WSJ Goes Inflation Crazy!

“It’s time for the Federal Reserve to stop reducing the federal funds rate, because the likely benefit is small compared to the potential damage.”

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Didn’t we know this last year?

“It’s time for the Federal Reserve to stop reducing the federal funds rate, because the likely benefit is small compared to the potential damage.”

_______

Didn’t we know this last year?

wouldn’t it be great if we actually had statistics that measured inflation?

i tried to make the point to someone the other day that hedonic deflators don’t make sense. you can’t buy a 15-year-old computer (nor do we do anything more productive with it – witness me commenting on this blog), so the idea that we’re paying “less” per CPU cycle is totally specious.

anyone have a good source of “real” inflation data?

The general public knows full well inflation (in terms of increasing prices) is out of control. They see daily the price of gas and food (well we can’t count food and energy) and medical care etc going nuts along with everything else. It is just the apologists/administration/FED that think inflation is “contained” or was it well anchored. After all the “core” doesn’t show much inflation, but even that is at a 17 year high.

I love the argument that there is no inflation because wages aren’t inflating wildly. Wage arbitration is all that is keeping inflation from blowing sky high. Labor has no power when you are competing against all those foreign workers. Or how about the argument there is inflation only if the money supply is expanding rapidly. That one is easily solved just quit publishing M3.

The general public realizes inflation (as defined by increasing prices) is out of control.

The press is finally catching up, the government won’t, just another example of the kind of government we have. The government can’t because of all the inflation “protected” debt they have issued,
and SS (COL adjustments).

NYT this morning:

“The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.”

Who could have guessed?

Inflation and/or price increases is a lagging indicator.

Inflation is a lagging indicator.

Of course death is also one.

At this point our only choices are deflation or massive prices increases without accompanying wage increases, which would just pile on more unserviceable debt. We’re told that deflation is unthinkable, so there you go.

PPI YOY
Mar. finished 6.9 intermediate 10.5 crude 31.4

Yeah, I’m really sure that profits are going to recover from those stats.

Do not despair, wage inflation is coming because wage inflation IS a lagging indicator.

First, demand pull. Then, cost push. Cost push compresses margins hence margins revert to the mean.

There are two ways to get out of massive debt. Either pay it off in kind to the benifit of the saver/creditor or pay it off with depreciating money to the benifit of the debtor.

Americans will not tolerate a controlled deflation. We are not Sino peoples. We lack the patience and descpline to absorb the shame.

Holy smokes . . . wholesale inflation up 1.1% . . . annualized that’s 13.2% . . . 70s part deux here we come.

Coming soon to a neighborhood near you – food riots! This is the first time in my life that it seems that the entire world is worse off than it was eight years ago.

I think I’ll be picking up a big old bag of rice on the way home this evening. Fairway 4tehwin!

Come back Vermont Trader! Don’t let BR’s feisty attitude bother you. He’s a New Yorker – they drink strong coffee down there.

Barry, a couple of points:

1. the YoY inflation rate normally peaks about 4 months into a recession before declining. That puts us right about now.

2. This piece of data fits well with yesterday’s retail sales data. As a whole, consumers aren’t retrenching yet. They are merely shifting spending to food and gas. And hitting the credit card some more. Usually consumers retrench dramatically entering into a recession. That hasn’t happened yet. Once consumers cut back (and the retail data goes negative in nominal terms as well), then we should expect the YoY inflation numbers to start to decline.

My apologies to Vermont Trader — that was not directed at you, but rather, a wingnut asshat who has annoyed me thrice too often

HOME PRICES are falling, but compare what it takes (down payment) and the cost of “housing” for many buyers would actually be higher today than in 2005…

WAGES & BENEFITS:
More $$$……….No can do
Healthcare……..unaffordable
Transportation….mess
Retirement……..lottery ticket
Guns & Drugs……everywhere
Hyper-faith…….Obama

[Those “socialist” over in Europe make me wan’na puke!]

“Cognesceti”? I suspect you meant “cognoscenti”.

If you are going to use a $10 word, you might want make sure you actually know the word. :-)

I think the real denial is of the possibility that some of the inflation isn’t monetary related.

I do recognize the gold vs. oil price arguments, but gold isn’t a perfect measuring stick. For one thing, no one actually bases their currency on it. And has the supply of gold expanded with population growth, the amount of “stuff” manufactured or its use in industry and jewelry?

The prices of food and oil/natural gas are going up due to demand and supply issues, especially due to emerging middle classes in India and China. And subsidies for them aren’t helping, especially in China.

While it may be possible to expand food production to keep up (even meat production for China), oil and natural gas is another story.

Perhaps Fed heads should dump their data models and start examining planetary patterns.

“It is money that is losing its value”….. Yes, but the key is:

We don’t have enough barrels or enough bushels relative to demand.

Those are the proper units regardless of how they are priced. Raw demand is outside of $ and it is rising. $ pushes incentives to promote supply but within natural physical abilities. Price wheat how the hell you want, but one large crop failure, well,…most societies are 3 consecutive days of losing 3 square meals each day from people entering the streets. In that case, the dollar can remain stable (via intervention etc) the market price of wheat is going higher, demand driven relative to supply.

Look, no one is saying that inflation isn’t mostly a monetary thing. Or maybe it’s not really “inflation” but prices reaching a new, higher equilibrium level.

Considering factors like technology, carrying capacity, peak oil, droughts, loss of arable land, etc., I don’t see how prices will revert to historical levels of the past two decades in the short term.

Long term? well, we’re all dead…

I do not disgaree one bit about monetary inflation and its impact on food prices, but we’re not talking about whether food is too expensive to eat, we’re talking about whether it is even there to eat. It wasn’t prices that prompted the Phillipine central govt to raid its emergency rations of rice. There wasn’t enough rice. Period. Full stop. Not enough rice…regardless of the currency its priced in… there wasn’t any rice to be had.

Why does the US keep strategic petroleum reserves. For the day oil becomes too expensive? No, of course not. They’re kept for the day where there is a physical shortage of oil. That’s the issue…physical, tangible shortages of stuff. That is what transcends all currencies and will ultimately dictate supply. People have to move beyond a US dollar centric viewpoint.

ya, hoarded in their bellies… LOL

On the subject of “leading” versus “lagging”. The so-called “CORE INFLATION” is a lagging indicator. Commodity prices (wheat, copper, crude oil) are another matter. In any case, the “core” rate is going higher.

Stuart,

Food price inflation, like all inflations, is a monetary phenomenon, plain and simple.

Inflation creates its own illusion of demand–people see prices going higher and they want to buy now, instead of later, things they know they will need. The Phillipines are hardly running out of rice, and the world isn’t running out of food, or oil, or copper, or any other ridiculously- juiced commodity. You should read the Economist for a good take on the story.

The simple fact is there are too many dollars, and have been since at least 2003, perhaps before, when the fed flooded the world w/ dollars, trying to prevent a deflation at home.

Commodities prices are increasing for countries that use the dollar as a peg (the Phillipines), or for countries that have lots of them in reserve (China). For the rest of the world (which is to say, not much of it) commodities have gone up not nearly as much.

There is, of course, a demand component of the price increases, but look at oil demand–it is actually expected to decline worldwide this year, as the US economy slows, and no, there are no anticipated supply shocks that would impact the futures market. It is just too many dollars chasing barrels of oil, but the excess dollars create their own demand, as the illusion of a price increase spurs more investment in oil. It all falls apart, like it did in the eighties, when the fed shuts down the presses.

Jodie,

“The Phillipines are hardly running out of rice, and the world isn’t running out of food, or oil”

Therein lies the difference of opinion. Warehouse stocks have been making up the difference for sometime now, but they are heavily depleted. Much like Cu from a few years ago, down 80%. We will know who’s right in due time. If it’s just a matter of inflation and pricing and no true physical shortages, you will be correct in your assertions. I believe there are actual shortages of supply brought about by a surge in true, pure consumption, depleting stockpiles. The headlines will soon enough provide evidence that I need not be reached, for I’m already there.

During the oil shocks of the 70’s, there was never a shortage of gasoline, i.e., we weren’t, notwithstanding the long lines at gas pumps, about to run out.

Demand and supply remained relatively constant and in equillibrium. What changed is that people started keeping their gas tanks full (hoarding), both as a hedge against future price increases, and against a perceived shortage–that really was just inflation-induced demand.

We’ll have the eighties again soon enough–a time when oil, food and all other commodities nearly fell off the charts in price declines. But it will require another episode of severe tightening by the fed, which is not likely to happen until we have capitulation, i.e., the realization that printing more money will not solve our economic problems. I’d say about 2012/13, as the next new president is sworn in.

I agree rapid money supply growth causes inflation and we’ve had some of that. Interesting that gold broke its up move, at least for a while, and oil didn’t.

I just wonder… there’s, what, 6 billion of us today … with the number driving cars growing rapidly. How much oil is there? Can we increase oil production as fast as demand is growing? Economics suggests if demand grows faster than supply, price will rise, and we’ll look for substitutes. What’s the substitute for oil? Its not wind or solar or nuclear since I can’t put that in my gas tank. Otherwise, demand has to decrease to be in line with supply which sounds like a global recession to me.

I just came back from shopping in Cebu, Philippines. Normally, I see lots of rice. Not so this time. They had small quantities of loose rice and a few huge bags of rice. Probably only 10-20% of the amount of rice I usually see. Could be hoarding? Fortunately, I eat more bread than rice. I know a rice middleman and he tells me rice has gone up 50% in the past few weeks. So I’d have to say in this case, there is a true shortage.

The good news is that he tells me that he expects the rice shortage to only last a few months. Rice can be harvested two to three times a year.