Author Topic: Inflation expectations - is it different vs. 2009?  (Read 2632 times)

mucstache

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Inflation expectations - is it different vs. 2009?
« on: August 03, 2020, 03:30:48 AM »
How do you see inflation to play out this time around?

I remember back in 2009/10, many people expected significant inflation based on QE & policy responses.
Now I hear the same thing coming up again, including "this time is different".

Are there good reasons why THIS time there really would be significant (5%+) inflation?
Are there good reasons why it would NOT happen?

Curious to hear everyone's thoughts.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2310
  • Age: 41
  • Location: Pueblo West, CO
Re: Inflation expectations - is it different vs. 2009?
« Reply #1 on: August 03, 2020, 08:00:22 AM »
I teach community college. No raise for this year and it doesn't look good for the next two years. My health insurance went up, so I'm looking at a 2% overall pay decrease for this upcoming year. Because of this, I am trying to be as aggressive as possible to keep investing in real estate and the stock market to keep up with inflation.

Overall, I see minor inflation in consumer goods. However, I see larger inflation with the stock market and real estate.


hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1442
  • Age: 41
  • Location: Texas
Re: Inflation expectations - is it different vs. 2009?
« Reply #2 on: August 03, 2020, 10:24:37 AM »
With the economy the way it is, we are under serious deflationary pressures for a lot of goods. However because of the Fed we could see asset price inflation in the midst of it.

I like to wait and see if inflation actually turns up. Many people have been screaming for inflation for over a decade and it hasn't happened the way they said it would.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 2964
Re: Inflation expectations - is it different vs. 2009?
« Reply #3 on: August 03, 2020, 11:51:26 AM »
The argument would be twofold:

1) The $2T rescue package that passed in late March is bigger and faster than the $787B American Recovery and Reinvestment Act of 2009.

2) Disruptions to actual supply chains due to mass illness will reduce aggregate supply in a way that didn’t happen during the GFC. For example, the supply chains for food, services, manufactured goods, etc. will experience labor shortages this time due to people getting sick for a month or more at a time or being unable to work in existing physical facilities.

That said, I think we’re heading for a deflationary depression, because the jump in the savings rate and the reduction in monetary velocity is far greater than 2008.

Boll weevil

  • Stubble
  • **
  • Posts: 126
Re: Inflation expectations - is it different vs. 2009?
« Reply #4 on: August 03, 2020, 03:54:20 PM »
Janet Yellen mentioned in an interview that the Fed was fairly sure inflation wouldn’t be a big issue back in 2008 because the unemployment rate was relatively high. The thinking goes that inflation doesn’t hit until wages go up, and wages don’t go up until there’s a shortage of workers, and a shortage of workers would be signaled by a low unemployment rate.  I don’t see anything amiss in that logic.

Currently the unemployment rate is very high, so I expect little to no inflation in the short term.

The problems will come when the economy starts picking back up:
- Will congress retract the aid slow enough that the economy doesn’t fall flat on its face, but fast enough to limit inflation?
- Will the Fed be willing and able to raise interest rates if inflation becomes a problem?
- Will the consumer go back to living paycheck to paycheck or will they try to build up some emergency savings (which in a roundabout way would reduce demand)?

None of these questions have clear answers at the moment.

bthewalls

  • Bristles
  • ***
  • Posts: 316
  • Location: ireland/northern ireland
  • gods own prototype....
Re: Inflation expectations - is it different vs. 2009?
« Reply #5 on: August 03, 2020, 04:13:57 PM »
I think there’s a you tube from bridge water (Dalio) has interesting points...
Discusses a tough 3plus years ahead....I.e. good time to buy

bigblock440

  • Bristles
  • ***
  • Posts: 259
Re: Inflation expectations - is it different vs. 2009?
« Reply #6 on: August 04, 2020, 06:06:51 AM »
Janet Yellen mentioned in an interview that the Fed was fairly sure inflation wouldn’t be a big issue back in 2008 because the unemployment rate was relatively high. The thinking goes that inflation doesn’t hit until wages go up, and wages don’t go up until there’s a shortage of workers, and a shortage of workers would be signaled by a low unemployment rate.  I don’t see anything amiss in that logic.

Currently the unemployment rate is very high, so I expect little to no inflation in the short term.

The problems will come when the economy starts picking back up:
- Will congress retract the aid slow enough that the economy doesn’t fall flat on its face, but fast enough to limit inflation?
- Will the Fed be willing and able to raise interest rates if inflation becomes a problem?
- Will the consumer go back to living paycheck to paycheck or will they try to build up some emergency savings (which in a roundabout way would reduce demand)?

None of these questions have clear answers at the moment.

Even though unemployment is at record numbers, wages rose 7% this year apparently.  That could be why this time it's different.  I think it'll depend on whether the feds throw another 1-3T into it.

Boll weevil

  • Stubble
  • **
  • Posts: 126
Re: Inflation expectations - is it different vs. 2009?
« Reply #7 on: August 04, 2020, 09:06:41 AM »



Even though unemployment is at record numbers, wages rose 7% this year apparently.  That could be why this time it's different.  I think it'll depend on whether the feds throw another 1-3T into it.

I was unaware of that number and haven’t been able to source it. Do you know what’s driving it?

On the one hand, it doesn’t matter because inflation is inflation.

On the other, I don’t want to see the aid being blamed if the actual driver is increases of the minimum wage at the state and/or city levels or reduced labor supply due to changes to immigration policy.

bigblock440

  • Bristles
  • ***
  • Posts: 259
Re: Inflation expectations - is it different vs. 2009?
« Reply #8 on: August 05, 2020, 08:00:37 AM »



Even though unemployment is at record numbers, wages rose 7% this year apparently.  That could be why this time it's different.  I think it'll depend on whether the feds throw another 1-3T into it.

I was unaware of that number and haven’t been able to source it. Do you know what’s driving it?

On the one hand, it doesn’t matter because inflation is inflation.

On the other, I don’t want to see the aid being blamed if the actual driver is increases of the minimum wage at the state and/or city levels or reduced labor supply due to changes to immigration policy.

I initially suspected it was because of companies having to compete with the extra $600/week in federal unemployment, but I just read speculation yesterday that it could be caused by all of the low wage service jobs disappearing leaving just the higher paying work from home types which also makes sense.  If that's the case, I don't think that would lead to inflation, but I don't know if a root cause has been established yet, could be a combination of the two.

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #9 on: August 05, 2020, 08:11:16 AM »
I think that some goods (cars, dress shoes, urban rents, etc) show clear deflationary pressure.

Other goods (face masks, clorox wipes, ventilators) show clear inflationary pressure complete with supply chain disruptions.

What will that mean? I don't know. But I would add that the US response to the pandemic has also lead to a weakening of the US dollar, which is another thing to think about.

Anyway, due to all of the above I view a 100% globally diverse equities portfolio to be my least risky bet right now.

Janet Yellen mentioned in an interview that the Fed was fairly sure inflation wouldn’t be a big issue back in 2008 because the unemployment rate was relatively high. The thinking goes that inflation doesn’t hit until wages go up, and wages don’t go up until there’s a shortage of workers, and a shortage of workers would be signaled by a low unemployment rate.  I don’t see anything amiss in that logic.

I do. Inflation occurs when too many dollars chase too few goods. Think 0% interest rates and not enough masks. Mask prices will go up because of lack of supply.
« Last Edit: August 05, 2020, 08:13:44 AM by PDXTabs »

Boll weevil

  • Stubble
  • **
  • Posts: 126
Re: Inflation expectations - is it different vs. 2009?
« Reply #10 on: August 05, 2020, 09:46:58 AM »


Janet Yellen mentioned in an interview that the Fed was fairly sure inflation wouldn’t be a big issue back in 2008 because the unemployment rate was relatively high. The thinking goes that inflation doesn’t hit until wages go up, and wages don’t go up until there’s a shortage of workers, and a shortage of workers would be signaled by a low unemployment rate.  I don’t see anything amiss in that logic.

I do. Inflation occurs when too many dollars chase too few goods. Think 0% interest rates and not enough masks. Mask prices will go up because of lack of supply.

But those dollars come from wages. If wages don’t go up and people are paying more for masks, there’s less money available for other things, and the prices of those items should come down due to the reduced demand.

Part of this discussion hinges on how you define inflation. Inflation is measured by the government as the price for a standardized “basket of goods.”  If the price of some items have gone up while the price of other items have gone down, you can end up with no inflation, at least officially.

I also think the mask example is more akin to price gouging.  I expect the price of masks, wipes, sanitizer, etc. to come back down once the supply chain catches up (though I could eventually be proven wrong on that).

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #11 on: August 05, 2020, 10:04:58 AM »
But those dollars come from wages. If wages don’t go up and people are paying more for masks, there’s less money available for other things, and the prices of those items should come down due to the reduced demand.

I wholeheartedly disagree. What part of the last 12 years makes you think that dollars always come from wages? There has been an incredible increase in the money supply over the last 12 years, and they're pouring more on now. What we didn't have was a lack of productive capacity to drive up prices. Also, a lot of those dollars went to drive up asset prices or drive down debt instead of driving up consumer prices IMHO.

Part of this discussion hinges on how you define inflation. Inflation is measured by the government as the price for a standardized “basket of goods.”  If the price of some items have gone up while the price of other items have gone down, you can end up with no inflation, at least officially.

There are many ways to compute inflation. The current preferred index for the Fed is the core personal consumption expenditures price index (PCE).

I also think the mask example is more akin to price gouging.  I expect the price of masks, wipes, sanitizer, etc. to come back down once the supply chain catches up (though I could eventually be proven wrong on that).

I think that many supply chains are messed up right now (ours at my work are). I don't think that prices going up when supply goes down is price gouging. That's supply and demand. So we have more money getting pumped out by the Fed and less supply of goods. The only thing keeping inflation down overall is that basket of goods that you mentioned. Half the goods are things that people don't care about anymore. But if you don't need a suit, what does that matter to you?
« Last Edit: August 05, 2020, 10:07:39 AM by PDXTabs »

Boll weevil

  • Stubble
  • **
  • Posts: 126
Re: Inflation expectations - is it different vs. 2009?
« Reply #12 on: August 05, 2020, 11:11:39 AM »

What we didn't have was a lack of productive capacity to drive up prices. Also, a lot of those dollars went to drive up asset prices or drive down debt instead of driving up consumer prices IMHO.


And that we had excess productive capacity was signaled by the relatively high employment rate.

Need to produce more? Hire more people. What do you pay them? Same as what you pay your current people. Labor cost per unit produced should stay about the same, so prices shouldn’t go up. Repeat until the labor pool is empty (which will probably be signaled by a low unemployment rate).  Still want more people? Now you have to pay them more to lure them away from their current job, labor cost per unit goes up, and prices have to go up to keep margins the same.

I realize this is overly simplistic because you may also be constrained by raw materials or floor space or machinery capacity, and many jobs require additional qualifications (degrees, certificates, licenses, physical ability, etc.) so that only a subset of the unemployed are an actual fit for many positions, and that this correlation probably will be broken as the use of robots, driverless cars, delivery drones, etc. becomes more common.

I do think an argument could be made that asset prices are inflated, but I usually think of food, clothing, cars, gas, haircuts, household goods, etc. when people start expressing concerns about inflation.


PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #13 on: August 05, 2020, 11:22:15 AM »
I realize this is overly simplistic because you may also be constrained by raw materials

Yup. My company, right now, can't get enough raw materials to make our products. And even if we could our manufacturing is messed up too.

EDIT: because of pandemic supply chains, and the China tariffs were already driving up our prices for high end consumer products.
« Last Edit: August 05, 2020, 11:27:01 AM by PDXTabs »

BicycleB

  • Magnum Stache
  • ******
  • Posts: 3101
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: Inflation expectations - is it different vs. 2009?
« Reply #14 on: August 05, 2020, 03:04:43 PM »
I'm not smart enough to know what inflation will do. One thing in my mind is some article (wish I could find it) claiming that the reason US inflation often came out lower than expected during recent decades was that inflation models for the US$ don't fully account for the dollar's use as currency by foreign holders.

If I understand correctly, the article concluded that as long as foreign demand for the dollar increased, printing extra dollars wouldn't increase inflation, it would simply fill foreign demand. Too little currency creation would overly raise the dollar's buying power, perhaps causing US deflation, but more certainly causing inflation in foreign economies and a net decrease in global production.

I don't REALLY understand that, except that in general, inflation in dollars would stay low as long as people feel that the dollar is a better global currency than alternatives and the  I do think that the Fed's relatively open process is a valuable factor supporting that. I can't tell whether Trumpian attempts to influence the Fed have changed much, so for now I suppose that the dollar will be sturdy enough to retain global reserve status and keep inflation lower than 5% usually. Just a guess though!

I can't sort out whether current conditions ought to cause inflation or deflation. I would have thought deflation, due to temporarily declining global economics, but who knows? Fwiw, my Own Secret Theory is that the dollar's general strength (yes I'm aware it recently declined) has been giving America wiggle room to balance its COVID mistakes, so our result is comparable to wealthy countries that handled the disease better. We're all going through a road bump together it seems. My other Secret Uneducated Theory is that there's a balance between confidence in currency and panic over needed supplies; if the overall faith in currency is bigger than the supply panic, deflation wins or at least inflation loses.

In any case, my personal approach is "maintain some contingency provisions for inflation and deflation in my overall plan as usual, but mostly expect more of the same. Until things change." Super sophisticated!  :)
« Last Edit: August 05, 2020, 04:18:43 PM by BicycleB »

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #15 on: August 05, 2020, 05:03:12 PM »
I just noticed this:

From February to June, meat and poultry prices rose nearly 11%, with beef and veal prices seeing the highest rise, spiking 20%. For pork the increase was about 8.5%. People are paying more for other staples, too: During the same time period, egg prices shot up 10%, and shoppers shelled out 4% more for cereals and fresh vegetables. - CNN: Everything at the grocery store is getting more expensive

American GenX

  • Pencil Stache
  • ****
  • Posts: 712
Re: Inflation expectations - is it different vs. 2009?
« Reply #16 on: August 05, 2020, 08:12:29 PM »
I just noticed this:

From February to June, meat and poultry prices rose nearly 11%, with beef and veal prices seeing the highest rise, spiking 20%. For pork the increase was about 8.5%. People are paying more for other staples, too: During the same time period, egg prices shot up 10%, and shoppers shelled out 4% more for cereals and fresh vegetables. - CNN: Everything at the grocery store is getting more expensive

Yeah, it's nuts.  I've always noticed my personal inflation is higher than the official government figures.  My property taxes and homeowners insurance seems to go up 6 or 7% every year, some of my biggest bills, while my home's value has been stagnant for many years.  Then I'm shocked every trip to the grocery store.  Now the Fed says they are on a mission to get inflation up but keeping interest rates low, so those secured investments like CDs and MM are paying 1% or less, before taxes, and can't keep pace with their inflation goal.

ender

  • Walrus Stache
  • *******
  • Posts: 6136
Re: Inflation expectations - is it different vs. 2009?
« Reply #17 on: August 06, 2020, 07:25:52 AM »
I just noticed this:

From February to June, meat and poultry prices rose nearly 11%, with beef and veal prices seeing the highest rise, spiking 20%. For pork the increase was about 8.5%. People are paying more for other staples, too: During the same time period, egg prices shot up 10%, and shoppers shelled out 4% more for cereals and fresh vegetables. - CNN: Everything at the grocery store is getting more expensive

It's hard to know if this is actually inflation or the result of borked supply chains.

But, given that we can look up the price of live cattle has been at the lowest it's been in 5 years - https://www.investing.com/commodities/live-cattle-historical-data - it's pretty clear that the price of beef itself is not the cause of the increased prices.

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #18 on: August 06, 2020, 08:31:49 AM »
It's hard to know if this is actually inflation or the result of borked supply chains.

But, given that we can look up the price of live cattle has been at the lowest it's been in 5 years - https://www.investing.com/commodities/live-cattle-historical-data - it's pretty clear that the price of beef itself is not the cause of the increased prices.

I reject the premise that it isn't inflation. The cost of whole cattle is deflating. The cost of finished cattle products is inflating, because of the increased expenses of running a supply chain during the Coronapocalypse. Also, because we ran out of supply chain capacity. Actually, this is a really good example of the inflationary/deflationary conundrum that the country is in right now.
« Last Edit: August 06, 2020, 08:38:43 AM by PDXTabs »

ender

  • Walrus Stache
  • *******
  • Posts: 6136
Re: Inflation expectations - is it different vs. 2009?
« Reply #19 on: August 06, 2020, 11:35:38 AM »
It's hard to know if this is actually inflation or the result of borked supply chains.

But, given that we can look up the price of live cattle has been at the lowest it's been in 5 years - https://www.investing.com/commodities/live-cattle-historical-data - it's pretty clear that the price of beef itself is not the cause of the increased prices.

I reject the premise that it isn't inflation. The cost of whole cattle is deflating. The cost of finished cattle products is inflating, because of the increased expenses of running a supply chain during the Coronapocalypse. Also, because we ran out of supply chain capacity. Actually, this is a really good example of the inflationary/deflationary conundrum that the country is in right now.

I guess I don't see inflation as being something that matters meaningfully in a 6 month period, if the eventual cost goes down.

Now... if the supply chain continues to stay high cost and the cost goes up permanently? Sure. But I wouldn't describe something as inflation simply because largescale events impacted it temporarily.

shinn497

  • Bristles
  • ***
  • Posts: 435
Re: Inflation expectations - is it different vs. 2009?
« Reply #20 on: August 06, 2020, 01:37:33 PM »
You don't have to worry about quantitative easing as there is enough natural deflation occuring right now to balance it out. Daddy J Powell said so himself.

bigblock440

  • Bristles
  • ***
  • Posts: 259
Re: Inflation expectations - is it different vs. 2009?
« Reply #21 on: August 07, 2020, 06:45:54 AM »
It's hard to know if this is actually inflation or the result of borked supply chains.

But, given that we can look up the price of live cattle has been at the lowest it's been in 5 years - https://www.investing.com/commodities/live-cattle-historical-data - it's pretty clear that the price of beef itself is not the cause of the increased prices.

I reject the premise that it isn't inflation. The cost of whole cattle is deflating. The cost of finished cattle products is inflating, because of the increased expenses of running a supply chain during the Coronapocalypse. Also, because we ran out of supply chain capacity. Actually, this is a really good example of the inflationary/deflationary conundrum that the country is in right now.

I guess I don't see inflation as being something that matters meaningfully in a 6 month period, if the eventual cost goes down.

Now... if the supply chain continues to stay high cost and the cost goes up permanently? Sure. But I wouldn't describe something as inflation simply because largescale events impacted it temporarily.

I agree.  Was it deflation when the price of oil dropped out because of SA and Russia's spat?  Is is inflation when the price of oil jumps because a hurricane in the gulf shuts down a few drilling rigs for a bit?

vand

  • Handlebar Stache
  • *****
  • Posts: 1421
  • Location: UK
Re: Inflation expectations - is it different vs. 2009?
« Reply #22 on: August 11, 2020, 04:18:05 AM »
We had a stab at this question not too long ago: https://forum.mrmoneymustache.com/investor-alley/do-you-expect-inflation/

I have to say that the markets have me confused at this point in time.

The bond market is saying that the chances of inflation are about as slim as Twiggy's thigh and if anything have priced in disinflation or deflation. However, precious metals and real assets suggest that there is at least a rising danger of inflation.

They cannot both be right. Personally I choose to believe what I see with my own eyes, and that is I do not really see much sign of consumer inflation right now. But currency strength also plays a role; the USD has fallen in the last 6 months, and maybe that is contributing to some of the anecdotal evidence and worries we are getting from over there. Over here our currency has finally strengthened a bit, which may be helping to offset any building inflationary pressures.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 2964
Re: Inflation expectations - is it different vs. 2009?
« Reply #23 on: August 11, 2020, 09:13:18 AM »
We had a stab at this question not too long ago: https://forum.mrmoneymustache.com/investor-alley/do-you-expect-inflation/

I have to say that the markets have me confused at this point in time.

The bond market is saying that the chances of inflation are about as slim as Twiggy's thigh and if anything have priced in disinflation or deflation. However, precious metals and real assets suggest that there is at least a rising danger of inflation.

They cannot both be right. Personally I choose to believe what I see with my own eyes, and that is I do not really see much sign of consumer inflation right now. But currency strength also plays a role; the USD has fallen in the last 6 months, and maybe that is contributing to some of the anecdotal evidence and worries we are getting from over there. Over here our currency has finally strengthened a bit, which may be helping to offset any building inflationary pressures.

Either 30y bonds or gold will be losing 30% In the next 3 years.

I’m honestly not sure which version of economic doom to hope for - deflationary depression or the financial crisis that occurs when interest rates rise and everyone’s “safe” investments lose double-digits, in addition to whatever crisis occurs with the now highly leveraged stock market. Perhaps gold is being purchased as a hedge for bonds - a way to not lose much money while hiding from stocks.

American GenX

  • Pencil Stache
  • ****
  • Posts: 712
Re: Inflation expectations - is it different vs. 2009?
« Reply #24 on: August 28, 2020, 01:25:57 PM »
Prepare for even higher inflation than originally expected!

The Federal Reserve has announced, as I expected, that they are now shooting for inflation to run hotter than 2% while keeping interest rates near zero.  So, while you earn squat on your CD, your expenses will go up much more than 2%, and in terms of "real world" inflation vs. "government figures", it will be even worse.  You're effectively going to be losing even more buying power with the money in your CDs and savings accounts than you might have expected, and even worse beyond that when you factor in taxes.  Bond funds aren't a good option to earn anything, and stocks are heavily overvalued and could easily nose dive and/or result in minimal growth for years to come.

https://www.cnbc.com/2020/08/27/powell-announces-new-fed-approach-to-inflation-that-could-keep-rates-lower-for-longer.html

« Last Edit: August 28, 2020, 02:14:01 PM by American GenX »

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 2964
Re: Inflation expectations - is it different vs. 2009?
« Reply #25 on: August 28, 2020, 04:27:10 PM »
Prepare for even higher inflation than originally expected!

The Federal Reserve has announced, as I expected, that they are now shooting for inflation to run hotter than 2% while keeping interest rates near zero.  So, while you earn squat on your CD, your expenses will go up much more than 2%, and in terms of "real world" inflation vs. "government figures", it will be even worse.  You're effectively going to be losing even more buying power with the money in your CDs and savings accounts than you might have expected, and even worse beyond that when you factor in taxes.  Bond funds aren't a good option to earn anything, and stocks are heavily overvalued and could easily nose dive and/or result in minimal growth for years to come.

https://www.cnbc.com/2020/08/27/powell-announces-new-fed-approach-to-inflation-that-could-keep-rates-lower-for-longer.html


It seems like the Fed has a lot less control over inflation than it thinks it has. After all those years of failing to hit an implicit 2-3% inflation target, does anyone think making the goal explicit and then threatening to overrun the goal will make any difference? Wages won't rise with 10-15% unemployment and rapid automation of entire industries. They weren't even rising in 2019 when unemployment was at 4% and had been near that level for years. We're in disinflationary quicksand.

I think now's a good time for the president to suddenly write off a trillion or so of the debt the US government owes to itself. It would clarify the bookkeeping and maybe shock market participants into letting some reserves circulate. But that would be more than an empty statement.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 3741
Re: Inflation expectations - is it different vs. 2009?
« Reply #26 on: August 30, 2020, 02:53:42 AM »
As part of the new flexible inflation targeting, Fed Chair Powell also mentioned:

"As a practical matter, the move means the Fed will be less inclined to hike interest rates when the unemployment rate falls, so long as inflation does not creep up as well. Central bank officials traditionally have believed that low unemployment leads to dangerously higher levels of inflation, and they’ve moved preemptively to head it off."
https://www.cnbc.com/2020/08/27/powell-announces-new-fed-approach-to-inflation-that-could-keep-rates-lower-for-longer.html

The prior belief was low unemployment leads to inflation.  But after the great financial crisis of 2008, a jobs recovery was not followed by inflation.  Now that we have another crisis, the thinking is that low unemployment will work in a similar manner.

Even if the Fed has it wrong, low unemployment is a long way off.  A large number of job cuts aren't temporary, and if the 2008 crisis is an indicator, will take years to get back.
"About 33 percent of the employees put on furlough in March were laid off for good by July"
https://www.washingtonpost.com/business/2020/08/25/permanent-economic-damage-piles-up-covid-crisis-is-looking-more-like-great-recession/

TomTX

  • Magnum Stache
  • ******
  • Posts: 4468
  • Location: Texas
Re: Inflation expectations - is it different vs. 2009?
« Reply #27 on: August 30, 2020, 10:29:35 AM »
Even though unemployment is at record numbers, wages rose 7% this year apparently.  That could be why this time it's different.  I think it'll depend on whether the feds throw another 1-3T into it.

Since lower-wage workers were disproportionately laid off or fired, average wage of the remaining workers will be higher.

American GenX

  • Pencil Stache
  • ****
  • Posts: 712
Re: Inflation expectations - is it different vs. 2009?
« Reply #28 on: September 10, 2020, 10:45:42 AM »

TomTX

  • Magnum Stache
  • ******
  • Posts: 4468
  • Location: Texas
Re: Inflation expectations - is it different vs. 2009?
« Reply #29 on: September 10, 2020, 05:45:58 PM »
Former Fed Chair Alan Greenspan says his biggest concern is inflation.

https://www.cnbc.com/2020/09/10/alan-greenspan-lists-inflation-and-the-budget-deficit-as-his-biggest-concerns.html

Hasn't Alan Greenspan been primarily concerned about the inflation and deficit for something like 40 years now?

vand

  • Handlebar Stache
  • *****
  • Posts: 1421
  • Location: UK
Re: Inflation expectations - is it different vs. 2009?
« Reply #30 on: February 06, 2021, 11:05:22 AM »
Wonder if anyone is seeing signs of more inflation?

Anecdotally I do:

- Fuel costs are rising at the pump
- Our childcare just went up +8%
- Energy prices are set to rise +8% (https://www.bbc.co.uk/news/business-55925514)
- Internet providers are now pushing inflation-busting prices onto their customers, typically CPI+3% or more (https://www.vodafone.co.uk/business/price-changes)

The bond market seems to be confirming inflationary pressure is building too, with yields up at multi-month highs. Commodity prices have hit multi-year highs and look like they have further to run.
« Last Edit: February 06, 2021, 11:22:49 AM by vand »

vand

  • Handlebar Stache
  • *****
  • Posts: 1421
  • Location: UK
« Last Edit: February 06, 2021, 11:13:13 AM by vand »

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Inflation expectations - is it different vs. 2009?
« Reply #32 on: February 06, 2021, 11:50:39 AM »
Commodities are always volatile. So you could just as easily say that global food prices have almost recovered from their 2014 crash.

-W

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #33 on: February 06, 2021, 12:02:26 PM »
Commodities are always volatile. So you could just as easily say that global food prices have almost recovered from their 2014 crash.

But they aren't. They are going back to the levels where poor people in underdeveloped countries can't afford to eat. This was in the news last time it happened.

http://www.fao.org/fileadmin/templates/worldfood/images/home_graph_3_feb.jpg

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Inflation expectations - is it different vs. 2009?
« Reply #34 on: February 06, 2021, 12:06:07 PM »
They're volatile as heck, and most commodities are cheaper now than they were 100 years ago.

-W

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 2549
  • Age: 38
  • Location: Portland, OR, USA
Re: Inflation expectations - is it different vs. 2009?
« Reply #35 on: February 06, 2021, 12:14:07 PM »
They're volatile as heck, and most commodities are cheaper now than they were 100 years ago.

-W

100 years ago did the average poor person in a poor country buy food? Because until ~1918 my family were subsistence farmers, and that was in the US of A.

There might be a reason that the United Nations has a Food and Agriculture Organization that produces that global food price graph that I linked to.

waltworks

  • Magnum Stache
  • ******
  • Posts: 4929
Re: Inflation expectations - is it different vs. 2009?
« Reply #36 on: February 06, 2021, 02:15:48 PM »
Poor people are always screwed one way or another, and I sympathize (and volunteer at a food pantry).

That said, for investment purposes, I don't think commodity prices are something worth worrying about, especially food, in the developed world.

-W