Consumer Price Index September [pdf]
bls.gov
bls.gov
On an inflation-adjusted (real return), dividend-reinvested (total return) basis (i.e. in terms of real purchasing power):
Stocks are down -29.6% from their peak on 2022-01-03
Bonds are down -28.3% from their peak on 2021-08-06
Tech stocks are down -39.0% from their peak on 2021-11-19 https://totalrealreturns.com/s/QQQ
In a Bogleheads discussion "How unusual is the current downturn? Actually pretty common." https://www.bogleheads.org/forum/viewtopic.php?t=387569 it is clarified and discussed that the stocks drawdown is fairly common, while the bonds drawdown is several times worse than the 2002-2003 lows or the 2008-2009 lows.
(This website is my side project, released 3 months ago as "Show HN: Inflation-adjusted stock charts – Total Real Returns" https://news.ycombinator.com/item?id=32081943 . I've been slowly implementing many of the requested features from the comments thread...)
Looks like a good website, but I'd like VMFXX to represent how "money markets" would have done over these timelines!
VUSXX (Vanguard's "other" money market fund) is closer to what I expected, but seems to be missing all the dividends/interest rates entirely.
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For money market funds, it could be that daily-dividends are something that your code wasn't expecting and is bugging out on?
I've investigated and it appears that the data comes in already completely buggy from my upstream data provider, https://eodhistoricaldata.com/ . I will open a support ticket with them!
In the meantime, perhaps you can use one of these symbols instead: https://totalrealreturns.com/s/MUB,BSV,SHY,VGSH,SCHO,FLTB
Even very conservative funds like SHY aren't quite like a MMF. BIL is very close though. We can see that SHY is negative for the year, while BIL (and "proper" MMFs like VMFXX / VUSXX / etc. etc.) are all positive / better than cash under a mattress.
https://totalrealreturns.com/s/SHY,BIL,USDOLLAR
I'd argue that when most Bogleheads talk about "cash", they're talking about BIL and MMFs. Something between 0 months to 3-months of maturity.
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I'd still like to see MMFs working of course. I'm sure there's a minor difference between BIL and VMFXX that I haven't though of... but BIL is the closest thing I can think of to a money-market fund.
Ticket filed with upstream data provider... we'll see.
Guess this is what happens when Western lawmakers sell out domestic manufacturing because some dickhead MBAs said it would be "efficient".
There are many many historical figuresbwho died for that idea.
Whereas the US, with a much smaller population, has been rocking at least 10,000 cases a day (and far more deaths) all year, with almost all of May to July having more than 100,000 cases a day.
[1] https://www.worldometers.info/coronavirus/country/china/
[2] https://covid.cdc.gov/covid-data-tracker/#trends_dailycases_...
I get it may have an impact on economy but, seriously, how can people value human lives so little?
We could reduce a ridiculous number of deaths by reducing the speed limit on all roads and highways to 25mph, but we don’t. The trade off isn’t worth it to most people.
Zero COVID policies made some amount of sense when we thought a vaccine that would work really well was around the corner, as the effect on daily life would be temporary.
I would suggest reading up on how the zero COVID approach taken by the Chinese government has impacted its citizens, and how it’s really very much divorced from any pragmatic notion of saving lives.
They are just going to have the millions of people die later when everybody catches covid, and in the meantime are inflicting lots of misery in their attempts to delay it.
Also the more cases there are the more chances for mutation. The reasoning is like one step away from antivaxer logic.
I'm guessing not though, if daily COVID deaths are anything to go by.
https://www.cdc.gov/nchs/pressroom/nchs_press_releases/2022/...
"I don't want to survive... I want to live!"
I don't think any policy is or was perfect. All are an imperfect compromise attempting to balance preventing unnecessary illness and death with the rest of our needs - to produce, consume, be social, etc.
So overall I'm reasonably OK with the attempt to prevent overwhelming community transmission early on at the expense of some economic activity while buying time to get vaccines and treatments researched and distributed. It wasn't perfect, and lots of people are not happy about it, and millions of people still ended up dead. It might have been worse; maybe it could have been better.
But given what we know now, and that we have vaccines available, and a seemingly less dangerous strain dominating, it seems like strict lockdowns are all but entirely proven to no longer be the best attempt at balance and compromise for the overall well-being of the people (and the economy).
There was time to be scared like small children when covid came and nobody knew anything and everybody was afraid to certain extent. Since then we know much more, covid mutated to being much less deadly and its in proper 'meh' category. Or are you equally concerned about flu?
Anybody spinning it as something more is doing so for some political reasons.
He really is stuck with Zero Covid because China's death rate would still be very high if they drop that and let it rip (Similar to what happened in Hong Kong with Omicron).
I think the real problem is the pandemic was not a deflationary situation, we just turned off production quite literally and then increased demand by giving everyone money for not producing anything.
/not an economist just a normal everyday guy
New buyers want lower prices yet when that actually happens, new construction stops. Thus creating a massive backlog and shortage for the future, leading to the next bubble.
The big drivers are energy costs at 19.8% annually and food at 11.2% annually.
Note that the weight for housing is much, much higher than the weights for food and energy costs. That plus historically high levels of inflation in housing means that housing is a big driver of inflation.
[1]: https://www.bls.gov/cpi/tables/relative-importance/home.htm
Total Inflation would be even worse if you weighted housing less.
One could make a more charitable interpretation than that. It has been an observed strategy of the modern western world to transition from physical labor as an asset to “IP”; i.e. immaterial rights (mostly copyrights and patents), as an asset. One could charitably then guess that law and policy makers might have envisioned the western world as, like Joel Spolsky once said, “a trendy couple sipping Chardonnay in their living room outsourcing everything”¹. Joel was talking about companies, but the analogy can be stretched to entire countries.
The strategy didn’t work as well as they hoped, obviously, since IP rights depend on laws, and sovereign nations are ultimately not beholden to laws. The strategy still worked somewhat, only, I think, because a Chinese company can’t just create a popular product and sell it in the west (although they are getting better all the time, like how Amazon is filled to the brim with pseudo-brand junk). There’s something fundamentally missing there, like how hardware companies can’t write good software to save their lives, and mostly vice versa. This fact has allowed the west to cling to the dream of Chardonnay long enough to survive until today, when we can finally see the first really big drawbacks of not having control of your own production and supply chains.
1. https://www.joelonsoftware.com/2001/10/14/in-defense-of-not-...
Once you have entrenched inflation you need to raise rates even more if you ever want to get it back under control.
So there is less milk and bread being sold now than a year ago?
Because if it's the same amount of milk and bread for a higher price, then the it's mainly a shift in demand.
The supply chain has stumbled incredibly badly in ways that affect almost everything, including milk and bread--which have to be packaged up and shipped and in the case of bread, contains added ingredient that might themselves be in short supply.
0. https://www.statista.com/statistics/251537/us-milk-sales/
According to this, the number of milk cows stays constant:
https://www.statista.com/statistics/194934/number-of-milk-co...
So she's loudly complaining about deflation to hope that the Fed cuts her (and her investment choices) some slack.
Alas, the average American needs to deal with inflation more than the billionaire class needs to feel good about their bets.
Don't get me wrong, my stocks and bonds also hate this rising interest rate environment. But I'm also enough of a citizen to see what must be done to tame inflation: more rate hikes and possibly at an even faster pace than originally expected.
If I look at the S&P 500[0], it's currently up 27% from what it was 5 years ago (and 152% from 10 years ago), before accounting for dividends and inflation. (Dividends being roughly 2% and approximately matching inflation before 2022.)
So what I see is an irrational uptick in 2021, and a correction in 2022.
The fed should increase rates another 200bps, I’m sure that’ll make the winter gas prices go down.
Historians should be looking at Congressional inaction, and how unified obstruction from one party and division in the other made it impossible for the federal government to enact meaningful policy initiatives that could have done anything.
We're supply side constrained.
Likewise, if people increase their savings or pay down other debts, demand isn't increased right away.
It's just not as simple to draw a line to specific government spending and say "that caused inflation".
What does this even mean? If there were no supply-side constraint, prices would dive toward zero like some post-scarcity Star Trek society. There is always a supply side constraint; when you dump a bunch of demand in on top of that, of course prices will go up.
There are pockets of supply constraints, like energy and raspberry pis, but for the most part we are overflowing with inventory.
I was able to collect unemployment as a sole proprietor due to COVID. It was needed as I’m a photographer, but we were also allowed to deduct expenses from what we made that each week. When the math lined up I absolutely bought some new equipment to offset my profits which allowed me to get unemployment that week, and other weeks my usual expenses offset my profits as well.
I then had extra money to invest. I’m sure I’m not the only one. Huge amounts of cash was injected everywhere in the economy. The fact that Biden was calling for 3 separate “once in a generation investments” after that and during “transitory inflation” should have been enough to get him absolutely destroyed in the media.
The supply chain in soda is complex, you have corn producers (whose equipment, fuel, labor, and seed costs are influenced by supply), the price for corn is increased as global farm production is hit by war, you have water costs (which, depending on region, could be increasing), you have fuel and distribution costs, labor costs, plastic bottle costs... I guarantee you can trace back increased costs to regions hit hard by pandemics.
My wife used to work for a well known food brand. Somewhat early on in the pandemic grocery stores raised their prices for that brand's products, even though they weren't paying any more for the product. Eventually the brand did raise their own prices as they decided they'd rather have that money themselves.
In both cases it was as simple as other prices being raised, consumers had the money to spend, so why not?
And the Fed enabling the Federal government to do so very cheaply, by purchasing a large amount of the newly created Treasuries.
How exactly is the fed suppose to fight the government printing presses?
The cause of inflation is an increase in the cost of goods and services.
This is a choice that individuals within companies make. It is not a natural consequence of increasing the money supply.
Price adjusters within companies are using the news of the increased money supply to gamble that customers will pay more and they've been right, so far.
There's quite a bit of tacit collusion driving this, of course, but it's also a self-fulfilling prophecy. Price adjusters within companies know that everyone believes that printing money "causes" inflation, so they take advantage of the opportunity.
If your point is simply that businesses are choosing to maximize profit, that of course is correct. It always has been unless you are a non-profit or state owned enterprise.
The salient question is what conditions changed in the economy so that they can increase prices.
It isnt like they were running as charities before.
Agreed.
> If your point is simply that businesses are choosing to maximize profit, that of course is correct.
My point is pedantic and political. I don't like humans being removed from the equation.
Framing inflation as a natural consequence of increasing the money supply is one way to do that.
The widespread thinking that "businesses exist to maximize profits" is another. (Yes, I'm aware of obligations to shareholders in corporations, but that's beside my point.)
Removing humans from the equation makes abuses just palatable enough to go down.
I would be curious to hear how you think economic interactions should work.
> it is the definition of inflation
Doesn't the definition of inflation have more to do with the decreased value of currency? There are plenty of uses for currency outside of the purchase of goods and services.
If buyers have cash piling up and companies magically decided to hold prices, the cash would just flow into whatever could be still be bought, probably housing.
In reality, the only thing that puts downward pressure on prices is if people cant afford them.
How would this decrease the value of the currency?
It would certainly reduce asset availability, but— to use your example —there's an absurd surplus of housing nationwide.
>It would certainly reduce asset availability, but— to use your example —there's an absurd surplus of housing nationwide.
I cant relate to this idea of an absurd housing surplus. It simply doesn't match m understanding of reality. Housing prices have gone through the roof almost everywhere people want to live.
Not really. Volcker did his job with dynamite just fine. You raise interest rates above prevailing inflation rates. Easy.
But the current Fed is stuck. They can't fix inflation Volcker-style (hiking to 9-10%) without destroying the bond market and kicking off a cascading debt crisis.
So they're targeting a middle-ground terminal rate of 4.5% and hoping the can will be kicked long enough that it will be someone else's problem in the medium-term future.
Good luck to them.
Can you turn off your spending on food?
Edit: from the report:
> Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase.
Can't turn off spending for food and medical care if you want to live
I live in a high poverty city with wondrously low "unemployment" but a high number of people who don't have jobs. The answer: if you can qualify for a job, yes you can get a job, but a lot of people do not qualify for anything worthwhile, so why try?
Raising interest rates isn't going to impact companies just charging more for what they sell.
The only thing that stops companies from charging more is individuals unwilling or unable to pay the higher price.
They don't need to. Interest rates aren't intended to control prices by creating an abundance of gasoline, but by creating a scarcity of dollars.
Yes, this can bring down gasoline prices. No, it doesn't mean gasoline gets less scarce in the process. It just means that each $1 gets dearer. It means that the price looks fine but you can't afford it anyway because your pockets are empty. The gasoline is still scarce even though the price is low. That's what they can do, and what they are doing.
And it's best to understand that, when interest rates go up, the first pockets to empty are emptied by falling asset prices. Stocks, bonds, and real estate. That's why high inflation numbers are bad news for assets, even though they'd intuitively seem like inflation hedges.
There are these products that no matter how dearer $1 gets - you will absolutely buy them. You can't destroy demand on these products like what you're describing. You and your family could literally die without some of these products. And no raising of interest is going to help that.
A century ago, a loaf of bread cost only a nickel and that's not because people ate less or because food supply was more plentiful or demand more elastic.
But even setting that aside, interest rates operate on aggregate demand which is averaged across all goods, just like inflation is.
September's CPI inflation rate dipped less than expected, reinforcing Fed rate hikes. Core prices rose at the fastest since 1982. Dow Jones futures tumbled.
My rent is going up over 8% for next renewal cycle (early next year) and I'm sick of the city I'm in.
Why don’t we call this disinformation?
The Biden administration gets an F- on fiscal policy.
The student loan one.. woof. The timing is rough. I know it’s not popular to say, but all those dollars not going to loans are going to contribute to inflation.
My impression of the US is that it's already too far gone into various collapses to really recover, but I don't know what that means for its future.
The main problem with young people financially establishing themselves isn't the loans, it is their choice in careers/degrees.
That was the post above me in the tree.
I can pour gas on house fire, but that doesn't mean it depends on the gas.
The federal government receives about $70.3 billion in payments for student debt per year[1]. In relation to the 4.4 Trillion in revenue that is about 1.5% of revenue.
What is more meaningful is the total amount forgiven, which is around 300 billion of debt of the students balance sheets, essentially immediately [2]
That is about 7% of the entire federal revenue.
Essentially folks have 70 billion more to spend this year, and also don't need to worry about payments on 300 billion in coming years.
The numbers being thrown around during the pandemic are truly staggering and people don't have the context to judge their size in relation to federal revenue.
For example, the US spent about $11 Trillion on pandemic relief. That was more than 3 times federal revenue in 2020, which was already a trillion dollars over budget.
https://slate.com/business/2021/03/student-loan-total-annual... https://budgetmodel.wharton.upenn.edu/issues/2022/8/23/forgi... https://www.covidmoneytracker.org/
One of the problems is labor shortages.
We've had policies that have led to the highest prison population and incarceration rate in the western world. There's been little effort on making those in prison employable. 2 million prisoners, many non violent stuck there unable to help with the massive problem society has post COVID. We could fix this to everyone's benefit.
Daycare. It allows a small number of adults to enable a much larger number to work. There's no federally funded program towards this yet it's a massive societal force multiplier. Especially for single parents.
It's amazing to think we have corporations complaining about labor shortages who also back politicians that promote policies that create labor shortages.
Beyond helping to fund daycare for the parents' sake, we should recognize that early childhood education workers are often paid less than a living wage and finding workers is very challenging. The government should fund living wages as well as subsidies for the parents.
Early childhood education is important for child development, and investing in that is investing in the economy.
The next day, October 12th: "I'm concerned about the loss of adequate liquidity in treasuries"
Keeping a pause on student loan payments during a time of high inflation and record low employment is absolutely asinine.
I also think that most people that think our infrastructure is bad haven’t been outside the United States. Our roads - especially our interstate system - are among the best in the world. Where we have problems is usually down on the state or lower level due to misallocation of funds.
Our internet isn’t great, but Starlink has been a real kick in the pants to other providers. Mass transit is lacking but that’s mostly due to people’s choice along with the sheer cost of building out such things in the US.
The entire government failed over 3 different administrations and numerous legislatures leading to this. No one wants to do what's necessary. They just want to score meaningless points for their team, meanwhile our lives continue to get worse.
Edit: Imagine if the tax rate every year was the rate minus CPI since the tax rate was created. (I.e. A 30% tax rate, with 2% CPI increase every year, would be only 20% by 2010.) That would get the politicians to kill inflation right quick… or set the tax rate to hilariously unpalatable levels constantly.
You're right about house value increases being a wash, but inflation helps people with large loans.