Estonia has for quite some time tried to establish itself as a "Startup HQ" for startups both in Estonia and from the world outside of Estonia. As a result, Estonia has the 3rd highest startups-per-capita compared to other countries in Europe.
People in the startup sector earn _much_ more than other sectors - the difference is, if I'm not wrong, one of the biggest in the EU. So it creates a) a lot of inequality and b) drives up prices of certain goods (houses, apartments) because there's a noticeable % of the population in the startup sector who has now their sweet exit money that's looking for a new home.
> I think parent lives in some start-up bubble full of rich exciters
I do.
> as where I live (Austria) start-up exists don't move the needle at all.
I totally believe this as the "% of people who are employed by a startup that has made an exit" is vastly different in Austria vs Estonia.
The total population of Estonia is so small that all exit events stand out. This year, there have been about 40 houses sold in the city I live in (pop 100k) [1]. From that only 7 are newer than 20 years. 7. Meanwhile, there are tens of people here who have been part of at least some kind of exit event during the same period and who are now actively looking for their first house. No other event in any other industry generates a sudden need for new real estate. At least not here in Estonia. There's a) extremely limited supply and b) a massive price increase due to extreme increase in demand (well, "extreme" in the local context)
Don't take my word for it indeed - I saw an article with a nice graph about that like a year ago but 10 minutes of Googling didn't turn up anything at the moment.
So here's an anecdote instead :)
Sweden. Average salary 36100SEK, average "Software- and system developers" salary 46500SEK. So a software dev earns ~30% more than the average salary. [1]
Estonia. Average salary 1576EUR. average "Software developer" salary 3753EUR. So a software dev earns ~140% more than the average salary [2]
Now I didn't find an official source for "% of people employed in the startup sector" for both countries but my guess is that it's much bigger in Estonia than in Sweden (based on [3]) and that's the reason for my overall pessimistic view that the startup scene here in Estonia is one of the biggest causes of income inequality in the EU (and I'm saying this as a person living in the startup bubble in Estonia myself)
You are probably aware that IT startups require engineers. And in Estonia there's only one tech university with a very arguable level of education.
Working in this field for decades, can assure you that for recent years Estonia made a huge progress in importing engineers from Russia, Belarus and Ukraine. Those high-quality engineers actually made it the Startup HQ of Baltics.
As for now, the immigration policy does not permit any work visas for Russian or Belarusian citizens, so this flow is depleted. Ukrainians have stopped coming here few years ago as salary levels were higher in Kyiv and it made no sense in coming to Tallinn. Today they just can't leave the country.
The biggest motivator for engineers from mentioned countries to come to Tallinn was the big Russian-speaking community, which made it "live in Europe, speak in native language" for them. As of today, the pressure on Russian language based education is extremely big, and having kids you want to teach in native language, coming to Estonia for Russian-speaking developers makes no more sense .
Everyone has the 1st, basic tier ("State pension"). Then there's the 2nd tier called the "Mandatory funded pension" which is the one that held the most savings and was "freed" now and then there's the 3rd one called "Supplementary funded pension" which has always been "free" as in you can stuff money in there and you can take it out as well.
People who blew their 2nd tier on a new car/TV/vacation/paying existing loans will still have the 1st tier but that will only guarantee a pension that's big enough that you won't directly starve but it's not big enough to actually let you live either.
1) Shared pool of funds. Current workforce pays into the pool and current pensioners get payouts from this pool. You can't liquidate this part of your fund as there is no part that is fully "yours"
2) Individual pool - part of your salary automatically gets put into this pool and invested into the pension fund of your choosing. THIS is the part that people can now liquidate before they reach the pension age
3) Individual pool of extra deposits - You can choose to add money into this pool and incest it in a pension fund. If you withdraw funds during your pension age then no gains tax is applied on the profits. But you can liquidate the fund at any point as long as you pay the gains tax.
So these citizens/residents will only be left with the first option as their pension payments.
Because people are shortsighted and want a new TV/car/apartment RIGHT NOW.
Also, there's a certain mistrust of the pension scheme and people think that the money in their pension accounts will be gone anyway by the time they reach the pension age.
> Also, there's a certain mistrust of the pension scheme and people think that the money in their pension accounts will be gone anyway by the time they reach the pension age.
Perhaps because it's true. In my relatively short life, the retirement age went up by over 5 years, and by the time I reach it it's going to go up by at least another 5 years. And let me tell you, there's no chance in hell I'm retiring at 70. A conservative fund would 'outperform' any government pension system in the long term.
Remember, the pension system was devised in a time where a lot of people died before the pension age. It is impossible for the pensions to keep up without overtaxing the young or increasing the pension age.
On top of that, you may contribute north of 100k in your lifetime towards your pension 'fund' that you will never see if you die a day before retirement (as my father did).
Not to mention the fact that there's no actual pension 'fund', not up to the full amount at least (or anywhere near). Most of the funds I pay in today will be paid out to pensioneers tomorrow.
You will still get the state pension. The part you are able to cash out is managed by other funds(banks etc) and it would act as an extra to state offered pension.
What exactly would fund it then? Pensions system typically works by current generation providing for the previous. If we allow newer generations to "cash out", what would be the source of funding?
The pension system in Estonia consists of a shared fund "First Pillar" and an individual specific fund "Second Pillar". Part of your salary goes into the pension system and gets split between these two funds.
So the current workforce is helping to keep up the First pillar for the current pensioners. But at the same time the current workforce is making deposits into the Second Pillar which just invests their money into the markets.
So people can liquidate their Second Pillar without messing up the First Pillar for everyone else.
You fund a bit to the state pension and a bit to a private pension. Based on a previous comment Estonia allowed you to cash out the private pension. I assume. Romania has something similar where you pay for your state pension, mandatory level 1 private pension, and optionally a level 2/3 private pension. State + level 1 private pensions work as you'd expect, whereas level2/3 generally have cash-out terms. It's not either/or, if you want a level 3 private pension you need to contribute to both level 1&2.
edit: replace level with pillar, as I couldn't think of the word and saw it used by sibling comment after posting.
We have 9% inflation in the UK but the reality of the costs of things that you need to live a relatively simple life (food, heating oil, fuel costs), have all gone up way more than 9%. A shop that used to cost me £80 a week now cannot be had for under £110. So you can calculate them all you like and look at the data, but the reality in my life is that prices have risen way beyond the 9% we're told is the amount.
That is completely normal, though. Inflation is not the exact price adjustment of every basket of goods over time, that is simply not possible to represent in a single number - rather, it is some arbitrarily chosen basket of goods meant to represent an average household.
If not using basics like food, fuel, and pricing on rent or mortgage - what are we basing the numbers off of? If it's the stable price of a Spotify subscription, rather than real goods needed to survive, something is horribly off.
Then how can it be only 9%? My gas price has increased by 200% in the last few months. In August, my electricity is going up 400%. Petrol alone has gone up by about 50% compared to few months back.
Sure bread is still roughly the same as it was. But living costs have absolutely exploded recently, and far far beyond the 9% indicated.
If you have relatively stable expenses, you can calculate your own inflation just by comparing year to year.
Historically for me real inflation is the formal EU number + 2%. So that means that they're usually about a 100% off as inflation has been low for a long time, until now.
The point that you are either dismissing or missing is that headline inflation tends to include products that have extremely sticky prices, and tends to exclude products with prices that fluctuate freely. Therefore, headline inflation tends to be a poor proxy for change in cost of living, and is at best a lagging indicator.
I can agree with this but basket substitution is the dirty little secret of economists.
If the cost of meat goes up so much that everyone starts eating dog food, the inflation print will barely rise at all.
It's not a real measure for QoL which I hope most people would accept as being what societies actually strive for.
In fact most measures like GDP and a few others have no real bearing on increased living standards. GDP per capita should be the only real number when talking about economic growth for starters. Even then catastrophes like natural disasters and war bump up those numbers due to rebuilding so it's still quite a rough metric to report on each year.
It's not much of a secret when even in high school economics class I was taught about different substitution methods (Paasche, Laspeyres[1]) with various drawbacks.
It's done because factually consumers buy different and producers produce different things over the years, and it's hard to impossible to observe/measure which substitutions are by necessity and which by preference.
The average person in society doesn't have the knowledge of a high school economics student though. Even those that learnt eventually forget it.
There's always an implicit older == smarter bias in society but I doubt many people who passed with good grades in high school economics are good at the basic concepts into their 30's.
Not to mention the MMT experiments that have been undertaken in the west over the last few years. I'm not even sure MMT proponents understand the consequences of such things. There's been a lot of resource misallocation that no one seems able to take responsibility for.
GDP, inflation, interest rates, etc are oft considered the main KPI's for politicians by the people who vote for them. It's a dismal science even for those well versed in its ways.
I mostly agree (except for the weird MMT stuff). OTOH, I believe governments and schools at least in my country have made a good faith effort to try to educate kids widely about these matters.
But most kids and adults alike probably find textbook economics and statistics as appealing as unsweetened oatmeal, and strongly prefer to consume sensationalized headlines and conspiracy theories. There's some tension between free choice and paternalistically nudging/forcing the population towards healthier stuff, that I wouldn't know how to resolve.
The weights are based on estimates of how consumers actually spend on different goods and services, rather than on how much someone would need to spend for subsistence or survival.
The problem is it is not necessarily arbitrary - governments can pick a basket that masks inflation in areas that it wouldn't suit their agenda to highlight.
"Arbitrary" means "picked." It doesn't mean "random" (although you certainly can pick things randomly.) The alternative to arbitrary choice is systematic choice i.e. having a set of specific meaningful criteria that determine something.
So I agree with you, but the problem is that it is arbitrary, and the arbiters could be rigging the outcome with their choices.
> It does not have to be perfect to be meaningful.
It is deceptive though, if this number is not representative of people's actual cost of living and it is then used to adjust their income for inflation. How clear is it that this basket really represents an average household (today)?
Employer: "What do you mean, cost of living has gone up by 14%? Official inflation is 7%, but the best I can do this year is 3.5%."
Politician: "Inflation is X every year, so we increase pensions by X% every three years."
> Inflation can be computed by anyone, so I don’t even understand how you could lie about it.
Lies, Damned Lies and Statistics
Choose carefully and cherry-pick how you source your input numbers, as garbage in means garbage out.
Then let friendly media spokepersons help your PR quest by stating the numbers as if handed down by God himself. Then let peons on the internet call you conspiratorial.
All in all, we shan't worry - these numbers are all simply transitory :)
"You know" will not do its job, when you're dealing with complex systems. (Or, in my opinion, at any part of life.) You know why don't the web developers just put on the button on the website? You know just a normal button. And it just needs to work normally.
On the other hand, I understand the disillusion and the distrust in the establishment, and in experts. People appoint themselves as experts all the time, and put down others by implying that the other don't understand the thing.
In case of the current inflation, I don't think that this is what's happening. The source of distrust, I think, is the basic understanding of the metric itself, and the implications drawn from it. For example, that one's monthly spending should be the same amount higher as the inflation. In this regard, inflation is meaningless, at most it's a rule of thumb of sorts.
Politicians, of course, will lie to you, and they'll be using anything, including numbers, to back it up. But that still doesn't mean that the method to calculate inflation is meaningless. For one, you can do it for yourself - which is of course hard, because I don't imagine you have historical data for prices of a bunch of products. But for example, if you're willing to trust another source, premium users of Numbeo can get a bunch of historical data, from which you could calculate inflation to your liking, including the products/services you actually buy and use.
There is a lot of play room in computing inflation numbers. For example, there are assumptions based on which input variables are smoothed out to reduce noise.
Inflation is only computed by some central statistics office. The state debt obligations are bound to inflation, so there's a conflict of interest here.
That might work for some measures of inflation, but it doesn't work for the 'GDP Deflator' for example. That is a different way to measure inflation (and a more exact one) and it not so easy to fake.
And even if we go with CPI stuff, the agencies that do these things try to stay consistent. At least in western countries they don't just do whatever they want.
The idea that all departments of all western governments are secretly changing the data inputs to achieve some sort of grand conspiracy about inflation number is pretty much delusional thinking.
> The idea that all departments of all western governments are secretly changing the data
I don't think they have to do it secretly. They do it in the open, otherwise there wouldn't be an Investopedia article on CPI controversy that clearly indicates a few problems. There's no internal whistle blowing going on. It's in the open.
> And even if we go with CPI stuff, the agencies that do these things try to stay consistent.
Sure, perhaps they "try", but:
"Over the years, the methodology used to calculate the CPI has undergone numerous revisions".
"Some critics view the methodological changes and the switch from a cost of goods index (COGI) to a cost of living index (COLI) as a purposeful manipulation that allows the U.S. government to report a lower CPI."
My personal problem with CPI is that it doesn't include the cost of purchasing a home. I get it...it's not a "consumer good" or whatever. But if you're talking about inflation, and everyone jumps to CPI for that, then CPI should include it, or maybe the media should stop quoting it so much. It's not representative of what people want it to be. People want a way to quantify how much harder it is to establish a good life with their earnings. And I don't think the government is being honest about that. Maybe it's too much to ask.
Then please point me at the methodological changes done by these government in the last 1-2 years that were specifically designed to hide higher inflation.
> "Some critics view the methodological changes and the switch from a cost of goods index (COGI) to a cost of living index (COLI) as a purposeful manipulation that allows the U.S. government to report a lower CPI."
Can this pattern be shown to always lower CPI and can they show that all western governments have enacted the same changes?
And such a methodology would maybe work over a long time-span, it could not be used to hide 1 years high inflation.
CPI is just a dumb and useless measure all together. It really should have no relevance to economic discussion. For macro economic analysis of any kind, the GDP deflator is to be preferred.
> People want a way to quantify how much harder it is to establish a good life with their earnings.
That is a wrong way of thinking about any inflation measure.
> And I don't think the government is being honest about that. Maybe it's too much to ask.
Not sure what honest means here. I don't think the government states anywhere that CPI is some magical measure of 'how easy it is to establishing a good life'.
No, the idea that administrations game the numbers to support their previous actions and future proposals is a given. Diagnosing people as mentally ill because they understand this is scary.
The real problem is this class of claim:
There are secret statistics that support my reaction, which would without those statistics be obviously irrational. I do not have access to these statistics, because their existence is being intentionally hidden from me, but from my trips to the grocery store and discussions in the breakroom, I know what they are intuitively, with a fairly high precision. I have been confirmed correct by some people I've met on the internet who are saying the same thing.
If you felt this way, and could find enough people who also think this is true, you should be able to do a survey on your own, more representative basket of goods, and come up with a number that you find more meaningful. If you couldn't, you could at least attack the current basket of goods and methodology with specific criticisms, rather than vaguely plausible FUD. Instead, vaguely plausible FUD rules, because statistics that are not being offered are unfalsifiable.
A basket of goods is only relevant if you can compare it to historical data, otherwise its pointless. And if you start now you can't select your basket of goods and project it back.
> Be kind. Don't be snarky. Have curious conversation; don't cross-examine. Please don't fulminate. Please don't sneer, including at the rest of the community.
Thanks for sharing the stats, I hadn't looked into it in months and noticed that books got quite expensive on my latest purchase, glad to see it wasn't just my impression.
As a non-Euro I would have easily confused that with something like "Schengen Zone" or one of the many other political subdivisions of which European Union nations seem to flitter in or out of depending on the political winds.
You see the zone for the euro is the eurozone. The zone that was agreed upon in the city of Schengen is the Schengen Zone. Everything is ordered and organized in the European Union ;P
Question which I won't expect the "inflation is always and only caused by money printing" believers to answer: how is there different inflation in different Eurozone countries?
> Question which I won't expect the "inflation is always and only caused by money printing" believers
Who are these people? I’ve obviously heard of people complaining about fed money printing causing inflation, but I never heard anyone go as far to say that’s the only cause of inflation.
I am guessing the Baltic countries are hit hard by the Russia sanctions and the lack of cheap energy and food imports that has to come from somewhere else now.
Here in Lithuania we were already independent from Russian gas and oil (lesson learned over the decades), and had liquid natural gas terminal for a few years. But inflation is also very high.
Thing is even if you're not using Russian gas directly, prices are still going to be influenced by the global gas market (and the wider global economy in general).
Other oil has gone up so much because everyone is switching off Russian oil. Russian oil is not going up. So it's actually not a bad time to be a Russian oil consumer...
Russian oil and gas should actually be cheaper because demand has dropped sharply.
Anyway it's a very bad time to be a Russian oil consumer, because you'll be funding an unprovoked invasion and the countries that have sanctioned Russia may not want to deal with you.
> Russian oil and gas should actually be cheaper because demand has dropped sharply. [...] because you'll be funding an unprovoked invasion and the countries that have sanctioned Russia may not want to deal with you.
An alternative view is that Russian oil and gas is not cheaper, but that it has extra costs which are not directly reflected on its official price. If you could put a number on the "moral cost" (funding an unprovoked invasion) and the "pariah risk" (other countries might not want to deal with you anymore if you buy Russian oil), and add that number to the official price of Russian oil and gas, there's a good chance that the result is exactly the price you get for non-Russian oil and gas on the global market.
It's easy for small country like Lithuania, but completely impossible for country like Germany. There is not enough gas without Russian one to feed its industry.
>but completely impossible for country like Germany. There is not enough gas without Russian one to feed its industry.
Huh, if only they could have invested enough in their local energy sector, through I don't know ... NUCLEAR!, to keep their industry energy independent of Russia, and not shut down its few remaining nukes in the middle of an energy crisis just to appease an outdated political ideology like an absolute dunce, causing energy prices across EU to further skyrockets as Germany had to compensate its internal deficit by buying from the rest.
There's a reason people undeservingly vented their frustration on Germany at Eurovision this year.
People like you look at these things as if you just shift numbers around on an excel sheet. There is still physics and geography involved here. German industry is already hardly competitive in terms of price, what do you think happens when those raw materials are 10 times more expensive?
Now there is a price crunch for LNG tanker charters further pushing up prices. Also it's so disingenuous. Indians are now refining Russian oil, selling it back to Europe but Eurocrats and lying politicians get to pretend they're going off hydrocarbons.
With oil the solution is trivial. Switch to electrical cars while generating electricity for them with modern efficient coal plants using German coal. Not only it will be cheaper and reduce geopolitical risks, but it will drop CO2 emission as well.
Let me complete that sentence for you.... after Finland refused to pay in rubels because the signed gas import-export contract specified other currencies.
Most of the European companies adopted the new scheme within their current contracts, so it was a technical thing. Russia just needed to be paid in currency that can not be stolen by some lunatic government.
It was not just a technical thing... it was unilateral change of a legal contract and blackmail by Russian regime that yet again demonstrated clearly that contracts and treaties mean nothing to it.
Actually all the sanctions from the west are unilateral change to thousands of contracts, and expropriation of russian assets is straightforward stealing.
Even freezing of central bank accounts is basically the unilateral unlawful change of contract.
Finland broke the contract with russian railroads, with russian electric providers, it cancelled the contract with RosAtom.
Additionally it started the process of joining NATO, which effectively breaks the peace treaty of 1948.
Didn't EU freeze all Russian dollar accounts? That basically means Russia never gets those dollar payments. Why would it keep delivering gas for free? Does that "contract" even mean anything then? By switching to rubles Russia actually helped EU nations with a legal way to keep paying for gas.
> there is a big difference between freezing access to a bank account and taking ownership of the funds.
No it’s not so big, because freezing can be unlimited in time and you can’t use that money. What point of having money on account if you can not use them? These are just numbers on the screen.
If your account can be frozen any time by the bank, it means you don’t really own the money, and the bank is not trustworthy.
> NUCLEAR!, to keep their industry energy independent of Russia
The world (EU and US included) is heavily dependent on Russian nuclear imports and technology. Here is an in-depth article on why this is so difficult to overcome:
It's completely possible for Germany, if you accept that it will completely impoverish your population and irreparably destroy the Mittelstand(which is most of Germany's industry), which stands at the crux of the German welfare system.
It is possible within few years. Most of the gas is used for heating. Switch that to heat pumps. Then for electricity to run those pumps upgrade the existing coal power stations to the latest technology that gives 45% efficiency from the existing stations with 30-35%.
But does it require big (or deep) fields for heat exchange?
I mean, lets take a 20-story building, the amount of heating energy it consumes is really high, especially during winters. So you probably would need a soccer-field size heat exchanger in order for the heat to be extracted from the ground.
I bet it will also use quite a lot of electricity to compress the transporting liquid.
As I understood, drilling deep is quite expensive and, comparing to centralized heating stations working with gas for instance, the thermal output does not allow building heat factories. In example they state that they needed 8 500-meter holes for 4 houses and only 64 apts. So they are talking about typical Scandinavian 4-floor buildings, which are as well A-class insulated.
It stands nowhere near to typical buildings of East Berlin for instance.
The article mentioned Akershus hospital in Norway. It is a big 6-floor building. For taller buildings deeper drilling is required, but still should possible. But I guess for really toll buildings one should focus on improving isolation as presently it may not be cost-effective just to install heat pumps.
> Here in Lithuania we were already independent from Russian gas and oil
Is that a fact? I know that Lithuania doesn't buy Russian oil and gas directly, but it always seemed to me that it is still the same Russian oil and gas, just through an intermediate supplier.
Exactly. If you notice, the second and third place are taken by Lithuania and Latvia respectively. A lot of 'cheapness' in all kinds of sectors came from RUS/UKR/BEL somewhere upstream. Building materials being a prime example. So, a combined effect of energy prices, sanctions on RUS, a war raging in Ukraine.
But then, as Estonian prime minister said recently - sure, gas is expensive, but freedom is priceless.
Thanks for the honesty. And Estonia had a cheaper gas when they were part of the USSR. Any actual freedoms they might or might not have back then are only _bs political slogans_.
Sure it sucks when one invades another one and there are reasons to prefer one vs another (eg. I'd rather be in EU than in Russia or China; I'd rather be in the Bahamas than in EU) but the people's freedom is limited under any government.
That wouldn't be your view if you were living in the Baltics. Trying to get away from Russian influence has been a persistent battle for the past 30 years. Sure, people are not happy about the rising prices but so far inflation news has been overshadowed by the war news. The public's support of Ukraine and a chance to see Russia finally weakened and no longer being a threat in the coming decades is seen very positively.
I'm sorry, but the Estonian prime minister is a Eurocrat idiot that lacks basic understanding of how either military or economy work or operate. You want to be independent of Hydrocarbons and Russian commodities? Okay well the Chinese model of silently building up the capabilities to do that is one way to approach the issue. France is an even better example of the idiocy of this as France had one of the most advanced nuclear facilities on the globe. And instead of investing in it, Macron sold it off to GE, further crippling its own ability to say goodbye to Russia. Who's advising these people that they don't even have the most basic understanding of how fertilizers tie into the food supply.
I used to think that all we need in Government is fresh wind which will solve most our problems, but I'm realizing that age isn't by itself either the problem or the solution. See Biden for old age or Europe for young age destructive leadership. Apparently not all wind is fresh and some of it is rotten and smells like sewage.
I'm completely baffled at how people cannot comprehend basic co-dependencies in the economies, supply chain or whatever other part that is happening. The whole "we need to suffer to show a moral lesson" is easy for people to say that have had nothing to sacrifice and never had to work hard for anything in their life while never in history have so many people dropped out of the middle class in European societies.
EDIT: Don't drink your own kool-aid, is a good summary I've been given about the whole situation. European leaders massively overestimating their own importance and capability in the world(both economic and military) based on their own inflated GDP numbers and MIC commercials.
EDIT 2: It's unfortunate that even in such a platform there is no rational thinking about something that is objectively true based on propaganda that actually came from the other side. "Russia is this" "Russia is that".
Facts are still facts.
You need fertilizer to feed people. Fertilizers are byproducts of Gas production. Fertilizer prices have been rising because of dis-incentivization of hydrocarbons. Nuclear is still a lot cleaner than most of the green energy alternatives. It didn't start in February 2022 even though the white house would like you to believe that[1].
Even the Ombudsman for human rights of Ukraine that was recently fired for constantly lying, said that she has been lying about Russian war crimes to turn public opinion against Russia[2].
EDIT 3: The US DoJ used the FCPA(Foreign Corrupt Practices Act) to threaten the Alstom leadership to sell off to GE. GE then buys the nuclear business and dismantles its plants in 2019 contrary to previous promises[3]. For all the talk of "oh we'll just buy it back", it's unclear what exactly is being bought back, how much it costs to rebuild capabilities that were destroyed and how much of the IP is actually sold back. My guess is, very little. It's odd that people act like it's just a little blip, when it's very clearly an geopolitical attack on one of the most important parts of french infrastructure.
> Okay well the Chinese model of silently building up the capabilities to do that is one way to approach the issue.
Sure, but you also can't help chaotic, random events taking place that make any potential plans to do that go up in smoke. The alternative in this specific issue (i.e. not standing up to Russia) is likely just further dependency on oil/natural gas from Russia and eventually just being outright colonized because you are so dependent that you can't resist. Dropping off even at a high cost protects Estonian sovereignty.
Mainly because in the case of Estonia, for example, they don't use aggressive rhetoric toward Russia but are threatened anyway. Finland has continuously been threatened during this time despite 70+ years of balancing both the Soviet Union and NATO and while more culturally compatible with NATO they spent a lot of effort to be friendly and neutral with the USSR.
Georgia was invaded in 2008 [1].
> don't deploy NATO weapons and feel okay?
Estonia and other countries near Russia historically didn't really have a ton of NATO weapons deployments specifically because NATO wasn't intent on aggravating Russia. Training exercises from time to time because they're allies but that's about it. Troop buildups and weapons deployments have strictly been in response to the war in Ukraine which was launched by Russia. Sovereign states have the right under international law (law that Russia signed by the way) to choose their own defense arrangements and conduct their own affairs.
...they don't even have the most basic understanding of...I'm completely baffled at how people cannot comprehend...
Maybe it's not a failure to understand. Maybe it's a symptom of the world-wide denial-of-service attack against the very concept of democracy. It doesn't cost much to pay someone to make government look bad. If you're an autocrat, it's kind of a no-brainer.
Yes, it's a problem that there are co-dependencies with Russia. Yes, it's a grave mistake that Europe didn't untangle from those right after 2014. But not untangling them now would be completely brain-dead. I mean... Russia is now a rogue state carrying out scorched earth tactics, officially rewarding units guilty of war crimes (killing of civilians, rape), threatening the world with nuclear weapons, hijacking planes, stealing intellectual property in the open, etc, etc, etc... It's just... mind-blowing that there are still voices out there trying to figure out a way to 'talk it through'. That boat has long sailed.
Nope, I can not, actually. This just doesn't correspond to reality. Name one city that has suffered the fate of Mariupol from US actions. Even NATO bombardment of Serbian cities doesn't come even close to the level of destruction that the Russians are inflicting indiscriminately.
So tired of those buzzwords, used with for no particular reason.
Those countries reside on the border of Russia and logistics in operations were fairly easy and cheap. That fueled the business and money flow for may years.
Check out https://data.stat.ee/profile/country/ee/?locale=en. Russia was the second biggest trading partner, having Finland as the first. Surprisingly, if you check the trading structure of Finland, it's mostly the same Russian goods.
Russia accounts in 2B trading balance of Estonian import. This is a lot for a small country. Pretty much from the beginning of 200x the most money there were made either on raw re-export of Russian goods or processing and exporting.
If you have an idea of how to replace those 2B without rising costs tremendously, please share.
Historically wars (as awful as they were) often had a way of realigning politics/economic understanding with reality. The world has been so peaceful for so long that they lose sight of the fragility of success and wealth.
So much of modern political history is taking the economic gains for granted and assuming they will stay consistent (or only be a minor inconvenience) despite an endless march of downward pressure on many of the things that made us productive and progress.
For a long time the only thing that has masked it is the gains from globalization (even though the a big percentage of the returns often only went to megacorps and the well connected). But that will either reach its limits or conflicts will disrupt it. Then we see the costs of crippling of industries, getting rid knowledge, or misalign incentives.
They say 2 generations need to pass between large wars reoccurrence on the planet. 1st generation that largely participated in the war will never do it again, whatever the cost. 2nd generation gets very strong message from 1st generation about true horrors of war, so it is much more careful. 3rd generation looses that direct connection and feedback from veterans, grandfathers, etc... so naturally they think of war as something that is minor inconvenience at best... And through the ignorance of 3rd generation - here we come. 80 years have passed since the last world war. Sadly, our time is up.
> France had one of the most advanced nuclear facilities on the globe. And instead of investing in it, Macron sold it off to GE
That is misleading. The nuclear facilities were not sold to GE, only Alstom Power Systems, which engineers turbines. (The nuclear engineering part was never sold.) Furthermore, it was sold for $13B and is being rebought by the French EDF €175M.
Doesnt' every country calculate their inflation separately? Because living in Germany, that 7% is laughable. Nothing has risen by that little of an amount. Not food, rent, petrol, etc.
Well, I do know of something that has risen to less than 7%: salaries.
Yeah I don't get that either. Here's the German Federal Statical Office in April(It's worse now). A lot of food markets have increased prices over 50%. Electricity just last year doubled in price. And a lot of these commodities are absolutely crucial for the German economy.
"Import prices in Germany increased 31.7% year-on-year in April of 2022, the new highest since the first oil crisis in 1974 and compared with a 31.2% increase in March and forecasts of 32%. Energy imports were 157.4% more expensive than in April 2021, namely natural gas (+301.2%) and crude oil (+77.5%). Excluding crude oil and mineral oil products, import prices increased by 27.6% compared with a year earlier. Other price increases were also recorded for fertilizers and nitrogen (+185.6%); aluminum (+78.4%); iron, steel and ferroalloys (+58%); plastics (+27.7%); machines (+7.9%); motor vehicles and parts (+5.7%); food (+20.7%); pharmaceuticals (+9.5%); green coffee (+68.6%) and cereals (+55.8%). Compared to the previous month, import prices rose 1.8%, lower than 5.7% in March. source: Federal Statistical Office"
When I look at the Swedish numbers I feel the same and then I see that prices went down for "photography, audiovisual and computer equipment" and... Nothing else. Fuel is up 40+%, food by 8-10%, housing by 2%, electricity by 30+%. How the fuck do we end up with a normalised rate of inflation of 6-7%??
I do need to do proper research on the models because just using my common sense it doesn't make any fucking sense...
The graph looks really odd to me too. Even allowing for an uneven distribution of inflation rates, The 'Eurozone average' is way down near the bottom, suggesting most countries have above average inflation --which seems a bit like the old oxymoron "80% of motorists consider themselves to be above average drivers"
The eurozone includes many small countries which also tend to have higher inflation than the big countries.
If average inflation is calculated over the whole population, it’s going to be heavily weighted towards the handful of big countries, and so it indeed makes sense that the majority of countries would have higher than average inflation.
It's weighted by size of the Eurozone countries household expenditure (which is close to GDP), so basically the only ones that matter are Germany, France, Italy and Spain.
>How the fuck do we end up with a normalised rate of inflation of 6-7%?
I don't know about Sweden, but the BLS publishes their data and methodology for the CPI calculation. You can quibble about details, that's fair, but it's transparent. It's based on a basket of goods and proportional spending on those goods in the basket. In some calculations food and fuel are excluded because of volatility (controversial, for obviously reasons). Like all averages, it's not going to accurate on any individual level.
SCB (Statistiska centralbyrån) very likely does the same, like I mentioned in my comment I need to dig deeper and find the details because the numbers don't make sense for my friends and mine reality so there's something in the modelling that doesn't match the lives I have anecdotal experience with.
Being open about the methodology doesn't mean nobody is actively trying to game it. Replacing A-status products with B-status products, or removing controversial items from the basket and added different products that have favorable inflation effects is actively being done by most countries.
Also; this basket doesn't look at things like shrinkflation, such as the size of a snickers bar, or the number of pyramids in a Toblerone bar.
> Det är cirka två procent av livsmedlen som ändrar förpackningsstorlek under ett år. Implicita prisförändringar, eller krympflation som vissa kallar det, förklarar cirka 10 procent av de prisuppgångar som sker för förpackade livsmedel.
> It is about two percent of groceries that change packaging size every year. Implicit price changes, or shrinkflation as some call it, explains about ten percent of the price increase which happen on packaged groceries.
> In some calculations food and fuel are excluded because of volatility (controversial, for obviously reasons).
From the BLS FAQ[1]:
Has the BLS removed food or energy prices in its official measure of inflation?
No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.
Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners
The FAQ clarifies a bunch of other CPI misconceptions overheard regularly in internet forums.
Because the inflation indicator is calculated with a typical spending basket, it has several components which are slower to adjust prices. In CPI for example housing is 25% and then you have things like education, healthcare and insurance.
Also inflation numbers are usually reported comparing the difference in the last 12 months, you are probably thinking about the pre-pandemic prices so you'll have to add them up.
Groceries are pretty expensive in Sweden, just came back from the shop and spent the equivalent of 20€ and got: 500g of coffee, 12 eggs, 2L of oat milk and bread.
My rent didn't go up. Not sure if savings are part of inflation (how do you measure inflation for ETFs?). So only 30% of my income is affected by inflation, which is less than half of my spending.
Your personal inflation rate will mostly depend on if you live in a new or an old building (e.g. my heating costs are tiny because the building is new) and if you have a car (I only have a motorcycle and I take the bike to work). If you live in an old house and have to drive a fuel-inefficient car to work every day, you are screwed.
I think the current inflation is mostly about energy prices and only very little about money supply.
CPI is worthless as an inflation measure for several reasons but the most obvious one is that it is too simplistic; it tries to model spending of some average consumer but actual consumers vary a lot in both their habits and ability to adapt.
For a sense of inflation recently in Sweden, look instead at PPI [1]. Consumers can expect 100% of the cost increase producers see now to get passed on to them eventually.
Increase in housing prices contribute a lot. From what I know this is also the case in Lithuania and Latvia. And, at least in Latvia, a large part of that increase is due to building material prices. A lot of those got imported from 'further east', which has become somewhat difficult lately for reasons.
CPI calculations are a whole science in itself. My point was that it is human nature that we notice things that change and not things that remain the same.
Bummer: all prices are included in the calculation, including salaries, so if products have increased 14% and salaries increased 0% then given that markets are relatively same, inflation is only 7%. From the perspective of a consumer though…
I think there's been a move towards unity within the EU at least; for the past year or so, I think, Dutch articles on inflation [1] have been explicitly stating that they were calculated using the "European calculation method", while comparing them to what the numbers would have been with the previous Dutch method. I presume the latter will slowly disappear as we get used to the EU method.
I don't understand inflation. I understand that it's a measure of the price of things, but for me there should be two types of inflations
1. a dilution of money. Let say a central bank injects a lot of new money, then all prices will be higher, but salary will be higher too, and the overall effect is neutral
2. some prices increase due to change in supply or demand (e.g. gas or cereal), but salaries and everything else is unchanged.
In both cases, there's inflation according to the definition, but the second case is very different than the first, and it doesn't impact everybody equally (consumer vs saver).
I must misunderstand something because I never see this distinction in the medias.
Inflation is a tricky concept and attempts to grasp it using purely monetary intuitions are liable to confuse. Inflation is a summary statistic that tries to compress the behaviour of many markets, in an economy where markets come into being and wither away, into one time series, and summary statistics of complex phenomena rarely behave simply.
> Let say a central bank injects a lot of new money, then all prices will be higher, but salary will be higher too
I'm not in a place to fetch any sources right now, but hasn't it been proven that wage growth has not been keeping up with increases in money supply, or inflation over the last couple of decades? Particularly for manual labor or service jobs.
You seem to assume that one would automatically track the other, but the increased supply in money isn't going to consumers directly. Not to mention that even if it would "trickle down" at some point, your wage increase lags in perspective to inflation and you'd always be getting hit with a reduction in purchasing power for some period of time.
During the Bretton Woods era, the quasi-gold-standard that reigned until Nixon floated the dollar, hourly wage rates and productivity in the US were pretty closely correlated. In the years after, which saw a huge realignment in finance, the 70s oil crisis, and a general weakening of labour power, this relationship broke down, with an almost complete severance of the relationship.
Different schools of thought have different ideas regarding the best perspective on inflation.
Price inflation measured through a basket is what media is usually referring to. .. that can be impacted by all sorts of things, be it price hikes in some industries or broad and steady price increases through prior monetary inflation.
No inflation is neutral though. Even monetary inflation has beneficiaries as those closer to the source of new money pay old prices the longest, for example.
> 1. a dilution of money. Let say a central bank injects a lot of new money, then all prices will be higher, but salary will be higher too, and the overall effect is neutral
More money does not necessarily mean decreased buying power. If you have more people or if the money isn't in circulation, the buying power will stay the same, therefore not causing inflation.
>If you have more people or if the money isn't in circulation, the buying power will stay the same, therefore not causing inflation.
Exactly. Money is just another good in the economy (albeit a bit special). Its supply and demand ebbs and flows like any other.
This is one of the things I find so funny about the known quantity trait of Bitcoin. Why would you want an underlying currency that can't increase its supply? It will inevitably increase in value and people will substitute for other methods of exchange.
Because if people use is less, it will decrease in value, making it attractive to spend, reaching equilibrium. It's not perfect, but either is "someone in charge prints a ton of money and gives it to their friends".
These claims are usually supported by graphs about how much USD/EUR/... are provided by the respective central banks, which does not measure money in circulation, but total money existing. It's important to distinguish between the two since they are easily confused and a lot of existing money not in circulation can lead to rapid inflation if something mobilizes this money, which might be what we're seeing right now.
>but for me there should be two types of inflations 1. a dilution of money
Outside of the fact that "some people say" (generally anti-fed types) that inflation is an increase in the money supply, why is it you think that?
In economics inflation has a specific definition: a general rise in the price level. It can be caused by all kinds of things. A rapid rise in the money supply is one. A breakdown in available supply is another.
>Let say a central bank injects a lot of new money, then all prices will be higher, but salary will be higher too
Maybe, maybe not. There's economic theory around the stickiness of wages; they don't react as quickly as the prices of goods. And that's understandable. It's easy to raise wages, but difficult to reduce them.
I would argue that goods prices also don’t display the same elasticity going down as they do going up. Whether they are less sticky I don’t know but will definitely look into relevant literature.
Few sellers into a market like the price going down, and labour prices are famously downwards inelastic, but price wars are a thing and many markets have an expectation that prices will go down, e.g., cloud computing costs in recent years. It's a mistake to try to completely detach your understanding of inflation from the commercial imperatives in specific markets.
I would venture that sellers overwhelmingly prefer stable prices to increasing prices. Rising prices require adjustment, which requires resources, and makes you the focus of customers' ire for what amounted to trying to keep things running the same. Meanwhile, any seller raising prices is setting up for a short- or long-term substitution effect away from their products.
Increasing prices in a market means increased turnover for those who sell into that market. You can easily find examples where increasing prices are worse for sellers than price stability, e.g., if increased costs eat up more than the new income or if the price increases happen in the context of a shrinking market, but as a rule price increases show that the market favours sellers over buyers.
In theory water can run uphill. Sometimes it even does. But as a matter of overwhelming practice it is obvious that if the general price of goods is rising it is the government doing something. Otherwise there is nearly nothing that could cause a correlated rise of the price of everything. Eg, in this case the most likely culprit is wilfully shutting down the global economy and handing out money to everyone which is even worse, economically speaking, than their usual handout tactics to very wealthy people.
Maybe something like sustained moves in the oil price or coal price could do it. But the western governments have an official policy of annual inflation and the only tool they have is money printing, because it isn't like they invest in oil wells.
PS Maybe demographics, more mouths & higher prices. Here are Estonia's demographics - https://en.wikipedia.org/wiki/Demographics_of_Estonia. Looking at it, a change in the labour force that major could be a big contributor.
>In theory water can run uphill. Sometimes it even does. But as a matter of overwhelming practice it is obvious that if the general price of goods is rising it is the government doing something. Otherwise there is nearly nothing that could cause a correlated rise of the price of everything.
Ah the 70s energy crisis. I remember it like it was ... half a century ago. In fact I don't remember it because I'm younger than 80. I wasn't even alive.
Most people on this forum weren't even alive then. And we now live in an era where governments are inexplicably opposed to any of the easy options to secure energy. We should have been going nuclear in the 80s, 90s, 00s, 10s and now the 20s.
So while I'm happy to say that if we have an energy crisis that will cause inflation it isn't like we didn't see it coming 30-40 years in advance. The anti-fuel drive of the last decade hasn't helped any either. And I still blame regulatory interference.
It doesn't matter what effect CO2 is having on the climate, the future of civilisation will be more rosy if we maximise the availability of fossil fuels short term while transitioning to something more workable long term - like nuclear. Even renewable might work these days although it doesn't have the enviable technical profile of nuclear power.
> The Great Inflation was blamed on oil prices, currency speculators, greedy businessmen, and avaricious union leaders. However, it is clear that monetary policies that financed massive budget deficits and were supported by political leaders were the cause.
> In economics inflation has a specific definition: a general rise in the price level. It can be caused by all kinds of things.
When the prices of all goods and services go up, it is the thing you measure them against that is going down. If there were no currency, there would be no inflation, only changes in relative prices.
The old Milton Friedman quote is still true, as far as we know:
> “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
What has changed it that "the quantity of money" has become much harder to figure out.
> all prices will be higher, but salary will be higher too
Salaries are the price of labor. As other prices go up, there is no particular reason these prices wouldn't do the same.
> Outside of the fact that "some people say" (generally anti-fed types) that inflation is an increase in the money supply, why is it you think that?
Because for much of our existence, trade has been facilitated by commodity-based currencies which would inflate when new deposits of the commodity were found.
An increase in the supply of money doesn't correlate to the distribution of that increased supply into the hands of consumers (by way of salaries). Prices go up, and the cost burden of those prices are unequally distributed. Raw materials prices are usually first to increase in price and labor costs usually lag. Labor costs are usually determined by supply and demand of available labor rather than underlying raw materials costs or availability of money supply. The ability for governments and companies to borrow at low interest rates usually has a higher impact, but monetary policy uses interest rates to regulate the impact of inflation.
As far as labor competition, that only works if there are a wide variety of employers, rather than a few primary employers (Amazon, Walmart) who can effective set wages prices. Labor competition has also gone international, driving labor wages down in the US. Factors like these account for the relatively flat growth in bottom-level wages relative to CEO/shareholder wages, which have skyrocketed throughout the past 40-year neoliberal globalization period.
As far as this round of inflation, monetary supply arguments are a bit specious. The Fed's 'quantitative easing' (money printing goess brrrrr) is pretty trickle-down Reaganomics in practice, although they could have just printed monthly checks for average citizens instead of giving it all to large banks and corporations, who use it for things like stock buybacks.
A more plausible explanation is breakdown in the global supply chains and failure to build up resilient infrastructure domestically. Consider gasoline and diesel prices, which have knock-on effects in all transportation-related sectors (food delivery, goods delivery, commuter costs, etc.). In 2015 US crude oil exports were allowed for the first time since the early 1970s and at least one major refinery was closed. This has clearly impacted the supply of refined products in the USA:
"U.S. Fuel Exports Are Draining Domestic Diesel And Gasoline Supplies, May 2022"
It's reported pretty frequently, although the Fed has put some limits on stock buybacks:
Background (ABC): "The Fed has bought roughly $2.1 trillion of Treasurys and mortgage-backed securities since the pandemic intensified in March [2020] That has flooded many short-term lending markets with cash, making it easier for many banks to borrow."
> "The Federal Reserve said the country's largest banks can resume stock buybacks in the first quarter of 2021 with certain limitations, after the central bank released the results of its first-ever "mid-cycle" stress tests Friday... JPMorgan Chase was the first bank to announce it would resume share repurchases. Just minutes after the Fed released stress test results, the bank announced its board approved a new share repurchase program of $30 billion."
It's not just the banks, the airlines did the same thing:
"Companies that binged on buybacks now seek bailouts from taxpayers, March 2020"
Yes the fed has taken actions that have suppressed interest rates. This makes it cheaper for everyone to borrow. What companies do with the money (like buyback shares, which is equivalent to a shareholder dividend) is a wholly separate issue
You are right, and some central banks only use the basic interest rate as a remedy in all cases. It seems to me that case 2 cannot be solved through this mechanism.
My feeling is that most media is close to financial markets and gets corralled into its point of view.
>You are right, and some central banks only use the basic interest rate as a remedy in all cases. It seems to me that case 2 cannot be solved through this mechanism.
It can. Interest rates rise -> money becomes more expensive -> investment dries up -> demand is quenched -> things become cheap again
Money is a social construct. If you untether it from any notion of value, it dies, and we're back to barter and subsistence farming or switching to a foreign currency.
Inflation isn't 1 thing and it doesn't have 1 cause. There are many ways to measure inflation.
What you are suggesting, is exactly what economists and central bankers try to figure out. To adjust monetary policy correctly you need to differentiate these things.
Many of the policy recommend associated with inflation are really only associated with the first type of inflation. If its supply sides, then the recommended responses are totally different.
2008 is actually a good case, the central bank didn't react correctly because high oil prices were giving them false information.
> I must misunderstand something because I never see this distinction in the medias.
The media doesn't understand theses things either. And neither do the people listening to it.
I think what's missing here is in case 1, it's not just the amount of money, but how much money is chasing each available good. You can imagine if the money supply doubles, a loaf of bread can be the same price as before if there are twice as many people demanding the same portion of bread (for a very crude approximation)
Or to put it another way, maybe case 1 is demand-side inflation, and case 2 is supply-side inflation.
If the money is doubled but most of it goes into offshore investment funds because those on the receiving end already have enough bread then the price of bread doesn’t really change, but venture cap funding becomes more readily available.
An investment fund is not a bank vault. The money leaves the fund and enters the economy. In particular it will be invested in companies, which will use it to buy assets and pay wages. The effect is similar as if you had spent it in the first place.
There's this constant tug of war between supply/demand (also applies to powerful/regular folks, those with money/without, etc). Inflation is the delta by which one side is winning against the other.
If you see everything from this lens then it all makes sense.
Prices of specific commodities and consumables may rise or fall, but if the money supply and demand remains the same the overall combined price of everything remains the same.
Inflation is an increase in money supply over an increase in the value of things to buy with money (or we could say the size of the economy). Money supply could increase, but if it is balanced with a growth in good supply, inflation doesn’t occur. This is why it can’t be computed directly.
That is not true, inflation is exactly when the money supply increases. It doesn’t matter what happens to “good supply”. In fact the supply of goods increases in response to a price increase. That’s why most people think a low level of inflation is healthy.
Production can overcome monetary inflation. PCs don't cost $5,000 anymore even though there's more US Dollars circulating.
Cities that gain many high earning jobs will see housing inflation even though employers do not create money. This is independent of national level monetary policy.
Let's say your money supply is based on gold, which is relatively fixed. However, your economy and population keep growing. So a loaf of bread cost 1 gram of gold one your country only had 1 million people, but now you have 100 million people and the same amount of gold you are using for money. How much does a loaf of bred cost (bread production has gone up 100 times to match population increase)? (simple estimate: .01 gram of gold). So deflation has occurred. If your gold supply increased 100 times, the prices wouldn't have changed.
Justifying inflation is a bit like justifying climate change: everyone (or at least most) agree on the effect but there are as many chains of causation as people who agree on the effect
We are experiencing both. During the pandemic governments inflated the money supply to fund vaccines, cash payouts to citizens, and huge programs to keep payrolls flowing. The pandemic also increased demand on consumer goods because people were spending their stimulus checks on goods since you couldn't go out or travel. Add on the fact that there are shortages of goods because many producers were slowed down significantly by lockdowns and staff shortages.
So we have both fewer goods available for purchase and less valuable money to buy them with.
There is monetary supply inflation (increase in quantity of money), which WOULD be neutral if you would do an airdrop to everyone in economy in the same proportions and this would then be the same as price inflation, but that kind of inflation would be useless. What is going on is the goverment prints money, gives it to the largest economic actors, to 'stimulate the economy' and then it 'trickles down' and we get increased volatility of prices which usually means a bigger increase in more necessary consumer goods (food, housing).
I'm trying to remember where I heard this from, but I found this idea pretty useful.
Mainly because I know what inflation is, but I didn't spend enough time thinking about what it means and what it tells me.
> Inflation is simply the delta between a past price and the current one, over a set of goods / services, which we represent using an average of some kind, usually ignoring certain kinds of price changes. For example some inflation measures ignore rent.
> It would be useful to have every measure of inflation cite the raw vector (which would be good to standardise) as well as listing what it excludes visibly.
> The underlying vector would show us much more, such as are all prices increasing / decreasing? Are some going in the opposite direction?
This would give us space to have a more nuanced discussion about causes and how much weight they may have.
Mistakes / errors in recollection are my own =)...
- PRICE INFLATION, which is typically what is tracked by the CPI. If the CPI was, say, 100 last year, and 105 now, it means there was 5% inflation in the price of the basket of goods tracked by the BLS.
- MONETARY SUPPLY INFLATION. This is the total amount of currency in circulation. The US Federal Reserve publishes the M2 money supply. This is one factor that affects PRICE inflation (the first type), but if people don't spend a lot of the money supply each year, then prices don't increase a lot. The other factor affecting price inflation is MONETARY VELOCITY.
As for what affects relative differences (some goods getting more expensive than the general inflation, while others not as much), it is supply or demand. As demand changed, especially during the pandemic, supply struggled to adapt and match it, and maybe overshot and so on. The economy is not a steady state.
A lot of it had to do with the really weird demand patterns that developed over the last two years. We went from 100 demand to 20 as lockdowns happened, then 200 demand as economies opened, then back to 20 again as a new wave of lockdowns took hold.
If you were a manufacturer, you had no real way to deal with this unpredictability. Do you add capacity to cater to the post-lockdown 200 demand? If you do, you might end up with too much inventory as demand goes back to the usual 100.
Throw in the clogged up ports and higher input costs due to Russia-Ukraine war and we have this strange period where everyone is confused and no one really knows what to do
>If you were a manufacturer, you had no real way to deal with this unpredictability. Do you add capacity to cater to the post-lockdown 200 demand? If you do, you might end up with too much inventory as demand goes back to the usual 100.
Retailers, too. Both Target and Walmart have reported having far too much inventory. It's one thing when one store has a fire sale on a product it bought too much of, but multiple stores finding that they did so across the board? That's very unusual.
Even if the injected money were to be distributed evenly, people holding a lot of savings in the form of cash are penalized when compared to those with assets and debt.
There’s no such thing as ‘the economy’. There is only ‘lots of people making independent decisions’
Inflation is a measurement one of the observable effects of all of those decisions over time. Businesses deciding how to set prices and when to offer discounts and what products or services to offer. Customers deciding what businesses to purchase from.
Inflation isn’t something that ‘does things’. It is a thing that happens.
And inflation alone isn’t a very interesting number - what really matters is economic activity.
Like, if Alice sells widgets for $10, and Bob has $100 to budget for widgets, he’ll buy ten widgets.
If Alice increases her prices by 10%, if Bob can’t also increase his widget budget, he’s going to wind up only buying 9 widgets. But if Bob also finds he can increase his budget by 10% he’ll still go ahead and buy 10 widgets.
The distinction you’re making above is just between cases where the same degree of inflation is accompanied by different changes in economic activity.
And the causal relationships between inflation and economic growth are not simple, linear, universal, or unidirectional.
Lyn Alden wrote a very understandable guide to "inflation" which turns out to be different beast that are lumped together: https://www.lynalden.com/inflation/
Mathematically if the supply of money stays fixed there cannot be general inflation. Some prices could go up but the overall level of spending must be constant (so buyers would substitute or else other prices would decrease).
Mathematically if the supply of goods and services go down, but the supply of money stays fixed, prices will go up.
I would expect that reducing the supply of oil (and to a lesser extent natural gas) would cause that sort of things, by reducing the ability to transport goods, to manufacture all kind of things, and even to grow food (besides tractors running on oil, most fertilizers are made from natural gas).
You're going down the ladder instead of up. We measure inflation via CPI where CPI is really just an indicator. When CPI hits 8.1% we know inflation is above expectations but that doesn't mean inflation is literally 8.1%. Only that it's within that order of magnitude. Going down the ladder to contributing statistics like money supply gives you even less of the true picture. Inflation is systemic can't really be boiled down to a number at all.
We have the same argument over "true unemployment". There absolutely isn't any possible way to come up with a number to accurately represent the massively complex employment situation. We use U3 as a key indicator.
Think about it like measuring how smart you are via your SAT score. It's a good indicator but it's not the whole story. And when there are sudden shifts it implies something is wrong.
Estonian here, the situation is getting quite bad indeed, particularly when it comes to petrol/energy prices, which of course has the domino effect of driving up other goods and services in the mid to long term.
However, in true Estonian fashion, a lot of people (probably majority) might complain within their familily/friend circle, but will mostly just suffer through it. In fact, 10 years ago, two local comedian-actors wrote a song [0], that describes our history and overall state of mind quite accurately I think :) The video has English subtitles as well.
> However, in true Estonian fashion, a lot of people (probably majority) might complain within their familily/friend circle, but will mostly just suffer through it.
I mean it's not like we have much of a choice. It's the result of decades of progress, economic development and home comforts as a result of an okayish relationship with Russia and their natural resources, which "suddenly" collapsed (it wasn't actually that sudden).
Yeah, same in Austria. Energy prices on my provider are going up by 90%, many food items are up 50%+ since the start of the year, and outside of some grumbling in private conversations I've not heard much complaining.
> outside of some grumbling in private conversations I've not heard much complaining.
I mean, where else would you hear about it? Are you expecting random strangers on the street to just angrily scream at you about increasing energy prices and inflation?
Imho one of the biggest giveaways was when German supermarkets started mentioning "inflation" in their discount prospects, first saw that like 2 months ago.
there were huge protests against vaccines and mask mandates not too long ago
(not making a moral judgment here, just saying people are definitely not afraid to voice their opinions loudly in public on some issues)
It may be similar in Germany. Populists from conservative-right parties have made this their new topic and some people are responding to it, but over all the reception isn't very strong.
My French friends/coworkers like to joke that it is the French pastime to complain. It really is a cultural difference, so much so that sometimes I need to explain to American colleagues that Marie/Marc/etc. isn’t particularly upset, it’s just normal for them to complain, and it also can be really healthy. It’s sort of how many engineers (good QA?!) are contrarian by nature.
hopefully someone says “no we’re not!” to prove my point.
I am french and it is true. When I come back from visiting my family in France I even complain about my compatriots habit of complaining about everything!
In Italy the attitude is so prevalent (not entirely without reasons) that we have a pithy expression to satirize it: "Piove, governo ladro" (It’s raining, thieving government!)
>Estonian here, the situation is getting quite bad indeed, particularly when it comes to petrol/energy prices, which of course has the domino effect of driving up other goods and services in the mid to long term.
People always focus on the price of gas in America, since it's a large expense and they commute a lot, but no one seems to talk about the effect it has on the prices of anything shipped in a vehicle that uses petrol.
Then again, some Americans do things like fill up across the border and freak out when between CAD sometimes having a 25 percent difference and them using pricing in liters not gallons, they paid many multiples of what they intended than much less fuel than they thought they got, despite having clear information on pricing, volume, and approximate currency value.
(It might be a 25 percent difference, but if you looked on your phone or in a currency shop, the difference for currency traders versus the public was only a few percent, it didn't jump around by double digits in a single day, and often if the difference was small people just would take the same amount as CAD in USD to be polite, when they could rightfully tell you pay in CAD, or get out of my shop, I'm not your friend you weird little Pennsylvanian.)
I've personally experienced inflation of greater magnitude -- in a developing country in the 1980's.
It affected behavior in ways that in hindsight were very counter-productive to economic stability: Every adult person and every business simultaneously tried to spend less, earn more, and hoard more -- which is impossible in the aggregate, because every expense by one person or business is income for another person or business. No matter what anyone did, the currency would lose value week after week, month after month. And everyone felt... powerless, unable to do anything about it.
John Maynard Keynes wrote what I think is the most insightful description of what living with high inflation is like: "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."[a]
[a] The Economic Consequences of the Peace (1919), by John Maynard Keynes.
As I wrote, that's what everyone tries to do (e.g., businesses lay off employees, try to raise prices, and hoard inventory), but in the aggregate it's impossible for everyone simultaneously to cut spending, increase earnings, and hoard more stuff as the currency loses value. The sum of all individual decisions, which may seem rational to each person or business, add up to aggregate behavior that in hindsight proves counter-productive to economic stability.
As Keynes put it, "the process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Speaking from personal experience, I think he was spot-on.
If everyone sells their currency to but dollars, the currency loses even more value faster compared to dollars, so currency controls are put in place, like Argentina did for a while:
Read somewhere that a litre of milk in northern Europe costs around a kW/h in energy to produce. Whatever the exact number, it should open your eyes to the importance of energy prices on all other prices. It's not "just" transports.
There's one perspective that all value added in the economy is the result of energy input. De-industrialization and off shoring of heavy industry has allowed G7 countries to decrease energy/GDP ratio, but the total amount of energy consumed increases, only decreasing slightly during a recession.
Money = energy (while credit being a promise on future energy).
Cheap energy is how we've created our society. The (huge) problem we're facing is that our economy is based on the (incorrect) assessment that we will have an ever-increasing supply of energy. Barring some miracle invention/discovery (like fission, or a cheap way to produce hydrogen) it's rather the opposite, at least in terms of EROEI.
The difference between the monetary economy and the real economy is becoming increasingly difficult to ignore.
> The (huge) problem we're facing is that our economy is based on the (incorrect) assessment that we will have an ever-increasing supply of energy.
I'd add to that: the problem isn't so much that energy sources are currently running out. We've still got decades of fossil fuels left over to run the existing economy.
This makes the problem even harder to solve. We do have the energy. It sits right there, tempting states to grant permission to use it. But states ought to refrain from using it because the ecosphere/climate is in danger.
States globally switching to renewable energy would be much easier than it is (almost effortless), if we were truly running out of fossil energy.
As things are, states that undertake the enormous effort to make the transition to renewables, are at an economic disadvantage, at least in the short-term.
Thus the one big challenge is the political one, of setting up an international treaty that somehow turns this economic disadvantage into incentives for the transition.
Can anyone confirm mortgage rates in Estonia? This site[1] says ~ 2% mortgage rate, which means a -18% real rate, further pushing demand for real assets instead of paper debts.
I think the US is closer to neutral, but we still have a negative mortgage real rate at the current inflation level.
Can confirm. Mine is 1.63% + 6mo euribor rate (which was just raised over 0%). When you have the future possibility of 5% mortages, people will think twice about buying the currently expensive real assets.
On the other hand - can't say that real estate is exactly overvalued - recently they've been driven by rising construction and material costs.
Can't confirm Estonia but certainly looks credible for Slovakia (1.35% - mine is 0.9%). But beware those are variable rates, so not fixed over the whole mortgage timespan but like 1/3/5/10 years, with 10 years being unusual and also the highest rate. So a lot of people who took out mortgages with 0.6% fixed for 1 or 3 years will have a hard time as the rates will climb significantly soon.
As someone who's not even thinking of buying a house, do fixed rate, fixed term mortgages even exist? It seems variable rate mortgages, while making financing more widely accessible, have caused their fair share of financial issues/instability.
Not an expert, but certainly even in Slovakia you could do an 10 years mortgage and fix it for 10 years. But people usually don't do that because money was getting cheaper until very recently and also 10 years is not enough to finance houses or flats at current prices. And fixing it for longer is either not possible or very expensive.
Seems like it depends a lot on the local practices. Here in France the vast majority of mortgages are fixed rate and term. I'm probably a pessimist but it seems way to risky to take a variable rate, who knows what the future will hold in 15, 20, or even 30 years ?
Not 100% sure about Estonia but at least here in Finland mortgages are usually some margin + Euribor. Maybe with optional cap on max interest rate (that usually pushes the margin up to compensate). If you manage to get a fixed rate it is usually way higher then Euribor at that moment and still only fixed for the first 7 or 10 years of the loan after that usually 12month Euribor.
For example I am currently paying only margin (Euribor was still negative when the Euribor rate was last updated for the 12month rate that I am using) so 0.4%. With Euribor steadily creeping up expecting to 3 or 4x the interest portion of my loan at the end of the year but not a big deal personally.
Considering Estonia is one of the most libertarian country, they are likely the only one actually measuring inflation correctly in the EU zone, not just playing with the index to make it fit a certain narrative.
You can't play with the index much if it's a few dozen SQL queries. I'm not even simplifying it too much, the metrics used for calculating inflation are mostly available in very high fidelity. Income, import prices, price of goods and transportation etc.
So for example when other countries calculate Gini index based on a reasonable sample, Estonia could do it across the entire population.
Your comment is a sarcastic take, but comments along those lines were what some of us pointed out last year. While people were under lockdown, money didn't circulate enough for it to be reflective in terms of inflation (excepting the stock/crypto market). EU opened up briefly for the mid-Summer (covid pass) till mid-Autumn and then closed back up. Then some countries gave up on the covid battle and started reopening during the winter holidays and stayed open since.
Surprise? Nobody thought there would be no economic consequences to lockdowns - you're painting a picture of some irrational social/political adversary, perhaps based on a cherry-picked opinion you've seen, or perhaps from whole cloth.
Inflation is highly manipulated by goverment and is usually 2x lower than real inflation. On the following site you can check the inflation calculated based on the past methods (before 1990):
The problem with the Fed's measure is there's too much substitution.
The problem with Shadowstats is that there isn't any substitution.
If the price of gold goes up - but you can get your cavities filled with a way cheaper and better substitute - that seems like a win.
If the price of silicon goes up, but you can get an exponentially more powerful computer for the same price that uses less energy (because the chip size shrinks) - that seems like a huge win.
If the price of cars is flat - but the safety ratings, reliability, and gas mileage have improved enormously, that seems like a win.
Then you have things like food and housing where the substitutes actually make things (arguably) worse...
One thing is clear - if you use Shadowstats measures of inflation - the US economy is ~25-75% smaller than it was in the 80s. This idea is absurd.
> Inflation is highly manipulated by goverment and is usually 2x lower than real inflation.
You just seem to be generically responding to the keyword "inflation."
I would bet this rate is almost completely driven by fallout from a nearby war with a major energy exporter that's resulting in embargoes and boycotts:
> Energy prices continue to have the greatest effect in May, with price advance there jumping from 37.5 percent in April to 39.2 percent in May.
Estonia is quite close to that exporter, and I'd imagine they've been affected more than some other countries.
How does inflation in Estonia impact on inflation of the rest of eurozone? Say that EE has inflation 20%, but X has 2% and they use the same currency. Will eventually (within weeks of months) impact of EE increase inflation in X?
I guess it all goes down to the fraction of oil and natural gas in the average income of these countries.
If your economy is more reliant on these (e.g. for heating, electricity or transport), all prices will go up significantly more compared to a country that is less reliant on these (e.g. because of nuclear/renewable, better energy efficiency, less heating required ...).
348 comments
[ 2.4 ms ] story [ 289 ms ] threadPeople in the startup sector earn _much_ more than other sectors - the difference is, if I'm not wrong, one of the biggest in the EU. So it creates a) a lot of inequality and b) drives up prices of certain goods (houses, apartments) because there's a noticeable % of the population in the startup sector who has now their sweet exit money that's looking for a new home.
Do you have a source for this claim?
I would be very surprised if that was true.
> as where I live (Austria) start-up exists don't move the needle at all.
I totally believe this as the "% of people who are employed by a startup that has made an exit" is vastly different in Austria vs Estonia.
The total population of Estonia is so small that all exit events stand out. This year, there have been about 40 houses sold in the city I live in (pop 100k) [1]. From that only 7 are newer than 20 years. 7. Meanwhile, there are tens of people here who have been part of at least some kind of exit event during the same period and who are now actively looking for their first house. No other event in any other industry generates a sudden need for new real estate. At least not here in Estonia. There's a) extremely limited supply and b) a massive price increase due to extreme increase in demand (well, "extreme" in the local context)
[1] https://www.maaamet.ee/kinnisvara/htraru/FilterUI.aspx
That's why I said you live in a different bubble.
So here's an anecdote instead :) Sweden. Average salary 36100SEK, average "Software- and system developers" salary 46500SEK. So a software dev earns ~30% more than the average salary. [1]
Estonia. Average salary 1576EUR. average "Software developer" salary 3753EUR. So a software dev earns ~140% more than the average salary [2]
Now I didn't find an official source for "% of people employed in the startup sector" for both countries but my guess is that it's much bigger in Estonia than in Sweden (based on [3]) and that's the reason for my overall pessimistic view that the startup scene here in Estonia is one of the biggest causes of income inequality in the EU (and I'm saying this as a person living in the startup bubble in Estonia myself)
[1] https://www.statistikdatabasen.scb.se/pxweb/en/ssd/START__AM...
[2] https://palgad.stat.ee/en#
[3] https://2020.stateofeuropeantech.com/chart/746-3309
You are probably aware that IT startups require engineers. And in Estonia there's only one tech university with a very arguable level of education.
Working in this field for decades, can assure you that for recent years Estonia made a huge progress in importing engineers from Russia, Belarus and Ukraine. Those high-quality engineers actually made it the Startup HQ of Baltics.
As for now, the immigration policy does not permit any work visas for Russian or Belarusian citizens, so this flow is depleted. Ukrainians have stopped coming here few years ago as salary levels were higher in Kyiv and it made no sense in coming to Tallinn. Today they just can't leave the country.
The biggest motivator for engineers from mentioned countries to come to Tallinn was the big Russian-speaking community, which made it "live in Europe, speak in native language" for them. As of today, the pressure on Russian language based education is extremely big, and having kids you want to teach in native language, coming to Estonia for Russian-speaking developers makes no more sense .
Around 14% of the population decided to use this and cash out their future pensions in 2021.
Not sure how much of these funds got spent where but certainly it had some effect on the real-estate prices.
Everyone has the 1st, basic tier ("State pension"). Then there's the 2nd tier called the "Mandatory funded pension" which is the one that held the most savings and was "freed" now and then there's the 3rd one called "Supplementary funded pension" which has always been "free" as in you can stuff money in there and you can take it out as well.
People who blew their 2nd tier on a new car/TV/vacation/paying existing loans will still have the 1st tier but that will only guarantee a pension that's big enough that you won't directly starve but it's not big enough to actually let you live either.
Technically the pension fund consists of 3 parts:
1) Shared pool of funds. Current workforce pays into the pool and current pensioners get payouts from this pool. You can't liquidate this part of your fund as there is no part that is fully "yours"
2) Individual pool - part of your salary automatically gets put into this pool and invested into the pension fund of your choosing. THIS is the part that people can now liquidate before they reach the pension age
3) Individual pool of extra deposits - You can choose to add money into this pool and incest it in a pension fund. If you withdraw funds during your pension age then no gains tax is applied on the profits. But you can liquidate the fund at any point as long as you pay the gains tax.
So these citizens/residents will only be left with the first option as their pension payments.
Also, there's a certain mistrust of the pension scheme and people think that the money in their pension accounts will be gone anyway by the time they reach the pension age.
Perhaps because it's true. In my relatively short life, the retirement age went up by over 5 years, and by the time I reach it it's going to go up by at least another 5 years. And let me tell you, there's no chance in hell I'm retiring at 70. A conservative fund would 'outperform' any government pension system in the long term.
Remember, the pension system was devised in a time where a lot of people died before the pension age. It is impossible for the pensions to keep up without overtaxing the young or increasing the pension age.
On top of that, you may contribute north of 100k in your lifetime towards your pension 'fund' that you will never see if you die a day before retirement (as my father did).
Not to mention the fact that there's no actual pension 'fund', not up to the full amount at least (or anywhere near). Most of the funds I pay in today will be paid out to pensioneers tomorrow.
What exactly would fund it then? Pensions system typically works by current generation providing for the previous. If we allow newer generations to "cash out", what would be the source of funding?
So the current workforce is helping to keep up the First pillar for the current pensioners. But at the same time the current workforce is making deposits into the Second Pillar which just invests their money into the markets.
So people can liquidate their Second Pillar without messing up the First Pillar for everyone else.
edit: replace level with pillar, as I couldn't think of the word and saw it used by sibling comment after posting.
Inflation can be computed by anyone, so I don’t even understand how you could lie about it.
It does not have to be perfect to be meaningful.
If not using basics like food, fuel, and pricing on rent or mortgage - what are we basing the numbers off of? If it's the stable price of a Spotify subscription, rather than real goods needed to survive, something is horribly off.
Sure bread is still roughly the same as it was. But living costs have absolutely exploded recently, and far far beyond the 9% indicated.
That seems... unlikely.
https://www.globalpetrolprices.com/United-Kingdom/gasoline_p...
At best it doubled, but that's not the same as "increased by 200%", which implies it tripled.
Historically for me real inflation is the formal EU number + 2%. So that means that they're usually about a 100% off as inflation has been low for a long time, until now.
If the cost of meat goes up so much that everyone starts eating dog food, the inflation print will barely rise at all.
It's not a real measure for QoL which I hope most people would accept as being what societies actually strive for.
In fact most measures like GDP and a few others have no real bearing on increased living standards. GDP per capita should be the only real number when talking about economic growth for starters. Even then catastrophes like natural disasters and war bump up those numbers due to rebuilding so it's still quite a rough metric to report on each year.
It's done because factually consumers buy different and producers produce different things over the years, and it's hard to impossible to observe/measure which substitutions are by necessity and which by preference.
[1] https://en.wikipedia.org/wiki/Price_index#Paasche_and_Laspey...
There's always an implicit older == smarter bias in society but I doubt many people who passed with good grades in high school economics are good at the basic concepts into their 30's.
Not to mention the MMT experiments that have been undertaken in the west over the last few years. I'm not even sure MMT proponents understand the consequences of such things. There's been a lot of resource misallocation that no one seems able to take responsibility for.
GDP, inflation, interest rates, etc are oft considered the main KPI's for politicians by the people who vote for them. It's a dismal science even for those well versed in its ways.
But most kids and adults alike probably find textbook economics and statistics as appealing as unsweetened oatmeal, and strongly prefer to consume sensationalized headlines and conspiracy theories. There's some tension between free choice and paternalistically nudging/forcing the population towards healthier stuff, that I wouldn't know how to resolve.
and for the US: https://www.bls.gov/cpi/tables/relative-importance/home.htm
The weights are based on estimates of how consumers actually spend on different goods and services, rather than on how much someone would need to spend for subsistence or survival.
So I agree with you, but the problem is that it is arbitrary, and the arbiters could be rigging the outcome with their choices.
It is deceptive though, if this number is not representative of people's actual cost of living and it is then used to adjust their income for inflation. How clear is it that this basket really represents an average household (today)?
Employer: "What do you mean, cost of living has gone up by 14%? Official inflation is 7%, but the best I can do this year is 3.5%."
Politician: "Inflation is X every year, so we increase pensions by X% every three years."
Lies, Damned Lies and Statistics
Choose carefully and cherry-pick how you source your input numbers, as garbage in means garbage out.
Then let friendly media spokepersons help your PR quest by stating the numbers as if handed down by God himself. Then let peons on the internet call you conspiratorial.
All in all, we shan't worry - these numbers are all simply transitory :)
How about you propose a different metric then, that surely will be infallible and completely fair to everyone.
So, exactly what the HICP contains then [1]?
[1] https://ec.europa.eu/eurostat/statistics-explained/index.php...
On the other hand, I understand the disillusion and the distrust in the establishment, and in experts. People appoint themselves as experts all the time, and put down others by implying that the other don't understand the thing.
In case of the current inflation, I don't think that this is what's happening. The source of distrust, I think, is the basic understanding of the metric itself, and the implications drawn from it. For example, that one's monthly spending should be the same amount higher as the inflation. In this regard, inflation is meaningless, at most it's a rule of thumb of sorts.
Politicians, of course, will lie to you, and they'll be using anything, including numbers, to back it up. But that still doesn't mean that the method to calculate inflation is meaningless. For one, you can do it for yourself - which is of course hard, because I don't imagine you have historical data for prices of a bunch of products. But for example, if you're willing to trust another source, premium users of Numbeo can get a bunch of historical data, from which you could calculate inflation to your liking, including the products/services you actually buy and use.
It's the decline of purchasing power over time based on a basket of goods / services. So it all depends on how you fill that basket.
[controversial]: https://www.investopedia.com/articles/07/consumerpriceindex....
And even if we go with CPI stuff, the agencies that do these things try to stay consistent. At least in western countries they don't just do whatever they want.
The idea that all departments of all western governments are secretly changing the data inputs to achieve some sort of grand conspiracy about inflation number is pretty much delusional thinking.
I don't think they have to do it secretly. They do it in the open, otherwise there wouldn't be an Investopedia article on CPI controversy that clearly indicates a few problems. There's no internal whistle blowing going on. It's in the open.
> And even if we go with CPI stuff, the agencies that do these things try to stay consistent.
Sure, perhaps they "try", but:
"Over the years, the methodology used to calculate the CPI has undergone numerous revisions".
"Some critics view the methodological changes and the switch from a cost of goods index (COGI) to a cost of living index (COLI) as a purposeful manipulation that allows the U.S. government to report a lower CPI."
My personal problem with CPI is that it doesn't include the cost of purchasing a home. I get it...it's not a "consumer good" or whatever. But if you're talking about inflation, and everyone jumps to CPI for that, then CPI should include it, or maybe the media should stop quoting it so much. It's not representative of what people want it to be. People want a way to quantify how much harder it is to establish a good life with their earnings. And I don't think the government is being honest about that. Maybe it's too much to ask.
Then please point me at the methodological changes done by these government in the last 1-2 years that were specifically designed to hide higher inflation.
> "Some critics view the methodological changes and the switch from a cost of goods index (COGI) to a cost of living index (COLI) as a purposeful manipulation that allows the U.S. government to report a lower CPI."
Can this pattern be shown to always lower CPI and can they show that all western governments have enacted the same changes?
And such a methodology would maybe work over a long time-span, it could not be used to hide 1 years high inflation.
CPI is just a dumb and useless measure all together. It really should have no relevance to economic discussion. For macro economic analysis of any kind, the GDP deflator is to be preferred.
> People want a way to quantify how much harder it is to establish a good life with their earnings.
That is a wrong way of thinking about any inflation measure.
> And I don't think the government is being honest about that. Maybe it's too much to ask.
Not sure what honest means here. I don't think the government states anywhere that CPI is some magical measure of 'how easy it is to establishing a good life'.
The real problem is this class of claim:
There are secret statistics that support my reaction, which would without those statistics be obviously irrational. I do not have access to these statistics, because their existence is being intentionally hidden from me, but from my trips to the grocery store and discussions in the breakroom, I know what they are intuitively, with a fairly high precision. I have been confirmed correct by some people I've met on the internet who are saying the same thing.
If you felt this way, and could find enough people who also think this is true, you should be able to do a survey on your own, more representative basket of goods, and come up with a number that you find more meaningful. If you couldn't, you could at least attack the current basket of goods and methodology with specific criticisms, rather than vaguely plausible FUD. Instead, vaguely plausible FUD rules, because statistics that are not being offered are unfalsifiable.
But eurostat depends on data being provided by national statistics agencies, so it wouldn't really show
Hovewer, I don't know the exact threshold to be considered "hyper", that's right.
[0] https://scb.se/hitta-statistik/statistik-efter-amne/priser-o...
Thanks for sharing the stats, I hadn't looked into it in months and noticed that books got quite expensive on my latest purchase, glad to see it wasn't just my impression.
I'm thankful for the obvious comment.
Question which I won't expect the "inflation is always and only caused by money printing" believers to answer: how is there different inflation in different Eurozone countries?
Who are these people? I’ve obviously heard of people complaining about fed money printing causing inflation, but I never heard anyone go as far to say that’s the only cause of inflation.
Genius design.
Other oil has gone up so much because everyone is switching off Russian oil. Russian oil is not going up. So it's actually not a bad time to be a Russian oil consumer...
Anyway it's a very bad time to be a Russian oil consumer, because you'll be funding an unprovoked invasion and the countries that have sanctioned Russia may not want to deal with you.
An alternative view is that Russian oil and gas is not cheaper, but that it has extra costs which are not directly reflected on its official price. If you could put a number on the "moral cost" (funding an unprovoked invasion) and the "pariah risk" (other countries might not want to deal with you anymore if you buy Russian oil), and add that number to the official price of Russian oil and gas, there's a good chance that the result is exactly the price you get for non-Russian oil and gas on the global market.
Only in public media. Under the radar, they will still import Russian oil
Huh, if only they could have invested enough in their local energy sector, through I don't know ... NUCLEAR!, to keep their industry energy independent of Russia, and not shut down its few remaining nukes in the middle of an energy crisis just to appease an outdated political ideology like an absolute dunce, causing energy prices across EU to further skyrockets as Germany had to compensate its internal deficit by buying from the rest.
There's a reason people undeservingly vented their frustration on Germany at Eurovision this year.
Now there is a price crunch for LNG tanker charters further pushing up prices. Also it's so disingenuous. Indians are now refining Russian oil, selling it back to Europe but Eurocrats and lying politicians get to pretend they're going off hydrocarbons.
Most of the European companies adopted the new scheme within their current contracts, so it was a technical thing. Russia just needed to be paid in currency that can not be stolen by some lunatic government.
Even freezing of central bank accounts is basically the unilateral unlawful change of contract.
Finland broke the contract with russian railroads, with russian electric providers, it cancelled the contract with RosAtom.
Additionally it started the process of joining NATO, which effectively breaks the peace treaty of 1948.
If you fuck up and get your bank account frozen that does not mean that you don’t have to pay your morgage or that you can pay it with monopoly money.
Also there is a big difference between freezing access to a bank account and taking ownership of the funds.
No it’s not so big, because freezing can be unlimited in time and you can’t use that money. What point of having money on account if you can not use them? These are just numbers on the screen.
If your account can be frozen any time by the bank, it means you don’t really own the money, and the bank is not trustworthy.
The world (EU and US included) is heavily dependent on Russian nuclear imports and technology. Here is an in-depth article on why this is so difficult to overcome:
https://thebulletin.org/2022/05/five-reasons-that-russias-nu...
I mean, lets take a 20-story building, the amount of heating energy it consumes is really high, especially during winters. So you probably would need a soccer-field size heat exchanger in order for the heat to be extracted from the ground.
I bet it will also use quite a lot of electricity to compress the transporting liquid.
As I understood, drilling deep is quite expensive and, comparing to centralized heating stations working with gas for instance, the thermal output does not allow building heat factories. In example they state that they needed 8 500-meter holes for 4 houses and only 64 apts. So they are talking about typical Scandinavian 4-floor buildings, which are as well A-class insulated.
It stands nowhere near to typical buildings of East Berlin for instance.
https://www.worldstopexports.com/lithuanias-top-import-partn...
Lists Russia as the largest trading partner for Lithuania. I guess that would be case for the other Baltic countries as well.
Killing off that trade would surely spike inflation.
Is that a fact? I know that Lithuania doesn't buy Russian oil and gas directly, but it always seemed to me that it is still the same Russian oil and gas, just through an intermediate supplier.
But then, as Estonian prime minister said recently - sure, gas is expensive, but freedom is priceless.
Typical politicians excuse, tbh. It's not like this has any relation to actual freedoms, only bs political slogans.
As much as I also hate political slogans, at least I'm not seeing a problem with this one given the context.
Europe is just now seeing the effect of being less free than it's population thought it was.
Sure it sucks when one invades another one and there are reasons to prefer one vs another (eg. I'd rather be in EU than in Russia or China; I'd rather be in the Bahamas than in EU) but the people's freedom is limited under any government.
I used to think that all we need in Government is fresh wind which will solve most our problems, but I'm realizing that age isn't by itself either the problem or the solution. See Biden for old age or Europe for young age destructive leadership. Apparently not all wind is fresh and some of it is rotten and smells like sewage.
I'm completely baffled at how people cannot comprehend basic co-dependencies in the economies, supply chain or whatever other part that is happening. The whole "we need to suffer to show a moral lesson" is easy for people to say that have had nothing to sacrifice and never had to work hard for anything in their life while never in history have so many people dropped out of the middle class in European societies.
EDIT: Don't drink your own kool-aid, is a good summary I've been given about the whole situation. European leaders massively overestimating their own importance and capability in the world(both economic and military) based on their own inflated GDP numbers and MIC commercials.
EDIT 2: It's unfortunate that even in such a platform there is no rational thinking about something that is objectively true based on propaganda that actually came from the other side. "Russia is this" "Russia is that".
Facts are still facts.
You need fertilizer to feed people. Fertilizers are byproducts of Gas production. Fertilizer prices have been rising because of dis-incentivization of hydrocarbons. Nuclear is still a lot cleaner than most of the green energy alternatives. It didn't start in February 2022 even though the white house would like you to believe that[1].
Even the Ombudsman for human rights of Ukraine that was recently fired for constantly lying, said that she has been lying about Russian war crimes to turn public opinion against Russia[2].
EDIT 3: The US DoJ used the FCPA(Foreign Corrupt Practices Act) to threaten the Alstom leadership to sell off to GE. GE then buys the nuclear business and dismantles its plants in 2019 contrary to previous promises[3]. For all the talk of "oh we'll just buy it back", it's unclear what exactly is being bought back, how much it costs to rebuild capabilities that were destroyed and how much of the IP is actually sold back. My guess is, very little. It's odd that people act like it's just a little blip, when it's very clearly an geopolitical attack on one of the most important parts of french infrastructure.
[1] https://agrilifetoday.tamu.edu/2022/01/12/report-analyzes-re...
[2] https://lb.ua/news/2022/06/03/518875_lyudmila_denisova_azovt...
[3] https://www.entreprendre.fr/alstom-general-electric-le-piege...
Sure, but you also can't help chaotic, random events taking place that make any potential plans to do that go up in smoke. The alternative in this specific issue (i.e. not standing up to Russia) is likely just further dependency on oil/natural gas from Russia and eventually just being outright colonized because you are so dependent that you can't resist. Dropping off even at a high cost protects Estonian sovereignty.
Georgia was invaded in 2008 [1].
> don't deploy NATO weapons and feel okay?
Estonia and other countries near Russia historically didn't really have a ton of NATO weapons deployments specifically because NATO wasn't intent on aggravating Russia. Training exercises from time to time because they're allies but that's about it. Troop buildups and weapons deployments have strictly been in response to the war in Ukraine which was launched by Russia. Sovereign states have the right under international law (law that Russia signed by the way) to choose their own defense arrangements and conduct their own affairs.
[1] https://en.wikipedia.org/wiki/Russo-Georgian_War
Maybe it's not a failure to understand. Maybe it's a symptom of the world-wide denial-of-service attack against the very concept of democracy. It doesn't cost much to pay someone to make government look bad. If you're an autocrat, it's kind of a no-brainer.
Raqqa, Mosul, TONS of cities during WWII, including Dresden and Tokyo.
Those countries reside on the border of Russia and logistics in operations were fairly easy and cheap. That fueled the business and money flow for may years.
Check out https://data.stat.ee/profile/country/ee/?locale=en. Russia was the second biggest trading partner, having Finland as the first. Surprisingly, if you check the trading structure of Finland, it's mostly the same Russian goods.
Russia accounts in 2B trading balance of Estonian import. This is a lot for a small country. Pretty much from the beginning of 200x the most money there were made either on raw re-export of Russian goods or processing and exporting.
If you have an idea of how to replace those 2B without rising costs tremendously, please share.
So much of modern political history is taking the economic gains for granted and assuming they will stay consistent (or only be a minor inconvenience) despite an endless march of downward pressure on many of the things that made us productive and progress.
For a long time the only thing that has masked it is the gains from globalization (even though the a big percentage of the returns often only went to megacorps and the well connected). But that will either reach its limits or conflicts will disrupt it. Then we see the costs of crippling of industries, getting rid knowledge, or misalign incentives.
That is misleading. The nuclear facilities were not sold to GE, only Alstom Power Systems, which engineers turbines. (The nuclear engineering part was never sold.) Furthermore, it was sold for $13B and is being rebought by the French EDF €175M.
"Import prices in Germany increased 31.7% year-on-year in April of 2022, the new highest since the first oil crisis in 1974 and compared with a 31.2% increase in March and forecasts of 32%. Energy imports were 157.4% more expensive than in April 2021, namely natural gas (+301.2%) and crude oil (+77.5%). Excluding crude oil and mineral oil products, import prices increased by 27.6% compared with a year earlier. Other price increases were also recorded for fertilizers and nitrogen (+185.6%); aluminum (+78.4%); iron, steel and ferroalloys (+58%); plastics (+27.7%); machines (+7.9%); motor vehicles and parts (+5.7%); food (+20.7%); pharmaceuticals (+9.5%); green coffee (+68.6%) and cereals (+55.8%). Compared to the previous month, import prices rose 1.8%, lower than 5.7% in March. source: Federal Statistical Office"
https://tradingeconomics.com/germany/import-prices
I do need to do proper research on the models because just using my common sense it doesn't make any fucking sense...
If average inflation is calculated over the whole population, it’s going to be heavily weighted towards the handful of big countries, and so it indeed makes sense that the majority of countries would have higher than average inflation.
I don't know about Sweden, but the BLS publishes their data and methodology for the CPI calculation. You can quibble about details, that's fair, but it's transparent. It's based on a basket of goods and proportional spending on those goods in the basket. In some calculations food and fuel are excluded because of volatility (controversial, for obviously reasons). Like all averages, it's not going to accurate on any individual level.
Also; this basket doesn't look at things like shrinkflation, such as the size of a snickers bar, or the number of pyramids in a Toblerone bar.
> Tittar man på den totala kostnaden för livsmedel bidrar krympflationen som mest med en årlig prisförändring på tre tiondelars procent.
> Looking at the total cost for groceries shrinkflation adds three tenths of a percentage to the yearly cost change.
https://scb.se/hitta-statistik/redaktionellt/krympflationen-...
And:
> Det är cirka två procent av livsmedlen som ändrar förpackningsstorlek under ett år. Implicita prisförändringar, eller krympflation som vissa kallar det, förklarar cirka 10 procent av de prisuppgångar som sker för förpackade livsmedel.
> It is about two percent of groceries that change packaging size every year. Implicit price changes, or shrinkflation as some call it, explains about ten percent of the price increase which happen on packaged groceries.
https://scb.se/contentassets/419935bc1ce44b43ae97ee1d5dc6f34...
From the BLS FAQ[1]:
Has the BLS removed food or energy prices in its official measure of inflation? No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.
Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners
The FAQ clarifies a bunch of other CPI misconceptions overheard regularly in internet forums.
[1] https://www.bls.gov/cpi/factsheets/common-misconceptions-abo...
Also inflation numbers are usually reported comparing the difference in the last 12 months, you are probably thinking about the pre-pandemic prices so you'll have to add them up.
If Food is only up 8% - it's not too hard to imagine how you could get a 7% number...
Electricity and fuel don't make up a huge portion of the average consumer's total basket of spending.
My monthly income goes to (very roughly estimated):
* 35% rent * 10% groceries * 10% other stuff (energy, internet, subscriptions) * 10% mobility * 35% savings
My rent didn't go up. Not sure if savings are part of inflation (how do you measure inflation for ETFs?). So only 30% of my income is affected by inflation, which is less than half of my spending.
Your personal inflation rate will mostly depend on if you live in a new or an old building (e.g. my heating costs are tiny because the building is new) and if you have a car (I only have a motorcycle and I take the bike to work). If you live in an old house and have to drive a fuel-inefficient car to work every day, you are screwed.
I think the current inflation is mostly about energy prices and only very little about money supply.
For a sense of inflation recently in Sweden, look instead at PPI [1]. Consumers can expect 100% of the cost increase producers see now to get passed on to them eventually.
[1] https://www.scb.se/hitta-statistik/statistik-efter-amne/pris...
Swedish households are extremely sensitive to interest rates, so there are big incentives to make the numbers smaller.
https://news.ycombinator.com/item?id=31665931#31666116
Increase in housing prices contribute a lot. From what I know this is also the case in Lithuania and Latvia. And, at least in Latvia, a large part of that increase is due to building material prices. A lot of those got imported from 'further east', which has become somewhat difficult lately for reasons.
Remember it is a broad statistic.
So even though you notice your kebab going from 5 to 6 euros, you may not notice that a new pair of glasses is the same price as it was last year.
[1] https://nos.nl/artikel/2430862-inflatie-nog-steeds-hoog-maar...
In both cases, there's inflation according to the definition, but the second case is very different than the first, and it doesn't impact everybody equally (consumer vs saver).
I must misunderstand something because I never see this distinction in the medias.
There's CPI and PPI and other measures to measure how prices change to different groups.
If you want to measure the change in purchasing power just measure corporate revenues by sector to PPI by sector. Or CPI to HH or personal income.
This sounds very cryptic to me. Could someone explain what this means, and why it measures changes in purchasing power?
It's obviously not perfect. Not all consumers have the same type of spending. In particular, the housing component...
Anyway - if consumer prices go up 10%, but HH income goes up only 2% - then consumers have lost ~8% of their purchasing power.
At my (consumer) level, the only obvious effect I can think of has been cheaper interest rates for loans.
Blair Fix has a nice essay that outlines some of the problems with the conception of inflation that lies behind the CPI: https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...
I'm not in a place to fetch any sources right now, but hasn't it been proven that wage growth has not been keeping up with increases in money supply, or inflation over the last couple of decades? Particularly for manual labor or service jobs.
You seem to assume that one would automatically track the other, but the increased supply in money isn't going to consumers directly. Not to mention that even if it would "trickle down" at some point, your wage increase lags in perspective to inflation and you'd always be getting hit with a reduction in purchasing power for some period of time.
Cf. http://cloudfront.mediamatters.org/static/uploader/image/201...
Price inflation measured through a basket is what media is usually referring to. .. that can be impacted by all sorts of things, be it price hikes in some industries or broad and steady price increases through prior monetary inflation.
No inflation is neutral though. Even monetary inflation has beneficiaries as those closer to the source of new money pay old prices the longest, for example.
More money does not necessarily mean decreased buying power. If you have more people or if the money isn't in circulation, the buying power will stay the same, therefore not causing inflation.
Exactly. Money is just another good in the economy (albeit a bit special). Its supply and demand ebbs and flows like any other.
This is one of the things I find so funny about the known quantity trait of Bitcoin. Why would you want an underlying currency that can't increase its supply? It will inevitably increase in value and people will substitute for other methods of exchange.
Outside of the fact that "some people say" (generally anti-fed types) that inflation is an increase in the money supply, why is it you think that?
In economics inflation has a specific definition: a general rise in the price level. It can be caused by all kinds of things. A rapid rise in the money supply is one. A breakdown in available supply is another.
>Let say a central bank injects a lot of new money, then all prices will be higher, but salary will be higher too
Maybe, maybe not. There's economic theory around the stickiness of wages; they don't react as quickly as the prices of goods. And that's understandable. It's easy to raise wages, but difficult to reduce them.
In theory water can run uphill. Sometimes it even does. But as a matter of overwhelming practice it is obvious that if the general price of goods is rising it is the government doing something. Otherwise there is nearly nothing that could cause a correlated rise of the price of everything. Eg, in this case the most likely culprit is wilfully shutting down the global economy and handing out money to everyone which is even worse, economically speaking, than their usual handout tactics to very wealthy people.
Maybe something like sustained moves in the oil price or coal price could do it. But the western governments have an official policy of annual inflation and the only tool they have is money printing, because it isn't like they invest in oil wells.
PS Maybe demographics, more mouths & higher prices. Here are Estonia's demographics - https://en.wikipedia.org/wiki/Demographics_of_Estonia. Looking at it, a change in the labour force that major could be a big contributor.
This caused general inflation of nearly everything https://en.wikipedia.org/wiki/1970s_energy_crisis
There is never a perfectly correlated rise in the price of everything no matter what happens. Some prices are stickier than others.
Most people on this forum weren't even alive then. And we now live in an era where governments are inexplicably opposed to any of the easy options to secure energy. We should have been going nuclear in the 80s, 90s, 00s, 10s and now the 20s.
So while I'm happy to say that if we have an energy crisis that will cause inflation it isn't like we didn't see it coming 30-40 years in advance. The anti-fuel drive of the last decade hasn't helped any either. And I still blame regulatory interference.
So either you're denying the claims that CO2 is causing climate change/catastrophe or you simply don't care about the future of civilisation/nature.
Which of these is it for you?
It doesn't matter what effect CO2 is having on the climate, the future of civilisation will be more rosy if we maximise the availability of fossil fuels short term while transitioning to something more workable long term - like nuclear. Even renewable might work these days although it doesn't have the enviable technical profile of nuclear power.
https://www.investopedia.com/articles/economics/09/1970s-gre...
TLDR quote:
> The Great Inflation was blamed on oil prices, currency speculators, greedy businessmen, and avaricious union leaders. However, it is clear that monetary policies that financed massive budget deficits and were supported by political leaders were the cause.
https://evonomics.com/the-truth-about-inflation-why-milton-f...
The first definition was the one used for centuries and the one that should still be used unless you are trying to confuse cause for effect.
When the prices of all goods and services go up, it is the thing you measure them against that is going down. If there were no currency, there would be no inflation, only changes in relative prices.
> “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
What has changed it that "the quantity of money" has become much harder to figure out.
> all prices will be higher, but salary will be higher too
Salaries are the price of labor. As other prices go up, there is no particular reason these prices wouldn't do the same.
Because for much of our existence, trade has been facilitated by commodity-based currencies which would inflate when new deposits of the commodity were found.
As far as this round of inflation, monetary supply arguments are a bit specious. The Fed's 'quantitative easing' (money printing goess brrrrr) is pretty trickle-down Reaganomics in practice, although they could have just printed monthly checks for average citizens instead of giving it all to large banks and corporations, who use it for things like stock buybacks.
A more plausible explanation is breakdown in the global supply chains and failure to build up resilient infrastructure domestically. Consider gasoline and diesel prices, which have knock-on effects in all transportation-related sectors (food delivery, goods delivery, commuter costs, etc.). In 2015 US crude oil exports were allowed for the first time since the early 1970s and at least one major refinery was closed. This has clearly impacted the supply of refined products in the USA:
"U.S. Fuel Exports Are Draining Domestic Diesel And Gasoline Supplies, May 2022"
https://oilprice.com/Latest-Energy-News/World-News/US-Fuel-E...
This is at least a simple concept: reduce supply when demand remains constant and prices will go up, aka inflation.
this is nonsense and has no basis in reality, as far as I know
Background (ABC): "The Fed has bought roughly $2.1 trillion of Treasurys and mortgage-backed securities since the pandemic intensified in March [2020] That has flooded many short-term lending markets with cash, making it easier for many banks to borrow."
https://www.bankingdive.com/news/federal-reserve-stock-buyba...
> "The Federal Reserve said the country's largest banks can resume stock buybacks in the first quarter of 2021 with certain limitations, after the central bank released the results of its first-ever "mid-cycle" stress tests Friday... JPMorgan Chase was the first bank to announce it would resume share repurchases. Just minutes after the Fed released stress test results, the bank announced its board approved a new share repurchase program of $30 billion."
It's not just the banks, the airlines did the same thing:
"Companies that binged on buybacks now seek bailouts from taxpayers, March 2020"
https://www.cnn.com/2020/03/24/business/bailout-buybacks-air...
My feeling is that most media is close to financial markets and gets corralled into its point of view.
It can. Interest rates rise -> money becomes more expensive -> investment dries up -> demand is quenched -> things become cheap again
Money is a social construct. If you untether it from any notion of value, it dies, and we're back to barter and subsistence farming or switching to a foreign currency.
https://www.investopedia.com/terms/h/hyperinflation.asp
What you are suggesting, is exactly what economists and central bankers try to figure out. To adjust monetary policy correctly you need to differentiate these things.
Many of the policy recommend associated with inflation are really only associated with the first type of inflation. If its supply sides, then the recommended responses are totally different.
2008 is actually a good case, the central bank didn't react correctly because high oil prices were giving them false information.
> I must misunderstand something because I never see this distinction in the medias.
The media doesn't understand theses things either. And neither do the people listening to it.
Or to put it another way, maybe case 1 is demand-side inflation, and case 2 is supply-side inflation.
If you see everything from this lens then it all makes sense.
Prices of specific commodities and consumables may rise or fall, but if the money supply and demand remains the same the overall combined price of everything remains the same.
Cities that gain many high earning jobs will see housing inflation even though employers do not create money. This is independent of national level monetary policy.
Justifying inflation is a bit like justifying climate change: everyone (or at least most) agree on the effect but there are as many chains of causation as people who agree on the effect
So we have both fewer goods available for purchase and less valuable money to buy them with.
https://www.bls.gov/opub/ted/2022/changes-to-consumer-expend...
Obviously giving money directly consumers is going to cause more consumer price increases than people who don't buy consumer goods.
Mainly because I know what inflation is, but I didn't spend enough time thinking about what it means and what it tells me.
> Inflation is simply the delta between a past price and the current one, over a set of goods / services, which we represent using an average of some kind, usually ignoring certain kinds of price changes. For example some inflation measures ignore rent.
> It would be useful to have every measure of inflation cite the raw vector (which would be good to standardise) as well as listing what it excludes visibly.
> The underlying vector would show us much more, such as are all prices increasing / decreasing? Are some going in the opposite direction?
This would give us space to have a more nuanced discussion about causes and how much weight they may have.
Mistakes / errors in recollection are my own =)...
- PRICE INFLATION, which is typically what is tracked by the CPI. If the CPI was, say, 100 last year, and 105 now, it means there was 5% inflation in the price of the basket of goods tracked by the BLS.
- MONETARY SUPPLY INFLATION. This is the total amount of currency in circulation. The US Federal Reserve publishes the M2 money supply. This is one factor that affects PRICE inflation (the first type), but if people don't spend a lot of the money supply each year, then prices don't increase a lot. The other factor affecting price inflation is MONETARY VELOCITY.
As for what affects relative differences (some goods getting more expensive than the general inflation, while others not as much), it is supply or demand. As demand changed, especially during the pandemic, supply struggled to adapt and match it, and maybe overshot and so on. The economy is not a steady state.
If you were a manufacturer, you had no real way to deal with this unpredictability. Do you add capacity to cater to the post-lockdown 200 demand? If you do, you might end up with too much inventory as demand goes back to the usual 100.
Throw in the clogged up ports and higher input costs due to Russia-Ukraine war and we have this strange period where everyone is confused and no one really knows what to do
Retailers, too. Both Target and Walmart have reported having far too much inventory. It's one thing when one store has a fire sale on a product it bought too much of, but multiple stores finding that they did so across the board? That's very unusual.
Even if the injected money were to be distributed evenly, people holding a lot of savings in the form of cash are penalized when compared to those with assets and debt.
Inflation is a measurement one of the observable effects of all of those decisions over time. Businesses deciding how to set prices and when to offer discounts and what products or services to offer. Customers deciding what businesses to purchase from.
Inflation isn’t something that ‘does things’. It is a thing that happens.
And inflation alone isn’t a very interesting number - what really matters is economic activity.
Like, if Alice sells widgets for $10, and Bob has $100 to budget for widgets, he’ll buy ten widgets.
If Alice increases her prices by 10%, if Bob can’t also increase his widget budget, he’s going to wind up only buying 9 widgets. But if Bob also finds he can increase his budget by 10% he’ll still go ahead and buy 10 widgets.
The distinction you’re making above is just between cases where the same degree of inflation is accompanied by different changes in economic activity.
And the causal relationships between inflation and economic growth are not simple, linear, universal, or unidirectional.
See also previous HN post on inflation: https://news.ycombinator.com/item?id=27099536
They have a great podcast: https://podcasts.apple.com/au/podcast/eurodollar-university/... and routinely appear on finance podcasts to explain this.
I would expect that reducing the supply of oil (and to a lesser extent natural gas) would cause that sort of things, by reducing the ability to transport goods, to manufacture all kind of things, and even to grow food (besides tractors running on oil, most fertilizers are made from natural gas).
We have the same argument over "true unemployment". There absolutely isn't any possible way to come up with a number to accurately represent the massively complex employment situation. We use U3 as a key indicator.
Think about it like measuring how smart you are via your SAT score. It's a good indicator but it's not the whole story. And when there are sudden shifts it implies something is wrong.
https://en.wikipedia.org/wiki/Harmonised_Index_of_Consumer_P...
This ought to ensure inflation rates are at least comparable on some level between countries.
However, in true Estonian fashion, a lot of people (probably majority) might complain within their familily/friend circle, but will mostly just suffer through it. In fact, 10 years ago, two local comedian-actors wrote a song [0], that describes our history and overall state of mind quite accurately I think :) The video has English subtitles as well.
[0] https://www.youtube.com/watch?v=aADjmpAHEYE
I think this is a generally post-soviet thing.
I mean, where else would you hear about it? Are you expecting random strangers on the street to just angrily scream at you about increasing energy prices and inflation?
Imho one of the biggest giveaways was when German supermarkets started mentioning "inflation" in their discount prospects, first saw that like 2 months ago.
Not that we have it bad here, compared to others, of course.
hopefully someone says “no we’re not!” to prove my point.
People always focus on the price of gas in America, since it's a large expense and they commute a lot, but no one seems to talk about the effect it has on the prices of anything shipped in a vehicle that uses petrol.
Then again, some Americans do things like fill up across the border and freak out when between CAD sometimes having a 25 percent difference and them using pricing in liters not gallons, they paid many multiples of what they intended than much less fuel than they thought they got, despite having clear information on pricing, volume, and approximate currency value.
(It might be a 25 percent difference, but if you looked on your phone or in a currency shop, the difference for currency traders versus the public was only a few percent, it didn't jump around by double digits in a single day, and often if the difference was small people just would take the same amount as CAD in USD to be polite, when they could rightfully tell you pay in CAD, or get out of my shop, I'm not your friend you weird little Pennsylvanian.)
$1.92*3.78 = $7.26/G
Or $5.79USD/Gallon.
Alberta is the cheapest province for gas. Other provinces are more.
It affected behavior in ways that in hindsight were very counter-productive to economic stability: Every adult person and every business simultaneously tried to spend less, earn more, and hoard more -- which is impossible in the aggregate, because every expense by one person or business is income for another person or business. No matter what anyone did, the currency would lose value week after week, month after month. And everyone felt... powerless, unable to do anything about it.
John Maynard Keynes wrote what I think is the most insightful description of what living with high inflation is like: "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."[a]
[a] The Economic Consequences of the Peace (1919), by John Maynard Keynes.
As Keynes put it, "the process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Speaking from personal experience, I think he was spot-on.
Please don't misinterpret what I wrote!
Cannot one convert their money to dollars or gold and start getting profit from inflation?
UPD: I forgot that in such cases governments usually impose large tax on currency conversion. Obviously you can't outsmart the government.
https://en.wikipedia.org/wiki/Argentine_currency_controls_(2...
https://www.bloomberg.com/news/articles/2021-11-25/argentina...
Cheap energy is how we've created our society. The (huge) problem we're facing is that our economy is based on the (incorrect) assessment that we will have an ever-increasing supply of energy. Barring some miracle invention/discovery (like fission, or a cheap way to produce hydrogen) it's rather the opposite, at least in terms of EROEI.
The difference between the monetary economy and the real economy is becoming increasingly difficult to ignore.
Agree.
> The (huge) problem we're facing is that our economy is based on the (incorrect) assessment that we will have an ever-increasing supply of energy.
I'd add to that: the problem isn't so much that energy sources are currently running out. We've still got decades of fossil fuels left over to run the existing economy.
This makes the problem even harder to solve. We do have the energy. It sits right there, tempting states to grant permission to use it. But states ought to refrain from using it because the ecosphere/climate is in danger.
States globally switching to renewable energy would be much easier than it is (almost effortless), if we were truly running out of fossil energy.
As things are, states that undertake the enormous effort to make the transition to renewables, are at an economic disadvantage, at least in the short-term.
Thus the one big challenge is the political one, of setting up an international treaty that somehow turns this economic disadvantage into incentives for the transition.
I think the US is closer to neutral, but we still have a negative mortgage real rate at the current inflation level.
1.https://www.theglobaleconomy.com/Estonia/mortgage_interest_r...
On the other hand - can't say that real estate is exactly overvalued - recently they've been driven by rising construction and material costs.
That's my gut instinct as well.
For example I am currently paying only margin (Euribor was still negative when the Euribor rate was last updated for the 12month rate that I am using) so 0.4%. With Euribor steadily creeping up expecting to 3 or 4x the interest portion of my loan at the end of the year but not a big deal personally.
It usually converts to CPI in 3-6 months
In what sense and compared to what exactly?
So for example when other countries calculate Gini index based on a reasonable sample, Estonia could do it across the entire population.
humans..... :facepalm:
http://www.shadowstats.com/alternate_data/inflation-charts
as you can see, inflation calculated using the old method is 2x higher than the current one (8% vs 16%)
The problem with Shadowstats is that there isn't any substitution.
If the price of gold goes up - but you can get your cavities filled with a way cheaper and better substitute - that seems like a win.
If the price of silicon goes up, but you can get an exponentially more powerful computer for the same price that uses less energy (because the chip size shrinks) - that seems like a huge win.
If the price of cars is flat - but the safety ratings, reliability, and gas mileage have improved enormously, that seems like a win.
Then you have things like food and housing where the substitutes actually make things (arguably) worse...
One thing is clear - if you use Shadowstats measures of inflation - the US economy is ~25-75% smaller than it was in the 80s. This idea is absurd.
You just seem to be generically responding to the keyword "inflation."
I would bet this rate is almost completely driven by fallout from a nearby war with a major energy exporter that's resulting in embargoes and boycotts:
> Energy prices continue to have the greatest effect in May, with price advance there jumping from 37.5 percent in April to 39.2 percent in May.
Estonia is quite close to that exporter, and I'd imagine they've been affected more than some other countries.
If your economy is more reliant on these (e.g. for heating, electricity or transport), all prices will go up significantly more compared to a country that is less reliant on these (e.g. because of nuclear/renewable, better energy efficiency, less heating required ...).