Do you believe posted inflation rates?

In My Humble Opinion
41

Surprised to see this hasn’t been mentioned before. If somebody did say it and I skipped over it I apologize. So here goes …

I know the OP is in Canada, so this may not be fully applicable to his question / situation.

In the US at least, the price of food and fuel is explicitly NOT included in the Consumer Price Index=CPI. Despite the name “Consumer” in the index and despite the fact, as mentioned by many folks above, that groceries and gasoline are very, very visible parts of individual households’ weekly consumption. And very significant parts of the weekly budget for those for whom money is tight. Which is a vast and shamefully large percentage of our people.

Why this obvious omission? Because those two items have very volatile pricing. If they were included in the CPI at a share appropriate to the spending mix of the very budget-conscious lower middle class we’d see inflation rates jumping around anywhere between WAG -2% to +5% annualized every single month! That data would have so much noise the signal would be obscured.

Better in the experts’ view to leave those out. If, say, oil and hence retail gasoline prices are heading steadily upwards, pretty soon that will feed forward into the prices of lots of other stuff that is included in the CPI basket. Ditto when food and/or fuel prices fall; soon enough that gets reflected in the rest of the basket.

So the CPI does reflect the longer term trend in fuel and food prices in these things albeit with a lag.


Unrelated to the above, this post from earlier in this thread is very insightful and deserves a shout-out:

Thank you Sam.

42

This is false:

https://www.bls.gov/cpi/factsheets/common-misconceptions-about-cpi.htm

Has the BLS removed food or energy prices in its official measure of inflation?
No.

There are some measures of CPI that remove them (core CPI, I think), and some that include them.

43

Thank you for setting the record straight.

Core CPI is the one I tend to think of which is ex-food & ex-fuel, but as your link to the official site makes clear, the so-called “headline CPI” that most sources quote does include those things.

I suspect I’m remembering from the era before we had quite so many different CPIs.

Interestngly, the dynamic chart here at the CPI home page clearly shows the outsized influence of food and fuel this month and the difference between the CPI with- and with-out.

44

In fact, the latest Canadian inflation figures went from 2% to 3.8%. Up 3.6% US in the news today. I say I called it early and am claiming vindication.

45

Just their morning Bloomburg Finiancial reported up to 4.6 depending on where you live.

46

Hey, I’ve been saying inflation is coming for years. You can’t keep printing money to pay for borrowing without it eventually resulting in inflation. TANSTAAFL.

The trick is predicting when it will hit. It’s like dropping pebbles on a pile. At first, it’s totally safe. But with each pebble you drop the odds grow that the pile will collapse. You just can’t predict which pebble will do it.

The public choice problem is that every time we drop a pebble and nothing happens, some people use that as evidence that pebble dropping is cost free, or can even be accelerated because clearly nothing goes wrong when we do it…

There is also a transitory inflation problem as we finally confront the damage to supply chains from a year of lockdowns while also seeing pent-up demand from those lockdowns unleashed. That is going to be made significantly worse by printing 6 trillion dollars and using it to ‘stimulate’ an economy that is already overheating.

How much current inflation is transitory and how much is structural is an open question. It’s going to be a mix of both. In either case, borrowing more money to spend on tying up even more labor and resources is a very bad ‘solution’.

47

How many years have you been singing this song, Sam? However many it’s been, you’ve been wrong each and every one.

I’m confident that you’re wrong again this year.

And you don’t get to weasel out of your many failed predictions by saying SOME DAY I’ll be right. You’re wrong because you’re describing the situation incorrectly and failing to understand it at all. BTW, I’m not saying that infinite expansion is possible. I’ve been saying for years that the level we are at is sustainable and if anything is way too low. And when I say that we’ve gone too low for many years, I have the hindsight available to look back and say I was right each and every year, unlike you.

I feel very safe in predicting that at the end of the Biden years (or the Biden/Harris years) we’ll be able to look back and see that I was right again.

48

I have never put a date on when things will hit the fan. Complex systems are unpredictable, and governments have a lot of power to delay pain by increasing it in the future.

Just what do you think the end game is here? Do you think the 6 trillion dollars Biden wants to borrow and spend will be costless? Do you think the central bank printing the money to enable buying T-bills at below-market rates will be costless?

Is any of this sustainable? What can’t go on - won’t. Even if there is no inflation, there will come a day when the borrowing has to stop, but the interest on the money will still have to be paid. That’s when you will see a drag on the economy. And if there isn’t inflation, there will be some other form of pain instead. High interest rates, removal of money from the system which restricts bank loans or has other effects.

At least the Keynesian argument could be defended - that in a deep recession you need to spend money to prevent the atrophy of the economy due to low demand, somthe cost of borrowing will be made up by the savings earned in sustaining the economy and preserving businesses that we would need when the recession is over. Keynsians admit that borrowing has costs - they just think that the ‘multiplier’ from spending in a depressed economy,outweighs the costs. But when an economy is close to full output or is resource constrained as it is now, there is no multiplier.

How do you defend this kind of spending when employers are already having a hard time finding workers and the price of raw materials is skyrocketing due to demand outstripping supply?

And how do you justify borrowing so much money that interest rates can not be allowed to rise with inflation, or the government would be bankrupted by debt servicing costs?

Every time we borrow more we increase the systemic risk to the economy and reduce our ability to act in the face of another crisis. Eventually it WILL bite us, hard.

And if we were allowed to take bets here, I’d take your bet. It not a certainty that bad stuff will happen in Biden’s term, but it’s going to happen at some point, or if not it will be because we shift to a long term austerity while we pay down the enormous debt.

The other way to get rid of this debt is to allow it to be inflated away - a tactic that also destroys the savings of everyone, lowers real wages, and rewards the asset owning classes. You Democrats should care a lot about that possibility.

49

As a free-market advocate I have some empathy for your position but if we haven’t had inflation in the last 15 years how can you claim that NOW the policies have created inflation? Wouldn’t the pandemic be a much more likely cause? If we have high inflation for the next five years then I’d be more likely to blame the Fed.

50

Say you own an apartment house. You have not properly maintained the building inside or out. The cost of doing so is enormous. Yet the potential return on your investment will more than repay the outlay, and just as importantly improve conditions for everybody living there for decades to come.

Do you let the building decay and rot or do you invest for the future?

Picking the first option may be viable if you neither care about the people living there or if you have other buildings that are not rotting. If your one building is essentially the only one that exists, you pick the second option every time.

Letting the country rot is not an option. The government is by far in the best position to invest in it. Seriously, who else is even in the running? Austerity is an answer like the gold standard is an answer. It has never worked and always made conditions worse. The possible outcomes overwhelmingly favor pouring money over the manifold problems to fix them before society collapses, which is the inevitable result otherwise.

51
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And lumber prices are down ~40% from their May highs.

Time to worry about deflation, right?

53

I knew I shoulda shorted lumber futures! Damn.

This week I went to 3 local full-sized grocery stores of 2 different major chains in search of ground thyme. Each store carries 2 or 3 mainstream brands of bottled dried spices. No thyme. Plenty of cardamom and sage and onion and you-name-it . But no thyme. Nil. Nada. Zilch.

Apparently it’s thyme to worry about the supply of essential spices.

54

What is your critique of the methodology? I won’t even challenge you to come up with a better one.

55

If a price triples than goes down forty percent… hmmm… carry the two…

In other news, Canada’s realtors are predicting a 20% rise in housing prices this year. They are an optimistic group, but still…

56

Gas prices tend to be more volatile than other routine expenses, say, groceries. People who are living paycheck-to-paycheck are probably broadsided when gas goes from $2.50 to $3.15 because they are on the edge. Also I think there is also a bias about gas prices, which can be seen when buying a car. Gas over the life of the car is a relatively small part of total cost of ownership but people seem to be fixated on gas mileage.

I also wonder about people who spend $60 a week on cigarettes worrying about gas prices.

57
58

Of course parsley and rosemary were also abundant. Hence

59

I have plenty of thyme, but prefer it fresh in my jerk. Was I sage? Horseradish! Paprika is simply seasoned.

60

Thyme has no futures?