> don't include food, energy, housing, or healthcare prices
Straw man. Core inflation includes housing and healthcare.
If one can’t understand why food and energy inflation aren’t cleanly a monetary phenomenon in the midst of Russia, an energy exporter, invading Ukraine, a food exporter, I’m not sure how to help.
If one can't understand why the value of their money goes down as the government buys trillions of dollars of their own debt with non-existent money, I'm not sure how to help.
>It's clear as day on the Fed's balance sheet the reason for inflation
Yet there was not this inflation during the Fed balance sheet runup in 2008-2018......
So maybe your simple claim is not what is the cause. More likely is that in 2008, the balance sheet was loans to banks (paid back), whereas in 2019+, the increase was from money being handed to people?
In fact, your total assets graph is misleading. Look at the same graph, under the selected liabilities breakdown - the monetary base has been steady, with no inflation for most of it. The big recent increase is in purchase of Treasuries, which is the money the govt gave to the people to help them through the COVID caused downturn. This is a good use of money, and of course giving people money with no gain in production will lead to inflation, but it's not the Fed at fault - it's elected officials voting for free money.
> More likely is that in 2008, the balance sheet was loans to banks (paid back), whereas in 2019+, the increase was from money being handed to people?
Unsurprisingly, the lion's share of that money handed out for covid relief wasn't given to people. It was corporations that, once again, walked away with most of it. Going back even further, the 2016 tax bill also provisioned way more money to corporations compared to the time-limited-bone they threw at people.
While its fair to say handing out money can cause inflation, lets not kid ourselves about who is really getting that money.
>the lion's share of that money handed out for covid relief wasn't given to people.
Wrong [1]. 1.8T directly to people, 1.7T to businesses. I'd not call that a lion's share.
>It was corporations that, once again, walked away with most of it.
And a significant part of that was to pay, you guessed it, people :)
Of the 1.7T to businesses, 835B went to paycheck protection program (i.e., people wages) , 85B to a delay (not handout) of employer payroll tax (so this will be paid back by the businesses), and a significant number of loans, not handouts, that have to be paid back.
And keeping companies alive, i.e., jobs available, has vastly better long term economic value than simply giving it to people, since at some point those people will really like having a job for a continued income.
Tell me again of the 1.8T given to people, how much was loans that have to be paid back? And what is that ratio for the business side?
> Yet there was not this inflation during the Fed balance sheet runup in 2008-2018......
Could you think of something which happened in 2008 which might have impacted the velocity of money in the global economy, despite the aforementioned QE? QE works great following a recession. For quite a number of years later, in turns out. But not forever. At some point the economy recovers and continuing to pour gasoline on it stimulates it beyond the target inflation zone.
> Could you think of something which happened in 2008 which might have impacted the velocity of money in the global economy
You and the comment you’re responding to agree on the Fed’s balance sheet being insufficient per se to explain core or non-core PCE. It's a complicated phenomenon.
> Yet there was not this inflation during the Fed balance sheet runup in 2008-2018......
Asset prices are prices, they're just not part of the CPI.
The early part of the inflation fed almost entirely into financial assets. Take a look at the absolutely INSANE multiple expansion of the S&P 500 for this time period, as well as the INSANE monotonically decreasing yield curve in literally every kind of debt security.
>Take a look at the absolutely INSANE multiple expansion of the S&P 500 for this time period
Fed added 3.5T in balance sheet over this time. S&P 500 market cap went from $12T to $23T (and this is not counting all the other market caps from other stocks and exchanges not in S&P 500). It's not unreasonable that investment market caps have increased tens of trillions over this time.
So it's pretty hard to claim the Fed injected this money into the stock market. It's much more likely that as the world is changing some companies are viewed as increasing in value due to the products and services being more valuable than before.
I am going to need to borrow this as a retort because frankly it's a very fair response to the parroted line above, which I keep hearing variations of.
But, see, your analysis doesn't inspire confidence in the economy which is bad for the economy. We need a different explanation. Ya know like "transitory inflation". Dam, used that, I guess Ukraine.
Many people on HN seem really unfamiliar with the concept/importance of monetary velocity. Given that price level * output = Money * Velocity, you would think you might want to look at a chart of velocity before blaming the price level on the balance sheet.
Afaik Monetarists like Friedman assume that velocity is a constant, but this trickles down to most gold bugs I meet not even knowing the inflation equation.
Correct, but the Ukraine invasion caused a distinct spike. You can see this in how March is an outlier in the data (37% of the energy commodity inflation for the entire year in a single month)
> Instead, the BLS uses an owner’s equivalent rent (OER). The BLS estimates the OER by asking homeowners how much they could charge to rent their home.
Shouldn't core inflation include everythign that "regular people" need to keep food on the table and a roof over their head and a basic existence (health care)?
> Shouldn't core inflation include everythign that "regular people" need to keep food on the table and a roof over their head and a basic existence
That’s headline inflation. It’s politically relevant. If you're running for Congress or the President of the United States, this is the one that gets you in and out of office.
Core inflation is monetarily and thus more financially relevant. It singles out what central banks can strategically respond to. (You don’t want to raise rates because an energy exporter invaded a food exporter; rates aren’t the problem.)
One reason why it matters is so you can make predictions and plan accordingly. If it is because of a short term shock or a medium term problem or a long term global configuration change then your response to $7 gas will likely be radically different.
I guess…
If it’s a short-term problem and you’re living paycheck to paycheck, you’re screwed now but might be OKish in the future.
If it’s a long-term problem and you’re living paycheck to paycheck you’re screwed for longer.
Honestly, what’s the play here for someone who doesn’t own any significant assets and barely makes enough to pay bills each month? That’s what I read as OP’s point.
One thing is paying a gas bill. In my state, I can lock in a price for 6,12,18, etc months. Or I can pay month to month.
If I’m living paycheck to paycheck and my current term runs up, I would go month to month if this is a short term spike since prices should recover soon. But if it’s long -term, I should go ahead and lock in now because it won’t get better.
There are tons of those examples. Even people with no assets and just living month to month can use this information. Obviously, billionaires are impacted more, but people might literally be trying to figure out if they just skip meat for a month (short term) or buy a bicycle (long term).
If you don't understand the cause for it, then attempts to fix the not-cause may cause more or bigger problems in other parts of the economy.
This is in part complicated because there isn't necessarily one cause.
If it was caused simply because the supply chain shock from different spending habits of consumers from the pandemic, then that would sort itself out as the supply chain adapts to the different habits - going from just in time to just in case in many places.
If it was caused by an increase in energy prices, then increasing supply (and importantly, having the existing energy reserves be used).
(and so on)
The other side to this is the managing expectations. If you know that you can't fix it by just adding more oil to the market, then that data can be used to manage the expectations for all parts of the economy. "No, this isn't going to get better for some time" is a valid answer.
If people wanted to vote to keep peace and a stable economy, they probably wouldn't have voted for Biden.
Supposedly a majority voted for this and are now complaining about what they voted for. Maybe they didn't vote for this and voter fraud really did happen...
Boston, MA -> Philadelphia, PA (511km):
By car: 5h15
By Amtrak (this Monday): $311 for business on Acela, 4h54
By Amtrak (next Monday): $119 for coach on NR, 5h50
Munich Hbf -> Berlin Hbf (582km):
By car: 5h23
By DB (this Monday): 195eur for 1st class on ICE, 4h34
By DB (next Monday): 68eur for 2nd class on ICE Sprinter, 3h57 OR 48eur for 2nd class on ICE, 4h34
And Munich - Berlin is one of the worst DB connections. And DB is one of the most expensive systems in Europe.
Must have changed since I last looked into this. I remember that German trains used to be about as expensive as driving. I guess I need to update my knowledge: if you book in advance, German intercity trains are pretty cost competitive with single occupancy vehicles. Sadly, this means that if I lived in Germany, it would be much cheaper for my family to drive everywhere.
FWIW, the travel times you post are not instructive, because you are not going to drive from Hbf to Hbf. Getting to the station, waiting for a train, and getting from the station to the final destination will increase travel length substantially. At the same time, not having to drive into city center (where Hbfs are) will decrease drive times.
Should make you wonder how much other outdated/incorrect information you unknowingly spread in the same fashion.
> Sadly, this means that if I lived in Germany, it would be much cheaper for my family to drive everywhere.
Only if you don’t factor in massive discounts for children (who ride for free until they’re 15) or even small groups of people. Eg. the Bayern-Ticket - can’t really beat a day trip to an alpine lake town for 32eur total (for a couple with young children, and no need to book in advance).
Oh, And don’t forget about that 25% Bahncard discount that pretty much pays for itself after taking two train trips in a year.
> FWIW, the travel times you post are not instructive, because you are not going to drive from Hbf to Hbf.
Ending up in the centre next to a main station is actually one of the biggest benefits over flying or driving in my experience. Maybe it’s just the way I plan my trips, but I almost always end up wanting to be in the centre of wherever I’m going to, anyway.
Total cost of ownership of a car will likely be higher (especially if it’s a nicer car, and you use it in places where you need to pay for parking), but public transit and cars are not exactly equivalent products.
Public transit can be very cheap and convenient for some use cases: for example, if you live close to a stop, your destination is close to a stop, there is straight transit line between the two places, it runs frequently and has few stops on the way, and you usually travel by yourself. If all of the above is satisfied, it will likely to be more cost effective and similarly convenient to use public transit. However, for many other standard use cases, public transit is by nature very inconvenient compared to cars: for example, if you visit grandma with your small kids on a regular basis, grandma lives in a small town, getting to which on public transit from your home requires 2 transfers, and is only reasonably possible twice a day at very particular times. In that scenario, which, by the way, is (in some form) extremely common for most people who aren’t single professionals living in big city, public transit is just a non starter, even in Germany.
Since the latter scenario is, as I point out, rather common, most people own a car anyway. At that point, you’re already paying the total cost of ownership just to use it on routes where public transit is extremely inconvenient. This changes your calculation on routes where public transit actually is pretty convenient: sure, public transit on that route might win with total cost ownership of the car, but once you already have a car, fixed costs are already sunk, so public transit is now competing with marginal costs, and it might very well then lose.
For this reason, even in countries with good public transit, it is largely a domain of students, young singles, and retirees, and working people with families overwhelmingly own and use cars.
Out of all the arguments I'm seeing on here, this feels particularly bad faith. Throughout my maybe decade and a half in the macro world I've never heard anyone even attempt to make this argument.
Inflation clearly affects cost of living because wages are stickier than prices. You don't walk into work every monday morning and get your wages increased by CPI.
If you think prices are going up with a corresponding increase in disposable income, you need to explain how this is possible at all. I don't think it's impossible, but it certainly is incompatible with an often-cited theory of inflation.
I don't even understand what you are trying to say.
> If you think prices are going up
I don't think prices are going up. I factually know prices are going up. We keep track of this data
> you need to explain how this is possible at all.
sure. Let's say I have a grocery store. I pull off the price sticker from last week and put a new one on this week. I don't even understand how this is a question.
You can argue the root causes all you want but just writing the words "there is no inflation" isn't an argument.
Sorry about the confusion, I meant to say "if you think prices are going up without a corresponding increase in disposable income", not "if you think prices are going up with a corresponding increase in disposable income".
As it turns out, people are paid in nominal dollars, not real ones, and what happens id the nominal prices go up, while wages stay stagnant in nominal terms, so they fall in real terms.
Yes, printing a whole lot of new money tends to do that. As it happens, though, wage workers are not the first one who get a hold of that new paper. It does, in a way, trickle down to them. It’s only after the prices go up, and competitors start offering higher wages, they get any leverage to get a raise in their current job. This means that and wages will, on the whole, lag after inflation.
That's not how monetary policy works. The "new paper" that is "printed" by the central bank is traded for a financial asset, typically a bond. The counterparty which previously had a bond, now has cash. It's unclear how the counterparty can take advantage of this situation at the expense of everybody else (which is what you suggest is happening).
This desperate “it’s Russia’s fault!” angle being pushed by the establishment right now is not convincing anyone with more than two brain cells. We all saw and experienced the massive inflation and supply chain issues longggg before that war started and there’s mountains of data that shows that to be the case.
So what you are telling me is that if you own your home, drive an electric car, grow at least some of your own food and try not to get injured you can pretty much beat the system? Thats the dream!
These days the word "boomer" triggers anyone older than elder millennials, and somehow it's furthermore become a bit politicized. Most people also don't know that Generation X or the Silent Generation exist, and many don't know which one they are, other than "boomer=old/bad". It's become a bit of a slur, and that's not what I intended.
The core inflation tells you that this is more than a fluke in energy prices.
I would say it is due to loose monetary and fiscal policies (duh).
Maybe we are in for a 70es rerun; and the 70es inflation spiral didn't really end until Paul Volker, Thatcher, and Reagan changed the economic policies.
Also stopping the inflation spiral helped bankrupt the Soviets who were a great benifitter of the rising commodity prices ... just a hint.
Wasn't Volker nominated by Carter? And based on the premise that Volker would be doing what Volker did? Does Reagan deserve the praise there? Only mentioning because the Volker nomination was such a good move that I want to make sure the right person gets credit.
I feel like Biden has been surprisingly willing to do "the right thing" in spite of political fallout. Like leaving Afghanistan, even though it led to the Taliban regaining control.
Biden delaying and screwing up Trump's plan to pull out of Afghanistan that was already in progress and getting Americans killed, leaving millions/billions of dollars of equipment, and sacrificing people who helped our soldiers to the Taliban is "the right thing"?
Trump never pulled out of Afghanistan, just talked about doing it and "made plans" that he handed to his successor to execute.
Just like Obama, really.
Biden actually did it, and paid the political price. There was never going to be any way to withdraw without horrific consequences. Which is why neither Obama or Trump actually did it.
And Reagan got all the credit - supposedly he tricked the Russians into thinking the Star Wars program actually worked and that was why they went bankrupt.
Things have obviously changed - but the basics are still there: inflation comes from monetary and fiscal expansion - once the spiral picks up - commodities lead the way - and that’s the Russians.
Volcker raised rates to almost 20% to break inflation in the 70s. But that's when debt was low and we were able to service it. Now that debt is high, how much can the Fed actually increase rates? Are they out of options?
I agree. What the fed missed here when they originally said transitory was just how long it would take the supply chain to recover. Places in China are still doing zero-covid style lockdowns causing further shocks to supply around the globe. Throw in a war that drove energy prices up, and you have quite a number of existential factors that could quickly go in the other direction.
But if inflation is so high because we made way too many dollars (compared to Europe not making way too many euros), why has the dollar been strengthening against the euro?
Not saying you're clearly wrong, just that there are dynamics that I, at least, am not understanding.
More than that, not only Euro. Currencies in emerging markets and places more disassociated with the U.S. hasn't seen their currencies strengthen in the past year or two against the Dollar too. FWIW, even Bitcoins hasn't strengthen against the dollar in the past year while we are having the inflation.
You'd think that, but data-driven economists were finding low correlations for this kind of (rational) thing specifically for the modern US dollar, which is confusing. Super great PlanetMoney/freakonomics episode on inflation ~last year. If I remember right, this broken state goes back to at least the Obama years, maybe closer to Clinton.
It's a weird state to be in. The rational thing becomes to continue (leverage) the weird situation -- the market expects continued regular high spend for whatever regular big thing of the month/year -- and the irresponsible thing becomes any deviations that risk rocking the boat (ex: risk EU style rallying on austerity becoming a self-fulling prophecy). A lot on inflation concern is triggering FUD loops (sporadic supply chain hits vs YoY spirals), so when we know the market treats USD differently to beginwith, accepting the FUD (by policies that assumes the USD is a weaker currency) is kind of the worst thing policy makers can do. Likewise, most non-US countries rely on USD stability, so probably same thing for their policy makers.
Tried to find -- this was sometime 2020 / early 2021, and from a variety of sources (academic + gov), and pretty sure done by Freakonomics bc it was so weird. Interesting bc casts doubt on basically any expert wrt modern USD vs other currencies.
Yes majority of the inflation is caused by a lack of supply due to covid (lots of things shut down, from microchip manufacturers to international shipping to lumber mills to refineries and produciton hasn't ramped up), and of course crude oil prices increasing.
If you don't think this has any affect on inflation Ive got a bridge to sell you.
The hypothesis that Volker killed inflation has been discredited. Inflation in the 80's, like today, was supply side from reliance on oil for energy. When natural gas replaced oil for energy production in the US, inflation came down.
Covid measures left a whole lot of people working from home, inefficiently, or inefficiently working on location (less customers, higher costs). The efficiency loss is also being paid for partially by rising prices, inflation. Same salary, less work output for it.
We'd need a wide survey. Whatever the HN crowd in aggregate thinks, it's not representative of the whole population who had to work at home, splitting their attention between homeschooling kids and other distractions and work.
I’ve yet to meet anyone who wasn’t more productive after switching to WfH, HN or otherwise. That seems to be the case for my colleagues as well. If you have some data or experiences that show otherwise, feel free to share them.
Lots of people want it to be true. I feel for those who can't admit how far they've fallen behind due to social disconnection or not being able to trade ideas with colleagues. I wish there were more solid studies done. Many use self-estimated productivity. Some seem to simply be pro-remote work, i.e have that as an agenda. That's fine as an interest of course but doesn't answer the question in terms of forcing everyone, for those it's not a good fit.
My workplace is post-remote now. We're back to fulltime in the office. I'm super happy for all the random interaction, problem solving together and coffee breaks. The social interaction enables us to work better in the team.
The best policy was not the topic of the comment but it's probably to let those who want and like remote work to do it.
> I'm super happy for all the random interaction, problem solving together and coffee breaks. The social interaction enables us to work better in the team.
Ah yes, the pervasive disruptive social din of an office. Unstructured, random and disruptive interactions. How anyone achieves optimal focus and gets into the zone when in an office is beyond me.
I've yet to meet more than a handful of person who says they are more productive WFH that actually are. Even then when digging into it most of them will admit their productivity increase came as the expense of team velocity.
"Team velocity" is just a measure of the teams overall performance. I'm a senior software engineer on my team so a large part of my work is not coding but work that helps the team function: code reviews, mentoring juniors, design discussion, adhoc and planned pair programing, triaging issues that are escalated to engineering from the customer support team, etc. The closest I ever get to sales is maybe joining a call as a technical expert if they need more expertise (or assurances on a big contract deal) than the sale tech expert on our product can provide.
Most of these things really are harder to do remote. I could honestly see how you'd be more productive and have stats to prove it if the vast majority of your responsibilities were just code.
Think of your work output as a vector. It has a magnitude - how much work you can get done in say a quarter. It also has a direction - what is the project you're working on, and does that line up in an economically productive way?
The reason we have corporations and management is to get all those vectors to line up in a certain direction. They're like magnets, aligning the productivity vectors of each IC so they don't compete with each other and instead contribute to a common goal. Almost every IC is less productive in terms of magnitude when working in a big corporation, but because there are thousands of them, the overall product becomes very hard to compete with.
WFH effectively reduces the magnetic force on each employee. Their productivity magnitude increases - they get more individual work done per unit time. But their alignment suffers. It's harder to identify when two IC's work is not going to line up perfectly, and harder to catch problems and complications early, and harder to set a direction in the first place.
And that's where WFH is going to suffer. As long as people can basically continue on the same direction they were going pre-pandemic, it's an improvement. But as soon as a direction shift becomes needed, corporations that have gone all-WFH are going to quickly find that the reason they're a corporation has gone away. They won't be able to adapt and chart a new course, and their employees will all quit and join new startups that are already pointed in the right direction.
I mean, I'm probably less productive. But I'd still take it. I think my effective work hours have halved, but my effective productivity has dropped maybe 10-20%, as I've basically become far more aggressive about doing what matters and not the other bullshit that is maybe 'productive', but has no real value (i.e., write only documentation, synchronous communication sessions over things that don't really matter such as the exact wording of some bit of high level guidance, etc).
So my -efficiency- is higher. Total work productivity, sure, taken a hit.
I'm more productive at home, and I'm a man with two kids under ten. My wife works odd hours and must commute, so I'm in charge of before and after school care.
Kids playing happily with their toys or reading quietly are considerably less distracting and disruptive then any open concept office that I've suffered in the past. Unlike many adult coworkers I've had, my kids respect me enough to let me focus.
Also much more productive here. After school activities a few times a week helps and mix of friends or alone time. Not losing 2 hours+ to commuting can do nothing but help productivity and family availability.
So the state takes care of your kids for most of your work day.
Congratulations— you’ve won the lottery by living in one of the few places in the US that has a functioning public school system (or else you’re going the private route, which means you don’t need t congrats to know you’ve won the lottery).
> you’ve won the lottery by living in one of the few places in the US that has a functioning public school system
Are you seriously claiming that's there exists significant portions of the USA where children don't have access to school? That's absurd.
I'm Canadian, my kids go to public school. In fact, we're walking there right now; a privilege I wouldn't have if I had to be in a car, commuting to an office at this moment.
Public school is available pretty much everywhere in the US, but it is not necessarily very high quality depending on demographics primarily, which is deeply unfortunate. Most "normal" families cannot afford to go anywhere else.
While there are many jobs that could be done more efficiently from home (massively biased towards knowledge work) there are plenty of jobs which are less effective from home.
If you recall "ping-gate" entire underground lines were shutdown in the UK due to people working jobs that can't be done remotely.
My passport took forever to get renewed during the very first lockdown due to disruption to a fairly manual process that required handling of physical things (eg a passport)
During the pandemic, my ballet instructor switched from teaching in-person classes to teaching online classes.
Although they saved money on studio rental and travel, they ended up teaching far fewer students - despite starting out with an established group of regular students, and charging much less than an in-person class would cost.
Yeah I'll concede this. Job numbers are often similar. They jump a lot month to month. Unless there is some crazy spike that you just can't ignore, it's better to use a trendline.
This headline may be "wrong" in your eyes but this is the way that inflation is universally reported. Even finance centric news sites such as Bloomberg or WSJ report inflation in this way. It is universally understood to mean year ending.
You're just not right. Saying prices rose 8.5% in March means prices rose 8.5% in March, not in the year ending in march. Reputable journalists say inflation rose to 8.5% in march, which isn't the same as saying prices rose 8.5% at all. I really don't think this is petty at all. Saying prices rose 8.5% in a month is incredibly misleading.
My comment isn't that the wording is right. It's that there is no ambiguity on what is actually being reported. This "issue" only exists in the mind of grammar warriors on message boards.
That's how you know you are talking about a first-world country. My dear home country had an official (likely underreported) inflation rate of 5.5% in March alone.
Some news outlets falsify their inflation reporting as a matter of course. Consumer prices obviously did not rise 8.5% in March, they rose 8.5% over the preceding twelve months ending in March.
TBH, I'm pretty surprised that core inflation seems to have not grown as much as expected. That's actually very good news, given that core inflation is lifted by fuel prices (since increased fuel prices influence prices across the economy).
This... seems like a good news story?
Obviously the Russian invasion of Ukraine has royally messed up fuel and food prices, but that's a specific shock that's independent of larger macroeconomic issues.
> Headline CPI in March rose by 8.5% *from a year ago*
Another notable piece:
> core inflation appeared to be ebbing, rising 0.3% for the month, less than the 0.5% estimate
which matches the other commenter mentioning that the gas prices were a massive contributor to this.