These two points are mostly irrelevant (and not substantiated by data in the article). Regardless of whether they are true or not, high inflation leads to higher spending. That makes the title kind of misleading
They're direct quotes from the article. The article states that wages are increasing faster than prices. If wages are increasing faster than the prices then it is not inflation.
Do you have alternative evidence that leads you to believe the article is inaccurate about this? Or is your disagreement based more on your own subjective feelings and experiences?
it says wages have grown faster as a whole, not spending. If spending went up 3.1% and inflation increased by exactly 3.1% as well, as it did[0] then true spending did not increase. It's not clear what argument your making here.
The CPI number you cite is for the year (November to November), the retail growth rate of 3.1% is for Nov. 1 to Dec. 24 only. Additionaly, that 3.1% number represents only retail growth, other (more booming) sectors grew by much larger percentages. For example, restaurants grew by 7.8%.
I see how those two numbers both being equal to 3.1% could be confusing at first, but they're not measuring the same thing at all.
Flippant response: Social media has normalized spending every waking moment feeling like the world around you is going to collapse and that things are horrible, and this is what happens when reality ends up doing something else.
I am not an economist, but I think it's the opinion of many that the only way to defeat inflation is to tip the economy over, and the more the economy resists the higher rates have to go, and the worse the tipping over event is going to be.
Except that inflation has gone down as fast as it went up. The Fed has paused rate increases to see if what they have already done is enough. The talk of lowering rates is because the Fed doesn't want to overshoot on the way down.
The rate of inflation is still about 50% higher than their stated objective. They want to pause to review like you mentioned in an attempt to nail the soft landing, but there is legitimate concern that inflation will remain too high and the Fed is going to break things in their search for 2%.
Inflation is the rate of change of prices. In calculus terms, it's the first derivative of price. (I'm not sure what you mean by "the rate of inflation growth." Do you mean the second derivative of price, maybe?)
Inflation has gone down in the US. The last few months, if you extrapolate them to an annual rate, would (I think) be between 2 and 3%, which is the Fed's normal target.
Unfortunately, some of the recent price increases may stick. However, the US has seen strong wage growth, and many areas have high demand for labor. I've seen a surprising number of businesses with 1/4th of their usual positions open.
It's a good time to apply to better-paying jobs. Not so much in the tech industry, but in other industries.
On the other hand, with rates as high as they are, it's an awful time to buy a house or a car using a loan.
Yes, my mistake. I meant the effects of inflated prices. When people say inflation is dropping they sometimes confuse that with prices going down instead of the rate of inflation simply slowing.
That's a widely popular fact. And yet there doesn't seem to be any correlation between growth and any positive amount of inflation. (There is a lot of correlation for negative inflation.)
Even the idea that "inflation" is something simple to define and measure is wrong.
I am not an economist, I do not even play one on TV. So forgive me if I sound naive.
That said, it seems intuitive that inflation and growth would be linked. Inflation means that there is more demand than supply, right? In response to that increased demand supply (and the number of jobs) are increased by profit seekers, which creates growth.
I am no economist either.
As I understand inflation is the reduction in purchasing power towards a basket of household goods and services.
So it’s not only ask and demand but many other factors like energy price rising and all the things that get into the cost of a product or service.
Inflation in the sense of growth is the more money it needs to have a transit of the value of goods the more goods are produced of value and sold so the net revenue for credits should be positiv and that over time is growth. Or otherwise said we have more stuff at the end of the day … jehaa
Edit:// the credit by the bank is the money supply in that case.
You are missing complexity. That model is naive, and the world doesn't really work that way.
But then, AFAIK nobody has a good model that actually explains what we see.
Anyway:
> Inflation means that there is more demand than supply, right?
Even in principle, balancing supply and demand is a task of price ratios. And most definitions of inflation make it something that doesn't reflect price ratios at all. Instead, it's usually about absolute prices.
> I suspect it's more a reflection of the anxieties of the public in journalists than anything sinister.
To the extent there is a media response to popular perception involved, its very sifferent than that, nearly the opposite (the journalistic class frustrated at the lack of anxiety in the public), which is why it has increased in shrillness with the positive turn in the future expectations component of sentiment (and why you had to dig into the numbers to find that the “low sentiment” on the economy being flogged before that by journalists as an indicator of negative perception of current conditions was actually all in the future expectations component, with the current situation component being quite positive even when the overall measure was down.)
It’s like the announcers at a tight rope walk, NASCAR race or hockey game. The interest is driven in part by the danger, the threat of a fall, crash or fight. The fundamentals of the activity are beyond most of the audience’s comprehension and spelling it out would be hopelessly dull for people who already know and the people who aren’t interested enough to have learned about the activity before hand.
“Holiday Sales Figures Mostly Unchanged” is not a clickable headline. The paper boys would fall asleep before they shout “read all about it.”
Because there's legitimate concerns about high inflation generally, and in particular housing affordability (the latter especially in places like Canada that appear to be in a drastic real estate bubble).
If the economy doesn't slow, we'll see more rate hikes.
I do know of people who decided they couldn't get into the housing market (here in Canada) and have been drawing down their down payment savings to spend.
It's probably a very small portion of this spending increases overall, but interesting to see.
Rates here seem to have stabilized for the time being, and house sales are way down, so I think now we're going to finally see housing price declines this spring season.
The next 2-3 years will get rough as fixed mortgages renew, with my own mortgage payment expected to increase by nearly 50% at renewal, and 70% of the total payment will go to the increased interest payments alone. The total cost of my mortgage at today's rates would be triple what I signed on for!
I don't see how this won't wreak havoc on the average families finances.
This is definitely part of it. People need to adjust to a new price reality, and while they think they want deflation they certainly do not want what a deflationary period entails is happening in the economy.
We did have high inflation for a year, and were told it was temporary, before tools were deployed. Would a sustained period of deflation be met with a similarly lagged response?
My understanding (I am not an expert) is that tools for dealing with deflation are much less effectively deployable and have ripple effects that can significantly damage the real economy.
The Right understands that positive perception of the economy rebounds to the benefit of the incumbent President and they want Biden to lose to the Republican nominee for partisan reasons.
The far Left understands that positive perception of the economy rebounds to the benefit of the incumbent President and they want Biden to lose to Trump, who they expect to be the Republican nominee, for accelerationist reasons.
The news media likes negative spins because public insecurity drives news media consumption.
Leaving aside possible disagreement on definitions, it's worth noting that dragonwriter said "the far Left" - that may still be too broad a brush, but it would not seem to extend to the entire Left.
Or, they simply took the bait of 5% cash and were hoping some deals were going to be forthcoming.
You could say I'm one of those people. I want home prices to come down.
If the property-owning Boomers were to respond, in that housing-crash scenario, by voting for Trump, that'd be on them. I'm sick of being held hostage though.
You want me to choose a political leader? How about Mao, to shoot the landlords, or Khrushchev, to build some apartments?
Have you considering learning a new trade that pays better, or moving to a more prosperous area of the world as an alternative to razing the entire social order to the ground and installing genocidal despots in place of our leaders?
> Have you considering learning a new trade that pays better
I tried starting a lemonade stand and cutting back on Starbucks, but found, if I really wanted a roof over my head, that the thing to do was to SPAC a plausible-sounding company into the indexes.
> moving to a more prosperous area of the world
Those are precisely the ones with the inflated home prices.
> as an alternative to razing the entire social order to the ground and installing genocidal despots in place of our leaders? ... It just sounds like it might be simpler.
I dunno. It'll take 30 years to pay off a mortgage, but the Cultural Revolution was over in about a decade. I might still have some good years left after it ends.
IMO it means nothing if it was just increased credit/debt, which I suspect it was given the trend of the past few years. The only thing increased credit/debt points to is a bigger crash later.
depends on the commenter's time line. Our base expectation for prices is probably something like a trailing average over time (for me it feels like the 20 year trailing average xD )
For some people who have financial stress their basket of goods is quite different than the CPI though. Eg if you're struggling to buy groceries, housing, etc they've gone up closer to 80% in the time span, that's going to feel pretty close to 100% in a fuzzy system like our minds (as opposed to statistics).
When someone used to get a burrito for $5 and it's now $9 that rounds to "double" in casual, non-pedantic, conversation.
I think I basically disagree with the notion that the sum of 20 years of inflation is driving current "bad vibes." I think it's mostly just that people experienced 10-15 years of near-zero inflation (for a significant fraction of people, this was their entire adult life) and then suddenly experienced 5-10% inflation for a year or two. It's the sudden shift from mostly stable prices that is bad for vibes (IMO). The past 20 years as a sliding window is actually a lower inflation period than most historical 20-year periods.
i think the real issue is inter-item inflation variability and its effect on perception and lifestyle.
Take beef. Its a 5x over last 20 years [1], while corn and chicken are about 2x, yet the price of a typical computer has
fallen year over year, which doesn't even take into account that the phone in my pocket probably out computes supercomputers two decades ago.
Interesting confounding factor. That says average price of ground beef without specifying the %. As a kid I do not recall often seeing 95%+ lean ground beef, whereas today that's essentially all I buy. The price span can be easily be double... Doesnt explain the full 5x but interesting to wonder if the data is cognizant/adjusted of that detail?
Are wages up 64% in 20 years? Have common investment vehicles increased 64% yields in 20 years? What about fuel? Have social security payouts increased 64% in 20 years?
> common investment vehicles increased 64% yields in 20 years
This one is not very relevant because so few people hold these instruments (both in the sense of absolutely owning any, and in a weighted sense of what % of the total rise do they get to share in)
Some of my expenses only rose 5-7%, mostly utilities. Most of my expenses cost ~20% more, compared to last Dec. So not doubled, true.
Going back three years, we start seeing some doubled expenses. Rent and insurance are two. Household survival went from needing 2 typical incomes to 4.
BNPL is unlocking a lot of opportunities for consumer engagement
(translation: buying something and paying for it are two different things)
also, the entire economy is now getting revved up for big rate cuts, which should allow consumers to further engage with traditional credit instruments, as well as opportunities for asset owners to unlock more value from rent/lease relationships
(translation: lower rates = your rent goes up...if you don't like it, sleep in your car)
strong asset prices and renewed valuations in real estate will quiet down inconvenient political rancor and assure Biden re-election
(translation: people will tune out tragedy if stocks go high enough)
Bit of a strange take. There’s multiple economists expressing puzzlement around the resilience of consumer spending. Don’t think the NYT is expressing an opinion one way or the other here. (FD - I blocked NYT in 2016 and haven’t looked back, but for other reasons).
How can you tell someone spends all their time falling down right-wing rabbit holes? Because they all seem to think that the New York Times, that bastion of waffling milquetoast enlightened centrism, is tantamount to communist propaganda.
The fed pumped interest rates to bankrupt everyone and create a recession to drop demand off a cliff to fight inflation. The recession never came because people have weathered the storm through credit and other means. Fed is starting to drop interest rates because inflation is under control.
Inflation was caused by the massive increase in money supply due to the fed buying up assets and to a lesser extent the covid stimmys. Inflation followed the curve of the money supply pretty closely. The interest rates just hurt everyone, we need some brighter minds with more open thought handling the central bank fiscal policy in my humble opinion
I hope you're being hyperbolic about the Fed's intentions. Bankruptcies and recession are often unwanted side-effects of attempts to tame inflation, not intentional effects.
No, that's exactly how they look at it. They see it as they can't really change supply but they can lower demand by removing all purchase power and they look at the recession as a necessary goal to tame inflation.
> ... and they look at the recession as a necessary goal to tame inflation.
Necessary goal, or necessary evil? I'd really like to see a citation for the Fed explicitly targeting a recession. I used to work with a former senior Fed economist (though, in the capacity I worked with him, he was researching market microstructure, not macroeconomics), and I have another friend who currently works at the Fed. In thhe past 3 rate hike cycles, I've heard lots of talk about the difficulty of a "soft landing" in taming inflation without tanking the economy.
Everything I've heard this tightening cycle has praised the near-miracle soft landing they seem to have achieved.
Taken as a control theory problem, the economy has very noisy measurements, heavy hysteresis, and a relatively long lag for all of the effects of rate changes to ripple through the economy. My understanding is that under-shooting the landing can result in long-term inflation psychologically taking root, creating more problems in the future, so the Fed tends to err on the side of triggering a recession.
I've only read the full minutes of a handful of Fed meetings, so maybe I've missed something. I'm prepared to have my mind changed, but I'm highly skeptical a recession has ever been a goal rather than a regrettable side-effect.
Frankly I think you're answering your own question when you say "the Fed tends to err on the side of triggering a recession." Yea that's the point, maybe it would be less offensive to say they view their job as creating as mild of a recession as possible to bring down inflation.
In response to your direct request, here's Powell talking about a "soft or softish" landing specifically calling it a recession that is not severe. https://youtu.be/Ue1aDKboQcQ?si=HRcPcJFT22kYxYQT
I find the whole back patting themselves on a "soft landing" a total joke and offensive to the American tax payers. They create so much pain, especially to those without net worth, in the name of stalling inflation when inflation is directly caused by money supply. They created the problem not with 0 interest rates but by literally injecting cash into the economy, they lied about it's effect on inflation and then they could have sat on their hands and inflation would have evened out without destroying everyone's bank accounts. They really don't need play God on the economy, it creates more problems than it solves
That video link begins with "I believe there is a path to a soft or soft-ish landing", followed by a definition of a soft landing as unemployment not going up too much.
It seems he's pretty clearly describing what he believes is possible, not describing what he wants absent constraints imposed by reality.
It's pretty easy to play armchair economist, as the first-order effects of Fed intervention during COVID were pretty painful for a lot of middle- and lower-class Americans, at least those who would have kept their jobs even without intervention. Which models are you using and what do your models show the unemployment rate would have hit without any Fed intervention? How long would the COVID recession lasted without intervention? The question isn't "Were the Fed's actions harmful?" the question is "Were the Fed's actions less harmful than available alternatives?"
It might be! Or it might be the seventh recession predicted out of the last three. Nobody's going to know until later, so is this kind of veiled, content-free foreboding actually like...useful?
The best way to get a good answer on the internet is to make a false claim. The second best is to ennervate debate with something.
The point I’m making is that these kinds of macro economics statistics almost never actually reflect on the ground understanding of day to day life and even rarer give any meaningful insight.
Usually, however, they give a false sense of hope about the actual state of things if you go out into the market, and you look at savings rate that the Fed publishes, if you look at decreasing equity, because people are cashing out with no ability to put back into equity then a clearer picture forms.
As I said elsewhere, all the long-term data shows that we are eating our seed corn
A dead cat bounce is a short rebound that is a brief interruption in a decline, the US economy has been in an expansion for more than three years since the extremely sharp, extremely brief early-2020 COVID recession.
Whatever the current condition is, its not a dead cat bounce. (The recent change isn't fron decline to growth, its fron a broad public expectation of future decline to more positive forward expectations.)
I suppose you could try to argue its a dead cat bounce in the future expectations component of sentiment rather than in the econony itself.
To people who voted for Donald Trump in the last election, the economy crashed hard in January of 2021. It’s only gotten worse for them. This is of course nonsense, the economy hasn’t registered less than 1% annual growth the whole time, but feelings matter more than facts to people it would seem.
> numbers are not adjusted for inflation