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Is Inflation really a Problem?
By EconMatters
Consumers only focus on Inflation, they ignore deflation areas
It seems that to exclusively focus on one side of the equation can be human nature at times, and with regard to inflation concerns humans never see the other side of the equation, i.e., areas where they are actually experiencing deflation in their lives.
The Housing Market
Let`s start with housing, the Case-Shiller 20-City Home Price Index shows quite clearly that after years of inflation, consumers are getting a large break on prices due to the deflationary effects in the housing industry over the last five years.
Mortgage & Interest Rates
How about interest rates, rates for getting financing either to finance a first purchase or refinance an existing loan have been a real boon to consumers, and rates generally have been coming down for twenty years. I am sure your parents or grandparents can tell stories of 18% mortgages; we are definitely experiencing deflation in financing costs around borrowing money.
Copper Prices
Next let us look at Copper prices for the last five years down over 2%, and that is after a price spike for the first quarter, wait for the first major selloff in markets and copper will be much cheaper, i.e., Copper prices can easily sell off 30 cents or more per pound when assets sell off over the annual summer selloff.
The first quarter the last three years has been good for asset prices, but it is important to take the yearly average in prices to smooth out the fund inflow noise that look to make a quick buck on the first quarter ramp up in investment flows.
But again Copper is a major component used for industrial & commercial economic projects and an inflation hedge, and it is exhibiting deflationary effects the last five years, especially when you factor in ‘real terms’ it is even more deflationary.
Natural Gas Prices
Let us next take Natural Gas prices down over 40% for the last ten years, but consumers don`t want to factor the areas where they are doing much better in regards to the “pernicious effects” of inflation.
Yes Natural Gas prices are another major economic input cost for many manufactured products from plastics to chemicals, and this major economic input commodity is in a major deflationary cycle.
Gasoline Prices
Now let us take everyone`s poster child for inflation gasoline prices; over the last five year`s they are up 20%, but this is misleading as we are at the highest point ever for this time of year, and gasoline like oil prices are quite volatile.
For example, they were down 10% over a five year period in June of 2012, so again it is important to take the yearly average in gasoline and oil products.
But even one of the worst categories for inflation, at the height of a recent influx of capital, is only averaging 4% annual inflation.
Plus there are other factors at work here including the newly minted exporting of gasoline and petroleum products that has occurred as a trend the last three years in these markets that are making these numbers worse than they otherwise would be.
Just be patient folks gasoline prices will come down as high prices are actually deflationary for the product, and the old adage applies, there is no better cure for high prices than high prices for economic sensitive goods.
Expect a pullback in gasoline prices for the second half of the year, and when we revisit these numbers I can envision a negative print for gasoline prices over the last five years.
Electronics have built in Deflationary Cycles
But we haven`t even gotten into electronics, televisions, computers, cell phones etc. there are many other areas which continually have deflationary product cycles that help cancel out the areas where we do have inflation effects, and even some areas that are indeed “pernicious”!
I am not saying there is no inflation, clearly even the government numbers show over a 2% annual inflation rate. But the exercise is meant to show that there are major deflationary pressures still at work in our economy, and they are worth taking notice of to balance some of the inflation rhetoric that seems built into our psyches.
Wholesalers Probably Take Advantage of Inflation Fears
I think a lot of wholesalers, middlemen, retailers, etc. actually fatten margins because consumers believe inherently in the “pervasiveness” and “perniciousness” of inflation; why not tap into this and confirm their worst fears, and gain some pricing power along the way.
The input costs that I have presented over these two articles are actually quite deflationary, and I can keep going as there are so many examples of deflationary price pressures in many commodities.
The fact that I can easily find so many examples should in itself say something regarding the inflationary environment in the economy. I literally just started pulling up charts and indexes, and was not cherry picking for results.
Sure I can find many areas that are inflationary, but if inflation was really as “Pernicious” and “Pervasive” as everyone seems to believe these days, I shouldn`t be able to find so many counterexamples to their argument so effortlessly.
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You worried about a sudden 50% drop in ammo prices?
OK ... if you were not being so selective of your data to make a point then I would have given you some credence. But of course you are trying to make a point that can only be made by carefully choosing what you show. One has to ask why you would do it at all?!?
Start by taking metals and other commodities back ten years, closer to the low as you did with natural gas. The industrial metals have quadrupled from there. Takes the grains and oil as well ... quadrupled. Corn is subsidized for ethanol ... so probably should not count corn.
Then look at things that actually affect people: healthcare, food, education.
Now look at housing from 10 years ago and the fact that Case-Schiller has averaged about 110 for the past 100 years or so (from a base of 100). Case Schiller is an inflation adjusted number supposedly, so housing is still 40% higher than the base and almost 30% higher than the average.
As for electronics, you cannot just look at individual items, but substitutes as well. For example: LCD TVs have been coming way down, but they are replacing tube TVs that were 1/4 of the price. Similarly people used to get cheap free phones with their two year mobile contract of $39/line. Now they have to buy a smart phone and pay a manditory $30/mo EXTRA per line for the smart phone... because of the enhanced service. It does not matter if the smart phones are coming down in price. The overall cost to have service is increased tremendously.
My real estate taxes have almost tripled over the last 10 years.
Sure money is cheap, but putting people into perpetual debt servitude so that they have the funds needed to buy the necessities of life is not the answer. In fact, I would suggest that cheap money is the cause of the massive inflation inflicted upon the US by the loose money policies of the Bush and Obama administration. We could use a little defaltion right now so that those who can least afford it and those who have saved get a break.
Screw the bankers and their tools, such as you.
EconMatters is a moron.
How many electronics do people purchase? A few, right. We buy tv's every 10 or more years. How does deflation in the price of gadgets help when they represent less than 1% of our annual budgets? It doesn't. And, most people don't flip their house every year. Thus, "deflation" in house prices is a non-contributor to personal inflation rate. Yes, people can refinance at 4%, but the reduction in mortgage prices is vastly out-paced by inflation in every other category, including: heating oil, gasoline, food, clothing, and household goods.
Everyone, do yourselves a favor. Keep a monthly budget and record all your expenditures in the various categories. You will quickly see that REAL inflation is over 14%, and forget this Fucktard. He's busy dry humping Krugman's leg.
Government logic - toasters are cheaper so inflation is low. I don't give a crap how much the toaster costs if the price of bread has tripled.
This piece is more MOPE - management of perspective economics - at worl.... repeat after me "ALL IS WELL!, ALL IS WELL!"
Even Orwell couldn't have forseen the rabbit hole we're now in..... it's all about illusion and perception
Toasters are not cheaper. They are made cheaply out of inferior materials. You will be punting your toaster into the garbage can long before you used to. Ergo, initial price is an economists mirage.
And how about insidious inflation? You buy a tool or a pair of pants that used to last several years. Today's Chinese "quality" lasts half as long if you are lucky. So inflation is DOUBLE what official numbers show.
EconMatters may not be a moron, but he provides stiff competition.
P.S. Nicely cherry picked data. Copper in the past 3 decades was once around 60 cents a pound. Today it is $3.60 plus. 600% inflation. I, too, can cherry pick data.
I'm going to keep with the addict meme. This is like an alcoholic saying his expensive drinking habit is okay since he keeps getting promoted. Is inflation bad? Yes. Is deflation bad? No. Inflation = Robbery. Deflation <= Progress.
Funny how everyone here has at least 1 down vote.
Mr. Econ Matters, you are incurable.
Yes, who is the cockfag responsible for all these down votes?
apparently that dipshit has 2, 3 or more different accounts.
I am assuming his day job is at the BLS - so plenty of time on his hands.
The US dollar is backed by credit so inflation is the quantity of total credit outstanding. Even with the unprecedented debt monetizing, total credit has barely moved. Banks are not lending because most people and businesses are paying down debt or restructuring existing debt not taking on more. Businesses are not taking on more debt because demand for goods and services are stagnant so there is no need to expand. Individuals are not taking on more debt, except for those on the margin such as students and some home buyers with government backed loans. Only the USG is taking on large quanitities of debt but it is not enough to counter the deflationary forces and is not sustainable. The low velocity of money proves that whatever money the FED pumps into the system is mostly not being lent out. This financial crisis will not end until total debt relative to GDP is cut by at least one half of todays levels.
As long a the little guy can't get a raise there is no inflation, basically that is how the game is rigged.
So... food, energy and healthcare cost are becoming a larger percentage of your budget and increasing much faster than wages. What is that called?
well, the government DOES spend the money that's created out of thin air. so, yes, this newly created debt DOES indeed enter the real economy and inflate the figures. just recently, even the big fat cats started buying real estate to rent, en masse. and that's a side job next to inflating commodity prices for everyone else on earth.
So how much debt did the Fed take out to buy all those trillions in garbage they bought?
What garbage did the fed buy? The toxic crap is still on the bank balance sheets, no? And the Fed doesn't borrow money, they press F4 on the keyboard and $1 billion magically comes into existence.
In short, the debt, corruption, and monied interests are continuing to mis-allocate and mal-invest precious capital and resources simply to maintain their power and control (which is really what this is all about). No one in the financial sector has suffered any sort of real consequence for their bad behavior.
You are correct sir, there is a very real cost for capital and real fucking value in my labor, no matter what the bernanke says.
I always enjoy watching the modern "debt is money" eCONomist struggle with one simply question;
Tell me, what is the "price" of an essential commodity that I refuse to sell, yet you need for survival?
Think about it, there is a reason the modern banker does not want creative producers of real items of real value to have firearms, eventually it becomes too risky to continue the theft, eventually.
I'm not saying that the FED is not a evil, thieving institution ... it is. I'm not saying that the banks are not run by a bunch of psychopathic criminals ... they are. But what I am saying is that the status quo is doing everything in their power to keep the debt from imploding. I just don't see how they can because the economy does not produce enough to service it.
"I just don't see how they can because the economy does not produce enough to service it."
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Then you have not been paying attention. Has everyone in the middle class been put into a FEMA camp yet? Have all their physical assets been confiscated yet? Taxes and real inflation will continue to rise as more capital is required to service that bogus debt. More people will eventually lose their homes and property as the taxes on it all explode. Nothing that the government can't tax will can ever be "owned" now, no matter how hard anyone works.
I look around and I still see plenty of real wealth/assets for TPTB to steal. They won't stop until the world looks like China/N. Korea. Sheeple still too stupid/pacified/lazy to actually do anything yet.
"The US dollar is backed by credit so inflation is the quantity of total credit outstanding."
So when you increase the numerator and keep the denominator the same that isn't inflation?
exactly, see my comment above. Another question that boggles the mind of the modern MBA; What is the "price" of something nobody wants? Is it really "0". Someone had to manufacture, mine, or create it.
This is what happens when you eCONomy is not based in anything real.
The price is 0; the cost is what you are talking about (none zero).
No price can ever be 0. Someone will always have to pay for it, no matter what.
Bingo, in the real world there is a cost/price for everything, it's an energetic cost/price as it take energy to actually do anything, like keep yourself alive.
Keep paying for those relative few elite to maintain their lavish lifestyles, stupid sheep.
I'd argue that savers have already been paying a significant price/cost. Nothing but semantics now. Once you get to the point of argueing over semantics, all has already been lost. A relative few still being enriched, everyone else is still fucked.
So my house that I bought in 1998 has not gone up or down in value (although it has gone up and down in value) and I'm doing better? I could have bought another house for more or less along the way. The relative cost doesn't matter too much because I already have a house. The only people who really save with falling houses are those new to the market, same group hurt by rising prices.
My ability to refinance has saved me a little in interest. Big fucking deal!
I've spent well into 5 figures upgrading HVAC and replacing windows, insulating and my heating/cooling costs haven't changed (NG and mostly good clean burning coal generated elec.)
My food costs are about triple.
My car gets 33mpg overall and I pay more for gas now. Repairs maintenance are much more expensive.
College for my kids (I'm on the 7th consecutive year) started at 32K and now runs closer to 43K and that includes a 12.5K scholarship!
Tax rates are up.
and this is considered a low inflationary environment. Just wait until we really get inflation. It will be a blood bath.
"Just wait until we really get inflation. It will be a blood bath. "
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TPTB are doing everything they can to disarm/register all guns in the truly private sector before this happens.
Proof positive that if you want to fight and win in the US market you have to show the US consumer a real VALUE option. Clearly you can screw this President over as "he never saw a trillion dollar check he didn't want to sign over to someone." but other than that I really don't see how spending doesn't fall and fall dramatically this year. Does the fact that something is more expensive make you want more of it? "Take a look at Apple's stock" if that's the case. Same of course is ESPECIALLY true of debt. With interest rates this low "why should anyone buy?" and of course as if on cue "certain States are now reporting massive surpluses." Why? Because they have to when the Federal Government has run out of money. Now it's time to tell Washington DC "rule makers" to stick it where the sun don't shine. They're a BURDEN outside of Social Security. "and now they're bankrupting that program too."
boy this waqs nonsense
The deflationists are back for another lesson in math. For fks sake. There is no GD deflation. Have you looked at the latest money supply charts? They are spiking like crazy. If you want to pick up nickles in front of a steam roller, don't ask me to follow you, or to help you when your hand gets stuck.
http://research.stlouisfed.org/fred2/series/BASE
Gee, aren't you the Pollyanna finding silver linings in every cloud. in flation is a govt. scam with political defenders every where and is an admitted govt. policy when they announce inflation targets and the target is never zero. What is wrong with zero?
I wouldn't say that housing so much is deflating as it's reverting to the mean after a staggering and unsustainable bout of bubble induced inflation. Furthermore, it's less a deflation in annual expenses as it is a deflation in asset value. Underwater homeowners aren't saying "Thank goodness our house value has deflated by half. Now we can afford so much more."
Gasoline and food prices are increasing although we've been able to compensate somewhat with lowered consumption lifestyle changes. I do know that our electricity rates surged by 20% last Spring and after a usagle audit, we've unplugged the TV cluster and now use cloths lines over the electric cloths dryer. I've been informed by my employer that our heath insurance premiums will increase by 10% this year and then increase by 30% in 2014. Now that worries me because I don't know how to compensate around that kind of increase outside of lowered consumption eleswhere, or perhaps drop out every other year, pay the fine, and save for the next year's premiums. Oh darn it. But it also worries me because it hints of a future with yet another giant drag to an already staggering economy.
You tell it like it is.
The current regime's policies are slowly suffocating the average citizen.
Outside of oil the only "more rigged" market is housing. So far Wall Street has (unfortunately) found a bottom. Tank those prices another 40% though and I'll think you'll see just how little firepower Wall Street really has left. What did Bill Murray say in Stripes? "We're not parking our car there. We're abandoning it there."
I don't buy the traditional inflation/deflation debate unless it takes into account the income of each household and how much more/less it can buy as it's income fluctuates.
So if your wife has lost her job and the family income has come down by 50%, then as far as I am concerned you have suffered a 100% price increase even if the price of bread has remained the same.
House deflation means little if you have no job and cannot get finance.
By the same token, if you bought a house for $100k with $100K borrowings in 2012 and in 2013 it is now $50k then as far as I am concerned the cost of your loan just went through the roof.
+1 I remember how during the price fluctuations of the 70's several european countries tried to calculate this according to an "average" family - hopeless, "average" is math, not reality felt by families
Most of the things you NEED have gone up in price (and not just off the 09 lows- I'm talking a 10-15 year horizon). Some of the things you would LIKE to have are stable to down. Net net, it doesn't sound too bad. But lay it against wages that have been on a down-trend over that same timeframe and you get the real picture: you're working harder just to exist with less left over to do anything else.
That's how standard of living declines even without big headline inflation numbers.
And I will add, as I often do, this is as good as it gets even while running federal deficits 6-7% over the rate of growth (financed by stealing it from the future) PLUS ZIRP and EQ4EVA from the Fed. Take away those supports, even a little bit, and down she goes again.
"She is made of iron, sir. I assure you she can and will sink. The pumps buy you only time, nothing more."
Inflation is an increase of the money supply.
Prices will follow.
Your argument is invalid.
When I read the title of the article, I was expecting this to be an argument for why having an inflationary money supply, rather than having a deflationary money like gold, was preferable or at least a pros and cons comparison. Instead, I got a list of things that have fallen in price and am disappointed.
The increase in the money supply has gone thru primaries, banks and into the markets....it hasn't gone out into the economy. When the aforementioned are ready and the market is high enough for them the digital dollars will leave the markets reversing course.
That is a beautiful theory. I hope you will at least accept and aknowledge the possibility that the excess money, instead of disappearing back through the banks, has a chance of flowing into the real economy and causing high inflation.
http://static.fjcdn.com/pictures/your_d78c0a_166463.jpg
Cherry picking, yes. Natural gas on a 10 year time scale but gasoline on a 5 year time scale? 2003 gasoline prices were $1.72, today $3.50+, over a 100% increase.
Food is missing and has gone up exponentially. 2003 milk price $2.44, today $3.25+, a 33% increase. Thank goodness it's still 1 gallon so I can compare cherries to cherries.
BS, there's plenty of inflation, don't be like .gov.
Inflation really a problem? Well, it depends if you are a net debtor or a net creditor. And it also depends on how much, and how long, and how strong
Ghordius, one of the best comment on this thread. Thanks!
So this was written with a gun to his head?
Well, Natural Gas isn't a good example, as in the past few years fracking has increased supply to a massive extent.
The chart he shows is not prices paid for NG by consumers. Rememebr these are rigged markets where govt controls rates.
http://www.eia.gov/dnav/ng/hist/n3010us3m.htm
Doesn't look to me like we've seen deflation in NG prices.
Where are the food and electricity prices?
Foo prices have gone up or package weights have gone down while prices remain the same
I call that inflation but its all about inputs for them