Inflation Discussion

aix_xpert

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I'm struggling to understand the economists here. They argue that the surge in CPI is isolated to items directly impacted by the economic re-opening and thus is likely temporary. Items like Hotel Rooms, used cars, and airfare are subject to a current demand surge and that the rising prices will normalize. I can get that argument. But then it references items that are more 'sticky' such as "shelter" which makes up 30% of the CPI index which only rose by 0.3% in May and 2.2% for the year. From the article linked:

Shelter accounts for more than 30% of CPI. The shelter index rose 0.3% in May, and 2.2% over the last 12 months. The rent portion rose 0.2%, and the index for owners’ equivalent rent — or the hypothetical amount a homeowner would charge someone to rent their dwelling — rose 0.3%. Lodging away from home rose just 0.4%, after jumping 7.6% in April.

So here's my question/concern. Weren't rents being artificially suppressed by the national moratorium on evictions? If you are a landlord, why raise rents that you can't enforce? Given home and property value increases of over 5% (or even 10%) in most areas, similar rent increases will surely follow, they always have. So it seems to me that the one area of 'supposed' price stability, is likely only 'sticky' because of a policy that's expired (or expiring). If rents increase even half as much in cost as real property has increased in value, then we'll legitimately be looking at a 6-8% inflation measure, which won't look or feel 'temporary'.

Any of you college grads or economy buffs feel like telling me what I'm misperceiving, because two straight months of hefty CPI numbers feels like a bigger issue than its being portrayed as.

 

2012Bearcat

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I just raised rents this month on all of our properties $200 a month. Rise in taxes, insurance and my expenses have to be passed on.
 

07pilt

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I'm struggling to understand the economists here. They argue that the surge in CPI is isolated to items directly impacted by the economic re-opening and thus is likely temporary. Items like Hotel Rooms, used cars, and airfare are subject to a current demand surge and that the rising prices will normalize. I can get that argument. But then it references items that are more 'sticky' such as "shelter" which makes up 30% of the CPI index which only rose by 0.3% in May and 2.2% for the year. From the article linked:

Shelter accounts for more than 30% of CPI. The shelter index rose 0.3% in May, and 2.2% over the last 12 months. The rent portion rose 0.2%, and the index for owners’ equivalent rent — or the hypothetical amount a homeowner would charge someone to rent their dwelling — rose 0.3%. Lodging away from home rose just 0.4%, after jumping 7.6% in April.

So here's my question/concern. Weren't rents being artificially suppressed by the national moratorium on evictions? If you are a landlord, why raise rents that you can't enforce? Given home and property value increases of over 5% (or even 10%) in most areas, similar rent increases will surely follow, they always have. So it seems to me that the one area of 'supposed' price stability, is likely only 'sticky' because of a policy that's expired (or expiring). If rents increase even half as much in cost as real property has increased in value, then we'll legitimately be looking at a 6-8% inflation measure, which won't look or feel 'temporary'.

Any of you college grads or economy buffs feel like telling me what I'm misperceiving, because two straight months of hefty CPI numbers feels like a bigger issue than its being portrayed as.

That figure includes imputed rent for home owners so the drop in mortgage rates and and the masses of refinancing counteracts a lot of the change in top line price.

Can't raise rent more than the market will bear, high unemployment limits that.
 

aix_xpert

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I think there is legitimate questions as to whether the 8% inflation we're seeing for 2021 will be persistent beyond 2021. But I think it's safe to state that in 2021, we are seeing 8% inflation, and it will take years for our income to catch back up.
 
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07pilt

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This is one of those things we don't have to debate back and forth. Put your money where your mouth is and get rich.
 

07pilt

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I think there is legitimate questions as to whether the 8% inflation we're seeing for 2021 will be persistent beyond 2021. But I think it's safe to state that in 2021, we are seeing 8% inflation, and it will take years for our income to catch back up.
Where do you think the 8% increase in prices go (hint: your income unless your income is from lending at fixed rates)
 

07pilt

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Wow, I'm getting an 8% raise this year? I hope you told my boss.
I would say an 8% raise is about as likely for you as 8% inflation. If your boss is increasing prices 8% what is he doing with all the extra money?

I do feel for you though if you are experiencing such a huge increase in cost of living. Have you had to cut back on some of your typical consumption as a result, maybe reduced your savings rate?
 

2012Bearcat

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I would say an 8% raise is about as likely for you as 8% inflation. If your boss is increasing prices 8% what is he doing with all the extra money?

I do feel for you though if you are experiencing such a huge increase in cost of living. Have you had to cut back on some of your typical consumption as a result, maybe reduced your savings rate?

Good lord you are an economic moron.

it's not people like us that are being hurt by rising inflation, it's those Democrats claim to care about, those living in poverty.
 

07pilt

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Good lord you are an economic moron.

it's not people like us that are being hurt by rising inflation, it's those Democrats claim to care about, those living in poverty.
Wrong. Inflation hurts lenders not debtors.
You have to think about what drives inflation in the first place before you can have any clue about its distributional impacts.
 

Sunburnt Indian

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Edge of the Comancheria
Good lord you are an economic moron.

it's not people like us that are being hurt by rising inflation, it's those Democrats claim to care about, those living in poverty.
Do the Communists even claim to care about anyone anymore? Do they even need to make such claims? Trump won on Election Day. It's the days after where Biden miraculously came up with an all time record 81 million "legal" votes. And guess who adamantly opposes forensic audits in states who counted after Election Day. You guessed it.
 
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Ponca Dan

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Wrong. Inflation hurts lenders not debtors.
You have to think about what drives inflation in the first place before you can have any clue about its distributional impacts.
Perhaps you could tell us what drives inflation and then give us some clues about its distributional impacts.
 
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07pilt

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Perhaps you could tell us what drives inflation and then give us some clues about its distributional impacts.
Aggregate demand at a given price level exceeding aggregate supply.
Poor people are faced with more expensive goods and services but are also selling their labor at the same higher price levels. Poor people are usually net debtors and benefit as their nominal dollar denominated debt is serviced with less valuable dollars. Net lenders suffer because their income is now in the same number of lower value dollars.
 

aix_xpert

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Good lord you are an economic moron.

it's not people like us that are being hurt by rising inflation, it's those Democrats claim to care about, those living in poverty.

I beg to differ a bit here. I'm well-off but an 8% inflation number means that my $2M target retirement number will need to become $2.1M. That's likely an extra year or two added on to my career. And that assumes that the 8% is a one-off event and we fall back to the 2% annualized range. If this inflation isn't as transitory as implied by the fed, then suddenly, my $2M retirement goal isn't even close to what will be needed to support me the rest of my life.
 
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Ponca Dan

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Aggregate demand at a given price level exceeding aggregate supply.
Poor people are faced with more expensive goods and services but are also selling their labor at the same higher price levels. Poor people are usually net debtors and benefit as their nominal dollar denominated debt is serviced with less valuable dollars. Net lenders suffer because their income is now in the same number of lower value dollars.
With the first part you have explained the law of supply and demand, but not inflation. Explain why net lenders’ income is the same number of lower value dollars. What lowered the value of those dollars? That’s where you’ll find the true nature of inflation.
 

07pilt

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I beg to differ a bit here. I'm well-off but an 8% inflation number means that my $2M target retirement number will need to become $2.1M. That's likely an extra year or two added on to my career. And that assumes that the 8% is a one-off event and we fall back to the 2% annualized range. If this inflation isn't as transitory as implied by the fed, then suddenly, my $2M retirement goal isn't even close to what will be needed to support me the rest of my life.
If dollars are 8% cheaper what do you think happens to the prices of the equity assets in your portfolio?
If inflation is 8% what would you guess would be the risk free rate you could earn on your retirement portfolio?

Again if you all are so worried about inflation, put all your money in the TMV etf and get rich.
 

07pilt

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With the first part you have explained the law of supply and demand, but not inflation. Explain why net lenders’ income is the same number of lower value dollars. What lowered the value of those dollars? That’s where you’ll find the true nature of inflation.
Inflation is just the law of supply and demand applied to everything all at once. If inflation hits and a dollar loses 20% of its purchasing power, my mortgage payments stay the same meaning the real cost of my mortgage goes down for me, and the income stream my bank receives from me is worth less.
 

Ponca Dan

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Inflation is just the law of supply and demand applied to everything all at once. If inflation hits and a dollar loses 20% of its purchasing power, my mortgage payments stay the same meaning the real cost of my mortgage goes down for me, and the income stream my bank receives from me is worth less.
But WHY would the dollar lose 20% of its purchasing power? I’m not disputing the debtor wins (temporarily) when inflation first hits. You are not identifying what inflation is as it pertains to the dollar. If before inflation you could buy a shirt for $100 or a pair of shoes for $100, but now you need $120 to buy either, the relative value of the shirt and shoes remains the same, but the dollar goes down in value. Why?
 

07pilt

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But WHY would the dollar lose 20% of its purchasing power? I’m not disputing the debtor wins (temporarily) when inflation first hits. You are not identifying what inflation is as it pertains to the dollar. If before inflation you could buy a shirt for $100 or a pair of shoes for $100, but now you need $120 to buy either, the relative value of the shirt and shoes remains the same, but the dollar goes down in value. Why?
Price levels changing in order to balance supply and demand.
 

07pilt

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Why do price levels change between dollars and goods or services? I know you don’t want to say, but it will do you good.
To put supply and demand in equilibrium, Dan, this isn't rocket science.
 

Ponca Dan

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To put supply and demand in equilibrium, Dan, this isn't rocket science.
Indeed it is not rocket science. If a shirt and pair of shoes always remain in equilibrium, that is their relative value remains the same, what causes the disequilibrium between them and the original $100?
 

07pilt

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Indeed it is not rocket science. If a shirt and pair of shoes always remain in equilibrium, that is their relative value remains the same, what causes the disequilibrium between them and the original $100?
The demand curve or the supply curve shifted.
 

07pilt

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What caused the shift? You can say it, Pilt. No one will laugh at you.
Any number of things, oil embargo, a baby bust, housing crisis, animal spirits, fiscal policy, monetary policy, change in risk appetite...
 

Ponca Dan

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Any number of things, oil embargo, a baby bust, housing crisis, animal spirits, fiscal policy, monetary policy, change in risk appetite...
Let’s settle on the primary reason for inflation. You know what it is, but seem hesitant to say, which is confusing since you are the economist in this dialogue. Don’t be afraid! You can do it! I know you can say it and it won’t hurt you a bit!
 
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aix_xpert

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Let’s settle on the primary reason for inflation. You know what it is, but seem hesitant to say, which is confusing since you are the economist in this dialogue. Don’t be afraid! You can do it! I know you can say it and it won’t hurt you a bit!

He can't say it. He's been such a proponent of MMT and "print more money" that to actually admit that such behavior has led to the inflationary numbers of today would inflict torture directly to his soul.
 

07pilt

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Let’s settle on the primary reason for inflation. You know what it is, but seem hesitant to say, which is confusing since you are the economist in this dialogue. Don’t be afraid! You can do it! I know you can say it and it won’t hurt you a bit!
Dan I just gave you a whole host of reason why demand or supply curves could shift, I wouldn't consider any of them to be more primary than the others.
 

07pilt

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He can't say it. He's been such a proponent of MMT and "print more money" that to actually admit that such behavior has led to the inflationary numbers of today would inflict torture directly to his soul.
Yes I don' know how I could live with being responsible for a 3 percent inflation rate.
 

07pilt

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Ponca Dan

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Dan I just gave you a whole host of reason why demand or supply curves could shift, I wouldn't consider any of them to be more primary than the others.
Nonsense! You know perfectly well the primary reason. You said so yourself while simultaneously pretending what you said doesn’t apply. It’s all about supply and demand. When the supply exceeds the demand the value of the incremental supply goes down. When it takes more dollars to buy a shirt or pair of shoes, while the relative value of the shirt and shoes remain the same, the value of the dollar goes down because the supply of dollars has increased relative to the supply of shirts and shoes. Inflation is the drop in value of the dollar in relation to the supply of goods and services, and that is virtually always because the supply of dollars exceeds what it used to be. The government pumps extra dollars into circulation while the supply of goods and services remains basically the same. You know it, and I know it. You just don’t want to say it because it exposes the truth to the type of government financing you prefer. I don’t know why you can’t bring yourself to say it. Your “method” is the one currently in use, and inflation is raising its head. Maybe you don’t find it to be particularly troubling. If that’s the case why don’t you just say so instead of tap dancing around what is obvious to all of us.

Now, I’m being called away. As always I have enjoyed the conversation with you. I’ll check back in later tonight or tomorrow when I get a chance.
 

GoPokes43

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Aggregate demand at a given price level exceeding aggregate supply.
Poor people are faced with more expensive goods and services but are also selling their labor at the same higher price levels. Poor people are usually net debtors and benefit as their nominal dollar denominated debt is serviced with less valuable dollars. Net lenders suffer because their income is now in the same number of lower value dollars.
You are assuming that employee pay increased are driving the inflation. Shortages of products aren't solved by paying higher comp. Companies simply charge more because they can until supply comes back (i.e., when the profit seekers fill the gap). Profits for companies are awesome right now. Meaning, the little guy isn't experiencing comparable wage increase (yet).
 

07pilt

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Nonsense! You know perfectly well the primary reason. You said so yourself while simultaneously pretending what you said doesn’t apply. It’s all about supply and demand. When the supply exceeds the demand the value of the incremental supply goes down. When it takes more dollars to buy a shirt or pair of shoes, while the relative value of the shirt and shoes remain the same, the value of the dollar goes down because the supply of dollars has increased relative to the supply of shirts and shoes. Inflation is the drop in value of the dollar in relation to the supply of goods and services, and that is virtually always because the supply of dollars exceeds what it used to be.
citation needed. In fact I would say this has been denied empirically by the Japan over the last 20 years.
The government pumps extra dollars into circulation while the supply of goods and services remains basically the same. You know it, and I know it. You just don’t want to say it because it exposes the truth to the type of government financing you prefer.
Dan over the last decade we have had unprecedented levels of the type of government financing I prefer, and yet here we are with a decade of the lowest inflation this country has ever seen, and you and aixpert are doing victory laps while the market is pricing in a 2.43% rate of inflation over the next five years.
 

07pilt

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You are assuming that employee pay increased are driving the inflation. Shortages of products aren't solved by paying higher comp. Companies simply charge more because they can until supply comes back (i.e., when the profit seekers fill the gap). Profits for companies are awesome right now. Meaning, the little guy isn't experiencing comparable wage increase (yet).
Any idea what those profit seeker might be doing to fill the gap?