[HN Gopher] Inflation is falling much faster than most people know
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Inflation is falling much faster than most people know
Author : paulpauper
Score : 55 points
Date : 2022-12-24 18:22 UTC (4 hours ago)
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| darth_avocado wrote:
| The problem is, most people don't sit around and look at numbers
| to make decisions. They directly look at what impacts them and
| what's happening around them and change their habits. These
| habits make the recession almost self fulfilling.
|
| Even if inflation is falling faster than most people know, the
| way fed has played is hand is going to be devastating. Stock
| market has been destroyed. Stock market != economy is not true in
| this case. Most people's savings are tied in the market one way
| or the other (401k, pensions, actual investments etc.). People
| who don't have savings or have any form of debt have their debt
| have its interest go through the roof. People are losing jobs at
| the highest level of the economy, which will trickle down as the
| rich and the upper middle class downsizes its spending. Housing
| prices won't go down because the supply/demand dynamics are still
| terrible in most places where people want to live. And people who
| bought at inflated rates are not selling anytime soon unless they
| absolutely have to.
| laidoffamazon wrote:
| "Destroyed" seems a bit hyperbolic. SPY is at ~$380. It was
| last at ~$380 in early 2021. Effectively net zero for 1.5 years
| is hardly "destroyed", unless you assume everyone
| simultaneously bought at the $470 peak of the markets.
| onlyrealcuzzo wrote:
| Except prices in The Bay Area are already down ~10%, and the
| rate of monthly decline is _increasing_.
|
| Seattle, Los Angeles, Las Vegas, and most of the boom towns
| outside of Florida are only a few months behind The Bay.
|
| A ~20% decline is going to more than wipe out all inflation
| adjusted (real) gains in almost all markets.
| mamediz wrote:
| This reminds me of that old joke "In the fall of 1972 President
| Nixon announced that the rate of increase of inflation was
| decreasing. This was the first time a sitting president used the
| third derivative to advance his case for reelection."
| https://www.maa.org/press/periodicals/convergence/quotations...
| Rebelgecko wrote:
| I feel like this is a really good opportunity to make a joke
| about how Richard Nixon was kind of a jerk, but I can't quite
| figure out the wording.
| afarrell wrote:
| The setup is left as an exercise for the reader.
| redtexture wrote:
| Inflation was still increasing.
| quickthrowman wrote:
| > In physics, jerk or jolt is the rate at which an object's
| acceleration changes with respect to time.
|
| > As a vector, jerk j can be expressed as the .. _third
| time derivative_ of position
|
| https://en.m.wikipedia.org/wiki/Jerk_(physics)
| reilly3000 wrote:
| I humbly submit: Dick touts limp jerk
| reilly3000 wrote:
| A yet cruder headline variant:
|
| 'Dick: "jerk off"'
| SilasX wrote:
| That would apply also to anyone who made a campaign issue out
| of some train or car being too jerky. Later examples might
| include the Toyota unintended acceleration?
| mortenjorck wrote:
| To be clear, the article is _not_ discussing the third
| derivative, but rather arguing that the standard "now versus
| one year ago" measure is heavily back-weighted due to factors
| early this past year. The second derivative is down!
| flandish wrote:
| > due to factors early this past year
|
| Is that like how it was convenient in the 2010's when
| discussing "terrorist attacks on US soul" to conveniently
| leave out 2001 because it was an "outlier?"
| swellguy wrote:
| What bothers me about this space is that interest rates are
| seemingly not the right hammer to deal with inflation precisely
| and the Fed itself doesn't understand the relationship between
| interest rates and inflation (i.e. recall "transitory"). As a
| programmer, I liken it to seeing a kernel fault, isolating the
| fault to a certain file via a stack trace, then deleting that
| file and its upstream/downstream implications and hoping for the
| best.
| xiphias2 wrote:
| The last 2 sentences are why the article was written:
|
| The way inflation is looking these past five months, the Fed
| should take a break from its interest rate hikes before, rather
| than after, it causes the next recession. That would be a much
| better choice than the course it is on.
|
| We all know that something will break, but I guess they have to
| break before politicians can respond to the will of the voters.
| jmull wrote:
| The article is a bit dumb. "The Fed" (the Federal Reserve
| board, that is) knows what the inflation rate is and how it has
| been changing over the last five months and, _of course_ , will
| consider that in it's interest rate decisions.
|
| I like the off-hand assertion that the fed causes most
| recessions. As if "they" have strong control the economy but
| are just too dumb or corrupt to only make the numbersgo up.
| Kind of embarrassing actually, for a "think tank".
| solarkraft wrote:
| > Kind of embarrassing actually, for a "think tank".
|
| The purpose of a think tank is (often) to promote values of
| whoever funds it. So, while it may look embarrassing, they're
| doing exactly their job.
| qwytw wrote:
| They seem too much more focused on increasing unemployment
| and slowing wage growth and no longer that interest in the
| actual inflation numbers. At least that's the impression I
| got after the last meeting.
| hexis wrote:
| OK, but my car insurance went up 40% since the last policy
| update, 6 months ago. That certainly was movement faster than I
| knew, but not in the direction that this think tank wants me to
| believe.
| g_sch wrote:
| Also anecdata, but my upcoming payment is somehow 30% lower.
| Before that, it had gone up ~15% in two years though.
| [deleted]
| thom wrote:
| When you have been hit by a speeding car while crossing the road,
| it is little comfort to hear that it began to accelerate at a
| lower rate.
| oneoff786 wrote:
| If we're going to make contrived analogies that don't really
| match the nuances of the situation then how about being glad
| that your boat is now taking on water at a rate slower than you
| can bail?
| shaoonb wrote:
| It's a positive thing to hear that the car behind the one that
| hit you is braking.
| thom wrote:
| It isn't braking yet.
| edgyquant wrote:
| This metaphor doesn't hold. Lots of people will in fact be
| happy that their dollars are worth more than they were a month
| ago.
| HideousKojima wrote:
| Except inflation hasn't reversed, it's merely slowed. Our
| dollars are still worth less.
| krisroadruck wrote:
| That's not what this is saying though. Their dollars are
| still worth less than a month ago, just less so than than
| previously projects. For their dollar to be worth MORE we'd
| have to get into deflation territory and we aren't there yet.
|
| Simple example:
|
| You start with a dollar. Every month it's value falls by 5
| cents. However this month it only fell by 2 cents.
| bendbro wrote:
| They aren't, the rate of inflation is slowing, the position
| of inflation is not decreasing. We would need negative
| inflation for that to be the case.
| beambot wrote:
| If you are going to be hit every day at the same intersection,
| the I'd rather the car be decelerating rather than
| accelerating.
| tintor wrote:
| Not decelerating, but accelerating less.
| michaelmrose wrote:
| This is kind of why metaphors are counter productive when
| the topic is simple enough to discuss correctly. The
| article states that the rate of inflation is decreasing
| with the annualized rate falling from greater than 11 to
| 2.5. It is meaningful to discuss the annual rate but
| nonsensical to make further decisions based on how much
| inflation occurred 6 months ago.
| klipt wrote:
| If you have a lot of debt (e.g. a big mortgage) inflation is
| actually good for you, because it means the amount you owe has
| gone down in real terms.
| runnerup wrote:
| Of course only inasmuch as your wages keep up with inflation.
| thom wrote:
| In the UK at least, about a quarter of mortgages are on
| variable rates. Of those on fixed rates, all their other
| bills have gone up, and will continue to do so. In many cases
| this means people's mortgages are no longer affordable even
| if they haven't changed. It's not a good situation, and
| telling people they're technically incorrect in their
| complaints because some day in the future they might be able
| to heat their house again is standard economist fare.
| googlryas wrote:
| Except most people's wages didn't keep up with inflation, and
| they're now paying more out of pocket for other necessities
| every month
| midasuni wrote:
| Wages are up 6%, inflation up 7%
|
| If you are earning and have debt that's great news. Sure
| the cost of your weekly shops increased 1%, but your debt
| has dropped 7%.
| laidoffamazon wrote:
| Real wage growth is also positive for the last few
| months. Even in real terms basically everyone is better
| off than they were in ~2018.
| pharmakom wrote:
| only if the rate is fixed. huge numbers of consumers in the
| developed world (e.g. UK) have short term or variable rate.
| wardedVibe wrote:
| "You will not crucify mankind upon a cross of gold!"
|
| - William Jennings Bryan
| kneebonian wrote:
| Only in so much as you own assests that have appreciated with
| it, and to be frank I can't eat with equity.
| layoric wrote:
| Maybe different in other countries, but in Australia your
| mortgage payments go up as interest rates rise. So over the
| life time of the loan you will likely pay more/the same in
| real terms. And this ignores the lack of wage growth.
| BlargMcLarg wrote:
| Generally speaking, the ones hit hardest by inflation are the
| ones unable to afford such loans to begin with.
| robocat wrote:
| Only if you live in a country with "long-term fixed rate pre-
| payable mortgages" - i.e. only the USA and maybe Denmark[1].
|
| Inflation can also screw the equity value for home owners in
| the US because in the long term house equity value is very
| roughly inversely related to mortgageInterestRate -- that
| occurs because house prices are driven by how much people can
| loan for a mortgage, and maximum mortgage loan is limited by
| f(personalIncomeAfterOtherCosts, wholesaleInterestRate +
| bankMargin, futureIncomeStreamPrediction).
|
| Living in New Zealand which all mortgages are variable rate
| (approximately), I can say inflation really screws large
| mortgage holders here.
|
| [1] 2010 https://business.sdsu.edu/_resources/files/real-
| estate/resea...
| bmitc wrote:
| What about prices and costs?
| JumpinJack_Cash wrote:
| How can one bet on this trend?
|
| Long bonds?
| jlbbellefeuille wrote:
| Kalshi
| JumpinJack_Cash wrote:
| I mean a real market where people bet on the effects of
| inflation on assets.
|
| I am intrigued by Kalshi but very few people are interested
| in betting on stuff for stuff sake.
|
| Most money is exchanged on markets where people bet on the
| world's reaction to such events and the impact on asset
| prices or yields
| klipt wrote:
| Also stocks are expected to have positive return on average
| over long time periods.
|
| Prediction markets are expected to have negative return on
| average once the house takes a cut.
| voisin wrote:
| Really, anything. In an environment of decreasing inflation, or
| a return to moderate inflation, both stocks and bonds will be
| expected to do well. Look at how every asset class has
| collapsed this year, due to inflation expectations and
| resulting rising interest rates. Now consider the reverse. Just
| don't go into TIPs bonds or stay in cash.
| francisofascii wrote:
| Eh. If the Fed overstepped, then you could see a stop to
| inflation and a recession, which could lead to lower stock
| prices and higher bond prices in the short term, as Fed stops
| the rate increases.
| fullshark wrote:
| What about deflation risk?
| remote_phone wrote:
| Powell already addressed this in December. He said that the Fed
| knows that price inflation is starting to turn already. It's the
| tight labor market that needs to be cracked. He wants
| unemployment around 4.5% and losing the labor market is the part
| that will take longer.
| cs702 wrote:
| Maybe.
|
| Keep in mind that: (1) the war in Ukraine, which could further
| disrupt multiple commodity markets (energy, grains, minerals),
| _is still ongoing_ ; (2) many global supply-chain issues _have
| not yet been fully resolved_ ; (3) many services that renew
| annually, including apartment rentals and most
| information/entertainment services, _have not yet raised prices
| on all customers_ ; and (4) we don't know the extent to which
| _second- and third-order inflationary effects_ are still
| propagating, globally.
|
| Also, keep in mind that in the past, central banks like the Fed
| have typically reacted _too slowly_ and _too late_ to control
| inflationary forces before things got too out of hand, which
| ended up being _much worse_ for everyone. This time around, I 'd
| much rather have the Fed and other central banks err on the side
| of over-tightening and causing a short-lived recession than
| under-tightening and fighting inflation in fits and starts for a
| decade, as has been the case in the past.
| hitpointdrew wrote:
| Really? Could you kindly inform my local grocery store? I just
| spent $45 to buy a pot roast.
| tasty_freeze wrote:
| > Gasoline prices have been an even bigger issue in California
| than in most of the country, because they are substantially
| higher in the state, where they have recently fallen from a
| record $6.49 per gallon in October to $4.61 this week.
|
| Holy cow. I'm in Austin. There a some lagging gas stations, but
| it is easy to get regular 87 gas for $2.45/gallon. The lowest
| price I've seen (cash price, not needing a membership card) is
| $2.37/gallon. It has been below $4 for a long time.
| drdec wrote:
| There are systemic issues which cause gas prices in some places
| to be higher than others. Mostly due to infrastructure around
| refineries and, to a lesser extent, local taxes.
| jsjohnst wrote:
| Gasoline sold in California is "different" than gas sold
| elsewhere in the country. I don't remember the details exactly,
| but I think it has to do with carbon content.
|
| There's also the issue of high gas taxes there as sibling
| mentioned, but I remember that something in the refining
| process is also a major contributor.
| BaconPackets wrote:
| It's a strange article. Really focused around gas prices and
| little about food/home prices.
|
| People can't eat gas. The impact of a 5% to 10% increase in basic
| food prices is extreme on most income levels. Especially when you
| consider families with children.
| loloquwowndueo wrote:
| Isn't rising gas prices always given as an excuse for increases
| in almost everything else (food included) because things must
| be transported yadda yadda?
| jmclnx wrote:
| Well IIRC, the inflation Numbers exclude Gas Prices because if
| included, the rate would be much higher.
|
| But the world runs on fuel, so if fuel prices rise, prices rise
| in all other items. Food has to get to the cities from the farm
| somehow.
| joshuahedlund wrote:
| > the inflation Numbers exclude Gas Prices
|
| Technically the inflation numbers are posted both ways,
| including with and without "core energy" so everyone can see
| the effects either way.
| em500 wrote:
| You don't recall correctly. All the standard inflation
| numbers in the newspapers, economics papers, COL adjustments
| etc. include gas prices (as well as food prices). You're
| probably confused with "core inflation", which excludes food
| and energy prices, or some other special purpose measure. The
| Bureau of Labor Statistics which computes the official US
| inflation numbers publishes several of those. Core inflation
| in the US is pretty much only used by the Federal Reserve, as
| a crude form of smoothing rapid fluctuations (alternatives
| could be using trimmed means, or rolling averages).
|
| Krugman explains it all fairly accessibly: https://archive.ny
| times.com/krugman.blogs.nytimes.com/2010/0...
| harryposner wrote:
| They do not exclude gas prices. The Consumer Price Index,
| which is what most people pay attention to and to which this
| article refers, currently weights gasoline at 3.7% of the
| basket of goods it tracks.
|
| https://www.bls.gov/cpi/tables/relative-importance/2021.htm
| maria2 wrote:
| Core CPI, which is what the Fed typically uses, excludes
| food and energy.
| klipt wrote:
| That's why we need electric trucks/trains to break the
| dependence on fuel.
| HWR_14 wrote:
| Inflation numbers tend to exclude gas because unlike most
| other things which tend to slowly rise in price, fuel costs
| are highly erratic. They are excluded because they add more
| noise than data.
|
| From 2009 to 2010, the price of gas went up by 25%. From 2014
| to 2015 it went down by 25%. Do you think the true rate of
| inflation is measured by either of those numbers.
| edgyquant wrote:
| Gas has been the biggest inflation talking point this year
| dimal wrote:
| Gas is underneath the price of everything. And anecdotally, it
| seems to me like grocery prices have dropped a lot compared to
| 8-10 months ago. Back then, I remember over and over seeing the
| prices in the store and being dumbfounded. But now a lot more
| stuff seems back to a "normal" range. Seemed like once the
| supply chain crunch eased[0], prices dropped.
|
| [0]
| https://www.newyorkfed.org/research/policy/gscpi#/interactiv...
| HWR_14 wrote:
| Food prices tend to correlate with gas, because of the high
| fossil fuel costs of production. This is, of course, a delayed
| reaction.
| DaveExeter wrote:
| >The impact of a 5% to 10% increase in basic food prices
|
| Is it that little? The stuff I buy seems to have gone up 20%+
|
| I suspect my local supermarkets are raising prices partly
| because of inflation and partly to get fatter margins. Shopping
| for food on Amazon is sometimes cheaper!
| paleotrope wrote:
| I paid 7.20usd for a dozen eggs this morning. Massachusetts
| has a law regarding cage raised chickens but this was way far
| beyond what I was paying six months ago. 2 years ago it was
| 3-4 dollars a dozen. I remember being surprised when the
| local chicken growers started charging 5 dollars a dozen.
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