Whence inflation?

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RAchip
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Re: Whence inflation?

Post by RAchip »

I believe that inflation is minimized or eliminated in large part by intense competition. Today we have incredibly intense competition among suppliers of consumer goods and services.

I do not think it is the government’s job to promote or curb inflation. The government’s job is to put a system in place that ensures full and fair economic completion and then to get out of the way. That will produce the optimal result for society.

The belief that deflation is always bad is misguided. If the prices of goods and services are driven down by intense completion (which drives technological growth) that is good.
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Re: Whence inflation?

Post by nps »

willthrill81 wrote: Fri Oct 09, 2020 4:47 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm I don't think so, a dollar is simply worth whatever it can be exchanged for and that value varies with the overall level of prices.
Yep. It's called fiat money and has no intrinsic value. It only has value because we collectively agree that it does.
This is true of all money, fiat or not.
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Re: Whence inflation?

Post by willthrill81 »

nps wrote: Fri Oct 09, 2020 8:10 pm
willthrill81 wrote: Fri Oct 09, 2020 4:47 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm I don't think so, a dollar is simply worth whatever it can be exchanged for and that value varies with the overall level of prices.
Yep. It's called fiat money and has no intrinsic value. It only has value because we collectively agree that it does.
This is true of all money, fiat or not.
True.
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Re: Whence inflation?

Post by fwellimort »

nps wrote: Fri Oct 09, 2020 8:10 pm
willthrill81 wrote: Fri Oct 09, 2020 4:47 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm I don't think so, a dollar is simply worth whatever it can be exchanged for and that value varies with the overall level of prices.
Yep. It's called fiat money and has no intrinsic value. It only has value because we collectively agree that it does.
This is true of all money, fiat or not.
Depends how you view the definition of 'intrinsic value'.
The intrinsic value of say silver can be the limited quantity (supply vs demand) + electronics/solar panel/medical applications.
A limited quantity that can be used especially towards medical application will always have an 'intrinsic value' (aka a floor price).

If tomorrow, half of all drinkable water were not drinkable, then due to limited quantity (supply vs demand), the intrinsic price due to the necessity of the product for survival will definitely be worth more. If drinkable water had no intrinsic value, then such relationships shouldn't always have to be the case.

Some goods in a society at least has a floor price due to their necessities towards certain application (e.g.: health).

Fiat currency while it can solve the concept of limited quantity (supply vs demand) does not solve the latter issue: the intrinsic value of the material itself to human survival (say post apocalypse (?)).

Having stated such, for gold bug proponents, I guess 'intrinsic price' of gold would be the history + jewelry which aren't concepts necessary for survival.
But on the flip side, gold unlike fiat currency cannot be printed whenever it needs to. There's a limited supply of gold unlike fiat currencies which an individual can never know in advance how much more of it will be printed in the near future.

Eh. That said, I'm part of the camp that believes modern fiat currency is the better currency system (when compared to the 'gold standard'/etc).
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Re: Whence inflation?

Post by 000 »

nps wrote: Fri Oct 09, 2020 8:10 pm
willthrill81 wrote: Fri Oct 09, 2020 4:47 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm I don't think so, a dollar is simply worth whatever it can be exchanged for and that value varies with the overall level of prices.
Yep. It's called fiat money and has no intrinsic value. It only has value because we collectively agree that it does.
This is true of all money, fiat or not.
This is true of all investments, money or not, unless you can use the investment to produce something you will personally consume.
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Re: Whence inflation?

Post by willthrill81 »

RAchip wrote: Fri Oct 09, 2020 7:33 pm The belief that deflation is always bad is misguided. If the prices of goods and services are driven down by intense completion (which drives technological growth) that is good.
The concern about deflation is that wages would presumably fall if the prices of goods and services are driven down. After all, all prices are ultimately either wages or payment for someone's other assets (e.g. materials owned). Falling wages are horrible for debtors.
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Re: Whence inflation?

Post by rockstar »

Helicopter money referred to as MP3 by Ray Dalio should create bursts of inflation.

However, since we're all staying at home due to COVID and traveling far less, the components of the CPI and their weighting doesn't make a whole lot of sense. The weighting for oil for instance can't be right. I don't know what to make of inflation until COVID is over. The way we're measuring things can't be right given our new spending behavior. I don't know how to interpret our inflation numbers as a consequence.
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Re: Whence inflation?

Post by willthrill81 »

rockstar wrote: Mon Oct 12, 2020 12:31 pm Helicopter money referred to as MP3 by Ray Dalio should create bursts of inflation.
Why? Will the velocity of money increase?
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Re: Whence inflation?

Post by rockstar »

willthrill81 wrote: Mon Oct 12, 2020 12:38 pm
rockstar wrote: Mon Oct 12, 2020 12:31 pm Helicopter money referred to as MP3 by Ray Dalio should create bursts of inflation.
Why? Will the velocity of money increase?
You give money to a part of the population that lives nearly paycheck to paycheck. They're going to spend it, not save it. This should drive prices up.
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Re: Whence inflation?

Post by willthrill81 »

rockstar wrote: Mon Oct 12, 2020 1:13 pm
willthrill81 wrote: Mon Oct 12, 2020 12:38 pm
rockstar wrote: Mon Oct 12, 2020 12:31 pm Helicopter money referred to as MP3 by Ray Dalio should create bursts of inflation.
Why? Will the velocity of money increase?
You give money to a part of the population that lives nearly paycheck to paycheck. They're going to spend it, not save it. This should drive prices up.
Unless money is continually given to them, it seems likely to me to be spent quickly and find its way into the pockets of those who are already hoarding it. The stimulus money does not appear, based on the data I've seen, to have materially changed the velocity of money.
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Re: Whence inflation?

Post by rockstar »

willthrill81 wrote: Mon Oct 12, 2020 1:14 pm
rockstar wrote: Mon Oct 12, 2020 1:13 pm
willthrill81 wrote: Mon Oct 12, 2020 12:38 pm
rockstar wrote: Mon Oct 12, 2020 12:31 pm Helicopter money referred to as MP3 by Ray Dalio should create bursts of inflation.
Why? Will the velocity of money increase?
You give money to a part of the population that lives nearly paycheck to paycheck. They're going to spend it, not save it. This should drive prices up.
Unless money is continually given to them, it seems likely to me to be spent quickly and find its way into the pockets of those who are already hoarding it. The stimulus money does not appear, based on the data I've seen, to have materially changed the velocity of money.
Which is why I said bursts of inflation. The most steady stimulus has been the additional unemployment. This appears to have drove up grocery prices.

https://fred.stlouisfed.org/series/PCU4451104451103#0

Tweak the chart to look at percentage change from a year ago. You'll seek the spike.

If you're retired, you're now paying a lot more for groceries.
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Re: Whence inflation?

Post by willthrill81 »

rockstar wrote: Mon Oct 12, 2020 1:31 pm
willthrill81 wrote: Mon Oct 12, 2020 1:14 pm
rockstar wrote: Mon Oct 12, 2020 1:13 pm
willthrill81 wrote: Mon Oct 12, 2020 12:38 pm
rockstar wrote: Mon Oct 12, 2020 12:31 pm Helicopter money referred to as MP3 by Ray Dalio should create bursts of inflation.
Why? Will the velocity of money increase?
You give money to a part of the population that lives nearly paycheck to paycheck. They're going to spend it, not save it. This should drive prices up.
Unless money is continually given to them, it seems likely to me to be spent quickly and find its way into the pockets of those who are already hoarding it. The stimulus money does not appear, based on the data I've seen, to have materially changed the velocity of money.
Which is why I said bursts of inflation. The most steady stimulus has been the additional unemployment. This appears to have drove up grocery prices.

https://fred.stlouisfed.org/series/PCU4451104451103#0

Tweak the chart to look at percentage change from a year ago. You'll seek the spike.

If you're retired, you're now paying a lot more for groceries.
Maybe I'm just blind, but the spike in April appears to have been followed by a drop in June. Overall, the current index level does not appear to be far off the trend line since 2000.

Image

What I do find interesting is that the index is 110% higher now than it was in 2000 while CPI has only increased 54% cumulatively over the same period.
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Re: Whence inflation?

Post by rockstar »

willthrill81 wrote: Mon Oct 12, 2020 2:08 pm
rockstar wrote: Mon Oct 12, 2020 1:31 pm
willthrill81 wrote: Mon Oct 12, 2020 1:14 pm
rockstar wrote: Mon Oct 12, 2020 1:13 pm
willthrill81 wrote: Mon Oct 12, 2020 12:38 pm

Why? Will the velocity of money increase?
You give money to a part of the population that lives nearly paycheck to paycheck. They're going to spend it, not save it. This should drive prices up.
Unless money is continually given to them, it seems likely to me to be spent quickly and find its way into the pockets of those who are already hoarding it. The stimulus money does not appear, based on the data I've seen, to have materially changed the velocity of money.
Which is why I said bursts of inflation. The most steady stimulus has been the additional unemployment. This appears to have drove up grocery prices.

https://fred.stlouisfed.org/series/PCU4451104451103#0

Tweak the chart to look at percentage change from a year ago. You'll seek the spike.

If you're retired, you're now paying a lot more for groceries.
Maybe I'm just blind, but the spike in April appears to have been followed by a drop in June. Overall, the current index level does not appear to be far off the trend line since 2000.

Image

What I do find interesting is that the index is 110% higher now than it was in 2000 while CPI has only increased 54% cumulatively over the same period.
You have to look at it as a percentage year over year to see what I'm talking about. The inflation for groceries nearly doubled from 3ish percent to 6ish percent. This is huge if you're on fixed income and mainly eating at home. Of course, you wouldn't be driving a lot retired, so any savings that is available from lower gas prices you're most likely not realizing.

CPI is a horrible measure now as most people aren't driving or flying a lot now. And oil is such a huge component that the lower oil prices are pushing it down. You see the same thing with the core version used by the Fed as well as the version used for TIPS. You have to eat in retirement. And the inflation measures available aren't protecting you from rising food prices.
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Re: Whence inflation?

Post by Forester »

Inflation has been so low since the 90s that young people in their 20s & 30s are buying their first home and saving for their retirement... ah maybe not.
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Re: Whence inflation?

Post by willthrill81 »

Forester wrote: Mon Oct 12, 2020 4:15 pm Inflation has been so low since the 90s that young people in their 20s & 30s are buying their first home and saving for their retirement... ah maybe not.
About a third of CPI is housing costs, based on real and imputed rents.
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Re: Whence inflation?

Post by Oicuryy »

jeffyscott wrote: Fri Oct 09, 2020 2:09 pm a dollar is simply worth whatever it can be exchanged for
A goal of U.S. monetary policy is for a dollar to be exchangeable for about 2% fewer goods and services each year. Thence inflation.

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Last edited by Oicuryy on Mon Oct 12, 2020 6:00 pm, edited 1 time in total.
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Re: Whence inflation?

Post by Seasonal »

Oicuryy wrote: Mon Oct 12, 2020 4:55 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm a dollar is simply worth whatever it can be exchanged for
A goal of U.S. monetary policy is for the dollar to be exchangeable for about 2% fewer goods and services each year. Thence inflation.

Ron
Another goal is full employment, which should lead to an increase in wages of at least 2% per year. Investors should also benefit.

Two sides of the same coin.
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Re: Whence inflation?

Post by rockstar »

Seasonal wrote: Mon Oct 12, 2020 5:28 pm
Oicuryy wrote: Mon Oct 12, 2020 4:55 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm a dollar is simply worth whatever it can be exchanged for
A goal of U.S. monetary policy is for the dollar to be exchangeable for about 2% fewer goods and services each year. Thence inflation.

Ron
Another goal is full employment, which should lead to an increase in wages of at least 2% per year. Investors should also benefit.

Two sides of the same coin.
This works for investors as long as their spending matches the weighting of the index.
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Re: Whence inflation?

Post by Ocean77 »

Reading this thread, it finally makes some sense to me now, how the 3 factors are connected (Trillions in money being printed, Little Inflation, record stock market valuation compared to GNP). It looks all that money just goes into assets, inflating their prices.

Question is, what to do with this information as an investor.
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Re: Whence inflation?

Post by Seasonal »

rockstar wrote: Mon Oct 12, 2020 5:54 pm
Seasonal wrote: Mon Oct 12, 2020 5:28 pm
Oicuryy wrote: Mon Oct 12, 2020 4:55 pm
jeffyscott wrote: Fri Oct 09, 2020 2:09 pm a dollar is simply worth whatever it can be exchanged for
A goal of U.S. monetary policy is for the dollar to be exchangeable for about 2% fewer goods and services each year. Thence inflation.

Ron
Another goal is full employment, which should lead to an increase in wages of at least 2% per year. Investors should also benefit.

Two sides of the same coin.
This works for investors as long as their spending matches the weighting of the index.
It works in the aggregate. It has nothing to do with measured CPI. Where do you think the money spent on goods and services goes?
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Re: Whence inflation?

Post by Tommy »

Question is not have we inflation or not. We do. TV you are buying once in a while (my TV 12 years old). Food you are buying daily. Food prices increased 10-15% at least. Housing going up (OK you own home and don't care but property taxes up. Mine up). Education up - just paid 2.4% more for my daughter fall semester than paid for spring one. Especially funny with remote education.
Healthcare costs going up. Utility goes up. Gas - looks like not going up but look in the oil prices. Oil prices dropped - gas not. We driving less today but as soon as driving pick-up - you will see gas prices. Salary growth outpace inflation? Not for everyone.
So, in areas what really affect daily life: food, utility, healthcare - inflation exists.
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Re: Whence inflation?

Post by rockstar »

Tommy wrote: Mon Oct 12, 2020 6:41 pm Question is not have we inflation or not. We do. TV you are buying once in a while (my TV 12 years old). Food you are buying daily. Food prices increased 10-15% at least. Housing going up (OK you own home and don't care but property taxes up. Mine up). Education up - just paid 2.4% more for my daughter fall semester than paid for spring one. Especially funny with remote education.
Healthcare costs going up. Utility goes up. Gas - looks like not going up but look in the oil prices. Oil prices dropped - gas not. We driving less today but as soon as driving pick-up - you will see gas prices. Salary growth outpace inflation? Not for everyone.
So, in areas what really affect daily life: food, utility, healthcare - inflation exists.
This how I think about inflation, not the headline number. I don't spend in the same proportions as any of the inflation indexes. Telling me that the headline number is 1.5% doesn't mean much to me.

If you're thinking about saving for retirement, you need to make sure that your portfolio keeps up with your personal inflation rate. That's what I like to call it. I have pretty much locked down my housing costs. I'm refinancing, so that will drop those costs a little bit. But then it comes down to upkeep and appliance/HVAC replacements and property taxes.

Then, it's food, utilities, and healthcare.

On top of this would be any future auto purchase and gas costs as well as costs for travel. I also upgrade my smartphone every three years. I upgrade my TV every ten, and I upgrade my laptop every five years. So I care about the price increases for these items when I go to purchase them.

The reality is that TIPS won't keep up with my personal inflation rate. My personal inflation rate easily exceeds 2%.
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Re: Whence inflation?

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Ocean77 wrote: Mon Oct 12, 2020 5:57 pm Reading this thread, it finally makes some sense to me now, how the 3 factors are connected (Trillions in money being printed, Little Inflation, record stock market valuation compared to GNP). It looks all that money just goes into assets, inflating their prices.
I think that sums up the situation quite succinctly. The only other thing that I would, which I don't believe has been covered in this thread, is the impact of GDP. Except for 2009, GDP has averaged above 2% in the period described in the OP. Assuming that the velocity of money was constant, the money supply could increase at the same rate as GDP without any inflation occurring, at least in theory.
Ocean77 wrote: Mon Oct 12, 2020 5:57 pmQuestion is, what to do with this information as an investor.
That's a very good question, and I really don't know the answer, not even a good possibility. :confused
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Re: Whence inflation?

Post by Tommy »

willthrill81 wrote: Mon Oct 12, 2020 7:13 pm
Ocean77 wrote: Mon Oct 12, 2020 5:57 pmQuestion is, what to do with this information as an investor.
That's a very good question, and I really don't know the answer, not even a good possibility. :confused
That's the problem :( nobody know answer. You can't have everything in TIPS, gold, REITs. BTW, return from those investments questionable.
Stocks? Some will keep up with inflation, majority not. Swiss Frank? It could be good idea if you can open account in this currency but I don't know how.
International stocks? Maybe, to some extend. Don't know :(
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Re: Whence inflation?

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Tommy wrote: Mon Oct 12, 2020 8:24 pm
willthrill81 wrote: Mon Oct 12, 2020 7:13 pm
Ocean77 wrote: Mon Oct 12, 2020 5:57 pmQuestion is, what to do with this information as an investor.
That's a very good question, and I really don't know the answer, not even a good possibility. :confused
That's the problem :( nobody know answer. You can't have everything in TIPS, gold, REITs. BTW, return from those investments questionable.
Stocks? Some will keep up with inflation, majority not. Swiss Frank? It could be good idea if you can open account in this currency but I don't know how.
International stocks? Maybe, to some extend. Don't know :(
Personally, I don't worry much about inflation because I'm very aggressively invested in stocks, which should outpace inflation over the long-run at least. But if I was a conservative investor, I'd be really concerned about it, at least the possibility of it rising in the future.
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Re: Whence inflation?

Post by Ocean77 »

I think it's a good bet that this will not continue forever and unravel at some point. Of course nobody knows when and how (in which order). Perhaps the money printing stops first, then asset prices crash, while inflation is still low. Or perhaps instead people will start to feel wealthy first, due to the stock market run up, and spending picks up, and with it inflation. Who knows.
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Re: Whence inflation?

Post by 000 »

Ocean77 wrote: Mon Oct 12, 2020 5:57 pm Reading this thread, it finally makes some sense to me now, how the 3 factors are connected (Trillions in money being printed, Little Inflation, record stock market valuation compared to GNP). It looks all that money just goes into assets, inflating their prices.

Question is, what to do with this information as an investor.
Time to buy up unloved assets?
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Re: Whence inflation?

Post by rockstar »

willthrill81 wrote: Mon Oct 12, 2020 7:13 pm
Ocean77 wrote: Mon Oct 12, 2020 5:57 pm Reading this thread, it finally makes some sense to me now, how the 3 factors are connected (Trillions in money being printed, Little Inflation, record stock market valuation compared to GNP). It looks all that money just goes into assets, inflating their prices.
I think that sums up the situation quite succinctly. The only other thing that I would, which I don't believe has been covered in this thread, is the impact of GDP. Except for 2009, GDP has averaged above 2% in the period described in the OP. Assuming that the velocity of money was constant, the money supply could increase at the same rate as GDP without any inflation occurring, at least in theory.
Ocean77 wrote: Mon Oct 12, 2020 5:57 pmQuestion is, what to do with this information as an investor.
That's a very good question, and I really don't know the answer, not even a good possibility. :confused
Check out the liquidity trap.

Here's the high level view:

https://www.investopedia.com/terms/l/liquiditytrap.asp

and deeper dive into the liquidity trap:

https://web.pdx.edu/~ito/krugman2000.pdf

and where we see savings rates:

https://fred.stlouisfed.org/series/PSAVERT

This helps explain why we don't see inflation broadly.
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Re: Whence inflation?

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z3r0c00l wrote: Fri Oct 09, 2020 1:21 pm
dknightd wrote: Fri Oct 09, 2020 11:58 am I'm not going to buy a bigger TV just because it is cheaper now than it was 10 years ago
Too bad because a large TV is a much better experience, up to some maximum size appropriate for the room it is in. Many of us who get this concept have always been locked into having a smaller TV than they want because either there were no screens large enough or they cost too much. Watching films on a 24 inch CRT was simply not a great expedience, and I am reminded of that each time I watch them on my 54 inch LED.
Back in 2006, my wife and I bought a Sony XBR 38" TV and paid close to $2k for it, IIRC. It was pretty much state-of-the-art at the time. We finally replaced it back in December of 2020 with a Samsung Frame 40", with a far better picture and far more features, and paid less than half the nominal price that we paid for the Sony 14 years earlier. So while we bought a nearly identical size TV, we are unquestionably getting more value out of the new one and paid a far lower price, both in nominal and real dollars.
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Re: Whence inflation?

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dknightd wrote: Fri Oct 09, 2020 3:44 pm Many years ago I did not have internet or cell phone. Now I do, and I like them.

So I volunteered to add them to my cost of living.

Is that inflation, or more consumption? I suspect a little of both. . .
I suspect that the total cost of telecommunication, whether as measured in CPI-adjusted dollars or as a percentage of most households' income, probably hasn't changed that much in the last ~50 years. And if you factor the price paid for the time consumed, the cost has certainly plummeted. We think nothing of calling someone on the other side of the country, but the nominal cost of such calls was 40-50 cents a minute back in 1980. I remember well paying $1/minute for local calls on my cell phone in the 1990s.
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Re: Whence inflation?

Post by z3r0c00l »

willthrill81 wrote: Wed Feb 03, 2021 11:03 am
dknightd wrote: Fri Oct 09, 2020 3:44 pm Many years ago I did not have internet or cell phone. Now I do, and I like them.

So I volunteered to add them to my cost of living.

Is that inflation, or more consumption? I suspect a little of both. . .
I suspect that the total cost of telecommunication, whether as measured in CPI-adjusted dollars or as a percentage of most households' income, probably hasn't changed that much in the last ~50 years. And if you factor the price paid for the time consumed, the cost has certainly plummeted. We think nothing of calling someone on the other side of the country, but the nominal cost of such calls was 40-50 cents a minute back in 1980. I remember well paying $1/minute for local calls on my cell phone in the 1990s.
This is unquestionably true, most of us pay about the same or maybe less (inflation adjusted) for our smart phones than we did for the land line in the 90s. And with a smart phone I can video call a person anywhere on Earth at any time I want for no additional fee. In the 90s it cost me 10 cents a minute for AOL... The new expense idea doesn't hold for some of us. A smartphone is deemed nessisary in this day and age so my company pays for it. I pay nothing for phone service or cable TV, both expenses from the 90s that are gone.
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Re: Whence inflation?

Post by dknightd »

z3r0c00l wrote: Wed Feb 03, 2021 4:08 pm
willthrill81 wrote: Wed Feb 03, 2021 11:03 am
dknightd wrote: Fri Oct 09, 2020 3:44 pm Many years ago I did not have internet or cell phone. Now I do, and I like them.

So I volunteered to add them to my cost of living.

Is that inflation, or more consumption? I suspect a little of both. . .
I suspect that the total cost of telecommunication, whether as measured in CPI-adjusted dollars or as a percentage of most households' income, probably hasn't changed that much in the last ~50 years. And if you factor the price paid for the time consumed, the cost has certainly plummeted. We think nothing of calling someone on the other side of the country, but the nominal cost of such calls was 40-50 cents a minute back in 1980. I remember well paying $1/minute for local calls on my cell phone in the 1990s.
This is unquestionably true, most of us pay about the same or maybe less (inflation adjusted) for our smart phones than we did for the land line in the 90s. And with a smart phone I can video call a person anywhere on Earth at any time I want for no additional fee. In the 90s it cost me 10 cents a minute for AOL... The new expense idea doesn't hold for some of us. A smartphone is deemed nessisary in this day and age so my company pays for it. I pay nothing for phone service or cable TV, both expenses from the 90s that are gone.
I recently spent $2k on phones. I expect them to last 3-6 years. We spend about $300/month for service (internet and phones and "cable" TV). I could probably find cheaper service if needed. I suspect that was more than what we paid in the 80-90's, even inflation adjusted. But I could be wrong!
I was a late adapter to cell phones, but since pay phones basically no longer existed I had to get one. Yes I could pay less, and did for many years, but these "smart" phones are so seductive. Have to keep up.
I've been using the "internet" since the early 80's. Back then it was only for research and educational purposes. Home access was limited to a 300 baud acoustic coupler to the telephone. Cutting edge at the time
Perhaps unrelated, but perhaps not. My home internet connection is faster than the research connection used to be. My phone has more computing power than super computers of the day.

Sorry, I got distracted. My point was, and I should have been more clear, what revolution will happen next that we'll more of less "have to have"? And, should we consider the next revolution "inflation" or "more consumption" or both?
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: Whence inflation?

Post by jeffyscott »

dknightd wrote: Thu Feb 04, 2021 8:54 am
z3r0c00l wrote: Wed Feb 03, 2021 4:08 pm
willthrill81 wrote: Wed Feb 03, 2021 11:03 am
dknightd wrote: Fri Oct 09, 2020 3:44 pm Many years ago I did not have internet or cell phone. Now I do, and I like them.

So I volunteered to add them to my cost of living.

Is that inflation, or more consumption? I suspect a little of both. . .
I suspect that the total cost of telecommunication, whether as measured in CPI-adjusted dollars or as a percentage of most households' income, probably hasn't changed that much in the last ~50 years. And if you factor the price paid for the time consumed, the cost has certainly plummeted. We think nothing of calling someone on the other side of the country, but the nominal cost of such calls was 40-50 cents a minute back in 1980. I remember well paying $1/minute for local calls on my cell phone in the 1990s.
This is unquestionably true, most of us pay about the same or maybe less (inflation adjusted) for our smart phones than we did for the land line in the 90s. And with a smart phone I can video call a person anywhere on Earth at any time I want for no additional fee. In the 90s it cost me 10 cents a minute for AOL... The new expense idea doesn't hold for some of us. A smartphone is deemed nessisary in this day and age so my company pays for it. I pay nothing for phone service or cable TV, both expenses from the 90s that are gone.
I recently spent $2k on phones. I expect them to last 3-6 years. We spend about $300/month for service (internet and phones and "cable" TV). I could probably find cheaper service if needed. I suspect that was more than what we paid in the 80-90's, even inflation adjusted. But I could be wrong!
I was a late adapter to cell phones, but since pay phones basically no longer existed I had to get one. Yes I could pay less, and did for many years, but these "smart" phones are so seductive. Have to keep up.
I've been using the "internet" since the early 80's. Back then it was only for research and educational purposes. Home access was limited to a 300 baud acoustic coupler to the telephone. Cutting edge at the time
Perhaps unrelated, but perhaps not. My home internet connection is faster than the research connection used to be. My phone has more computing power than super computers of the day.

Sorry, I got distracted. My point was, and I should have been more clear, what revolution will happen next that we'll more of less "have to have"? And, should we consider the next revolution "inflation" or "more consumption" or both?
Well, one certainly do not have to spend $2000 to have smart (enough) phones, nor $300 per month on services. You have chosen to buy luxuries now and chose to forgo whatever semi-equivalent luxuries may have existed in the 1980s and 1990s. How much would you have spent to buy a bag phone and a video camcorder back then? I don't know about the bag phone, but our 8 mm video camera was about $900 in Dec. 1987, we now can perform that function using phones that cost us under $100 each a few years ago.

Our first cell phone was a "free" Nokia and service was, IIRC, $30 per month with 2 year contract that included some limited amount of minutes, this was around 1997 or 98. Our current 2 phones are about 3 years old, but could be replaced with the current new updated Motorola models for about $150 or less each. Our pre-paid service includes 100 minutes (which is likely comparable to what the 1997-8 plan included, plus we get texts and data that didn't exist back then) is $60 per year each. So for 2 years our cost was about $720 then with one phone and would be $270 per phone now with new phones.

I don't recall what we paid for cable TV and internet back then...as a guess maybe something like $30 per month? Currently pay $50 for internet and about $20 for a couple streaming services. So maybe that part has gone up by $40 per month. We also paid something like $20 per month for land line phone service then vs. about $5 now.

So I don't know about 50 years, but looking at about 20 and combining TV, phone, internet (and ignoring the second cell phone that we have now but didn't then), it comes to about the same actual spending, with relatively minimal (but still quite substantial) participation in upgrades to services and equipment.
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Re: Whence inflation?

Post by Beliavsky »

Ed Yardeni is not too concerned about inflation:

February 3, 2021
Inflation Is Up for Discussion
In recent Zoom calls with accounts, I am spending more time discussing the outlook for inflation. For investors, this may very well be among the most important, if not the most important, issue to get right in 2021 and beyond. If inflation looks likely to remain subdued, then we can “keep walking because there is nothing to see here, folks.” If inflation looks likely to make a modest comeback, then overweighting inflation hedges in portfolios would make sense. In recent months, there has certainly been some comeback-like action in the prices of assets that might benefit from higher inflation. If inflation were to make a big comeback, bond yields would soar. That could cause a credit crunch, a recession, and a bear market. I am inclined to keep walking.

Nevertheless, by popular demand, I will be returning on a regular basis to see what I can see on the inflation front.

I am counting on four deflationary forces to keep a lid on inflation. They are Détente (a.k.a. Globalization), Disruption (a.k.a. Technological Disruption), Demography (as in aging populations), and Debt (as in too much propping up zombie companies). I discussed the “4Ds” in my 2020 Fed Watching book
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Re: Whence inflation?

Post by dknightd »

Just for fun, to buy a model T today would be about
$400 x 1.03 **100 ~ $8k
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: Whence inflation?

Post by jeffyscott »

dknightd wrote: Thu Feb 04, 2021 6:38 pm Just for fun, to buy a model T today would be about
$400 x 1.03 **100 ~ $8k
$850, according to this:
https://www-history-com.cdn.ampproject. ... %2Fmodel-t

If so, then inflation calculator says that's equivalent to about $11K using 1920 or $22K using 1913.
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Re: Whence inflation?

Post by jeffyscott »

jeffyscott wrote: Thu Feb 04, 2021 7:09 pm
dknightd wrote: Thu Feb 04, 2021 6:38 pm Just for fun, to buy a model T today would be about
$400 x 1.03 **100 ~ $8k
$850, according to this:
https://www-history-com.cdn.ampproject. ... %2Fmodel-t

If so, then inflation calculator says that's equivalent to about $11K using 1920 or $22K using 1913.
Ah, I guess it's both prices:
https://www.cardonationwizard.com/blog/ ... d-model-t/
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Re: Whence inflation?

Post by willthrill81 »

David Stein, host of the Money for the Rest of Us podcast, had a great episode this week on recent inflation. He provides evidence to suggest what many here have also put forward: the inflation we've seen over the last decade and especially the last year has not impacted the prices of the goods and services that CPI tracks nearly as much as it has impacted the prices of assets like stocks and real estate.
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Re: Whence inflation?

Post by Dale_G »

The grocery ppi looks about right. My pension buys 1/2 as many loaves of bread today than on my start date in 2001.

And looking a little farther back along the trail to 1948, bread was 10 cents a loaf and a glass of beer was an nickel. A 10" black & white tv was about $400 = about 4,000 loaves of bread or lots and lots of beer. The TV was a tough choice for my dad.

Please let me know when Ibonds are pegged to the price of bread.

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Re: Whence inflation?

Post by AlwaysLearningMore »

Here's the March 2021 CPI-U release from BLS. See how the relative importance of each category applies to your individual situation. https://tinyurl.com/yh233gkf

"The Bureau of the Fiscal Service announced the reference Consumer Price Index (CPI) numbers and daily index ratios for Treasury inflation-protected securities (TIPS).

This information is based on the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S. Department of Labor."
https://tinyurl.com/5cnpkm9d

"Interest on an I bond is a combination of two rates:

A fixed rate of return which remains the same throughout the life of the I bond

and
A variable inflation rate which we calculate twice a year, based on changes in the nonseasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy (CPI-U for March compared with the CPI-U for September of the same year, and then CPI-U for September compared with the CPI-U for March of the following year)."
https://tinyurl.com/29bm2tew


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Re: Whence inflation?

Post by bgf »

bottlecap wrote: Thu Oct 08, 2020 7:15 pm The government calculates inflation stupidly. Likely because it masks true inflation. Money doesn’t flow only into goods that are in the CPI. It flows into stocks, bonds, real estate and innumerable other things.

Velocity of money can be a symptom, but not a cause. Velocity of money doesn’t affect how I determine how much I’m willing to pay for goods (which, whether you agree or not, is how the CPI measures inflation, at least with respect to a limited number of goods). I doubt it factors into anyone else’s decisions, either.

JT
Inflation is bad insofar as it destroys purchasing power. Why count an increase in wealth (stocks, bonds, real estate) as 'inflation'?

If wages are increasing in such a way that standard of living is not decreasing over time, markets remain liquid and robust, and the economy continues to grow, then where is the problem?

People are constantly looking for a solution to a problem that does not exist. Inflation is not a problem in US, Europe, or Asia.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
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Re: Whence inflation?

Post by willthrill81 »

bgf wrote: Sun Apr 18, 2021 1:12 pm
bottlecap wrote: Thu Oct 08, 2020 7:15 pm The government calculates inflation stupidly. Likely because it masks true inflation. Money doesn’t flow only into goods that are in the CPI. It flows into stocks, bonds, real estate and innumerable other things.

Velocity of money can be a symptom, but not a cause. Velocity of money doesn’t affect how I determine how much I’m willing to pay for goods (which, whether you agree or not, is how the CPI measures inflation, at least with respect to a limited number of goods). I doubt it factors into anyone else’s decisions, either.

JT
Inflation is bad insofar as it destroys purchasing power. Why count an increase in wealth (stocks, bonds, real estate) as 'inflation'?

If wages are increasing in such a way that standard of living is not decreasing over time, markets remain liquid and robust, and the economy continues to grow, then where is the problem?

People are constantly looking for a solution to a problem that does not exist. Inflation is not a problem in US, Europe, or Asia.
Your point is good. If the prices of goods and services are increasing at a slower pace than the growth of one's investments, that's fantastic.
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Re: Whence inflation?

Post by index2max »

Not sure whom OP is trying to convince there is not inflation. I can clearly see it right in front of me.

The money supply of dollars is increasing all the time. An increase in the money supply IS THE DEFINITION OF INFLATION.

https://wiki.mises.org/wiki/Inflation#Rising_prices
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Re: Whence inflation?

Post by ROIGuy »

I am starting to see what I like to call "hidden inflation" with our groceries. Instead of charging more money the manufactures are keeping the prices about the same but reducing the amount of food in the package you buy. Though it is not showing up in any type food price index the effect is the same as having higher food prices.
I have seen loaves of bread with smaller size slices, but the price is the same. I bought some Gefilte fish (same brand that I always buy when I want this), the price was the same but the pieces were 30% smaller. When I checked the nutritional info, each piece was 30% reduced in calories on the label from earlier purchases.
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Re: Whence inflation?

Post by AlwaysLearningMore »

rockstar wrote: Mon Oct 12, 2020 6:51 pm
Tommy wrote: Mon Oct 12, 2020 6:41 pm Question is not have we inflation or not. We do. TV you are buying once in a while (my TV 12 years old). Food you are buying daily. Food prices increased 10-15% at least. Housing going up (OK you own home and don't care but property taxes up. Mine up). Education up - just paid 2.4% more for my daughter fall semester than paid for spring one. Especially funny with remote education.
Healthcare costs going up. Utility goes up. Gas - looks like not going up but look in the oil prices. Oil prices dropped - gas not. We driving less today but as soon as driving pick-up - you will see gas prices. Salary growth outpace inflation? Not for everyone.
So, in areas what really affect daily life: food, utility, healthcare - inflation exists.
This how I think about inflation, not the headline number. I don't spend in the same proportions as any of the inflation indexes. Telling me that the headline number is 1.5% doesn't mean much to me.

If you're thinking about saving for retirement, you need to make sure that your portfolio keeps up with your personal inflation rate. That's what I like to call it. I have pretty much locked down my housing costs. I'm refinancing, so that will drop those costs a little bit. But then it comes down to upkeep and appliance/HVAC replacements and property taxes.

Then, it's food, utilities, and healthcare.

On top of this would be any future auto purchase and gas costs as well as costs for travel. I also upgrade my smartphone every three years. I upgrade my TV every ten, and I upgrade my laptop every five years. So I care about the price increases for these items when I go to purchase them.

The reality is that TIPS won't keep up with my personal inflation rate. My personal inflation rate easily exceeds 2%.
A recent Frazier Rice podcast featured the founder of Quadratic Capital Management. She pointed out the large component of CPI-U devoted to shelter. https://tinyurl.com/4z8zaatk The sense I got was that she felt devoting over 1/3 of the relative importance of the CPI-U to either rent or owner-equivalent rent is higher than some people might appreciate.
She certainly didn't miss any opportunity to hawk their ETF (IVOL, ER 0.99% per Morningstar https://tinyurl.com/43e8m33p ).
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Re: Whence inflation?

Post by willthrill81 »

index2max wrote: Sun Apr 18, 2021 1:39 pm Not sure whom OP is trying to convince there is not inflation. I can clearly see it right in front of me.

The money supply of dollars is increasing all the time. An increase in the money supply IS THE DEFINITION OF INFLATION.

https://wiki.mises.org/wiki/Inflation#Rising_prices
No, it isn't. Inflation refers to an increasing nominal price for goods and services, as noted here. An increased money supply does not necessarily lead to a lockstep increase in prices; economists have known this for a long time now.
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Re: Whence inflation?

Post by willthrill81 »

Mr.BB wrote: Sun Apr 18, 2021 1:46 pm I am starting to see what I like to call "hidden inflation" with our groceries. Instead of charging more money the manufactures are keeping the prices about the same but reducing the amount of food in the package you buy. Though it is not showing up in any type food price index the effect is the same as having higher food prices.
I have seen loaves of bread with smaller size slices, but the price is the same. I bought some Gefilte fish (same brand that I always buy when I want this), the price was the same but the pieces were 30% smaller. When I checked the nutritional info, each piece was 30% reduced in calories on the label from earlier purchases.
Yes, shrinkflation does occur and has for many years. In some contexts, it seems to be driven at least in part by Americans desiring smaller portions than before for health reasons, but that's clearly not always the case.
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Re: Whence inflation?

Post by ROIGuy »

willthrill81 wrote: Sun Apr 18, 2021 2:07 pm
Mr.BB wrote: Sun Apr 18, 2021 1:46 pm I am starting to see what I like to call "hidden inflation" with our groceries. Instead of charging more money the manufactures are keeping the prices about the same but reducing the amount of food in the package you buy. Though it is not showing up in any type food price index the effect is the same as having higher food prices.
I have seen loaves of bread with smaller size slices, but the price is the same. I bought some Gefilte fish (same brand that I always buy when I want this), the price was the same but the pieces were 30% smaller. When I checked the nutritional info, each piece was 30% reduced in calories on the label from earlier purchases.
Yes, shrinkflation does occur and has for many years. In some contexts, it seems to be driven at least in part by Americans desiring smaller portions than before for health reasons, but that's clearly not always the case.
I never heard the term "shrinkflation" before. But that is the perfect term.
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Re: Whence inflation?

Post by bgf »

Mr.BB wrote: Sun Apr 18, 2021 1:46 pm I am starting to see what I like to call "hidden inflation" with our groceries. Instead of charging more money the manufactures are keeping the prices about the same but reducing the amount of food in the package you buy. Though it is not showing up in any type food price index the effect is the same as having higher food prices.
I have seen loaves of bread with smaller size slices, but the price is the same. I bought some Gefilte fish (same brand that I always buy when I want this), the price was the same but the pieces were 30% smaller. When I checked the nutritional info, each piece was 30% reduced in calories on the label from earlier purchases.
Yet every time I order a soda fountain drink (which is very infrequently) I'm shocked at what size a 'medium' is these days. I thought they were handing me a bucket with a tiny little thing sticking out of the top of it.

It's weird how some things have grown and others have shrunk. Must be driven more by preference than inflation.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
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Re: Whence inflation?

Post by alex_686 »

Mr.BB wrote: Sun Apr 18, 2021 2:08 pm
willthrill81 wrote: Sun Apr 18, 2021 2:07 pm
Mr.BB wrote: Sun Apr 18, 2021 1:46 pm I am starting to see what I like to call "hidden inflation" with our groceries. Instead of charging more money the manufactures are keeping the prices about the same but reducing the amount of food in the package you buy. Though it is not showing up in any type food price index the effect is the same as having higher food prices.
I have seen loaves of bread with smaller size slices, but the price is the same. I bought some Gefilte fish (same brand that I always buy when I want this), the price was the same but the pieces were 30% smaller. When I checked the nutritional info, each piece was 30% reduced in calories on the label from earlier purchases.
Yes, shrinkflation does occur and has for many years. In some contexts, it seems to be driven at least in part by Americans desiring smaller portions than before for health reasons, but that's clearly not always the case.
I never heard the term "shrinkflation" before. But that is the perfect term.
There is no such thing as shinkflation. Shrinkage, yes.

CPI tracks changes in size and adjust accordingly.

Yes, it affects your emotional response, but not the cold hard analytical value for of numbers.
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