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The article was only a couple sentences.
For a little bit more context (and breakdown of categories) check out the bls.gov report:
https://www.bls.gov/opub/ted/2021/consumer-price-index-rose-...
Thanks for posting the url. You start looking at the numbers on a sub level and its not as shocking. 12 month change.
Gasoline (all types) 42.7% - Huge dip when the pandemic happened now its back to pre covid prices.
Natural gas (piped) 21.1% - Same issue.
Used cars and trucks 31.9% - New cars are being made because of a ship shortage.
Meats, poultry, fish, and eggs 8.0% - a labor problem because its hard to get that many people to work in spaces like that and not get sick.
The article was only a couple sentences.
It has been updated. This is quite common with breaking news, to put up a placeholder with basic information while the article is being written.
There are multiple factors driving this. Yes QE and welfare checks are driving consumer spending, mainly on durable goods, but there are some compounding factors.
One is that commodity prices crashed last year in some important categories. As these prices recover that translates into a bump in inflation now. Energy prices are also shooting up. Another is that there's an ongoing supply crisis for key inputs. Microchips is an obvious one we read about constantly. I'm sure most of you have read about container ships queueing up at ports, so supply lines are choked at the moment. There's a lorry driver shortage here in Europe as well.
So commodity and energy prices up, wages are also up and there's a labour shortage, consumer spending up and supply down equals inflation.
Frankly having endured well over 5% inflation for almost the entire first half of my life I'm not panicking. A lot of these effects are short to medium term. The pandemic was always going to have economic repercussions and if it's just a year or two of inflation we will have to take the hit, cushioned by those welfare cheques and increased household savings through the pandemic. The pain was always going to come in one form or another.
For those that do not believe the consumer prices are that bad or have increased that much, take a look at this historical graph from the official BLS.gov website[0]. Over the last 10 years the Consumer Price Index (CPI) has been holding steady at around 2%. This year we've doubled that. How about going back 21 years? Nope, the CPI still fluctuates around 2% give or take. The last time we saw a consumer price index value this high or higher was 30 years ago!
I was a teenager the last time we had a CPI this high so for all of my adult life it has been a fairly consistent metric to factor into my household budgeting. Now I'm forced to make conscious decisions on how to prioritize my family's spending. To me personally, this is a big issue.
So, while I appreciate the perspective people have that try to look at the bright side of these numbers, we must admit - regardless of one's political leaning or optimistic outlook - consumer prices have risen to the highest amounts in three decades.
[0] https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=p...
>The last time we saw a consumer price index value this high or higher was 30 years ago!
Yes, but from 1968 until 1991 there were 24 months out of 276 when the CPI was lower than today. Perhaps what is remarkable isn't that inflation is so high today, but that it has been so low for so long.
What if prices didn't go up, but down reflecting a more productive prosperous society?
Imagine everything getting cheaper every year. Every year you'd see your rent and food bill go down. No more arguing about bumping the minimum wage or the middle class being left behind. Everyone would get richer by default.
Of course this is highly unpopular with economists. They'll tell you no one would buy anything if things got cheaper. But some things do get cheaper every year, mainly technology. You can wait a year and buy that new TV you want at a 10% discount, but that doesn't stop us from purchasing it today.
But of course stopping inflation would mean not printing trillions of dollars and giving them to large banks, so obviously thats a no-go
How much of this is due to supply chain issues? Your linked graph already went down a bit. My butcher and managers at my grocery store blame their suppliers staffing issues due to Covid. Pork went way up early on due to Covid. What happens once more companies enforce vaccination policies?
Anecdotally I have loads of friends buying all kinds of stuff with their insane pandemic checks
These comments are far too verbose for a phenomenon this simple: print money, people buy stuff, it gets more expensive
>buying all kinds of stuff with their insane pandemic checks
When is this meme going to stop? How is a couple of $1200 checks over the course of 6 months enough to let people buy every home on the market all of the sudden?
Another example of grade-school economics - cherry pick a couple of points and draw a stick figure - proved!
Let me try: more money in circulation means sales volume goes up, so prices fall (according to actual economic theory).
Or: folks have more money so live healthier, increasing productivity and using fewer healthcare resources, so the economy benefits.
It's easy! Just throw out some money-sounding words and make the rest up.
The actual issue here is the Fed helicopter dumping into asset markets dwarfed stimulus checks to individuals. That is why it makes no sense to blame it on stimulus checks. The CARES Act allocated $560 billion in individual relief checks. The Fed asset purchases for 2020 is the $3.4 trillion number. That's more than 6 times as much.
> for a phenomenon this simple
While what you describe might be one factor contributing to higher inflation, it certainly isn't the only one.
Supply chain pipeline bubbles are likely another.
Unbridled dollar printing and massive govt. debt probably contributes as well.
The US quickly losing ground as a superpower thereby undermining the status of the USD as a reserve currency probably a factor.
etc ...
I haven't really kept up, but haven't those essentially stopped now, leaving only regular unemployment? I am curious what that will cause because I have heard conflicting information on whether people saved their money or spent it all, not to mention people who have just stopped paying their rent … a whole other ticking time bomb.
What is the best financial strategy in the case of inflation? Invest money so you don't have it sitting in a bank account? Spend it on big ticket items as they may hold their value better than the cash? Simply try to reduce costs?
Don't go buying big ticket items. Whatever is causing them to cost more is usually specific to the item. For all electronics and vehicles, it's chip shortages, which won't last forever, so all you're doing is buying something you don't need now when the price will go back down to normal in two years. You're buying high, selling low, which is the exact opposite of what you want to do. Strategies relying on predicting prices relies on you actual predicting them. This is a historical inflation rate. To take advantage of it, you'd have had to make big ticket purchases before it happened.
The best thing you can do right now is refinance any long-term debt you have to a lower fixed rate, and possibly try to find whatever appreciating assets are still cheaply priced, i.e. low cap value stocks or something. But good luck there. Blue chips have been destroying everything for years and there way to know when the insanity will stop or if it will ever stop. The only sure thing is locking in low interest on things you have to borrow for anyway, or for anything you just want to maintain constant value on rather than looking for gains, buy TIPS. The only way those ever lose value is if the entire government collapses, at which point anything else you own other than seeds and bullets and land becomes just as worthless.
If you have relatively secure employment and think your employer will raise wages in line with inflation, now is an incredibly good time to get a mortgage.
There are many views on this and it is important to form your own opinion. From personal study and conversations with other investors: (1) stocks that correlate with inflation (e.g. some banks and utilities, inflation-adjusted REITs), (2) companies with high-growth prospects (e.g. late-stage yet still privately-held companies) - these are much higher risk, but worth putting a small percentage here over a long time horizon.
Buy lots of real estate with high leverage and fixed interest rates.
I don't think there is a best strategy.
Equities do well in mildly inflationary environments, but when everyone is talking about inflation is when the Fed is most likely to make contractionary signaling, causing equities to drop.
I would focus on just investing in ETFs and not trying to time the market.
so the absolute worst is cash in something like a savings/checking account. You're interest rate will be less than 1/2% so in this case you're losing ~5% per year. You're best bet is low fee index funds that mirror the entire US market. VTSAX through Vanguard is a great choice. Your money now keeps it's purchasing power b/c you no longer own money, you own stocks and when prices go up stocks are just another good that also goes up in price so your dollars now track inflation.
As I said elsewhere, I think this is transitory. (Caused by printing money + Covid-related drop in output, both of which should stop.) So I wouldn't set up a long-term investment strategy based on this.
I might think about tweaking my investment strategy for the next year based on this, but not longer term.
Note well: I am not an investment advisor, and this is not investment advice. This is some guy on the internet who thinks he knows what he's talking about, but may well not.
Buying OTM Call LEAPS!
Who cares if inflation is 5.4% or the money supply increases 40% when your ROI is 10,000%
Everyone worries about hyperinflation bread lines from 100 years ago when they need to look at what the capital class of the time was able to do: help wealth inequality by making it wider! Stocks went to the moon long before the Apollo!
Personal risk tolerance.
The simplest answer is buying TIPS
https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
Inflation currently is only relevant for those that cannot borrow cheaply. If you can borrow cheaply ( i.e. below inflation rate ), borrow and buy assets.
Bitcoin ;)
Borrow at a fixed interest rate.
https://tradingeconomics.com/united-states/inflation-cpi
For 2020 they never hit target of 2%, they are deciding to run inflation hot by leaving stimulus and interest rates low. The idea is to more or less bring everything back to normal target.
The problem:
https://tradingeconomics.com/united-states/money-supply-m2
There's about 40% locked in. The fed thinks they have this under control but they certainly do not.
Love when the y-axis starts at 18500.
Eurozone is at 3.4. But as inflation is the result of pandemic related production halts, the BCE is asking too wait for the shock to pass before taking measures that may weak the economy.
There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening.
This has to be one of the most clear cases of this phenomenon I've seen. Inflation is rising prices [1]. There is no requirement in the definition of inflation that it just be ambiently "happening" for no reason. Inflation always has some reason or other. That doesn't mean it's not happening. If the prices are going up because of government insolvency, it's inflation. If prices are going up because aliens are ordering all stores at raygunpoint to raise prices, it's inflation. If there's a global pandemic and everyone response with massive economic interventions and the result is rising prices, it's inflation. If prices rise this month, but we think that the reasons are probably transitory and they'll go back down next month, that's still inflation, simply followed by deflation next month. If prices rise because of second-order effects of interest rates being dropped to zero by the central bank, that's inflation. If the prices rise because the moon is in the seventh house and Jupiter has aligned with Mars, that's inflation.
It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest.
They're not waiting for the "shock to pass", they're trying to make sure you don't find out something that you are going to use to decide they're not doing a good job. This is purely political, not economic.
[1]: And whatever other details you like. I'm not too worried about exactly which definition you plug into this post, it holds regardless for any sensible definition.
> as inflation is the result of pandemic related production halts
Is it? It's way more probably that having 40% of our Dollars being created in the last 12 months is the actual root cause.
But as inflation is the result of pandemic related production halts
It would be nice if that was true, but it is unclear if it is. It looks like it accounts for some of the inflation, but whether it is 20% is 80% of it is unknown.
So I recently had a realization that the money the US government spends has absolutely no relation to the money the government receives they can spend whatever they want in any quantity they want.
The only barrier is inflation; however that instead means that taxes at the federal level have nothing to do with income or revenue but only inflation control. So the IRS should be the Internal Inflation Control Service.
I am still working on the full implications of that understanding but it has definitely changed the way I look at things.
EDIT: Updated to make clear I am discussing the US government, not governments in general.
EDIT EDIT: To make clear I think this is a bad thing, it is a lever that the more powerful in society have the ability to pull, in order to move wealth from the lower class to themselves as inflation is generally only positive for the asset owning class.
Hopefully this will finally show that Paul Krugman is a hack. At this point do the exact opposite of everything he says.
https://www.nytimes.com/2021/09/10/opinion/transitory-inflat...
https://www.nytimes.com/2021/06/21/opinion/inflation-economy...
Time to change the basket of goods again so we can hide the true inflation rate.
My uncertainty comes from not knowing whether the technicians servicing the machine of the economy actually have the understanding and ability to always be able to fix it.
I don't know if they are working on a diesel motor, complex but fully serviceable, or if they are working on a black box, doing ritualistic tapping and prodding that seems to usually correlate with outputs.
I'm not surprised. I wonder how many folks really buy into FEDs argument that this is temporary, that's why they won't change the unmaintainable interest rates the US has been keeping artificially low.
We'll have another year to come, of even higher inflation and some people will still be talking about "supply chain" problems created 2 years ago. Just watch. I'd take any bet I can afford about this.
FED knows that if it hikes up 0.5% interest rates a few times, markets will melt, unemployment to 40%+ and a big civil war will happen.
Except a few US companies that can really make money without much debt(like tech companies), almost all of the rest are walking zombies. So many suburban cities in America are 100% bankrupt being kept alive by policies which should be temporary, such as this Biden's infrastructure package.
You can hide some dust under the carpet only up to a certain point. Citizens let politicians do it until it's out of control. I don't believe it's a mistake solely done by politicians and the FED, but rather, the average american citizen consuming and owning shit to a unmaintainable degree.
Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?!
Not saying a government shouldn't provide relief during a pandemic, just stating that it sounded obvious to me rather than alarming.
I thought China’s cheap goods are the reason why US inflation rate remains sane over the years and enabled US to keep doing QE
With the way the US measures inflation, inflation only rises when import prices go up or wages for manufacturing/service workers go up.
These are two intentional policy goals for the last two administrations, why would we not expect inflation to remain high until automation improves?
Printing free money has consequences. This is entirely expected with that causation. It will get worse. Hold value in assets, not money. Property, precious metals, art, whatever isn’t cash until the money printing stops.
I've been meaning to start collecting data on stuff that I actually buy on a regular basis in order to try to put together a kind of personal CPI. Maybe a good time to start doing it now.
The money printer works great until it doesn't
one thought ive had for a while (and this isn't a totally fleshed out thought, would like to hear opinions) is we are in for whipsaw inflation-deflation for the next couple of years and we are all along for the ride. the fed does have some levers to pull but not with much magnitude, especially with interest rates where they are.
I believe there were signs of a deflationary environment up until about 18 months ago, then we had velocity drop to 0. tons of money was added to make up for the decreased velocity. we've had some signs of inflation for sure, some exacerbated by supply issues. but much of the money put into the system is collecting in pockets of unproductive asset classes - sitting in bank accounts, paying off debts(?), getting off shored, NFT and crypto. there is no "multiplicative" effect on the economy with this new money added and so its effect will wear off quickly. stimulus etc. filters through and collects in certain pockets/areas, individuals who realize these profits then shift to unproductive classes.
the fed, having few tools, knows they need interest rates. so next month they start raising through the end of 2024, which will further the whipsaw as housing prices decrease and capital dries up. a spending bill might be approved which will trickle some money back in but largely as boomers continue leaving the workforce, younger people straddle the sideline of the workforce (due to debt and/or low wages), declining birth rate, etc. these various contractions are all conducive to a deflationary environment, so we will be in a state of fighting the tide for a couple of years.
meanwhile, higher education keeps going up and with federally backed student loans the cycle continues. the shift to electric cars will increase vehicle purchase prices substantially. if the rest of the CPI basket keeps trickling up, where does this end up in a couple of years?
EDIT - this is ignoring geopolitical issues for now. of course that certainly can have a massive effect on things and we are not in a vacuum.
> U.S. inflation rate rises to 13-year high of 5.4
Time to go long BTC (has been the case every day for the last 10 years, as a matter of fact).