2021 - Is inflation finally back in the conversation?

[Royalfan5 2,353]

7 hours ago, washparkhorn said:

USDA World Agricultural Supply and Demand Estimates - Updated May 12, 2021:

https://www.usda.gov/oce/commodity/wasde/wasde0521.pdf (pdf from USDA). https://www.ers.usda.gov/data-products/wheat-data/documentation/  

Eh, the USDA has been out to lunch on grain numbers since they overestimated the 2019 crop and tried to bullshit their way through it, grains would be even higher if it was for Covid because wouldn’t of lost a bit of use last spring while we lost acres on excess moisture/lack of incentive in the north. Biggest thing here is the SnapBack on China trade and their hog herd bouncing back from ASF, and the US crop finishing dry on soybeans last year and the derecho fucking up Iowa corn just enough that it exposed the USDA bullshitting just in time for Brazil’s second crop of corn to go dry while Russia restricted exports because they had been bullshitting about wheat stocks too. 

[washparkhorn 9,939]

30 minutes ago, Royalfan5 said:

Eh, the USDA has been out to lunch on grain numbers since they overestimated the 2019 crop and tried to bullshit their way through it, grains would be even higher if it was for Covid because wouldn’t of lost a bit of use last spring while we lost acres on excess moisture/lack of incentive in the north. Biggest thing here is the SnapBack on China trade and their hog herd bouncing back from ASF, and the US crop finishing dry on soybeans last year and the derecho fucking up Iowa corn just enough that it exposed the USDA bullshitting just in time for Brazil’s second crop of corn to go dry while Russia restricted exports because they had been bullshitting about wheat stocks too. 

Good to see you on this thread. I liked your stats during Covid.  

Argentina and what it is doing to its beef exports is concerning. Or is that good for producers here? If you know. 

[Royalfan5 2,353]

59 minutes ago, washparkhorn said:

Good to see you on this thread. I liked your stats during Covid.  

Argentina and what it is doing to its beef exports is concerning. Or is that good for producers here? If you know. 

Beef producers are fucked here because nobody has invested in packing capacity in the last 20 years, and we are struggling to keep current despite huge packer margins and beef demand. There are some expansions in the works but it will take time. At the same time pork producers are in good shape because they actually built their own plants instead of relying on the packers to do it, and once numbers short out from the backing up of a year ago, will be in real good shape. The US beef herd is still shrinking which is going to keep prices elevated longer there, (already there at the retail level, will get there for cattle probably into 2022)

[Bozo_Casanova 26,432]

8 hours ago, Johnny Chimpo said:

You guys understand that even after a period of transitory inflation, prices don’t go lower from there, right? It just becomes the new normal. 

Um, false. You've bought gasoline before, right? Produce?

Supply/demand is a thing. 

[gsoda3 3,245]

28 minutes ago, Bozo_Casanova said:

Um, false. You've bought gasoline before, right? Produce?

Supply/demand is a thing. 

supply and demand is a thing but disruptions in gasoline pricing from temporary events causing pinched supply isn't inflation.  neither are cyclical fluctuations.  too many think the runup in prices right now are caused solely by the reopening but that's not true.  i think it's just going to get worse as wages increase.

[Bozo_Casanova 26,432]

18 minutes ago, gsoda3 said:

supply and demand is a thing but disruptions in gasoline pricing from temporary events causing pinched supply isn't inflation.  neither are cyclical fluctuations.  too many think the runup in prices right now are caused solely by the reopening but that's not true.  i think it's just going to get worse as wages increase.

"worse as wages increase" is the same statement as "worse as the economy gets healthier and more people enter the market for scarce goods."  Inflation is a monetary phenomenon of currency devaluation, but real dollar prices increasing as aggregate demand grows is the incentive for more production and has a salutary effect on the economy and employment.

Edited May 19, 2021 by Bozo_Casanova

[gsoda3 3,245]

1 hour ago, Bozo_Casanova said:

"worse as wages increase" is the same statement as "worse as the economy gets healthier and more people enter the market for scarce goods." 

nope. they're different reasons of why prices change.  you're speaking of supply and demand for goods, which is one reason why prices move.  wage increases are another reason prices change.  that loss of buying power is being overlooked.  

[Bozo_Casanova 26,432]

24 minutes ago, gsoda3 said:

nope. they're different reasons of why prices change.  you're speaking of supply and demand for goods, which is one reason why prices move.  wage increases are another reason prices change.  that loss of buying power is being overlooked.  

Prices change when the wage base grows because that is an increase in aggregate demand. That's not a loss of buying power but a loss of competitive advantage for those whose wages increased less. 
I'm not saying it doesn't feel similar, I'm saying it's not the same thing. 

Edited May 19, 2021 by Bozo_Casanova

[gsoda3 3,245]

1 hour ago, Bozo_Casanova said:

Prices change when the wage base grows because that is an increase in aggregate demand. That's not a loss of buying power but a loss of competitive advantage for those whose wages increased less. 
I'm not saying it doesn't feel similar, I'm saying it's not the same thing. 

i'm not saying a loss in buying power is driving up prices. with that sentence i was speaking to the overall situation of what's happening right now.  

 

wages have been increasing and will undeniably continue to rise.  as wages rise, so does the cost of goods and companies will increase the prices of their goods and services sold.  that's cost-push inflation.  what you're speaking of is demand-pull inflation.  that's why this statement is false.  

3 hours ago, Bozo_Casanova said:

"worse as wages increase" is the same statement as "worse as the economy gets healthier and more people enter the market for scarce goods." 

 

 

 

[Amos Moses 795]

Are wages increasing? I don’t think so … not yet.

[elfenix 34,221]

On 5/18/2021 at 12:27 PM, Storm the Field said:

Lumber's losing streak hits Day 7. Now down $400 from a week ago.

 

[gsoda3 3,245]

Are wages increasing? I don’t think so … not yet.

Yes. However you measure it (from pre pandemic to post pandemic, from yr on yr, same month yr before), they're increasing.

[Bozo_Casanova 26,432]

4 hours ago, gsoda3 said:

i'm not saying a loss in buying power is driving up prices. with that sentence i was speaking to the overall situation of what's happening right now.  

 

wages have been increasing and will undeniably continue to rise.  as wages rise, so does the cost of goods and companies will increase the prices of their goods and services sold.  that's cost-push inflation.  what you're speaking of is demand-pull inflation.  that's why this statement is false.  

 

 

 

you misspelled "true".

You're defining inflation abstractly as any loss of purchasing power you experience, which is fine, since that's how most people think about it. I don't, but either way we agree that you are experiencing that right now in some small way.

That being said there are four main drivers inflation, which are interrelated:

1) An expansion of the money supply.
2) A decrease in the demand for money
3) Demand-pull inflation - a supply shortfall relative to an increase in aggregate demand in an expanding economy and

4) Cost-Push inflation - a decrease in supply caused by increased costs of production. 

We may well get to a point that #1 is a problem, and we may also get to the point that #3 causes #4. But as of this moment, what you are experiencing as a consumer is almost exclusively #3.

Edited May 19, 2021 by Bozo_Casanova

[Paper_jam 831]

Guess I should have taken macro instead of micro.

If we get a sustained run of inflation I'm double-fucked, as my income is unlikely to ever rise for reasons I can only discuss in CR.

 

 

[gsoda3 3,245]

5 hours ago, Bozo_Casanova said:

You're defining inflation abstractly as any loss of purchasing power you experience, which is fine, since that's how most people think about it. I don't, but either way we agree that you are experiencing that right now in some small way.
 

i've been pretty clear inflation has more than one lever.  my contention is with your statement of...

 

12 hours ago, Bozo_Casanova said:

"worse as wages increase" is the same statement as "worse as the economy gets healthier and more people enter the market for scarce goods."  Inflation is a monetary phenomenon of currency devaluation, but real dollar prices increasing as aggregate demand grows is the incentive for more production and has a salutary effect on the economy and employment.

... which is a gross misunderstanding of the separate functional inputs of cost vs demand.  ironically it's what you accuse me of doing in your latest post where you post the accurate drivers of inflation.  so somewhere in the last 12 hours you've landed on the right track but for some reason are still attributing things to me i've never said. 

[gsoda3 3,245]

5 hours ago, Bozo_Casanova said:

That being said there are four main drivers inflation, which are interrelated:

1) An expansion of the money supply.
2) A decrease in the demand for money
3) Demand-pull inflation - a supply shortfall relative to an increase in aggregate demand in an expanding economy and

4) Cost-Push inflation - a decrease in supply caused by increased costs of production. 
 

1.)  It's already happened.  This huge bear run we've seen in the market is a purposeful consequence.

3.)  The reopening.  Is the increase in demand short term?  Most think it's transitory.

4.)  People are focusing on #3 and missing this point.  Wages have been increasing even through the pandemic.  Raw material costs have been increasing.  Once cost-push inflation starts it rarely reverses. 

 

Quote

We may well get to a point that #1 is a problem, [b]and we may also get to the point that #3 causes #4. [/b] But as of this moment, what you are experiencing as a consumer is almost exclusively #3.

it's been two decades since i've taken my last macro class so i'm drawing on my professional knowledge which is more micro, but i don't believe #3 can cause #4 and vice versa.  by definition they are different components of the system and only one can be attributed to each case of inflation.  demand-pull deals with demand inputs, cost-push deals with supply inputs.  the closest in identity #3 gets to #4 is when demand overwhelms a system to the point of causing supply shock, but even then the cause of inflation is attributed to demand and it wouldn't be called cost-push.  remember, those terms deal with which input is singularly causing the price change.

[Trey3216 15,343]

8 hours ago, gsoda3 said:

1.)  It's already happened.  This huge bear run we've seen in the market is a purposeful consequence.

3.)  The reopening.  Is the increase in demand short term?  Most think it's transitory.

4.)  People are focusing on #3 and missing this point.  Wages have been increasing even through the pandemic.  Raw material costs have been increasing.  Once cost-push inflation starts it rarely reverses. 

 

it's been two decades since i've taken my last macro class so i'm drawing on my professional knowledge which is more micro, but i don't believe #3 can cause #4 and vice versa.  by definition they are different components of the system and only one can be attributed to each case of inflation.  demand-pull deals with demand inputs, cost-push deals with supply inputs.  the closest in identity #3 gets to #4 is when demand overwhelms a system to the point of causing supply shock, but even then the cause of inflation is attributed to demand and it wouldn't be called cost-push.  remember, those terms deal with which input is singularly causing the price change.

You can have 3 and 4 simultaneously.   We’ve seen it in the lumber/housing markets 

[UT_OB1 2,213]

17 hours ago, elfenix said:

 

Log prices have been dirt cheap from what I’ve read. They’ve had more logs than they could process (we were at $20/1000 board ft if log). 
 

if it drops that same amount TWICE more, we’ll be just above where we spent most of 2010 to 2020

Edited May 20, 2021 by UT_OB1

[gsoda3 3,245]

31 minutes ago, Trey3216 said:

You can have 3 and 4 simultaneously.   We’ve seen it in the lumber/housing markets 

it's not uncommon to see both costs and price rise at the same time which is why there's so often a debate on what's driving the rising prices, but i don't remember ever hearing the cause of inflation being attributed to both inputs.  maybe it's different in sector specific instances.  

[elfenix 34,221]

17 minutes ago, UT_OB1 said:

Log prices have been dirt cheap from what I’ve read. They’ve had more logs than they could process (we were at $20/1000 board ft if log). 
 

if it drops that same amount TWICE more, we’ll be just above where we spent most of 2010 to 2020

it's really bad math humor, not something to be analyzed. 

[UT_OB1 2,213]

11 minutes ago, elfenix said:

it's really bad math humor, not something to be analyzed. 

Damnit. Whoosh. Got it now. 

[babysdaddy 2,719]

2 hours ago, elfenix said:

it's really bad math humor, not something to be analyzed. 

I chuckled but not enough to +rep

[Hornlover 8,827]

https://www.nytimes.com/2021/05/20/upshot/inflation-five-questions.html

 

Spoiler

Is It Time to Panic About Inflation? Ask These 5 Questions First.
Focus on exactly how and why prices are changing over time, and how these shifts might affect you.

by Neil Irwin - Neil Irwin is a senior economics correspondent for The Upshot. He is the author of “How to Win in a Winner-Take-All-World,” a guide to navigating a career in the modern economy.

To understand why inflation is so worrying to so many people, you could look at price charts for lumber or used cars or New York strip steaks. There is no doubt that the prices of many of the things people buy are rising at an uncomfortably rapid rate.

But to really understand why there is a persistent longer-term buzz of inflation concern, you have to wrestle with the ways in which money itself is fundamentally ephemeral.

Ultimately, most money is a mere electronic entry in the ledger of a bank. It is worth only what it will buy, and what it will buy changes all the time. Or as the humor publication The Onion once wrote, money is “just a symbolic, mutually shared illusion.”

When prices move abruptly — as when an economy that has been partly shut down for more than a year tries to reboot — that inherent uncertainty becomes all too real. When wild swings like these can happen, what else might be possible?

But inflation isn’t so scary if you focus on the precise mechanics by which the value of a dollar changes over time — and how it might affect you. In an inflation-scare moment like this one, you can boil that down to five essential questions:

Is this a change in relative prices, or a change in overall prices? Are the prices of items becoming more expensive likely to rise further, stay the same, or go down? Are wages also rising? Is inflation so high and erratic that it is hard to plan ahead? And is this really inflation at all, or is it a shift in the price of investments like stocks and bonds?

Let’s take these questions in turn, and look at what aspects of the current price surge look more benign, and which are worrying.

Relative prices vs. overall prices
At any given moment, some things are becoming more expensive and others are getting cheaper. That is how a market economy works; prices are what ensure that supply and demand eventually meet.

Sometimes, this happens quickly. Airlines constantly adjust ticket prices; the prices of fresh vegetables bounce around depending on whether they are plentiful or scarce. Other times it happens more gradually. A hair salon may not raise prices the first day there is a line of customers out the door, but it will do so if it is consistently overbooked.

Those shifts can be annoying — nobody wants to pay $1,000 for a short-haul plane ticket or see the price for a haircut double. But they are a healthy part of an economy working as it should.

Typically, these relative price changes are not a problem of macroeconomics — something best solved by the Federal Reserve (by raising interest rates) or Congress (by raising taxes) — but a problem of the microeconomics of those industries.

The core challenge of an economy emerging from a pandemic is that numerous industries are going through major shocks in demand and supply simultaneously. That means more big swings in relative price than usual.

Last year, relative price changes cut in both directions (prices for energy and travel-related services fell, while prices for meat and other groceries rose). But this spring, the overwhelming thrust is toward higher prices. There are fewer goods and services with falling prices to offset the rises.

Still, many of the most vivid and economically significant examples of price inflation so far, like for used cars, have unique industry dynamics at play, and therefore represent relative price changes, not economywide price rises. One important thing to watch is whether that changes — whether we start seeing uncomfortably high price increases more dispersed across the full range of goods and services.

That would be a sign that we were in a period not simply of an economy adjusting itself, but one of too much money chasing too little stuff.

One-off prices vs. long-term trends
Not all price changes have equal meaning for inflation. Much depends on what happens next.

If the price of something rises but then is expected to fall back to normal, it will act as a drag on inflation in the future. This often happens when there is a shortage of something caused by an unusual shock, like weather that ruins a crop. In an opposite example, in 2017 a price war brought down the price of mobile phone service, pulling down inflation. But when the price war was over, the downward pull ended.

On the other hand, a price that is expected to rise at exceptional rates year after year has considerably greater implications. Consider, for example, the multi-decade phenomenon in which health care prices rose faster than prices for most other goods, creating a persistent upward push on inflation.

So an essential question for 2021 is in which bucket the inflationary forces now unleashed should be put.

One piece of good news if you’re worried about an inflationary spiral: Futures prices for major commodities — including, oil, copper and corn — all point to falling prices in the years ahead.

But then there are the labor-intensive service industries, those with no choice but to raise prices if workers are able to consistently demand higher pay. They bring us to a different essential question.

Wage inflation vs. price inflation
Media coverage of inflation typically focuses on indexes that cover consumer prices: numbers that aim to capture what it costs to go to the grocery store, buy a car and obtain all the other things a person wants and needs.

But more properly defined, inflation is about the full set of prices in the economy — including what people are paid for their labor. Whether there is wage inflation goes a long way to determining how people feel about the economy.

Even relatively high price inflation is bearable if wages are rising faster. From 1995 to 2000, inflation averaged 2.6 percent a year. But the average hourly earnings of nonmanagerial workers were rising 3.7 percent a year, so it should be no surprise that workers felt good about the state of the economy.

It is too soon to show up clearly in the data, but there are anecdotes aplenty that companies are rapidly increasing pay. Just this week, Bank of America said it would start a $25-per-hour minimum wage by 2025, up from $20, and major chains like McDonald’s, Starbucks and Chipotle have announced significant moves toward higher pay in recent weeks.

For individuals who benefit from bigger paychecks, that will take the sting out of higher prices for goods. Some may end up better off financially than they had been in lower-inflation environments.

Wages play an essential role in the linkage between higher prices and continuing inflation. In the 1970s, workers demanded­ — and received — higher pay. Then companies raised prices, which fueled further demands for pay raises.

To experience a wage-price spiral like that, both parts of the equation need to come into play. That means it’s worth watching for evidence of whether pay raises are a one-time adjustment to an unusual job market, or the beginning of a shift in power toward workers after years of meager gains.

Steady inflation vs. erratic inflation
Many people take it for granted that high inflation is a bad thing.

But in truth, it’s not obvious why a country couldn’t comfortably have prices rise significantly faster than they have in the United States in recent decades. Imagine a world where consumer prices rose 5 percent every year; workers’ wages rose 5 percent, plus a little more to account for rising productivity; and interest rates were consistently higher than Americans are accustomed to.

In theory, the only problem would be what economists call “menu” costs, the inconvenience of companies having to revise their price lists frequently. (In a way, the pandemic shift away from physical menus in restaurants might even make that concern moot.)

In practice, though, not many countries have managed to have higher inflation like that arrive steadily year after year. And there can be big negative consequences when inflation is erratic, swinging from 2 percent one year to 10 percent the next and so on.

When inflation is erratic, it creates economic upheaval, essentially offering a windfall to either creditors (in the event of a surprise fall in inflation) or debtors (with rising prices).

Over time, lenders would demand higher interest as compensation — an inflation risk premium. And that means that an economy with high and volatile inflation may get less investment, and hence less economic growth.

So far, there is not much sign of that happening in the United States. Bond investors appear confident that whatever inflation takes place in the next year or two is a one-off event, not a new normal in which the value of a dollar is unpredictable.

But keep an eye on markets for any evidence that is changing.

Price inflation vs. asset inflation
Even when consumer price inflation is low, some financial commentators may point to a worrying surge in asset inflation, meaning rising prices of stocks, bonds and other investments.

Economists generally don’t think of asset price swings as a form of inflation at all. If stock prices rise, it may change the future returns on your savings, but it doesn’t change what a dollar can buy in terms of the goods and services you need to live.

But semantics aside, it certainly seems apparent that millions of people have been plowing money into meme stocks and cryptocurrencies (as well as more traditional investments) that might otherwise have gone to bid up the price of home grilling equipment or other things in short supply.

And while there is plenty to worry about in terms of bubbly signs in financial markets — and what it would mean if they corrected downward, as major cryptocurrencies did on Wednesday — that doesn’t mean they are making ordinary consumers worse off. You can’t eat Bitcoin; you can’t clothe yourself in shares of GameStop.

Sometimes asset prices rise while consumer prices stand still, as in much of the 2010s. Sometimes consumer prices soar while financial assets languish, as in much of the 1970s. Other times, they move together.

The implication: High asset prices and rising price inflation aren’t the same thing. Whether with asset prices or other aspects of inflation, being precise and detailed is a way to make the essential ephemerality of money a little more concrete.

 

[GRHorn 105]

I thought this meme sums up a lot of this discussion. I’m the guy on the left. 

 

[jimmyjazz 45,879]

  

4 hours ago, Hornlover said:

https://www.nytimes.com/2021/05/20/upshot/inflation-five-questions.html

 

  Reveal hidden contents

Is It Time to Panic About Inflation? Ask These 5 Questions First.
Focus on exactly how and why prices are changing over time, and how these shifts might affect you.

by Neil Irwin - Neil Irwin is a senior economics correspondent for The Upshot. He is the author of “How to Win in a Winner-Take-All-World,” a guide to navigating a career in the modern economy.

To understand why inflation is so worrying to so many people, you could look at price charts for lumber or used cars or New York strip steaks. There is no doubt that the prices of many of the things people buy are rising at an uncomfortably rapid rate.

But to really understand why there is a persistent longer-term buzz of inflation concern, you have to wrestle with the ways in which money itself is fundamentally ephemeral.

Ultimately, most money is a mere electronic entry in the ledger of a bank. It is worth only what it will buy, and what it will buy changes all the time. Or as the humor publication The Onion once wrote, money is “just a symbolic, mutually shared illusion.”

When prices move abruptly — as when an economy that has been partly shut down for more than a year tries to reboot — that inherent uncertainty becomes all too real. When wild swings like these can happen, what else might be possible?

But inflation isn’t so scary if you focus on the precise mechanics by which the value of a dollar changes over time — and how it might affect you. In an inflation-scare moment like this one, you can boil that down to five essential questions:

Is this a change in relative prices, or a change in overall prices? Are the prices of items becoming more expensive likely to rise further, stay the same, or go down? Are wages also rising? Is inflation so high and erratic that it is hard to plan ahead? And is this really inflation at all, or is it a shift in the price of investments like stocks and bonds?

Let’s take these questions in turn, and look at what aspects of the current price surge look more benign, and which are worrying.

Relative prices vs. overall prices
At any given moment, some things are becoming more expensive and others are getting cheaper. That is how a market economy works; prices are what ensure that supply and demand eventually meet.

Sometimes, this happens quickly. Airlines constantly adjust ticket prices; the prices of fresh vegetables bounce around depending on whether they are plentiful or scarce. Other times it happens more gradually. A hair salon may not raise prices the first day there is a line of customers out the door, but it will do so if it is consistently overbooked.

Those shifts can be annoying — nobody wants to pay $1,000 for a short-haul plane ticket or see the price for a haircut double. But they are a healthy part of an economy working as it should.

Typically, these relative price changes are not a problem of macroeconomics — something best solved by the Federal Reserve (by raising interest rates) or Congress (by raising taxes) — but a problem of the microeconomics of those industries.

The core challenge of an economy emerging from a pandemic is that numerous industries are going through major shocks in demand and supply simultaneously. That means more big swings in relative price than usual.

Last year, relative price changes cut in both directions (prices for energy and travel-related services fell, while prices for meat and other groceries rose). But this spring, the overwhelming thrust is toward higher prices. There are fewer goods and services with falling prices to offset the rises.

Still, many of the most vivid and economically significant examples of price inflation so far, like for used cars, have unique industry dynamics at play, and therefore represent relative price changes, not economywide price rises. One important thing to watch is whether that changes — whether we start seeing uncomfortably high price increases more dispersed across the full range of goods and services.

That would be a sign that we were in a period not simply of an economy adjusting itself, but one of too much money chasing too little stuff.

One-off prices vs. long-term trends
Not all price changes have equal meaning for inflation. Much depends on what happens next.

If the price of something rises but then is expected to fall back to normal, it will act as a drag on inflation in the future. This often happens when there is a shortage of something caused by an unusual shock, like weather that ruins a crop. In an opposite example, in 2017 a price war brought down the price of mobile phone service, pulling down inflation. But when the price war was over, the downward pull ended.

On the other hand, a price that is expected to rise at exceptional rates year after year has considerably greater implications. Consider, for example, the multi-decade phenomenon in which health care prices rose faster than prices for most other goods, creating a persistent upward push on inflation.

So an essential question for 2021 is in which bucket the inflationary forces now unleashed should be put.

One piece of good news if you’re worried about an inflationary spiral: Futures prices for major commodities — including, oil, copper and corn — all point to falling prices in the years ahead.

But then there are the labor-intensive service industries, those with no choice but to raise prices if workers are able to consistently demand higher pay. They bring us to a different essential question.

Wage inflation vs. price inflation
Media coverage of inflation typically focuses on indexes that cover consumer prices: numbers that aim to capture what it costs to go to the grocery store, buy a car and obtain all the other things a person wants and needs.

But more properly defined, inflation is about the full set of prices in the economy — including what people are paid for their labor. Whether there is wage inflation goes a long way to determining how people feel about the economy.

Even relatively high price inflation is bearable if wages are rising faster. From 1995 to 2000, inflation averaged 2.6 percent a year. But the average hourly earnings of nonmanagerial workers were rising 3.7 percent a year, so it should be no surprise that workers felt good about the state of the economy.

It is too soon to show up clearly in the data, but there are anecdotes aplenty that companies are rapidly increasing pay. Just this week, Bank of America said it would start a $25-per-hour minimum wage by 2025, up from $20, and major chains like McDonald’s, Starbucks and Chipotle have announced significant moves toward higher pay in recent weeks.

For individuals who benefit from bigger paychecks, that will take the sting out of higher prices for goods. Some may end up better off financially than they had been in lower-inflation environments.

Wages play an essential role in the linkage between higher prices and continuing inflation. In the 1970s, workers demanded­ — and received — higher pay. Then companies raised prices, which fueled further demands for pay raises.

To experience a wage-price spiral like that, both parts of the equation need to come into play. That means it’s worth watching for evidence of whether pay raises are a one-time adjustment to an unusual job market, or the beginning of a shift in power toward workers after years of meager gains.

Steady inflation vs. erratic inflation
Many people take it for granted that high inflation is a bad thing.

But in truth, it’s not obvious why a country couldn’t comfortably have prices rise significantly faster than they have in the United States in recent decades. Imagine a world where consumer prices rose 5 percent every year; workers’ wages rose 5 percent, plus a little more to account for rising productivity; and interest rates were consistently higher than Americans are accustomed to.

In theory, the only problem would be what economists call “menu” costs, the inconvenience of companies having to revise their price lists frequently. (In a way, the pandemic shift away from physical menus in restaurants might even make that concern moot.)

In practice, though, not many countries have managed to have higher inflation like that arrive steadily year after year. And there can be big negative consequences when inflation is erratic, swinging from 2 percent one year to 10 percent the next and so on.

When inflation is erratic, it creates economic upheaval, essentially offering a windfall to either creditors (in the event of a surprise fall in inflation) or debtors (with rising prices).

Over time, lenders would demand higher interest as compensation — an inflation risk premium. And that means that an economy with high and volatile inflation may get less investment, and hence less economic growth.

So far, there is not much sign of that happening in the United States. Bond investors appear confident that whatever inflation takes place in the next year or two is a one-off event, not a new normal in which the value of a dollar is unpredictable.

But keep an eye on markets for any evidence that is changing.

Price inflation vs. asset inflation
Even when consumer price inflation is low, some financial commentators may point to a worrying surge in asset inflation, meaning rising prices of stocks, bonds and other investments.

Economists generally don’t think of asset price swings as a form of inflation at all. If stock prices rise, it may change the future returns on your savings, but it doesn’t change what a dollar can buy in terms of the goods and services you need to live.

But semantics aside, it certainly seems apparent that millions of people have been plowing money into meme stocks and cryptocurrencies (as well as more traditional investments) that might otherwise have gone to bid up the price of home grilling equipment or other things in short supply.

And while there is plenty to worry about in terms of bubbly signs in financial markets — and what it would mean if they corrected downward, as major cryptocurrencies did on Wednesday — that doesn’t mean they are making ordinary consumers worse off. You can’t eat Bitcoin; you can’t clothe yourself in shares of GameStop.

Sometimes asset prices rise while consumer prices stand still, as in much of the 2010s. Sometimes consumer prices soar while financial assets languish, as in much of the 1970s. Other times, they move together.

The implication: High asset prices and rising price inflation aren’t the same thing. Whether with asset prices or other aspects of inflation, being precise and detailed is a way to make the essential ephemerality of money a little more concrete.

 

 

 

Good summary, thanks.

Edited May 21, 2021 by jimmyjazz

[Fudge Nuggets 19,184]

38 minutes ago, GRHorn said:

I thought this meme sums up a lot of this discussion. I’m the guy on the left. 

 

Your choice of memes in this forum sucks as much as your choice of memes in the CR.

[GRHorn 105]

13 minutes ago, Fudge Nuggets said:

Your choice of memes in this forum sucks as much as your choice of memes in the CR.

Sounds like something a 100 IQ person would say. 

[elfenix 34,221]

more mark blyth on marketplace's make me smart pod:

Quote

We’ve put it off for a long time, but it’s time to talk about the I-word. Nine letters, three syllables: inflation.

The Federal Reserve likes it around 2%, but it’s been a long time since we’ve gotten there. As this economy inches back on track, consumer prices are going up and the investor class is getting spooked. Meanwhile, Fed Chair Jay Powell is keeping interest rates low. So what’s going on?

“We had a huge supply and demand shock called the COVID crisis, and we’re beginning to get out of it,” said Brown University political economist Mark Blyth. “You’ve got quite naturally a lot of what we call bottlenecks, a lot of supply shortages, across different sectors that are all coming out of hibernation at once.”

https://www.marketplace.org/shows/make-me-smart-with-kai-and-molly/whos-scared-of-a-little-inflation/

 

 

[Bozo_Casanova 26,432]

On 5/20/2021 at 8:25 AM, Trey3216 said:

You can have 3 and 4 simultaneously.   We’ve seen it in the lumber/housing markets 

Bingo

On 5/20/2021 at 9:04 AM, gsoda3 said:

it's not uncommon to see both costs and price rise at the same time which is why there's so often a debate on what's driving the rising prices, but i don't remember ever hearing the cause of inflation being attributed to both inputs.  maybe it's different in sector specific instances.  

Think about it this way - aggregate demand increases -> supply chains don't keep -> Prices rise (demand pull) -> Costs of production rise as competition increases for the higher priced goods ->  Prices rise (cost-push). 
 

Edited May 21, 2021 by Bozo_Casanova

[Trey3216 15,343]

2 hours ago, Bozo_Casanova said:

Bingo

Think about it this way - aggregate demand increases -> supply chains don't keep -> Prices rise (demand pull) -> Costs of production rise as competition increases for the higher priced goods ->  Prices rise (cost-push). 
 

Then factor in Covid mill shutdowns 

[GRHorn 105]

More of the same comments from Yellen. Cool collection of old currency in the background. 

 

[GRHorn 105]

Not a good sign that Krugman suggests changing the metrics we look at

 

[washparkhorn 9,939]

24 minutes ago, GRHorn said:

Not a good sign that Krugman suggests changing the metrics we look at

 

I dislike Krugman, but some of the comments on his ruminations make Krugman look brilliant. 

The Fed has a dual mandate. Their tools are more effective in combatting inflation rather than deflation.

• Deflation is game over.
• Inflation is combatted with austerity, which the Fed will gladly employ when needed to protect the wealth they manage for the world. 

Krugman is struggling to remain relevant in a world he never predicted. 

As to his proposition, the Fed analyzes that data already. Poor messaging by Pauli.

[Hornlover 8,827]

22 hours ago, washparkhorn said:

I dislike Krugman, but some of the comments on his ruminations make Krugman look brilliant. 

The Fed has a dual mandate. Their tools are more effective in combatting inflation rather than deflation.

• Deflation is game over.
• Inflation is combatted with austerity, which the Fed will gladly employ when needed to protect the wealth they manage for the world. 

Krugman is struggling to remain relevant in a world he never predicted. 

As to his proposition, the Fed analyzes that data already. Poor messaging by Pauli.

He's not wrong, though. If the normal indicators you use for inflation are Toilet Paper and Hand Sanitizer, and a shortage at the beginning of the pandemic causes their prices to skyrocket, then you may want to diversify what you're watching to judge inflation.

[Nueces River Rat 5,537]

On 5/19/2021 at 6:04 AM, Royalfan5 said:

Eh, the USDA has been out to lunch on grain numbers since they overestimated the 2019 crop and tried to bullshit their way through it, grains would be even higher if it was for Covid because wouldn’t of lost a bit of use last spring while we lost acres on excess moisture/lack of incentive in the north. Biggest thing here is the SnapBack on China trade and their hog herd bouncing back from ASF, and the US crop finishing dry on soybeans last year and the derecho fucking up Iowa corn just enough that it exposed the USDA bullshitting just in time for Brazil’s second crop of corn to go dry while Russia restricted exports because they had been bullshitting about wheat stocks too. 

[GRHorn 105]

 

[Parliament 14,229]

I don't know what that is, but it can't be good.

[ChickenSandwich 9,824]

[GRHorn 105]

 

[GRHorn 105]

In the interest of sharing both sides. 

 

[Blotto 23,486]

shit getting serious now. wingstop feeling the pain, gonna try to market thighs

Quote

"The [wholesale] price of wings a year ago was as low as 98 cents," per pound, Charlie Morrison, Chairman and CEO of Wingstop Restaurants Inc., told CNN Business. "Today, it's at $3.22. So it's a meaningful difference." Thighs, on the other hand, are "much less expensive," he said, coming in at about half of what wings cost per pound today.

https://www.cnn.com/2021/06/21/business/chicken-thighs-wingstop/index.html

[gsoda3 3,245]

On 5/21/2021 at 2:04 PM, Bozo_Casanova said:

Bingo

Think about it this way - aggregate demand increases -> supply chains don't keep -> Prices rise (demand pull) -> Costs of production rise as competition increases for the higher priced goods ->  Prices rise (cost-push). 
 

i didn't see this earlier so i'm a month late to respond. 

 

thanks for the illustration, i get the mechanics. my point was the initial attributed factor is what's labelled as cost-push or demand-pull inflation and anything subsequent is a direct result.  

[Hornlover 8,827]

Lumber prices continue to fall. 

https://www.nytimes.com/2021/06/21/business/lumber-price.html

Spoiler

In May, the Consumer Price Index, a broad measure of the costs of typical items that Americans buy, rose 5 percent compared from a year earlier — the fastest pace in 13 years.

But runaway inflation of the kind seen in the United States in the late 1960s and 1970s is a psychological process as much as an economic one. When inflationary expectations take hold, people become convinced that prices are on a never-ending escalator. They rush to buy now, at any price, and increases become a self-fulfilling prophecy.

Instead, the lumber market’s behavior is a sign of consumer sanity, said Kristina Hooper, chief global market strategist at the investment management firm Invesco.

“We don’t have that kind of buying frenzy that creates sustained inflation,” she said. “To me, this is very, very different than the 1970s.”

Officials at the Fed, who have long argued that any price rise would be temporary, view the situation in much the same way.

“Our expectation is that these high inflation readings that we’re seeing now will start to abate,” the Fed chair, Jerome H. Powell, said at a news conference on Wednesday after the central bank’s most recent decision to leave interest rates unchanged. “That’s what we think. And it’ll be like the lumber experience.”

Other experts aren’t so sure.

Michael Strain, an economist at the American Enterprise Institute, a right-leaning think tank, said problems with the supply chains for lumber, semiconductors and automobiles were likely to resolve themselves over time, helping to bring down prices that have spiked recently. But the risk of inflation doesn’t depend on continuously rising prices for the same set of commodities.

“The question instead is whether or not the existence of these one-off factors, kind of one after the other, sustained over a period of several months, will change the way people think about future price increases and make them more likely to go into their bosses’ offices, demand a raise,” Mr. Strain said. “And I think the answer at this point is we don’t know.”

 

[StruggleBus 3,922]

On 6/21/2021 at 12:55 PM, Blotto said:

shit getting serious now. wingstop feeling the pain, gonna try to market thighs

https://www.cnn.com/2021/06/21/business/chicken-thighs-wingstop/index.html

[Dbeasy 15,040]

Who wants to invest in my new chicken fast food chain ThighStart?

[Trey3216 15,343]

On 6/22/2021 at 2:57 PM, Dbeasy said:

Who wants to invest in my new chicken fast food chain ThighStart?

I was thinking 'Thigh Masters'   

[washparkhorn 9,939]

2 hours ago, Trey3216 said:

I was thinking 'Thigh Masters'   

Thunder Thighs

Edited June 23, 2021 by washparkhorn

[washparkhorn 9,939]

So the Fed forecasted it correctly . . . starting this Economic Beast after a pandemic would be sluggish. Spurts and Stalls. We are out of sync, but synchronizing once again.

Now the Fed signals intent to remove some monetary (not fiscal) stabilizers (easy money from the spigot drying up for the big boys).

You are welcome for another bailout. Without the monetary stabilizers, the financial markets would have been destroyed. 

Go build something big boys and girls. That's the next cycle (if we survive the Economic War with China (our creation)).

 

[GRHorn 105]

Not inflation, but not helping. 

[GRHorn 105]