U.S. annual inflation rate drops to 8.5%
bls.gov
bls.gov
I'm also stuffing my freezer with meat and have a year's supply of non-perishables, not because I'm a prepper but because I know it'll be so much more expensive next year as to be worth it.
Also my rent is up 6.9%, but that's because I locked it in for two years. Would have been 10.5% for a one-year lease, and that's on top of last year's comparatively conservative 4.5% increase.
And my salary is up a mere 4.5%, and that only because I took on stretch assignments at work.
When I need to pad my savings I cut some costs but mostly I just work extra hours in side gigs. I couldnt imagine its worth going to multiple grocery stores to compare prices. Shop at 1 store, pay more for some items, work an extra hour to make up for it. I'm building my career and getting paid instead of experiencing traffic, grocery stores at peak hours, check out lines, and loading/unloading food to and from the car/house for a second time.
Does it really make sense for you financially to do that?
Ones that let you hop in just whenever you feel like it and do one hour of work, with no commitment to minimum hours per week? And that you can put in a single productive hour every so often, without ramp-up time eating that entire hour with nothing to show for it? And that pays enough to make it worth it (i.e. not Mechanical Turk or whatever)?
I don't even know what such an ultra-flexible, low-context (= near-zero ramp-up time even if you only do it an hour or two a week, and some weeks not at all) but still high-paid gig would look like, or how to go about finding it.
Meanwhile, you can value-shop if you feel like it, or not if you don't. Entirely optional and no commitment or outside expectations. You can do it very seriously one week, then not do it at all the next.
I live in a city where multiple grocery stores exist within 5 minutes of each other and I do enjoy doing mundane tasks outside my professional life. Those tasks made me pause, clear my mind, and escape the bubble that we called "work" (yes, work itself is a bubble).
We have discount grocers nearby that sell a crap-shoot of stuff the bigger stores are trying to get rid of. If going there before heading to Wegmans can save me $50-100/month after gas, for maybe an extra 30 minutes - 1 hour of time, would be worth it these days.
C++ programmer by trade.
Just be careful that your freezer has a reliable electrical supply. The National Electrical Code has required GFCI protection on garage outlets since 2008 and those can occasionally fail and trip off for no reason. Ask me how I know...
It's beginning to feel like a 'let them eat cake' moment from the wealthy.
- Too many items force you to buy insane quantities that don't make sense even for a 4 person family. The meat, for example, is great quality and value, but it's very hard to make steak or chicken taste good after being frozen, and in no universe should I be eating 4 huge steaks within the refrigeration shelf life. I can never use their giant tub of sour cream or shredded cheese before it goes bad.
- Related to the last point, Costco makes you pay for the square footage in your home to store their stuff, and to really utilize the membership you're gonna want a chest freezer, a whole extra appliance to purchase, run (electricity), and repair. Probably about $50/year in electricity costs.
- Too many of the items that are "great deals" are things most people would probably never buy in the first place when sold at the normal higher retail price. For example, Red Bull is barely over a dollar a can, which is unbeatable, but in no universe should I be buying a 24 pack of Red Bull for any reason.
- Similar to the point above, Costco's deals encourage consumption where the alternative is to not consume anything at all. For example, paper towels are an item where you really should just reduce your usage. Just use dish towels and cloth napkins, toss them in with your regular laundry. There are very few messes where you actually need to use paper towels.
- I know it's not supposed to be a replacement for a grocery store, but I think it's very hard to cook from scratch using whole and minimally-processed foods solely from what Costco sells.
- The low SKU count of the store has never not been infuriating to me. The entire health and beauty section is the worst offender here: good luck having any sort of preference.
- The store wastes your time by making you memorize aisle layout, this is done on purpose to increase aimless browsing time.
- The negotiation practices that Costco uses to keep prices low also causes their inventory to be incredibly inconsistent. One day there will be a pallet of Legos or an interesting brand of trail mix, the next it could be gone or replaced by something else.
- Costco is almost always packed with an uncomfortable amount of people.
- Am I the only one who thinks Costco doesn't have enough cat supplies?? It's all stuff for dogs!! You'd think I should be saving so much money by using Costco for cat litter but...nope, the stuff I buy at Target is about the same cost, they'll deliver it for free in two days, and Costco doesn't sell any form of unscented cat litter product.
- Their lauded snack bar is trash food and I don't believe the common refrain that it's a loss leader. Costco brags about that as a PR exercise. It breaks even at the very least.
- If your Costco is able to sell beer/wine/liquor, that's a pretty nice perk that can pretty legitimately make up for the membership cost over a year, but anyone with a really legit liquor warehouse type of store (e.g., Binny's) isn't going to be massively impressed. Low SKU count is still a problem here, and I don't actually think Costco is that great at curating wines (another PR exercise they like to engage in).
- Don't forget that you have to pay $60 a year just to get in the door. You have to buy enough discounted things to make up for that difference. Sure, it probably makes more sense than Amazon Prime, but that's still a major point to think about.
I think the only reason to be a member is to buy diapers, you'll make up the membership cost very quickly that way. Still, if you can tolerate lower quality diapers, Target's brand is actually lower cost than Kirkland. There are a number of Costco products out there where other store brands offer something at a close-enough price and quality ratio, without having to shell out a membership fee. For many products it might not actually matter that "Kirkland is the best."
In any case, I think that’s a good thing! The oil crisis of the 1970s was one of the contributing factors to the Netherlands getting their now-excellent bike infrastructure.
'Grocery prices were up 1.3% in July from the prior month and rose 13.1% in July from a year ago, the fastest annual pace since 1979.'
https://www.youneedabudget.com/
It's really good, knowing where you're money is going ahead of time removes so much guilt and anxiety.
Something's got to give. Thankfully we're starting to see some actual government investment in US industry for the first time in forever, but it'll take years for any results to bring down prices.
anyway sorry for the vent/rant, but what we need to do is stop loose monetary and fiscal policy that transfers wealth to people who got assets like real estate and stock (boomers, the rich) from people who don't (young people, the poor). but nobody wants to do that...
You can grow hydroponic lettuce, indoor tomatoes, strawberries, carrots, etc. There are many good resources to learn. It's also a past time that will teach you one thing or two.
Then, if saving time is what you are looking for... robot vacuum, mop, and a all-in-one cooking appliance (e.g.: Thermomix) can help.
Want to take that bet? There's absolutely no reason to expect inflation borne of energy costs and trade disruption to continue. Remember (and so, so many people fail to understand this) that inflation is a year-over-year metric. The report today showing a drop in the "inflation rate" is actually showing an instantaneous decrease in absolute prices (fuels, primarily, like the ones needed to ship the meat you bought because you thought it was going to be expensive).
To wit: It is very likely that what you've done is stuffed your freezer full of meat you purchased at a price maximum.
Also, just because I have to ask: you're so concerned about prices that you're willing to make major changes to your lifestyle. But... you didn't even consider things like "eating less meat"?
GP literally did when he bought the meat.
Pessimist's take: When thinking about what we trade our time for, TV shows (and films, to some degree) have always been to me an endless source of a time sink for relatively little return. Games, slightly better, more social in some ways, certainly more mentally engaging, but also parasitic of time. To concurrently pay for multiple streaming services is unfathomable to me, moreso right now where, as you point out, your expenses have ballooned and your salary can't keep up. You aren't the only one, and yet it's highly likely (anecdotal experience here) that your friends know more about the last season of a show than they know about how to prep for the looming days, as you are prepping. One would think there's better ways to have downtime than to tune out in front of a box, but these habits are difficult to break.
(Cue the "They'll tell you" jokes.)
It was nice having multiple options on a Friday/Saturday night without the overhead of having to think about subscriptions, because the services combined were the equivalent of one or two hours of my hourly rate a month, and we were in the black month-to-month. So who cares? Now my hourly rate doesn't cover nearly as much as it used to what with everything else through the roof, so I have to care, and I'm lucky to be in that position. Fun times.
Nope, last number is well within the limits set by the variation of the previous numbers. Depending on how sensitive you feel like being to false alarms, I wouldn't even say there's been a clear trend this year.
If you detrend it by successive differences we see that the slope is very close to zero compared to variation: https://static.loop54.com/XmR.html?baseline=0.4,0.6,-0.2,0.3...
However, the last number is close to a control limit, so if this continues next month we may have a signal!
[1] Which likely ends up being a proxy for oil, but as a farmer I watch food commodities much more closely.
Next year will even be worse, we are using a fuel reserves now and fertilizer will still be an issue (unless peace is made with Russia). I’m expecting a significant increase in the next 2-3 months then again in 15-16 months.
International freight, also. Ningbo-LA ran from $3,500 pre-Covid up to $22k last August/September, now down to around $9k.
Overall, still up a lot compared to 2019, but substantial drops in many commodities compared to peak.
MoM is a cleaner way to look at things in volatile times like these.
I realized when monitoring COVID data that rolling numbers like this can be heavily impacted by the number that’s rolling off.
Take, for example, a 7-day COVID case count of 100. The next day this drops to 90. That’s great, right?
Well, if yesterday’s 7-day values were all 100, and today’s are 100, 100, 100, 100, 100, 100, 30, then yes, that’s great!
But if yesterday’s 7-day values were 700, 0, 0, 0, 0, 0, 0, and today’s are 0, 0, 0, 0, 0, 0, 630, then that’s potentially very bad (depending on other context).
This is obviously a hyperbole, but it shows that looking at and comparing rolling numbers can be tricky, and you need to look at other context to get the full picture.
This isn't great.. And on top of it look at the number 1 comment here.. People are making concerted efforts to reign-in spending .. Which is excellent financial discipline.. but it's potentially very dangerous for this type of economy if everyone stops spending into this 'easing'
And if you think about it, reducing "inflation" to a single number will always disguise some things - gas prices adjust multiple times a day if necessary but things like leases only get renegotiated once a year or even longer.
Maybe the prices stay low, but with Europe warning of fuel shortages this winter, I can't see that happening.
The main moderating factor on that is that one month doesn't necessarily mean a sustained trend.
At least some of the 2022 numbers are only an artifact of being compared to that low baseline. And the apparent drop in the second half of 2022 is an artifact of comparing to the second half of 2021 when demand got mostly back to normal.
I highly recommend just looking at energy since it's an input cost into nearly everything
- Civ5
"rate of increase of inflation" (RII) = d inflation / dt
"decreasing rate of increase" = d RII / dt
So the 'rate of increase' of inflation is the second derivative. And to say that the second derivative is decreasing is another way of saying the third derivative is negative
Take that with a grain of salt, I'd welcome any corrections if some one sees fit.
I guess first, does he mean that y, the rate at which x increases is going down by z? or that y is down, but z is not its rate?
And second, if you see inflation here as a derivative or not.
The suggestion seems to be "yes", and that he was playing a game of telling a literal truth that was not however the good news 99.9% of the electorate would take it to be.
Next year food will be far higher, largely due to
- people skipping fertilizer a second year in a row
- the feed price increases from year prior will impact next years meat
- much of the cow herds have been reduced due to hay prices skyrocketing (but beef rates staying far lower, due to sell offs)
- if Ukraine doesn’t surrender, we can expect less food production and potential oil disruption to center Europe
- Russia is not likely to renew trade relationships baring a reparations for seizing assets. They produce much of the fertilizer and oil
- 10% reduction in nitrogen targets for EU countries and Canada will further reduce food production
Yeah, a drop here or there isn’t indicative of a major change in inflation. I don’t see how we can get lower general inflation in the next 3+ years. FED has said as much.
In way of an explanation, hay prices have tripled. It’s expected they’ll at least double again tin the next 12 months. That’s one of the feed for cattle. That’s a 6x expected increase to feed cattle (the largest expense). To put it in perspective, that’s likely going to mean $12-20/lb ground beef; $25-$30/lb steak in 18 months.
If Russia doesn't surrender. Don't put the responsibility of global food prices on the people being repressed and killed in their own homes. Do it on the aggressors and war criminals.
I doubt that Russia would prioritize food production if they win the war, considering the huge list of "enemies" they've added to their list.
Most likely, they send food production to allies and they'll attack the next neighboring country in a few years by keeping exports (Gas/food) towards "enemies" at a minimum.
I think you mean if Russia doesn't surrender. If Ukraine was to surrender, we'd have bigger problems than an increase in beef costs. I don't see any universe where Russia wins this war.
Russia is quite ready to sell on the following conditions:
- Remove sanctions which forbid (or make it difficult) the Russian export in the first place.
- Pay in rubles (i.e. you have to "sterilize" your cache through the Moscow stock exchange) like was done with the gas export to Europe.
- Remove sanctions which forbid export to Russia. It has no interest in selling stuff to the West, if it can not buy the stuff it needs in exchange. We already can see that its export-oriented economy sectors suffer from the strong ruble.
Russia has answered to the frozen reserves by freezing financial assets owned by foreigners. Interestingly enough, both numbers are quite comparable to each other.
I notice this price varies even at the same locations sometimes, but it's WAY up in general by a solid 50 percent in 2 years.
This happens with things like Medium Ground Beef as well. But T-bone steaks can be quite cheap in lower income areas, and massively overpriced in more expensive parts of town.
Then again that's been true since I started paying attention to this stuff almost 20 years ago. The reported inflation rate's never felt all that close to how much stuff I buy's actually going up in price (the reported rate's consistently a lot lower than that).
HOWEVER, in the specific case of McDonalds, you have to factor in that they've spent the last few years aggressively optimizing for price discrimination. If you're poor, you use the app and physical coupons and never pay menu prices, but something closer to what the prices used to be. If you're not poor you pay menu prices and wonder when fast food stopped being cheap (it didn't, they just make you trade some time and effort to get "normal" prices now)
Groceries are 40% more than they were.
Utility bill is up nearly 50%.
Clothes and shoes don't seem to be more expensive, they just don't seem to go on sale anymore.
Our neighbors had a new roof installed and spend almost double what we did 3 years ago, we have nearly the same house and the same contractor did it.
Fast food has gone way up, sit-down restaurants don't seem to have changed much.
Homes in the area have went up 100% in the last two years.
We won't even talk about gas.
Well that went down in price in July, and is one of the reasons inflation was flat in todays CPI.
New Jeep Cherokee Latitude 4x4 was $21k in January 2021. The cheapest new Cherokee now is $35k. 3 years old is $25k. Seattle,WA.
Everything seems to be going up, but interesting that you brought home insurance up? Any particular reason why you mention it?
I guess if house prices and building material and labor costs are increasing, it makes sense that insurance would too. (Although I'm sure if everything dropped, insurance would remain the same)
It's been a long time since I've had an Oreo but I cannot bring myself to pay $6.99 for a 14oz package of oreos when I can bake my own cookies for pennies.
Not quite the same as an oreo though. Target had a store brand oreo-type cookie that was IMO even better than the real thing. Used to be $1 for a 14oz package but they've since stopped selling it...
What supplier and location, out of curiosity?
[0] https://cleanenergy.org/blog/fpls-holiday-surprise-810-milli...
[1] https://www.fpl.com/content/dam/fplgp/us/en/rates/pdf/res-ju...
We just stopped going to Taco Bell all together. It's kind of crazy. I can't find a reason to go there any longer. As a kid, they were so cheap[0], the running joke was that $20 worth of food there would kill a person. It was about properly priced -- despite being a fan of Taco Bell, their consistency between restaurants (better, today) was terrible in the 90s -- you'd get anywhere from 1/4-3/4 filled shells with random mixes of cheese-lettuce-GroundMeat ratio.
I took my kids there last weekend ... it was over $30.00 and I didn't eat. Fast food -- across the board -- has gone up. In my area, and I suspect most places, it's because they need to pay upwards of $18.00/hr to employ enough people to keep the store (and now restaurant) open. I expect a lot of automation is coming (and I hope like hell McDonald's fixes their terrible in-store ordering kiosk ... and that's one place where it's becoming increasingly expensive to avoid their app).
My grocery bill went from ~$100/trip to $250/trip if I don't do the majority of my shopping at ALDI. So I basically stopped grocery shopping anywhere other than ALDI[1] for anything ALDI carries. I only avoided it, before, because I have 4 options within 2 miles and ALDI is 6 miles away (I love ALDI).
I've started buying a lot of "the maintenance things[2]" at the dollar store (now $1.25, and the independent ones are now $1.00 - $5.00). You have to be careful with those because some items are a terrible deal there and some of the products are fscked up[3] but we've gotten lucky with a few trips -- consider that a 32oz bottle of the same shampoo was almost $8 at the other places and after purchasing a "test bottle" we bought out the rest and two other local stores in the chain. We do that when we find a good one and end up with enough to not have to think about it for a decade.
The saving grace, I guess, is that I haven't had a commute in two years and won't be getting having, again. I also replaced much of the rest of my driving with a OneWheel. I'm filling up my gas tank less than once a month when I was filling up more than once a week, before.
[0] At one point they were running $0.49 tacos -- mid-90s.
[1] While everything went up there, too, it went up less ... although the frozen pizzas that are a guilty pleasure of mine still land around $2.39 (they never go on sale for $1.99 any longer, though).
[2] Shampoo/Conditioner/Soap/etc, things like Band-Aids/Toothbrushes (they carry fancy manual toothbrushes which my kids use)
[3] I've gotten Shampoo from a well known brand that I've purchased at a grocery store which was "separated". I guess I could have called the 800 number; guessing it was counterfeit/meant for destruction and ended up back in the gray-market.
This trend predates the current inflation.
Several major fast food chains appear to have worked out more effective price discrimination schemes that involve raising their menu prices to much higher than they used to be, then offering crazy discounts in their apps or via coupons.
It's always been possible to get significant discounts on fast food with coupons, but before they seemed to think they needed to keep their menu prices at least non-crazy or it'd hurt business. Something changed and a whole bunch of them decided they no longer needed to keep menu prices in the realm of sanity—10-to-1 this happened so fast and uniformly because one or more of the big-3 management consulting firms pushed new "best practices" across the whole industry in short order.
Now the menu prices are WTF high, but you can get 50-90%(!) discounts using the apps and coupons and eat fast food daily without ever paying anywhere near menu price.
If that's the norm I don't see how fast food will survive. Instead I'll go to the authentic taqueria next door, which used to be about double the cost for lunch (so I didn't go so often) but now it is actually cheaper and much better.
It's plenty of food, if you skip the soda it's like $3 for a small burger and fries, or a taco and a bean burrito.
I see some BK combos are within striking distance of $15. Add sales tax, easily over $1 in many locations, and there you are.
If 100% of the average consumer budget was spent on heating gas, a 600% increase of heating gas would be a 600% inflation boost.
At the end of the day, we each have our own inflation #. Some may be lower, some higher.
NYT made a calc to try and show some of this: https://www.nytimes.com/interactive/2022/05/08/business/econ...
(In fact, one question is "do you heat your home with oil", and a Yes answer seems to jump your score up 3% or so)
Though average food/fuel prices have also gone up quite a lot, so the total monthly expenses have gone up more around 20%, which is a lot more closer to actual inflation in my region.
Shop around
Best case scenario is it stops growing.
https://tradingeconomics.com/united-states/inflation-rate-mo...
OTOH, the Fed has goal of maintaining a 2% inflation target; so in the long run you can expect it to go up. For many many years before the pandemic, it failed to achieve that goal. Inflation was too low; which means job growth, wage growth, and gdp was below potential.
Everything you actually purchase day-to-day is up far more than the inflation benchmarks, so much so it’s beginning to feel like propaganda.
I overnight went from thinking “I make good money” with a respectable savings to going backwards every single month, and I am generally a VERY frugal person.
The long answer is here: https://www.bls.gov/opub/hom/cpi/home.htm
The short answer is, the BLS samples prices of many consumer products in various categories (some from direct observation, some from consumer surveys) and calculates a weighted average[1] of the prices. The result is the Consumer Price Index (CPI). The consumer price inflation is calculated as the percentage difference of the current CPI compared to twelve months ago.
[1] Weights: https://www.bls.gov/cpi/tables/relative-importance/home.htm
If all other prices double, but you own or have fixed rent, you're going to feel it but the numbers will be muted; if all prices stay the same but your rent doubles, you're still going to feel it but the numbers will now seem off again.
Hedonic adjustments + flat out replacing expensive items for cheap items was always retarded
The median inflation for ppl in EU is around 30-50%.
In US its probably less 10-20%.
But its nowhere near of what goverments proclaim it to be.
Its really bad and its going to be worse if climate change hits hard.
Not making everybody happy would be one thing. But it sure looks a lot like the main inflation number isn't making ANYBODY happy.
As inflation was measured in the 1970's, we are experiencing ~15% consumer inflation.
[1]https://www.reddit.com/r/badeconomics/comments/3zik5t/shadow...
Construction: Sheathing products (plywood/osb) are 3x pre-pandemic, other wood is 2x (at least)
Insurance (health care) my employer is shielding it from me but it's like 8x from what it was 8 years ago.
I went from being a little casual with my money to being very frugal. My last raise was early 2020.
However, the public generally is used to a specific unemployment measure and a specific inflation measure which is what's generally reported in the news.
My everyday life and family and friends are feeling inflation far differently than the number crunchers in DC apparently.
This disconnect is not a good thing!
[1] In economics there is a proposition known as Dornbusch’s Law that states: Crises take longer to arrive than you can imagine, but when they do come, they happen faster than you can possibly imagine.
[2] https://www.resilience.org/stories/2022-08-08/the-renewed-cl...
[3] https://www.resilience.org/stories/2022-08-03/the-status-of-...
These are the times I feel dumb for not being a homeowner (despite technically being able to afford it, just didn't want to get locked down in an area for 8+ years to make the rent vs buy math work out, though at these rates of inflation the math would turn around much quicker).
Most folks in the United States have fixed rate mortgages. So at the very least, the two largest portions of a person's payment will not go up: principal and interest.
The last two (or three, if you include HOA dues) generally go up over time, especially in places like Texas that use property taxes in lieu of a state income tax. Insurance will go up too, as the actual amount the policies cover (e.g. the cost of replacing the house) rise over time as well.
Edit: here's a concrete example: https://imgur.com/a/cGQm4U0
My taxes went up quite a bit this year, which reflects in the monthly payment. Of course the mortgage part of it stays the same, but the overall monthly payment which includes the taxes and insurance goes up.
Principle and interest are fixed for most people. Mortgage insurance, as an example, is fixed. Everything else is variable.
The vast majority of buyers will see huge changes (increases) to their property taxes and insurance over the lifetime of a mortgage.
There’s also opportunity cost from all the upfront and ongoing capital, and homeowners practically never include that in their monthly costs estimates. Opportunity cost grows over time, too. Not just from compounding growth, but from maintenance and repairs that you otherwise wouldn’t make.
TLDR owning a home isn’t a fixed cost, and it’s usually way more expensive and variable than people are admitting or calculating.
https://static01.nyt.com/images/2022/08/09/business/inflatio...
It this just purely gas prices? Or does the market just play along as if everything is good then freak out all at once?
roughly, changing prices has transactional and psychological effects, so suppliers hold out on price changes as long as possible, then do bigger changes (especially in non-liquid markets). So we see fewer big step changes in prices than smaller continuous changes (except for things that are traded frequently, like commodities).
Also there is a herd effect with consumer pricing. Once a market leader raises a price, that makes it 'safe' for other firms to match the price change.
Furthermore there was no justification for raising prices other than "there's now a lot more money floating around, it's a free market baby".
Citizens wouldn't accept that, especially as most of them didn't get much richer from COVID money (mostly only asset owners did). But they can accept inflation when it's "caused" by a war instigated by a foreign dictator villain.
Gasoline (gallon) - 3.00 last summer, 3.75 today (25% increase)
Towing a Car (~50mi Round Trip) - 125 last summer, 350 today. (180% increase!)
Bag of Dorito's - 4.50 last summer, 6 today (33% increase)
Can of Spray Paint - 4.25 last Summer, 6.50 today (54% increase)
https://www.energy.gov/articles/doe-issues-fifth-emergency-n...
Is it possible that the demand went down? Could the recent price movements be partially attributed to the demand supply paradigm?
Heating oil (diesel) is still 70% higher than last year.
I'm about to delete the oil heat, so have been watching this.. I will certainly be annoyed if it crashes back to the $2s next week (right after the conversion..)
https://www.eia.gov/dnav/ng/hist/n3010ma3m.htm
https://fred.stlouisfed.org/series/APUS11A72610
BTW, this site allows you to compare the different heating costs: you have to enter the current prices:
https://www.amsenergy.com/fuel-cost-calculator/
$35.78 oil
$24.94 gas
$79.13 electricity resistance (100%)
$39.57 electricity heat pump (200%)
Whereas replacing the furnace and AC was a $9k job and there were some rebates for that, too. Electric bill is already down, and gas should be down a bit.
It's not pretty if the oil tank leaks...
Inflation is a hidden tax that the public has been PR'd into thinking is acceptable.
Money creation is part of the story of inflation, but it isn't the end of the story.
Even with the effect of high base, I am getting increasingly suspicious of official numbers (same with the unemployment statistics). Energy costs have skyrocketed and they get into almost everything an economy produces. I guess, we could get a bit clearer picture after the incoming midterms.
You say energy prices have skyrocketed? well yeah, and that is reflected. year over year, increased over 30%, according to this:
The truth there are different inflation measures that tell us different things about the economy. Also, when the structure of the economy changes, the indexes used might mismatch what people are actually paying. We live in wild times, and it very well might be that there is more uncertainty in the numbers, or more mismatch from lived experience, than there used to be.
https://www.bls.gov/cpi/factsheets/common-misconceptions-abo...
Have you done it? Can you confidently say that you can completely reproduce it?
What I would like to see ideally is something like a spreadsheet with all formulas, coefficients, and inputs being inside it for every published CPI value. And every calculation input in the spreadsheets has to include its source.
As the famous saying goes, there are 3 kinds of kinds of lies: lies, damned lies, and statistics. There is a LOT of wiggle room to play with inputs, coefficients, wights, and various adjustments.
There is absolutely NO WAY inflation suddenly drops like this
The Fed has aggressively raised interest rates and signals that it will continue to do so, and there is widespread worry about a recession. We've had two quarters of negative GDP growth! (though I tend to think the numbers will revised upward eventually).
Negative inflation would mean prices are going down
https://twitter.com/truflation/status/1557349186466627586
[1]https://www.bls.gov/cpi/notices/2021/2022-weight-update.htm
[2]https://www.bls.gov/cpi/tables/relative-importance/home.htm
You should also keep in mind that inflation trends tend to lag behind monetary policy, so the Fed will actually pivot strategies ~6-12 months prior to when the inflation rate is projected to return to 2%. This means that the actual rate we land at will be a lot more imprecise -- potentially as high as 4% or as low as 1% -- while policy gets dialed in. The Fed has historically been fine with a sine-wave pattern of this nature so long as it averages out to 2% over time (there will also probably be some magical thinking in underweighing the past 12 months of extraordinary inflation for the purposes of such averages).
One last thing: the Fed typically uses the core PCE for measuring inflation, which excludes food and energy prices, since they're prone to price shocks. The year-over-year core PCE was 4.8% for the month of July. They'll probably choose to overshoot this measure, however, since inflation sentiment over the CPI is highly negative.
For example, based on the pre-1990s CPI calculation, inflation is currently at around 12%. No government's changes to the CPI calculation ever result in a larger inflation number, only lower!
But on top of that we've had a genuine demand shock as everyone has decided this year to travel. This might've been fine had the companies taken the Covid relief funds and not laid off staff like they were supposed to but they didn't. And they refuse to now pay market rates.
Reminder: there is no such thing as a labor shortage. There are only under-market wages.
But what we've had is this spike in inflation and the thing about inflation is that inflation tends to begat inflation. By this I mean that companies tend to start charging more anticipating further inflation. What does this do? It drives up inflation.
Profits aren't hurting because of inflation. The likes of Exxon and Chevron are making money hand over fist. What does the government do? Raises interest rates to tackle inflation while suspending gasoline taxes.
You can also tackle demand with taxation like a windfall tax. While inflation is above, say, 4%, you could simply charge an additional 30% corporate income tax.
Reminder #2: corporate taxes are only paid on profits.
You could then use this money to help those most hurt by inflation.
As for inflation dropping, that's not surprising at all. The writing was on the wall months ago as gasoline inventories started to rise as the demand-supply mismatch started to correct itself. Next year you'll probably be paying $2.50/gallon for gas.
Fed is going to continue to increase rates.
At some point the markets are going to wake up to that reality and tank.
Then by holding rates high the Fed is going to break something in the economy and the recession will cause a financial crisis.
Gasoline prices down 7.7%
Food prices up 1.1%
Shelter prices up 0.5%
So the minor overall reduction was by far gasoline.
So the conclusion that gasoline was the biggest factor in the overall reduction is not true.
Here's where you can dig out the weightings used from the BLS [1]
[1] https://www.bls.gov/cpi/tables/relative-importance/weight-up...
We were in a definite asset bubble to begin with, so some correction was expected. But I'm concerned the fed's levers against inflation are slow ones and that we could see a real deflationary economy coming up here.
The economy has been fast to fall and slow to recover, so the fed is, IMO, in danger of overshooting their soft landing significantly.
I expect the Fed to declare "mission accomplished" via a 50 bps hike in September if the Aug CPI print is lower.
They have had positive GDP growth above 5% since roughly 1990.
9.1% between june 2021 and june 2022
8.5% between july 2021 and july 2022
its just not really conveying everything... well?
Annual numbers are also canon.
People think on yearly timescales
Fuel prices along, while it came down a little, they are still way high.
My biggest expense is a fixed rate mortgage, which did not go up. Followed by property taxes, which went up 2.7% between 2021 and 2022.
Electricity barely went up because my electric supplier locks in rates years in advance with long term contract. (I expected it to go up eventually but not 100%)
Food is harder to calculate because prices are variable since grocery stores have periodic sales. I just checked and Diet Coke at Sam's Club went up about 20% year over year- which is a lot but is certainly not double.
Since I tend to order the same thing at a local Wendy's based on my credit card history prices year over year appear to have gone up 4.2%.
CPI collects certain things some people have decided represent the economy as experienced by ordinary people. How well it works in general and for your experience in particular depends on the choice of items in the basket and how well they match your reality.
edit: There's a Planet Money series on GDP. I wouldn't be surprised to see a follow-up on CPI soon.
I guess TV's are cheaper (and 'better'), so they use that double-plus-goodness to bring down the headline inflation figure. Nevermind you can't eat your TV (which now has ads, by the way) or ride it to work. You could burn it to cook on and heat yourself, I suppose.
Also, given that the government is ultimately responsible here. And we pay taxes to the government. You'd think they might cut us some slack on that. Having fucked up and all.
But taxes are crazy high. Property, sales. Higher than some big cities.
It's stupid expensive, unless you are on the dole. About half the population is on the dole here.
(We do have a very nice state-of-the-art triple-sized police station tho. And two marijuana dispensaries)
That really is the only solution to this mess. Put everybody on the dole. Like medieval serfs except with cellphones. Abandon freedom and property. Let daddy government take care of you.
I believe wholesale goods inflation is somewhere near 30% since the pandemic began (inflation numbers look lower because services -- aka wages -- don't increase at the same amount).
The only people immune to inflation are the rich who have hard assets that aren't affected by inflation.
If people really understood how badly they are getting screwed by inflation, there would be riots.
That's already in CPI-adjusted dollars. Nominal median household income in 1990 was $30k: