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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

#91

Post by snapcaster »

electrondood wrote: post #58
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…

Elaborate? The difference is direction. Are you just warning about deflation?

I think the comment you're responding to is more pointing out that it is made up of many different components (a high dimensional vector)

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

#92

Post by cjbgkagh »

slg wrote: post #83
cjbgkagh wrote: post #75

Earlier quoted context omitted.

> The real interest rate is the nominal interest rate minus inflation. Yes. > When there is inflation, the real interest rate for holding cash is negative. No. This assumes nominal interest rate stays constant which it very much will not do.

I'm still not following your line of thinking. The nominal interest rate on holding cash is always 0%.

You’re right, I didn't read your question accurately. By cash I assumed interest collecting back accounts. The missing out of the opportunity to make risk free money is punishment enough. If people elect to do this then they don’t think it’s risk free and thus are paying a premium to reduce risk.

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

#93

Post by runako »

wewtyflakes wrote: post #82
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…

All of those things seem okay, or even good.

Health and other benefits aside, they are "bad" in the context of people don't like having those decisions forced on them.

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

#94

Post by twixfel »

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.

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 the dynamics of the global economy?

I don't understand the magical thinking often demonstrated in these threads. Just because it sounds plausible, that doesn't necessarily mean its true.

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

#95

Post by runako »

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.

> I usually buy things because I need them, or want them in the moment.

Consider yourself extremely fortunate to be able to manage your purchases this way, but also consider that this is not the norm.

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

#96

Post by runako »

A4ET8a8uTh0 wrote: post #86
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.

This may be the misconception that is driving this. Nothing will be cheaper ( decrease in price ). It will simply not appreciate in price as much ( price will increase less ). Agreed, especially in US where consumer spending drives the economy. Still, in US, for better or worse, a lot of personal wealth is stored in real estate ( which also manages to explain some US idiosyncrasies ). Deflation would 'destroy' equity…

> Nothing will be cheaper ( decrease in price )

I strongly recommend you review the definition of deflation.

> Higher inflation means our debt is 'worth' less

Inflation is a huge benefit to the debtor class, which includes most homeowners. The rhetorical tactic of focusing on high gas prices brilliantly misdirects people from asking the relevant question of why their wages aren't increasing at the same rate as inflation. Once wages catch up to this recent bout of inflation (they eventually will), most consumers will be much better off than if the inflation had never happened.

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

#97

Post by GoodJokes »

n8cpdx wrote: post #11
OgAstorga wrote: post #5

Earlier 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.

No post body was provided.

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

#98

Post by godelski »

mistrial9 wrote: post #66
godelski wrote: post #43

Earlier quoted context omitted.

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 wh…

I don't think what you've said counters the idea that money needs to move hands and be exchanged. That's the root idea of inflation under a consumer based economy. Like I said, it is similarly bad when people (or large corporations) pool money and are not spending it. It is true for any type of actor, that we'd want to encourage them to spend the majority of their wealth and save very little (for the median person a retirement savings would be inconsequential and that money is just delayed anyways, so wouldn't affect the system much. Especially since it is staggered).

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

#99

Post by wwweston »

cableshaft wrote: post #85
boringg wrote: post #61

Earlier quoted context omitted.

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.

Zoom out to its earliest recorded data around 1945 on that chart, and the CPI inflation in the past couple of years is still clearly the fastest and steepest slope compared to all previous decades, including the 70s when overall inflation got up to 12% and the early 80s when Fed interest rates went up to over 20% to combat that inflation. Might not look as bad as when it's super zoomed in, but that still seems pretty…

Not sure we've ever had a supply shock quite like this one? The OPEC/energy crisis played a big role in the 70s, but that doesn't seem nearly as broad as the last two years...

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

#100

Post by theptip »

nostrademons wrote: post #59
sgerenser wrote: post #2

"The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.1 percent before seasonal adjustment." I feel like the rise of only 0.1% October->November is more significant than the 7.1% YOY headline number, which…

The MoM numbers are important, but the breakdown is also important. The breakdown is worrisome - MoM declines were almost entirely driven by gas and other oil-related commodities, and we're still seeing very significant inflation in food (0.5% MoM) and shelter (0.6% MoM). Food and energy are transient (prices can go down as easily as they go up), but shelter and wages are sticky (they very rarely go down, and usually…

Great detail, thanks. Any suggestions for further analysis/reading on the 70s recessionary environment?

Didn’t you have the black swan of the US going off the Gold Standard as a major inflationary driver at that time? Is there a similar looming inflationary pressure you see now?

My (limited) model is we’re seeing some supply-side disruptions and a some hot demand from Covid stimulus, but it’s not clear to me if these drivers are likely to continue through 2023 and beyond. (I assume mostly not, with Ukraine being the big problem, but mostly for EU rather than US.)

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