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2021 - Is inflation finally back in the conversation?

Reagan1k

By Reagan1k
in Business and Markets

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Bateshorn
Bateshorn

The only thing more predictable than the GOP running up huge deficits on tax cuts and military spending, is each one suddenly becoming horrified by deficit spending 5 mins after a Democrat is sworn in

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HamsterHookah

HamsterHookah 112

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3 hours ago, Captainant said:

It's hilarious and cute to see yall spiking the football while completely ignoring that the egg companies profits soared while their prices soared much further and faster than their costs.

 

If you enjoy paying so much for products, why don't you just give companies more money??? Hurrr durrrrrrrrrrrrrrrrrrrrr

I think the point is that in the short term you might have some power to flex pricing, but in the medium and long-term, technical and economic forces will drive behaviors.

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52-80

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3 minutes ago, HamsterHookah said:

I think the point is that in the short term you might have some power to flex pricing, but in the medium and long-term, technical and economic forces will drive behaviors.

Imagine being such a fucking dunce to ask that rhetorical question but without a hint of irony.  Im not convinced such stupidity is natural — it has to be honed through practice  


I work in a consolidated industry, where my employer is #1 at almost 2x the nearest competitor. In good periods we have capacity shortage and maybe some new tech, and CEO will boast about that translating into pricing power, and rally the account managers into renegotiating clients’ existing service agreements to get an “uplift” of maybe 5%-10%.  

And then the macro environment tanks and clients suddenly dont want to pay so the account managers are sent out to salvage the contracts by offering discounts of 5-10%.  And we’re short on cash flow and excessed in capacity so some gets trimmed…which leads back to the previous paragraph again.  

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Royalfan5

Royalfan5 2348

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As a side note, live cattle scored all time highs today. Feeder cattle have bit to go yet. Packers are probably losing money on cattle and hogs here near term, as are hog producers while cattle guys are finally getting their day in the sun. 

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52-80

52-80 19108

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36 minutes ago, Royalfan5 said:

As a side note, live cattle scored all time highs today. Feeder cattle have bit to go yet. Packers are probably losing money on cattle and hogs here near term, as are hog producers while cattle guys are finally getting their day in the sun. 

Congrats John Dutton

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Parliament

Parliament 14149

Posted
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2 hours ago, Royalfan5 said:

As a side note, live cattle scored all time highs today. Feeder cattle have bit to go yet. Packers are probably losing money on cattle and hogs here near term, as are hog producers while cattle guys are finally getting their day in the sun. 

Oh no!  What ever will we do!  

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wackawacka

wackawacka 169

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https://www.ft.com/content/8009bc16-68a5-4d2b-bdfe-31c5b99ea0b8

 

Quote

But in just the past few days, larger than expected drops in inflation — including for services — in Germany, Spain and France show that the one-off temporary shocks explanation should not be discarded yet. We are still fumbling for the answer to the single most important question in finding the right policy response to rising prices and hence judging the performance of our central banks. But two new pieces of research shed more light on the question. A recent high-powered event at Brookings covered the US situation. Two giants of the field, Olivier Blanchard and Ben Bernanke, presented a paper assessing what was the early argument of those warning against inflation: that excessive fiscal stimulus would overheat labour markets, drive up wages and hence prices. Their summary conclusion is politely put: “The critics’ forecasts of higher inflation would prove to be correct — indeed, even too optimistic — but, in substantial part, the sources of the inflation would prove to be different from those they warned about.” Less politely, the critics’ predictions were right for the wrong reasons. That matters because your policy conclusions depend on the reasons why inflation rose. Bernanke and Blanchard find, essentially, that labour markets were the dog that didn’t bark. Labour market tightness only accounts for a sliver (the red segment of their column chart, reproduced below) of inflation above the Federal Reserve’s target of 2 per cent since the end of 2019. In contrast, almost the entire inflation dynamics are attributable to energy and commodity shocks (the blues) and, in the early pandemic recovery, supply chain snarl-ups (yellow).


To be clear, Bernanke and Blanchard are not saying that labour market tightness is no concern and inflation will go away entirely by itself. Indeed, they warn that labour market-driven inflation is more persistent and that policy should, therefore, bring supply and demand into better “balance”. But their analysis entails that this particular problem is small — in my view so small as to be negligible, or at least far from justifying the sharp tightening the Fed has undertaken. Eyeballing their chart, labour market tightness is responsible for about 0.5 percentage points of the above-target inflation rate. And in my judgment they have, if anything, stacked the deck against a transitory interpretation of the price growth we see. They calibrate the effect of a high job vacancy rate against pre-pandemic data, not allowing for the possibility that a large-scale reallocation process is making a higher than usual vacancy rate compatible with less inflationary wage growth. (We can throw into the mix recent Fed research — hat tip: Torsten Sløk — showing that labour costs are “responsible for only about 0.1 percentage point of recent core PCE inflation”.) I take this research, then, to support the view that our current inflationary episode is mostly down to a series of negative supply-side or demand-composition shocks — it is not the consequence of outsize aggregate demand. It also suggests there is reason to expect the current deceleration in prices to continue of its own accord, and perhaps to worry that once the effects of the past year of tightening hit the economy, they may prove excessive. I draw similar lessons from another important piece of state of the art research: the more Europe-focused work on the nature of our current inflation of this year’s Geneva Reports, at present circulating in draft form. I recommend looking at the public presentation slides from the authors Veronica Guerrieri, Michala Marcussen, Lucrezia Reichlin and Silvana Tenreyro. Their main message is to pay attention to how cost-driven inflation does not affect all sectors equally (unlike, to some extent, aggregate demand shocks). Energy prices, which they take as their main focus, obviously drive up costs more in some sectors than others, depending on their energy intensity — think transportation relative to retail. But the outputs of one sector are inputs into another sector — shops pay for transport. (The same point can be made — and is made by Bernanke and Blanchard — about the most striking phenomenon in 2021, the huge swing in the composition of US consumer demand from services to goods: running up against production constraints in one sector brings more inflationary pressure than slack in another sector can bring offsetting deflationary pressure. But that is not a sign overall aggregate demand is excessive.) This means cost shocks can cascade through the economy for some time: “a supply shock that hits different sectors differently generates lagged waves of sectoral inflation that make the response of aggregate inflation persistent”. It is key to notice, too, how much bigger the supply shocks have been in Europe than in the US — and how correspondingly longer it will take for the waves to dissipate. The Bank of England’s Jonathan Haskel found a good way to express how big that difference is in a speech last week:

f7b9c621-20ef-4f2e-ae10-51e7c7ae1325.png

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troph

troph 24582

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People stopped buying services and amped up buying goods and that plus supply constraints delivered a massive shock causing most of inflation? That was the basic premise of the transitory view which I still believe except that transitory isn’t 6 months it’s 2 years.  Sure stimulus increased demand for those goods but that’s not the main cause. Borrowing from psychology - the trauma hangover from Covid is real and still in play. Not surprising the supply chain shocks are still causing a ripple effect. 

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Captainant

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9 hours ago, troph said:

People stopped buying services and amped up buying goods and that plus supply constraints delivered a massive shock causing most of inflation? That was the basic premise of the transitory view which I still believe except that transitory isn’t 6 months it’s 2 years.  Sure stimulus increased demand for those goods but that’s not the main cause. Borrowing from psychology - the trauma hangover from Covid is real and still in play. Not surprising the supply chain shocks are still causing a ripple effect. 

That plus giving corporations $700,000,000,000 in free money probably goosed the inflation rate a little too. 

Thank God we're making those lazy students pay their fair share back though! The taxpayer should be made whole by those lazy TAKERS! They aren't JORBCREATORS like the blessed and subsidized corporations are!

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troph

troph 24582

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7 minutes ago, Captainant said:

That plus giving corporations $700,000,000,000 in free money probably goosed the inflation rate a little too. 

Thank God we're making those lazy students pay their fair share back though! The taxpayer should be made whole by those lazy TAKERS! They aren't JORBCREATORS like the blessed and subsidized corporations are!

The data suggests it was a massive shock from a rapid and widespread change in spending habits and massive constraints on supply chain - think zero COVID in China, other problems, and I recall remarkable changes in spending such as outdoor gear and durable goods flying off the shelves and of course restaurant spending plummeting. Yes cash infused was fuel but it didn’t cause the inflation to begin with. 

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Captainant

Captainant 27492

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Posted (edited)
16 minutes ago, Cheeseweasel said:

Thanks for posting @wackawacka

 

Looking at the charts, it's obvious what energy costs do to shock the supply chain. Until we strangle OPEC, we are subjected to their whims.

We should be investing more into renewables and energy storage tech, but instead we've been subsidizing Bitcoin farms. Ah well nevertheless 

Edited by Captainant
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jimmyjazz

jimmyjazz 45599

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Tangent related to crypto mining & energy:  the other day I read about a study out of Texas A&M that assessed the net annual energy consumption by crypto farms in Texas is equal to that consumed by the city of Austin, and will soon match that of Houston.

W.T.F.?  I don't mind idiots speculating on a pseudo-currency and losing their shirts, but I damn sure mind the whole "industry" stressing an already precarious power grid.

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UT_OB1

UT_OB1 2202

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1 hour ago, jimmyjazz said:

Tangent related to crypto mining & energy:  the other day I read about a study out of Texas A&M that assessed the net annual energy consumption by crypto farms in Texas is equal to that consumed by the city of Austin, and will soon match that of Houston.

W.T.F.?  I don't mind idiots speculating on a pseudo-currency and losing their shirts, but I damn sure mind the whole "industry" stressing an already precarious power grid.

Did it break down where the energy was coming from?  I’ve seen rigs in industrial parks allowed to use excess energy, I’ve read about the ones burning waste gas that would otherwise be flared. Would be interested to see what % is pulled straight from the grid

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jimmyjazz

jimmyjazz 45599

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4 minutes ago, UT_OB1 said:

Did it break down where the energy was coming from?  I’ve seen rigs in industrial parks allowed to use excess energy, I’ve read about the ones burning waste gas that would otherwise be flared. Would be interested to see what % is pulled straight from the grid

I haven't read the A&M report, it was just a news story about crypto power consumption.  Yours is an interesting question.

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Incredulity

Incredulity 11564

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24 minutes ago, UT_OB1 said:

Did it break down where the energy was coming from?  I’ve seen rigs in industrial parks allowed to use excess energy, I’ve read about the ones burning waste gas that would otherwise be flared. Would be interested to see what % is pulled straight from the grid

WSJ has covered the energy usage by crypto miners extensively.  Cliffs notes:  They are using an absurd amount of electrical energy from the current grid.

 

The current grid that is allegedly going to provide energy to fuel most transportation in the next decade or so.  

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Royalfan5

Royalfan5 2348

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I'll note that live cattle continue to score fresh record highs, and boxed beef has stayed on a tear. I think we are likely overdoing it at this point, but it's going to be awhile until beef can see the pullbacks that we've seen in dairy, pork, and chicken related products as biology works against quick addition of supply. 

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Captainant

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1 hour ago, UT_OB1 said:

Did it break down where the energy was coming from?  I’ve seen rigs in industrial parks allowed to use excess energy, I’ve read about the ones burning waste gas that would otherwise be flared. Would be interested to see what % is pulled straight from the grid

Source aside, the bigger problem was that the state of Texas was paying them to STOP mining so that more energy would be available - at least that was the pitch. So we were (and are) paying a considerable opportunity cost because instead of investing in renewables and storage we've been literally giving money to cryptominer companies that moved over from China. 

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UT_OB1

UT_OB1 2202

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Posted (edited)

I know on one hand you want to provide cheap and reliable energy as a means to sttract and incentivize business and technology, but on the other, if any single source is getting so big it is driving the bus for the whole state (that includes residential) seems like a steeper tiered rate (increasing with increased use) for non-resi use is needed.  

Edited by UT_OB1
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Incredulity

Incredulity 11564

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I am certainly a capitalist and believe the market should do more of the heavy lifting vs. regulators.  

This however is a prime example of the need for regulation/intervention.

I could give a shit if two people want to trade/sell/exchange electronic coins.  Utilizing as much electricity to unlock bitcoins as a moderate size country does to function is fucking ridiculous.

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Trey3216

Trey3216 15325

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21 hours ago, Royalfan5 said:

I'll note that live cattle continue to score fresh record highs, and boxed beef has stayed on a tear. I think we are likely overdoing it at this point, but it's going to be awhile until beef can see the pullbacks that we've seen in dairy, pork, and chicken related products as biology works against quick addition of supply. 

The horrendous drought had a lot to do with the current cattle market.  

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Trey3216

Trey3216 15325

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17 hours ago, Incredulity said:

I am certainly a capitalist and believe the market should do more of the heavy lifting vs. regulators.  

This however is a prime example of the need for regulation/intervention.

I could give a shit if two people want to trade/sell/exchange electronic coins.  Utilizing as much electricity to unlock bitcoins as a moderate size country does to function is fucking ridiculous.

We should create EcoCoin.  Here's the pitch...

It's a coin "mined" from 100% 'renewable' sources...Plastic!  We'll insert a small chip in every coin to make it traceable for accounting purposes, but every coin will be made from recycled plastic!!!!   Now instead of having the shit floating around in the oceans, everyone will have a gunsafe full of plastic coins to trade with each other!!!

 

/s

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troph

troph 24582

Posted
Posted (edited)
On 6/6/2023 at 8:04 AM, Cheeseweasel said:

Thanks for posting @wackawacka

 

Looking at the charts, it's obvious what energy costs do to shock the supply chain. Until we strangle OPEC, we are subjected to their whims.

Energy always does but it’s volatile and by anyone’s definition transitory. It’s why it’s excluded from core inflation numbers. I wouldn’t worry too much about energy in this situation, we need supply chain reforms and stabilization and predictability and normalization from demand and consumers. Slowing the economy to me is analogous to bed rest for a patient. Post Covid kicked off a massive reaction to lean inventory and reliance on china for nearly everything and companies are working hard to build more resiliency.  Mexico and the US are going to be major beneficiaries of the changes and that will actually reduce energy costs as an embedded factor.  Either way energy isn’t a concern in the near term imo. I do think energy will be a major factor due to climate change and remains to be seen it’s impact on inflation, costs, etc.

Edited by troph
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Cheeseweasel

Cheeseweasel 26437

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11 minutes ago, troph said:

we need supply chain reforms and stabilization and predictability

Now you are preaching from my hymn book. I'm old enough to have been in manufacturing pre-JIT inventory and we withstood major fluctuations with minimal scars. The rope is so tight now that any blip causes major shockwaves in the system. Covid was a bit of a black swan event, but those events should serve as a warning to everyone (but they won't). I know many preach of "investment in clean energy" and I'm not opposed to it, but we need to invest in our supply chain as well (and I believe it should be a priority). Critical items should be manufactured in the US and relying on China, et. al. is a recipe for disaster. We are far better in terms of environmental policies than China and any movement of manufacturing to the US will be an improvement for the environment (especially when you factor in transportation).

Continue to preach, sister.

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