Is there really no inflation?

16 Comments

1. 

   Marie3 on November 25, 2015 at 2:04 pm

   Those that consume a lot of gasoline and little food and medical services are “better off” than they were a year ago.  Assuming they didn’t get hit with a substantial increase in their housing costs and the foods they normally consume weren’t subject hefty hikes while what they don’t consume dropped in price.

   Some grocery items that were once affordable spiked in price so much sometime over the past twenty years that I’ve long since given up on purchasing them.  Honey is one.  (And the jars of honey that are less pricey, but still pricey) are imports from China and I refuse to buy that.)  I did read that to mean that there was a problem with the bee population, but naively assumed that it was a temporary issue.

2. 

   BooMan on November 25, 2015 at 2:09 pm

   your numbers show basically no inflation over 2% outside of the medical field, and medical inflation is dramatically lower than it has been for the last couple of decades.  

   Also, there are reasons to jack up interest rates, for savings accounts for one thing. But it’s hardly a recipe for putting money in most working people’s pockets.  

   • 

     The Voice In The Wilderness on November 25, 2015 at 4:42 pm

     It certainly lends credence for Sanders’ calls to use a different CPI for SS. The rises in rent and medical care hurt lower income seniors very much. An the ACA doesn’t help them unless they are at the bottom. I thought my sister might be eligible for expanded Medicaid, but for a single person the income limit is $1329 a month. She’s one hundred over that before paying the Medicare premium. Her whole gross goes for rent so food and utilities have to come from savings. No 401K, no pension.  I take her to lunch and dinner whenever I can. She’s one of those privileged white people, you know.

     Shelter 3.2%, probably the biggest single item in anyone’s budget. BLS has used rent rather the housing prices since about 1983 according to their site. “Food away from home” 2.9%   That’s about half of my food budget, which may not be typical. I suspect it’s higher for many people. A lot of dual income families (majority?) eat take home food. But I’m speculating here. One would have to delve deeper into the numbers than just the single table to do more than speculate.

     Thank you for your comment. I’ve added a factoid that I heard on the radio this afternoon.

3. 

   Deathtongue on November 26, 2015 at 8:09 am

   There’s a difference between inflation and price increases. Without wage growth, you don’t have inflation — just price increases.

   What’s more, you don’t fight price increases the same way you fight inflation. Fighting inflation is simple; you restrict the size of the private money supply by cutting spending, collecting taxes, or increasing foreign imports.

   However, this strategy is murder on an economy that’s experiencing price increases without wage increases. It’s literally cutting peoples’ pay without lowering prices. Fighting price increases is much more difficult, if it can be done at all, and typically involves things like government subsidies and regulations.

   • 

     The Voice In The Wilderness on November 26, 2015 at 12:01 pm

     Yes, there is a difference. Inflation, as the term is generally used, is across the board price increases due to an increase in currency, whereas price increases can be caused by supply chain disruption, concentration of suppliers, fashion and probably other supply/demand changes. That is my point about the gasoline/ fuel oil changes. They are not evidence of a lack of inflation, they are due to supply chain glut caused by political rather than economic considerations.

     “Without wage growth, you don’t have inflation — just price increases.”  What school of economics touts that. It is very possible to have inflation without wage growth, google “Zimbabwe”.

     • 

       Deathtongue on November 26, 2015 at 3:19 pm

       “Without wage growth, you don’t have inflation — just price increases.”  What school of economics touts that. It is very possible to have inflation without wage growth, google “Zimbabwe”.

       Inflation is literally an across-the-board decrease in the purchasing power of a discrete unit of currency. And that across-the-board part is key, because despite what right-leaning economists have been trying to get us to believe A.) labor is as purchasable a commodity (via wages) as guns and butter and B.) labor is the linchpin good of any pre-Sci Fi economy.

       If your theory of inflation does not include the price of labor, the most important element in any ancient or modern economy, then I posit that you have a shitty definition of inflation. And the price of labor has definitely lagged that of other goods on the market. Hence why I say that you’ve only shown price increases, not inflation.

       Now, you can still have inflation and have an exogenous downward pressure on labor. Like what happened with Zimbabwe. They simultaneously increased the supply of money while placing an then-unprecedented downwards pressure on the price of labor thanks to the completely destroyed economy. And nothing places downwards pressure on the price of labor like massive unemployment.

       But most of the time, inflation increases the price of most everything on the market, including labor.

4. 

   fjallstrom on November 28, 2015 at 10:09 am

   Problem with raising interest in order to combat inflation is that the mechanism is (afaik) like this: Interest is raised, the most vulnerable companies fold, more workers are unemployed, leading directly to less competition over gods and indirectly to less wage increases, and thus less inflation.

   Going by FiveThirtyEight’s recent presentation of the US economy while unemployment has gone down to pre-crisis levels, employment has not come up all the way (usually means that people has given up). Also median household income has fallen. So the reason for increases in food costs, medical care and services are not an increase in competition.

   The right ususally does not mind workers paying the price for other price increases, but considering this is a progressive blog I am a bit surprised by calls for interest rate increases.

   • 

     The Voice In The Wilderness on November 28, 2015 at 2:32 pm

     A quarter of a percent is not going to cause any business to fail. The issue is easing off the throttle, not stepping on the brake.

     “So the reason for increases in food costs, medical care and services are not an increase in competition.”

     No, indeed. But it could be an indication of too much money in the economy, i.e. too much Fed stimulus.

     I’m not enchanted with Fed stimulus anyway. I feel direct deficit spending is more effective. Interest rate mutations affect the financial sector primarily. The current unprecedented round was designed to prop up the TBTF banks who can now borrow at zero and lend at 28.99%. I don’t think 0.25% in lieu of zero is going to cause another financial crisis. Indeed, I feel a short term rate of 2% is historically more appropriate and sustainable. At least savers would not be losing purchasing power.

     • 

       fjallstrom on November 28, 2015 at 4:26 pm

       I hear you about the deficit spending being better, and we are in total agreement there. In fact, I think deficit spending directed at the least affluent is far more effective then central bank stimulus, because the latter seeks demand in order to create a profit (and if demand is lacking all goes to bubbles) while the first creates demand, by pairing needs with money.

       The current unprecedented round was designed to prop up the TBTF banks who can now borrow at zero and lend at 28.99%. I don’t think 0.25% in lieu of zero is going to cause another financial crisis. Indeed, I feel a short term rate of 2% is historically more appropriate and sustainable. At least savers would not be losing purchasing power.

       Fair enough. We are operating in a new landscape.

       But I am not convinced an interest rate would do anything about the inflation. It is even possible that inflation would increase, if relevant actors are able to pass on the interest rate increase.

       • 

         The Voice In The Wilderness on November 28, 2015 at 4:40 pm

         I’m not either, but the lack of inflation, based on the CPI,, which I have demonstrated is only due to oil price collapse is cited by others as evidence that the economy cannot sustain any interest rate hike and some have called for negative interest rates.

         • 

           Deathtongue on November 28, 2015 at 9:22 pm

           I’m not either, but the lack of inflation, based on the CPI,, which I have demonstrated is only due to oil price collapse

           And stagnant wages. I’d say that’s a much bigger effect than oil prices, considering that low inflation AND low wage growth has been happening for most of the 21st century and the decrease in oil prices is a feature of the latter years of the post-2007 financial crisis.

           I’m not going to let you squirm out of acknowledging the labor component of inflation, or rather, how showing that its underpricing relative to other goods in the economy shows that you don’t have inflation. Particularly because raising the interest rate would place even more downward pressure on wages which would, at best, do nothing to solve your problems and at worse would decrease the private sector’s propensity to spend, increase the unemployment rate, drive down wages even further, and make it even harder for people to fight price increases.

           This is exactly why any action to fight inflation that doesn’t take into account current wages is foolishly counterproductive.

         • 

           The Voice In The Wilderness on November 29, 2015 at 11:03 am

           Wages are not part of the CPI.

         • 

           Deathtongue on November 29, 2015 at 12:43 pm

           Yes. That’s why it is dumb to judge whether or not you have inflation by looking at the CPI, because it says nothing about wages. The most important part of an economy. The factor that determines how much pain prices and price increases inflict.

           I’ve been saying this repeatedly. If you’re going to complain about inflation, don’t use CPI by itself for anything. At the very least pair it with wage growth. If you did that, you’ll find that the United States absolutely does not have inflation. Prices have been raising about 2% annual more than wages for quite some time. This might represent the things you don’t like about inflation (we can’t buy as much stuff with X amount of dollars as we used to) but you can’t get away with eliding those two things because fighting price increases like you’d fight inflation will lead to unnecessary pain for the less well-off.

         • 

           The Voice In The Wilderness on December 9, 2015 at 9:53 pm

           It is CPI that determines COLA. It is the supposed lack of inflation as evidenced by CPI that is used to justify not giving raises.

           You touch on the larger subject of what is inflation and how can it be measured. I’ve been wanting to do a diary on that for a couple of years. Unfortunately, the subject needs book length to handle properly.

     • 

       mino on November 28, 2015 at 10:40 pm

       What if the increases in those areas are from LESS competition–i.e. monopolization of market, which is the trend.  They inflate because they can.

       • 

         The Voice In The Wilderness on November 29, 2015 at 11:04 am

         Yes, Indeed!