The headline rate of inflation clocked in at 5% in May according to the BLS. However, using my handy inflation calculator, which adjusts for the low baseline in May of last year, the real-world inflation rate was actually 3.5%.
Note that by "real world" I mean only that 3.5% probably does a better job of representing what's really going on with the economy. Inflation is a little higher than normal, which is unsurprising given the large amount of stimulus spending and the eagerness of consumers to start buying again after a year of pandemic. However, inflationary expectations are still pretty well anchored at just over 2%, so it appears that investors aren't too worried about a long-term inflationary spiral.
But . . . but . . . Larry Summers!
Hello, Larry!
That was a really dumb sitcom.
... it appears that investors aren't too worried about a long-term inflationary spiral.
Oh ... my ... GAWD! That is just the sort of thing that leads to ... INFLATION!! We're DOOMED!! Inflation Monster coming to EET US IN OUR BEDZ!!!
Actually the inflation *in May* was 7.7% on a yearly basis. The month/month rates this year before that have been 3.1%, 4.3%, 7.4% and 9.2%. Those are real rates - prices have been going up fairly steeply this year. It is true that always going by the year/year rate can be misleading, but fooling around with averaging over different past times does not really clarify the situation, it confuses it. The judgements as to whether inflation will continue to rise and whether that is a danger do no depend on finding some single "real" or "true" inflation rate.
I think your inclusion of the phrase "on a yearly basis" renders your retort as moot. Kevin's ENTIRE point in his narrative is that "on a yearly basis" is not meaningful in a context where the previous year was vastly depressed due, not to economic factors, but to externals over which our economy was powerless to overcome.
The observation that "prices have been going up..." is hardly surprising, since prices last year WENT DOWN. A meaningful interpretation of this unique time in our recent history is to compare where we are to where we would be had it not been for the unique circumstances that caused a one-year depression. The way to do that is to check our recent history to see if there has been a fairly consistent graph of inflation. Since yes, there has been, then compare where we are to where we would have been had it not been for the unique one-year depression. That's what Kevin has done.
I find nothing confusing about that. I think plucking a year-over-year ratio out of a data set with a huge non-economic anomaly is what confuses the situation, rather than clarifying it.
We don't really know where we are yet. We won't for a few more months.
What I can find is inflation was something like 1.25% for 2020 overall.
So, the month-on-month changes have been about 0.26%, 0.36%, 0.62%, 0.77%, and 0.64%. May backed off from April's pace, and June should be interesting. The Federal Reserve is watching.
How quickly we forget Trump spending all of his 2020 campaign strong arming the Fed chairman and trying to get the rates lowered (even below zero). How could inflation not be on the uptick under present circumstances? Witness the current housing bubble, for example.
My understanding is that the current "housing bubble" is not so much a bubble as a fairly standard Econ-101 condition caused by restricted supply and expanded demand. There are a lot more people looking to buy than there are homeowners looking to sell; ergo, prices rise.
People overestimate the stimulative powers of the Fed. They are much better at ending a party than starting one.
Yep. Also, there are supply-chain issues that are slowing down new construction (lumber mostly). This limits the ability of supply to rise, which means that even larger price hikes are necessary to balance demand.
IDK if there's a slowdown in new construction, though. I think it's more of a case of the cost of new construction going up rapidly.
See Census tracking of new construction: https://www.census.gov/construction/nrc/pdf/newresconst.pdf
“There are a lot more people looking to buy than there are homeowners looking to sell”
....because interest rates are under 3% for 30 year fixed. As Kevin said a while back, even that makes even today’s prices affordable. Put rates back up to pre-2007 levels and see how much “looking to buy” there is.
That may well be a contributing factor -- although rates have been that low or even lower in the past without necessarily causing a price spike -- but on the demand side there is also pent-up demand from the pandemic. However, the main driver appears to be not demand-side but supply-side: people are hanging on to their houses, and builders -- for several reasons -- aren't building as quickly.
False. Real inflation was 2.7 Zimbabwes. Or, to put it another way, 1.94 Weimars. Which obviously means we can't pass any more tax and spend liberal policies for the rest of Biden's presidency (which in any event should be over by late August).
And the way to crush inflation are more tax cuts for the top earners! Because the more money they have the less money spent chasing scarce goods!
It is offensive you do not take the Zimbabwes to the same number of significant digits as the Weimars. Even if it was 2.70 you still must show the trailing zero to demonstrate solidarity.
Stupid consumers. This is just like the Great Toilet Paper Panic of 2020. Artificial and temporary shortage leads to people trying to buy truckloads of it, leading to a real shortage and the inevitable price gouging. And make no mistake: Those who have stuff to sell -- homes, cars, airplane tickets, gasoline -- are delighted to ride the wave and "earn" that extra 2%, as long as the suckers are willing to pay. Meanwhile, TV and print abets the scam by reporting it without context, driving the suckers back to the store to get more bacon before they can no longer afford it.
When there's a bad inflation number, I head over to Kevin's blog to read his sanguine commentary. Got that today, and more: special pleading:
KD: "However, inflationary expectations are still pretty well anchored at just over 2%, so it appears that investors aren't too worried about a long-term inflationary spiral."
No mention of those on fixed income or poor people with cash holdings, both who are freaking out. Instead, the measure of worry is that of "investors", who have means of protecting themselves from inflation (e.g.real assets). So yeah, their worry threshold is higher.
The big, big problem with inflation is, once it kicks in, how to you make those hit hardest whole?
The capitalists would answer "F*ck 'em. They should have known better than to be on fixed incomes."
And… less than a week later we get:
Will try to provide a link in a reply. If that fails use the text as a web search to find the full article.
https://news.google.com/articles/CAIiEOjamW8GkHyCk8q6g_YgF18qGQgEKhAIACoHCAow2Nb3CjDivdcCMP3ungY?hl=en-US&gl=US&ceid=US%3Aen Is the link to the full article.