Inflation continues to fall

[Jim_n_NYC]

It might cement a rate cut, but since it IS cooling, I'm hearing (from the TV in the other room :P) that they might not do a 1/2 pt cut like a lot of 'experts' were expecting.

[+ augustus]

6 hours ago, EZEtoGRU said:

Meanwhile, yet another inflation report released today showing inflation continues to cool to 2.9% as of the end of July. This almost cements the likelihood for a September Fed rate cut. 

It is NOT 2.9% as food and fuel are excluded.   Prices of everything are going higher and higher without end.  

[+ augustus]

CPI, by excluding food, fuel, taxes, insurance is a purposeful lie.

[Beancounter]

https://gasprices.aaa.com/?state=IA

I live in Iowa and decided to check out current gasoline prices to prices from a year ago.  Surprisingly to me the per cost of gallon of gasoline dropped more than 50 cents over that time frame.   And I just renewed my auto insurance…..$5.00 more than six months ago.   The state of Iowa has also exempted nearly all income for senior citizens.  An added bonus is that my portfolio has increased over $100K in 12 months.  Not everyone is experiencing this doom and gloom people are talking about.  
 

I’m not saying everyone is experiencing what I’m experiencing but things are getting better from where I sit.  Yes, there is much to do on the inflation front but it appears to me we are heading in the right direction.  

[KeepItReal]

49 minutes ago, augustus said:

CPI, by excluding food, fuel, taxes, insurance is a purposeful lie.

You keep saying that and it is incorrect. CPI includes the cost of food, fuel etc. 

Here is a chart from the BLS with components, that proves it.  

[+ augustus]

21 minutes ago, KeepItReal said:

You keep saying that and it is incorrect. CPI includes the cost of food, fuel etc. 

Here is a chart from the BLS with components, that proves it.  

The CPI includes food and energy......the Core CPI inflation rate does not.  Whenever the monthly numbers come out people like @EZEtoGRU and others always take the LOWER number.  Core CPI was 3.2% but he takes the other number of 2.9%.   These numbers are not a true reflection of the inflation rate.  They give little or no weighting at all to car insurance, homeowners insurance, property taxes, etc.   It includes health insurance premiums but does NOT include indirect purchases of medical goods and services.

[+ augustus]

‘I’m down to eating ramen’: Social Security benefits aren’t keeping up with inflation (msn.com)

 

THIS is the reality of the inflation we have been experiencing.    Social Security gets a cost of living increase every year, but the CPI numbers are not accurate and are not keeping up.

 

 

[BSR]

4 minutes ago, augustus said:

‘I’m down to eating ramen’: Social Security benefits aren’t keeping up with inflation (msn.com)

 

THIS is the reality of the inflation we have been experiencing.    Social Security gets a cost of living increase every year, but the CPI numbers are not accurate and are not keeping up.

 

 

So true, seniors who were barely scraping by before inflation surged are getting wrecked now because the Social Socurity cost of living increases have lagged badly behind increases in food prices.  I know exactly how much the SS adjustments are because my mom tells me every year.

[EZEtoGRU]

Here is a realistic read on inflation in the US.  In summary:

* Inflation, in general, has been tamed.

* There are still a few areas of concern (housing & car insurance costs for example) but overall, the inflation crisis is over.

* Wage increases have outpaced inflation.

*  We have avoided a recession.

The war on inflation has been won. It’s OK if you’re still angry | CNN Business

WWW.CNN.COM

---

This morning, economists got something they’ve been waiting three years for: an absolute snooze-fest of an inflation report.

 

[+ Vegas_Millennial]

21 hours ago, Beancounter said:

https://gasprices.aaa.com/?state=IA

I live in Iowa and decided to check out current gasoline prices to prices from a year ago.  Surprisingly to me the per cost of gallon of gasoline dropped more than 50 cents over that time frame.   And I just renewed my auto insurance…..$5.00 more than six months ago.   The state of Iowa has also exempted nearly all income for senior citizens.  An added bonus is that my portfolio has increased over $100K in 12 months.  Not everyone is experiencing this doom and gloom people are talking about.  
 

I’m not saying everyone is experiencing what I’m experiencing but things are getting better from where I sit.  Yes, there is much to do on the inflation front but it appears to me we are heading in the right direction.  

Sounds like Iowa is a model the rest of us could follow!

[+ Vegas_Millennial]

9 hours ago, EZEtoGRU said:

Here is a realistic read on inflation in the US.  In summary:

* Inflation, in general, has been tamed.

* There are still a few areas of concern (housing & car insurance costs for example) but overall, the inflation crisis is over.

* Wage increases have outpaced inflation.

*  We have avoided a recession.

The war on inflation has been won. It’s OK if you’re still angry | CNN Business

WWW.CNN.COM

---

This morning, economists got something they’ve been waiting three years for: an absolute snooze-fest of an inflation report.

 

Thank you for sharing! 

The best summary is the full title:

The war on inflation has been won. It’s OK if you’re still angry

Things feel bad, but they could have been much worse.  High prices are bad, but high prices and high unemployment is worse.  No one expected to bring inflation to within only 50% above the target 2% without a recession.  So, celebrate that we're back to merely mediocre times, because the fallout from the 2021 criseses could/should have been much worse.

Edited August 15 by Vegas_Millennial

[mike carey]

An interesting perspective on Why Companies get Inflation wrong from the Ecomomist, with a link to the article for subscribers (who may prefer to listen to it rather than read it out loud with an English accent:

Why companies get inflation wrong

WWW.ECONOMIST.COM

---

Bosses should pay less attention to the media

And for those who don't have any free articles left:

Why companies get inflation wrong

Bosses should pay less attention to the media

Aug 15th 2024

Over the past year-and-a-half inflation has fallen sharply across the rich world. Although some central banks have now begun to cut interest rates, few are yet ready to pat themselves on the back for a job well done. In many countries the core rate of inflation, excluding volatile energy and food prices, remains uncomfortably high—at 3.2% in America and 2.9% across the euro zone—even as underlying economies show signs of slowing and financial markets become increasingly jittery. The marathon task of returning price growth to more normal levels is not quite finished. And the last mile, as so often, is proving the toughest.

In recent years policymakers have worried that inflation expectations would become “unanchored”: that a long period of high inflation would lead both households and firms to expect more price rises in future. This is a particularly concerning prospect since such beliefs can become self-fulfilling, with workers bargaining for heftier pay rises to compensate for rising prices. Economists have often focused on how expectations take hold among households, but more recent research looks at how firms respond to rising prices. It not only holds a few surprises—it also offers fresh insight into why the last mile is quite so hard.

Surely companies have a good idea of where inflation is heading? After all, they receive regular data on the cost of inputs and how much customers are willing to pay for their goods and services, and have strong incentives to pay attention. If a company does not have a sense of the pricing strategies its rivals will be employing in the months and years to come, it will probably suffer.

Despite this, bosses seem to be easily swayed by less up-to-date sources of information. In particular, they are influenced by backward-looking data from national-statistics agencies. A new paper by Ivan Yotzov of the Bank of England (BoE), Nicholas Bloom of Stanford University and co-authors examines how firms responded to inflation in 2022-24. The researchers look at responses to the Decision Maker Panel, a survey of British bosses that has been carried out by the BoE every month since 2016.

Because respondents have a fortnight in which to send over thoughts and because their thoughts are time-stamped on arrival, the researchers can compare the inflation expectations of firms before a monthly consumer-price-index (CPI) release with those afterwards. They find that an unexpected one-percentage-point rise in CPI inflation produces a 0.7-percentage-point rise in expectations of future inflation in the days after, and continues to exert influence in the weeks that follow. Last year Yuriy Gorodnichenko of the University of California, Berkeley, and co-authors found a similar result, with a similar methodology, in Israel, where an unexpected rise in inflation of one percentage point was associated with a 0.5-percentage-point rise in expectations.

Indeed, the influence of official inflation statistics stretches even further than companies’ views on the general inflation outlook. It also sways their views on the likely path of their own prices. Analysis of the BoE’s Decision Maker Panel finds that a one-percentage-point rise in headline inflation leads to a 0.6-percentage-point rise in expected own-price growth. These expectations are skewed in a manner that will concern central bankers. Higher inflation readings pull expected prices up by more than lower inflation readings drag them down.

The media may in part be responsible. Messrs Yotzov and Bloom constructed an index of inflation chatter in British journalism, based on the share of newspaper articles mentioning rising prices. Looking at this, the researchers and their co-authors discovered that days with lots of such chatter were associated with rising inflation expectations among companies. They assumed that firms obtained information about inflation from media outlets, rather than directly from the national-statistics agency. Between 2019 and October 2022, when CPI peaked at 11.1%, British inflation rose six-fold; by the same point, media coverage had also risen six-fold from its average in 2010-19. But during the period in which inflation subsequently fell, media interest declined. An old journalistic saying is that “if it bleeds, it leads”. Similarly, writing about the pain of rising inflation is more attractive to journalists than writing about the joy of falling inflation. This, in turn, distorts how companies perceive the state of the economy.

Race to the bottom

Given the astonishing array of information available to bosses, it may seem implausible that they really are such naive media consumers. However, corporate leaders are nowhere near as well informed on economic developments as might be expected. In 2021 Bernardo Candia of the University of California, Berkeley, Mr Gorodnichenko and Olivier Coibion of the University of Texas at Austin examined responses to a quarterly inflation survey by the Cleveland branch of the Federal Reserve. The researchers discovered what they called “systematic inattention” to issues of monetary policy and inflation. Less than 20% of chief executives were even able to say what the Fed’s inflation target is (2%, for those also not paying attention). Two-thirds of managers would not even offer a guess. Bosses also disagreed just as much about what inflation had done over the previous year as they did over what it was likely to do in the year ahead, despite the former being public information. It seems that corporate leaders do not owe their career advancement to sophisticated economic analysis.

Media coverage, therefore, is one way in which high inflation begets even higher prices. By writing about rising inflation more than falling inflation, journalists make the final mile tougher still. The Economist is just as guilty of this as any other publication. Although it is tempting to lay the blame for persistent inflation solely on chief executives, your columnist offers his apologies. ■

For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter.

From the August 17th 2024 edition

 

 

[PhileasFogg]

Inflation doesn’t “fall.”  It “slows.”

The “Rate of Inflation” may “fall” or “go down,” but prices are still increasing.

I’m being pedantic, but people don’t understand inflation unless they understand this distinction.  

“Disinflation” is a slowing of the rate of inflation and only helps the consumer if wages are increasing faster than prices.

”Deflation” is when the rate of inflation is negative and this usually coincides with a catastrophic economic situation that we’ve not had in America in a century. 

[PhileasFogg]

I will add - price inflation is not a problem unless wage growth is slower than the rate of inflation.  If wage growth equals the rate of inflation, then you are simply not better off from the increased wage.  If wage growth is higher than the rate of inflation, your purchasing power still increases.

As others have noted though, inflation is a “basket” of different goods and services and Housing is a big part of it - but my housing costs haven’t increased a dime in nearly a decade (except for flood insurance at my coastal home)  

Cars are more expensive (and I’ve had five new ones in 6 years) but I don’t borrow to buy them so part of that expense is mitigated.  My current car is a PHEV, so my fuel costs have actually dropped from 22¢/mile to 5¢/mile as most of my driving is in town on electric charge.

Groceries are up a lot, but they’re < 5% of my budget - so maybe they’re gone from 3.5% of my spending to 4%?

But, I’m an active traveler and plane tickets have probably tripled for me   But I can cut back from First Class to Comfort and still manage costs  if I want to.   

CPI is a necessary benchmark but your mileage will vary depending on your actual “basket”

Years ago, I reset my quicken categories to match CPI definitions.  I figured out I was far from normal in the weighting of my actual expenditures.    It was an interesting exercise. 

[BSR]

On 8/19/2024 at 2:19 PM, PhileasFogg said:

I will add - price inflation is not a problem unless wage growth is slower than the rate of inflation

Sometimes you read something so shocking that you initially don't know how to respond ... Inflation is a stealth tax, one that no one votes for but everyone has to pay.  The government prints itself "free" money, but the value of people's cash holdings devalues by the rate of inflation. 

If you were one of the lucky few who locked in a really high CD rate or T-bill, you might come out ahead, but for the vast majority, you just eat the loss.  One of the demographics worst hit are seniors, who tend keep their assets in conservative fixed-income securities. 

CD & T-bill rates were jumpin' the last year, but inflation started soaring much earlier and faster than interest rates.  Of course, everyone who kept money in low-interest savings accounts and zero-interest checking accounts got totally screwed.  Even for "high-yield" savings and interest-bearing checking, the interest rates lag badly behind inflation.  To rub salt in the wound, the government taxes you on all interest earned, even if your yield is far below the inflation rate.

Also, some important tax breaks/thresholds are not adjusted for inflation.  Social Security is taxed starting st $32,000 for couples, $25,000 for single filers, but that threshold has remained stagnant for decades.  Same with the home sale tax exclusion, which has stayed the same amount for 25 years.  A couple of Obamacare surtaxes haven't been changed for years.  In other words, the thresholds stay the same amount, but because of inflation, more and more people pay more taxes over the years.

So no, don't believe the people who tell you inflation is a good thing or inflation is harmless.  Inflation is a tax, pure and simple.

[PhileasFogg]

6 hours ago, BSR said:

So no, don't believe the people who tell you inflation is a good thing or inflation is harmless.  Inflation is a tax, pure and simple.

For the record, my comment was macro-oriented and is valid.   And, I never said inflation was a good thing.   I said it was "not a problem if..."

As a retired person, there is no scenario where I see myself as maintaining a lifestyle if I rely exclusively on fixed income securities and "cash assets" - especially in a time of increasing rates.

[Luv2play]

On 8/2/2024 at 4:55 PM, MikePDNA51 said:

This is price gouging!

 

I do not think this is inflation at all!   A great example is parking in Pasadena, CA.  Last year I used to rent a parking spot in old town pasadena for $100. The price this month is $200, that is a 200% increase at all parking garages in 12 months.  All parking garages have changed from $100 or $110 per month to $200 a month.  These are three parking companies. Parking garages have also stopped allowing overnight parking.

 

I have noticed this trend with a lot of consumer items.  

 

parking is an easy business. 

 

Prices are increasing as certain people and companies are trying to raise stock prices. 

A 10 dollar increase on $100 per month would be a 10 percent increase. A $100 increase would be 10 times that or 100 percent increase. Not 200 percent. 

[Luv2play]

I don’t follow news on this subject daily but I read enough from dependable news sources and read the comments of central bankers in Canada, the US and  elsewhere to know that the pandemic induced inflation worldwide is coming down markedly over the last year and is now approaching pre pandemic levels. 
 

Approaching, not there yet but the markets are now starting to price in a soft landing. They are hitting record highs many days and the bond markets are recording lower yields that are now affecting longer term mortgages  and other instruments that are influenced by them. 

Here in Canada we have already had two central bank rate reductions in the last two cycles and are looking for 2 more before the end of the year. The Fed is poised to reduce rates in September. If all goes according to plan and there is not an external shock, things look good on the inflation front , interest rates for borrowers and market returns for investors. 
What’s not to like?

[marylander1940]

On 5/15/2024 at 7:37 PM, BSR said:

Blaming inflation all on Covid is a lie of omission.  We also printed $trillions out of thin air, which for obvious reasons causes inflation.  Just look at the inflation rate of Switzerland, which maintained fiscal discipline.

I don't always agree with you but you're spot on.

Next pandemic folks who are old, fat or have asthma should stay home while everyone else goes to work and lives as if nothing happened.

sorry for taking this out of subject but inflation (at least to me) is directly linked to the checks we sent in 2020.

[BSR]

32 minutes ago, Luv2play said:

the pandemic induced inflation worldwide is coming down markedly over the last year and is now approaching pre pandemic levels. 

I hate this lie.  The pandemic didn’t cause inflation.  We printed $trillions out of thin air, which -- oh shock! -- caused runaway inflation.  When you ram $trillions of fake money into the monetary system, the value of people's hard-earned money declines --> inflation.

[PhileasFogg]

20 hours ago, Luv2play said:

I don’t follow news on this subject daily but I read enough from dependable news sources and read the comments of central bankers in Canada, the US and  elsewhere to know that the pandemic induced inflation worldwide is coming down markedly over the last year and is now approaching pre pandemic levels. 
 

Approaching, not there yet but the markets are now starting to price in a soft landing. They are hitting record highs many days and the bond markets are recording lower yields that are now affecting longer term mortgages  and other instruments that are influenced by them. 

Here in Canada we have already had two central bank rate reductions in the last two cycles and are looking for 2 more before the end of the year. The Fed is poised to reduce rates in September. If all goes according to plan and there is not an external shock, things look good on the inflation front , interest rates for borrowers and market returns for investors. 
What’s not to like?

I'm with BSR.   It was not the pandemic that caused inflation, it was a 40% increase in money supply.   The text book cause of inflation is "too much money chasing too few goods."

To be fair, supply disruptions contributed to too few goods, but not nearly as much as the 40% increase in money supply (linked so you can see it graphically)   Inflation is coming down now because money supply is shrinking - something that rarely happens and almost always, when it does, results in a recession.

I don't want to even skirt politics, but not all of the stimulus, in my view, was necessary and exacerbated the inflation.   But since all stimulus resulted from bipartisan cooperation and/or compromise, it's not a political statement.

The problem that remains in America is that deficit spending is inherently inflationary.   In addition, the US can't reduce rates as fast as Canada because we have an epic deficit to fund and lowering rates too far will cause US Treasury securities to be unattractive to investors.   So, "Rock" meet "Hard Place"