Monthly CPI was only 0.1%, but the monthly core CPI was 0.6% compared to expectations of 0.3% and for a yearly core CPI of 6.3%.
The market seems to be coming to sudden realization that energy prices aren't the sole driver of CPI. The Fed is going to hike 75 pts again at the next meeting and they're not close to being done (and certainly not close to cutting rates).
I suspect the volatility of the basket of goods and services that bottom decile buys is different than the volatility of the basket of goods and services of higher income/wealth deciles.
I notice people complaining about volatility of eating out, vacations, cars, houses, etc, but I wonder what the real data is for people who were working the $15 per hour jobs that are now $20 per hour jobs. They might very well be earning $10k+ more per year, but not paying that much more in their expenses.
First, to make sure we're talking about the same people: Full time at $15 hourly puts one well outside the bottom decile. About 35% of Americans were paid less than that in 2020; even in a relatively wealthy state like Virginia, it's more than 30% below that line. https://datausa.io/profile/geo/waynesboro-va
For the sake of being on the same page, I'm going to frame the expenses by this article talking about spending categories by income quintile: https://www.marketwatch.com/story/why-the-poor-spend-more-on...
51% nondurables (think grocery store)
16.6% restaurants
14% Other services
10.7% durables
7.2% fuel
My most frequent places eating out are probably Chipotle, McDonalds, ChikFilA, and Costco, all in mid-to-low CoL places, so I feel pretty qualified to say that prices have gone up substantially ([0] says 8% 'from 2020' to June 2022), and service has degraded enormously over the same period.
Groceries are at least 10% higher.[1]
Fuel is a very high outlier, which I'll let you research if you don't have recent experience.
'Durables' and 'other services' are harder to nail down, but the three places I've lived since 2020 have all seen significant price increases (as assessed by talking to people, with me not having the time in place to judge), and service is reliably disappointing enough to take services from convenient to 'I don't have 3 hours to wait on hold for this thing that was screwed up because billing department doesn't have enough people working there' levels of crappy.
Finally, and most importantly, people who switch jobs for higher pay will, indeed, tend to see improvement over time. But the people who didn't switch jobs over the same time period will likely have seen 1-3% raises, if any. And the bottom decile probably isn't very full of people job hopping for upward mobility.
I think the pandemic proved this was a pipedream. Did people pursue their passions once they had government disbursements? No. They just moped around and became malaised and disinterested.
Sure, we got tik-tokers, and YT personalities (all 'bourgeois-capitalist schmaltz'), but if that is what we get from that "investment" I don't want to invest any more. Previously hardworking people more or less got comfortable being freeloaders --taking but not giving back.
> Did people pursue their passions once they had government disbursements? No.
I'd argue that the wage inflation and labor shortages we're seeing in areas like food service indicates the correct answer to that question is "Yes" and that a lot of people spent the time "leetcoding" (or whatever) and landed a significantly better job.
I'd be interested to see the data to back up your claims as well.
Regardless, I'm not sure the main point of UBI is to allow people to quit their jobs and pursue thier passions at the government's expense. It's moreso meant as a way to give people on the bottom rung a little bit of room to breath and better their circumstances, and in theory this also benefits the rest of the economy.
America's largest experiment in UBI is probably the Alaska Permanent Fund (APF).
APF appears to have little to no impact on employment [0], instead having effect of increased number of people getting zapped out their rocker on drugs[1].
The abstract in [1] says that drug use ticked up, amounting to a small portion of the UBI payment. And property crime ticked down, but overall crime was not affected substantially. Concluding:
crime-related concerns of a universal cash transfer program may be unwarranted.
So I don't think this makes the point you want it to make.
> increased number of people getting zapped out their rocker on drugs
Which was part of your case that APF is a failed experiment and not worthwhile. But the study you cited does not suggest that UBI created an increased number of drug abusers. It did say that there was an uptick in drug incidents, but it also concluded that UBI payments were not responsible for increasing crime (when considering drug incidents and other crimes in total).
It's likely that drug use always ticks up on payday, UBI or not. Same for gambling and other bad habits that require money. I've never heard anyone suggest that the solution to drug abuse is to make people so poor that they can't afford to buy drugs, but in a roundabout way this is kindof what you're saying.
Grocery shopping and paying bills and likely tick up on payday as well.
Quite unfortunately, I think, given a choice, most people will tend towards doing as little as possible to survive --not all people, there are some who just want to create and others provide services (volunteers come to mind).
It takes community and building mindset to fend off the tendency toward minimum level survival. It takes having a certain ethic to transcend that. Of course people don't want to plough in the muddy soil and tend to sick animals and harvest in the heat, if they can get away with it. If they instead could drink, get merry and play all day, many will chose that option if not inculcated otherwise.
Who knows, maybe we will go back to permanent mediocrity by most once the drive to succeed is removed.
A progressing society needs constant effort to keep it alive. It's not self-perpetuating by itself.
Don't forget the "mostly peaceful protests" which of course were not at all associated with lots of "free" money to be idle along with stay-at-home orders that are not consistent with maintaining mental health of the population.
Depends which bottom, and by what measurement. If you mean raise people everywhere above a certain wealth or income threshold, the answer is probably lower energy costs (and migration to places with stable governments).
If you mean quartile/quintile/decile shuffling without regard for anything else, then aggressive taxation and enforcement will achieve that by some combination of wealth flight, redistribution, and suppression of upper incomes. Western societies appear to prefer a version of distribution shuffling that is accompanied by prosperity, which means moderate taxation and various targeted policies.
it seems to me no one wants to admit that society and the economy are set up in a way that we need people at the bottom. when the lowest classes attain even the smallest increase in purchasing power, demand for goods and services soars and inflation soon follows. it’s pretty sobering. as to what’s to be done? i wish i knew.
I guess I could move the goalposts and readjust the question to be, how many people do we need at the bottom? Is the answer 80% of society? And even then, I think the answer to that question would neglect the emotions and feelings of what it’s like to live a life at the bottom. How long can we, in a capitalist society, really expect 80% of the population to be OK with living what’s best summarizes a pretty shitty life?
An alternative reading is that the lowest classes are pretty stubbornly stuck in the 'scraping by' level of wealth, and inflation results from an increase in money supply, especially to the degree that the elevated money supply goes into circulation on routine spending. Our normal version of inflation is less crazy because it all goes into skyrocketing startup valuations and stock prices, trickles down from there into the real estate around centers of those activities, and so on in a loop with significant lag.
Maybe a bit like taking the normally time-released drug of low interest rates, then crushing it and snorting it straight into the entire populace.
I don't really see any problem with wage inflation once it is at least hitting the middle deciles and isn't just confined to SWEs and above.
We spent the past 30 years being very cool with housing costs appreciating out of control and out of the reach of the middle-ish deciles, pricing everyone out of the market. If we could get some wage-price inflation to pull up wages then housing wouldn't need to crash to make it affordable. And then long interest rates would then rise, acting as a brake on speculation and cheap money. Higher inflation that hit wages and not just assets would also help to reduce income/wealth inequality (we could also try substantially taxing the rich like we used to).
Instead the Fed is going to crash the economy into an iceberg in order to create unemployment, keep inflation low, and low inflation expectations on the 10y horizon will keep long rates low and stimulate future speculative bubbles.
Either way the bottom decile loses out and they're always living month-to-month, so I don't think it matters that much. Are they worse off with high cost of living and wages that aren't keeping up with prices, or without jobs due to high unemployment and an economic depression?
I don’t think rent prices will be driven down by rate increases. We need a federal government initiate to be building dense/modern housing across the board. The western world basically hasn’t been building enough housing since post ww2 and it’s biting us in the ass
The fed fund rate won't, but increasing mortgage rates will. The fed is set to roll off their MBS holdings this month (starting tomorrow iirc), which should increase mortgage rates. People won't be able to afford homes at these maxed out prices when adding on the increase of interest rates, so home sellers will be forced to lower prices.
High interest rates and lower home prices is a much better position to be in than vice versa.
If I were an home seller not in distress (which, in this market and low unemployment rate, is still the vast majority of sellers), why would I want to lower prices for an asset I bought financing at a 2% rate?
The latest news point to inventory actually decreasing as home sellers take homes off the market, waiting for better times (i.e. lower interest rates, which might happen in a few years).
Unemployment will have to rise in order to reduce inflation. That will create more distressed sellers in a market where high interest rates and falling prices have dried up the motivated buyers.
Right, that's the big question. In a perfect world, people won't sell if they don't have to. And so we'll have to see how everything else plays out.
With 2.5% interest rates, people have maxed out what they can afford for their mortgage and bought at the peak. Any disruption in peoples lives going forward is going to bring a lot of pain.
I'm thinking about all the techies who get most of their TC from RSUs. When the recession starts hitting employment and the stock market, they are going to lose that income they accounted for when the mass home buying spree of the last two years happened.
I respect your opinion and believe me, I would be "happy" if it were to happen (I do not own a home and have been squeezed by my rent going up 15%+ a year, even though as a techie I'm still in a privileged position).
But I do not think it will happen, there are too many people with too much cash who will be able to both weather a storm without selling their house AND scoop up inventory as it comes to the market.
A lot of people with 2.5% interest rates are laughing in the face of inflation right now, they effectively got paid to borrow money and they are raising rents on their investment properties like crazy. I know because I work at a FAANG and it's literally the water cooler conversation of the year. Nobody worries about RSUs having gone down 30%, they'll just hold.
> Food costs increased 11.4% from a year ago, the most since 1979. Electricity prices rose 15.8% from 2021, the most since 1981.
The Fed has completely screwed up the US economy.
The fed chair Powell was using fancy words to basically say that inflation would not be persistent last year when most of the industry was saying it would be.
The worst part is he got another term even with such a big screw up.
Mostly because it was artificially made to be. After the first few months it was pretty clear that the vast majority of people were barely effected by the virus, and yet they still moved for massive lockdowns, business closures and other useless "security-theater" policies.
One of the reasons is, everything must be extremely safe. Once some guy tried to take a bomb in a shoe on an airplane. Thanks to him airports security theater added new requirement, take shoes off before boarding.
The might-makes-right destruction of free movement and trade during COVID lockdowns in 'free' Western nations should have red-pilled millions into the illegitimacy of these governments and their hostility against the pursuit of life, liberty, and happiness. Many countrymen calling for these policies were found out to be nothing more than proponents of violence to enforce their own health policy goals.
Fortunately the US didn't go quite as dystopia as Europe, so we may find ourselves yet in a position of comfort as usurious European energy prices, inflation, and post-COVID European war expand American competitive advantages.
This is your daily reminder that there is no theoretical reason to do these monthly small hikes. Except to keep pretending everything is still fine I guess.
Russia hiked by 9% in a day and it helped stabilize things quickly. We need to hike to 6% and be done with it, no more of these games pretending things are fine.
I don’t think it’s that simple. Very high monthly mortgage payments will massively reduce demand for new housing. Will bring all new construction to a complete stop. And then layoffs in the construction industry. But the worse thing is it won’t bring the rents down because no new houses are being built.
This is the 27th straight month of inflation. It was labeled transitory, and people who rang the alarm were ridiculed. They expected a .1% drop and instead we got an .1% increase. But people are celebrating, it was only a .1% raise. The contortions...
They'd better fix this now before the elections real quick. Handing out candy (ala student debt forgiveness) surely will prolong our diabetes. Instead allow students to declare bankruptcy on student debt.
I'm also confused by the OP. CPI has been above the Fed's 2% target since roughly the start of 2021, so even by that metric ("above 2% means a month of inflation") the OP seems off. I'm not really sure what it means to be a "month of inflation" honestly, inflation is always occurring in the US by design (and when it isn't there is usually a large global calamity taking place causing deflation). See https://fred.stlouisfed.org/series/CPILFESL or https://fred.stlouisfed.org/graph/?g=rocU
> Instead allow students to declare bankruptcy on student debt.
I'm curious what impact people think this would have. Or if there's any research on the subject. My initial reaction was that giving out more debt relief could only lead to more inflation. But on second thought I could see only a much smaller segment that is struggling with debt willing to go through bankruptcy. While I buy that that would be less regressive than the current proposed debt forgiveness plan, I don't see how this would affect inflation (or elections, for that matter) in any meaningful way.
Colleges and universities would hold the bag and would be more judicious about the prospects they’re willing to bet on. Right now they know they don’t lose.
The majority of student loans are structured such that the US government makes whole any lender who has a student loan in default. It's argued by some that this incentivizes colleges to relentlessly raise tuition. They win either way.
> Ending the process of the federal government giving subsidies to private banks to give out federally insured loans. Instead loans will be administered directly by the Department of Education.[23]
Or course, the problem was and is the taxpayer funded loans with zero underwriting, so the root issue was never resolved, and hence why colleges continue to raise tuition since their customers continue to receive blank checks from the government. There should be zero taxpayer funded higher education loans.
If the people want to help students pay for education, then give them cash or give cash to the universities. The reason this is not politically popular is that it increases government expenses, rather than loans that muddy the higher education market and ultimately screw students and future taxpayers.
But excessively borrowing from the future to keep taxes down today and indebt certain portions of the population rather than providing non discriminatory assistance is par for the course.
55 comments
[ 5.8 ms ] story [ 120 ms ] threadThe market seems to be coming to sudden realization that energy prices aren't the sole driver of CPI. The Fed is going to hike 75 pts again at the next meeting and they're not close to being done (and certainly not close to cutting rates).
I notice people complaining about volatility of eating out, vacations, cars, houses, etc, but I wonder what the real data is for people who were working the $15 per hour jobs that are now $20 per hour jobs. They might very well be earning $10k+ more per year, but not paying that much more in their expenses.
For the sake of being on the same page, I'm going to frame the expenses by this article talking about spending categories by income quintile: https://www.marketwatch.com/story/why-the-poor-spend-more-on... 51% nondurables (think grocery store) 16.6% restaurants 14% Other services 10.7% durables 7.2% fuel
My most frequent places eating out are probably Chipotle, McDonalds, ChikFilA, and Costco, all in mid-to-low CoL places, so I feel pretty qualified to say that prices have gone up substantially ([0] says 8% 'from 2020' to June 2022), and service has degraded enormously over the same period.
Groceries are at least 10% higher.[1]
Fuel is a very high outlier, which I'll let you research if you don't have recent experience.
'Durables' and 'other services' are harder to nail down, but the three places I've lived since 2020 have all seen significant price increases (as assessed by talking to people, with me not having the time in place to judge), and service is reliably disappointing enough to take services from convenient to 'I don't have 3 hours to wait on hold for this thing that was screwed up because billing department doesn't have enough people working there' levels of crappy.
Finally, and most importantly, people who switch jobs for higher pay will, indeed, tend to see improvement over time. But the people who didn't switch jobs over the same time period will likely have seen 1-3% raises, if any. And the bottom decile probably isn't very full of people job hopping for upward mobility.
[0] https://www.gobankingrates.com/money/business/as-mcdonalds-p... [1] https://www.cnn.com/2022/07/13/business/grocery-inflation/in...
Sure, we got tik-tokers, and YT personalities (all 'bourgeois-capitalist schmaltz'), but if that is what we get from that "investment" I don't want to invest any more. Previously hardworking people more or less got comfortable being freeloaders --taking but not giving back.
I'd argue that the wage inflation and labor shortages we're seeing in areas like food service indicates the correct answer to that question is "Yes" and that a lot of people spent the time "leetcoding" (or whatever) and landed a significantly better job.
Regardless, I'm not sure the main point of UBI is to allow people to quit their jobs and pursue thier passions at the government's expense. It's moreso meant as a way to give people on the bottom rung a little bit of room to breath and better their circumstances, and in theory this also benefits the rest of the economy.
APF appears to have little to no impact on employment [0], instead having effect of increased number of people getting zapped out their rocker on drugs[1].
[0] http://humcap.uchicago.edu/RePEc/hka/wpaper/Jones_Marinescu_...
[1] https://direct.mit.edu/rest/article-abstract/102/4/678/96772...
crime-related concerns of a universal cash transfer program may be unwarranted.
So I don't think this makes the point you want it to make.
> increased number of people getting zapped out their rocker on drugs
Which was part of your case that APF is a failed experiment and not worthwhile. But the study you cited does not suggest that UBI created an increased number of drug abusers. It did say that there was an uptick in drug incidents, but it also concluded that UBI payments were not responsible for increasing crime (when considering drug incidents and other crimes in total).
It's likely that drug use always ticks up on payday, UBI or not. Same for gambling and other bad habits that require money. I've never heard anyone suggest that the solution to drug abuse is to make people so poor that they can't afford to buy drugs, but in a roundabout way this is kindof what you're saying.
Grocery shopping and paying bills and likely tick up on payday as well.
It takes community and building mindset to fend off the tendency toward minimum level survival. It takes having a certain ethic to transcend that. Of course people don't want to plough in the muddy soil and tend to sick animals and harvest in the heat, if they can get away with it. If they instead could drink, get merry and play all day, many will chose that option if not inculcated otherwise.
Who knows, maybe we will go back to permanent mediocrity by most once the drive to succeed is removed.
A progressing society needs constant effort to keep it alive. It's not self-perpetuating by itself.
If you mean quartile/quintile/decile shuffling without regard for anything else, then aggressive taxation and enforcement will achieve that by some combination of wealth flight, redistribution, and suppression of upper incomes. Western societies appear to prefer a version of distribution shuffling that is accompanied by prosperity, which means moderate taxation and various targeted policies.
Maybe a bit like taking the normally time-released drug of low interest rates, then crushing it and snorting it straight into the entire populace.
We spent the past 30 years being very cool with housing costs appreciating out of control and out of the reach of the middle-ish deciles, pricing everyone out of the market. If we could get some wage-price inflation to pull up wages then housing wouldn't need to crash to make it affordable. And then long interest rates would then rise, acting as a brake on speculation and cheap money. Higher inflation that hit wages and not just assets would also help to reduce income/wealth inequality (we could also try substantially taxing the rich like we used to).
Instead the Fed is going to crash the economy into an iceberg in order to create unemployment, keep inflation low, and low inflation expectations on the 10y horizon will keep long rates low and stimulate future speculative bubbles.
Either way the bottom decile loses out and they're always living month-to-month, so I don't think it matters that much. Are they worse off with high cost of living and wages that aren't keeping up with prices, or without jobs due to high unemployment and an economic depression?
High interest rates and lower home prices is a much better position to be in than vice versa.
If I were an home seller not in distress (which, in this market and low unemployment rate, is still the vast majority of sellers), why would I want to lower prices for an asset I bought financing at a 2% rate?
The latest news point to inventory actually decreasing as home sellers take homes off the market, waiting for better times (i.e. lower interest rates, which might happen in a few years).
Unemployment will have to rise in order to reduce inflation. That will create more distressed sellers in a market where high interest rates and falling prices have dried up the motivated buyers.
With 2.5% interest rates, people have maxed out what they can afford for their mortgage and bought at the peak. Any disruption in peoples lives going forward is going to bring a lot of pain.
I'm thinking about all the techies who get most of their TC from RSUs. When the recession starts hitting employment and the stock market, they are going to lose that income they accounted for when the mass home buying spree of the last two years happened.
But I do not think it will happen, there are too many people with too much cash who will be able to both weather a storm without selling their house AND scoop up inventory as it comes to the market.
A lot of people with 2.5% interest rates are laughing in the face of inflation right now, they effectively got paid to borrow money and they are raising rents on their investment properties like crazy. I know because I work at a FAANG and it's literally the water cooler conversation of the year. Nobody worries about RSUs having gone down 30%, they'll just hold.
The Fed has completely screwed up the US economy.
The fed chair Powell was using fancy words to basically say that inflation would not be persistent last year when most of the industry was saying it would be.
The worst part is he got another term even with such a big screw up.
Fortunately the US didn't go quite as dystopia as Europe, so we may find ourselves yet in a position of comfort as usurious European energy prices, inflation, and post-COVID European war expand American competitive advantages.
Russia hiked by 9% in a day and it helped stabilize things quickly. We need to hike to 6% and be done with it, no more of these games pretending things are fine.
They'd better fix this now before the elections real quick. Handing out candy (ala student debt forgiveness) surely will prolong our diabetes. Instead allow students to declare bankruptcy on student debt.
I'm curious what impact people think this would have. Or if there's any research on the subject. My initial reaction was that giving out more debt relief could only lead to more inflation. But on second thought I could see only a much smaller segment that is struggling with debt willing to go through bankruptcy. While I buy that that would be less regressive than the current proposed debt forgiveness plan, I don't see how this would affect inflation (or elections, for that matter) in any meaningful way.
https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco...
> Ending the process of the federal government giving subsidies to private banks to give out federally insured loans. Instead loans will be administered directly by the Department of Education.[23]
Or course, the problem was and is the taxpayer funded loans with zero underwriting, so the root issue was never resolved, and hence why colleges continue to raise tuition since their customers continue to receive blank checks from the government. There should be zero taxpayer funded higher education loans.
If the people want to help students pay for education, then give them cash or give cash to the universities. The reason this is not politically popular is that it increases government expenses, rather than loans that muddy the higher education market and ultimately screw students and future taxpayers.
But excessively borrowing from the future to keep taxes down today and indebt certain portions of the population rather than providing non discriminatory assistance is par for the course.