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Discussion in 'West Mall' started by Chop, Nov 30, 2021.
Any Energy shocks might derail the train, but I like your projection. Maybe shift the projections several months out. But yeah, it looks like inflation is likely to start going down.
PPI came in today at 7%. Will likely be 5% by March is my guess.
That’s good news. With gas way down, and inflation coming down, it looks like energy is driving the inflation bus in big part.
The trend is good. 5% is still way way too high.
Cost of living raises are still 2%, so people are still losing buying power even afterwards.
The (over) supply of easy money is generally the overarching driver of inflation.
But this past year, as in the late 1970s / very early 1980s, energy prices largely drove the inflation bus. Now that energy is back down from the stratosphere, inflation rapidly followed energy back down.
Now if Biden fails to sufficiently kiss enough Arabian a$$, and since his administration has thwarted a lot of domestic production, energy might spike back up—and with it inflation.
Core CPI down to 6.0%. Headline down to 7.1% (includes food and energy). While energy is down, food has gone in the opposite direction. Food will start dropping soon as energy and materials start working its way through the cost chain. Fed will raise rates to 4.5% later this week. In February it will be another 0.25-50% points higher. By then core inflation should be ~5.5%. At that point it will be increased by 0.25% points at most (if at all).
If Powell follows through and ends the inflation for real, he proves himself to be brave and disciplined. I don't think the Fed should exist, but leadership can still be better or worse. Powell, so far, looks like on the better side. But remember if he does follow through it will cause a recession and he will be destroyed in the media. But Powell will be correct. If Powell doesn't allow the recession to happen that means he actually chickened out and did the foolish thing.
Good thoughts on the topic of inflation.
No Surprise: Wall Street Wants to Raise the Target Inflation Rate above 2 Percent | Ryan McMaken
In case you thought inflation was actually coming down. Surprise! The Biden Administration was lying! The rate of inflation is decreasing but still going up. Real wages are still negative. There is a long way to go to bring inflation under control. Companies will continue to increase prices in 2023 if mine is representative.
Real Wage Growth Falls for the Twentieth Month as Biden Celebrates Seven-Percent Inflation | Ryan McMaken
Yes, but if you have money in the bank, you are making decent interest again. Focusing solely on wages is insufficient.
And for retirees on a fixed income, the erosion of purchasing power continues - with no end in sight.
You must be kidding.
Read the article. Look at the multiple graphs. Real wages means net wages with inflation in the calculation. It's very negative and we aren't close to reversing it regardless of what the court economists say.
Wages exclude income from other sources such as interest and dividends. $100k in the bank nets you $3500 or more in interest annually. I read that inflation is costing the average family an extra $4000 annually. The net difference is not as bad at first blush.
Huh? If bank interest is 5.5% and inflation is 4%, isn’t that a net positive? Remember retirees don’t have wages.
Income is more than just wages.
If that is true then I stand corrected. I haven't seen 5.5% interest from banks though. I'd be surprised if it was 1%.
The working and lower middle class doesn't have interest and dividends.
If they have some money in the bank it is being eroded by 7% inflation, which means that the purchasing power is cut in half every 10.3 years. If you are saying banks are giving 7+% interest that's news to me. If it is anything less than that it is a net negative. Also, those dividends will be going down as the money printing which led to the high returns over the last 15 years has stopped/greatly slowed. They won't go up quicky without more money printing which will just increase price inflation again.
7% inflation is YoY. If you look at the last 3 months annualized, it is under 5%. This is why 5% or less inflation YoY in 1st quarter is baked-in since the comps from 2022 are high. Also, working and lower middle class are seeing the highest wage increases. Bank CD’s last month were 3.5%. I suspect they will be >5% next Spring.
4.25% CD rates.
The Top 1-Year CDs for December 2022
0.5% rate hike
Powell has done reasonably well with these rate hikes—he just started too late. Don’t put out that little fire with a fire extinguisher. Oh no, can’t do that—that’s too simple. Nope, instead wait until it’s a raging inferno then keep drenching it with lots and lots of water from the fire hoses over and over.
An ounce of prevention is worth a pound of cure.
A stitch in time saves nine.
(One should consider that wisdom may be even more valuable than knowledge…)
You will lose money with all of these over a year.
That is the past. Fed was too loose too long and acted too late. Moving forward we will have higher interest rates and tighter money and lower inflation. All good things. Note how irrational Fed haters can never applaud the Fed when they get it right because that could be perceived as undermining their argument.
The fact is that we are still in a MoM increase in inflation. So that 7% level still isn't going down. No one knows how long it will take under the current Fed actions or even if they will continue on the same path. The reality is putting money in a 4-4.5% interest rate CD most likely still loses money in a year. Most working and lower middle class people aren't buying CDs or stocks. They are lucky if they are earning enough month by month to pay the bills.
Technically the Fed can never get it right because they can't know what the "natural rate" should be. That is a fundamental fact of time preference and how interests rates are generated by a market. The Fed has taken away this market process and substituted it with a declaration. The natural market rate represents the most efficient use of capital to supply wants and needs of consumers. So Fed bureaucrats are shooting in the dark. Even if they were right randomly no one would know because there is no way to know. There is no mechanism for that. Nothing that Powell is doing now changes those facts.
Now if you look above I did say some nice things about Powell. He has taken unpopular but necessary actions to bring inflation under control. As long as he follows through and brings inflation back under 2% or even to 0%, then I am on board. That doesn't undermine anything I have said but it does make our lives better. I acknowledge that.
If you really want to cut price inflation and produce a healthy economy, then cut government spending and head count.
Austerity: A Real Solution to Help Heal the U.S. Economy | Mark Thornton
Cut head count? Heck cut departments.
Yes. Cut whole agencies. Start with the CIA, FBI, Dept of Energy, EPA, Dept of Education. Repeal the charter for the Fed.
This guy says Powell is the hero for being anti-Davos and investors are mis-identifying him.
Rate-Hikes, Recessions, & The Death Of Spiritual Boomerism | ZeroHedge