely well. Equities outperform bonds more often than not, but it depends on the type of equities and their starting valuations, and therefore have a huge variance. Real estate does well, mainly because leverage attached to it gets melted away from inflation. Bonds do poorly in inflationary environments.

The article doesn't talk specifically about gold, but I believe it should. From this chart, you can see that gold started an upward trend in price pre-pandemic that peaked in August of last year, and has since declined noticeably:

https://www.tradingview.com/symbols/XAUUSD/

Gold is supposed to be the canary in the coal mine for inflation. The slightest whiff of inflation is supposed to send the price soaring, usually led by gold mining stocks.

This hasn't happened. As the price of copper, lumber, other base commodities, houses, used cars, and possibly even labor, has surged, gold has barely budged.

What does gold's lackluster performance so far say about the future direction of inflation?

That's the question people worried about (hyper)inflation should be asking themselves.

Many in the gold market claim that the price is being manipulated by central banks, by the paper derivatives market, an other forces.

But it's very hard to believe that literally every other commodity is flying to the moon while gold is stuck in the basement due to "manipulation."

Something isn't adding up here.

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