[drtillberg]

> Remember that some people thought that government borrowing ... facilitated by quantitative easing (Fed bond-buying) ... was going to lead to substantial inflation. But it didn’t.

Every time someone says "but where's the inflation" I sigh. Look at literally any financial asset, SP500, stocks, real estate, even bond values (the inverse of interest rates). There is your inflation.

Maybe we like asset inflation, maybe we don't, but that's where it is. When the author claimed to be unable to find it, I stopped reading.

[farseer]

For the average Joe, inflation is usually the price of milk, bread and eggs going up. America being an agricultural colossus with plenty of farm subsidies mean the price of essentials will not rise. Hence the unique manifestation of inflation in asset prices will not bring masses on the streets unlike most other countries. Coupled this with the fact that other countries are also printing money and are in worse shape ensures there isn't much to worry about yet..

[pstrateman]

The true increase in the cost of living is much higher than the official CPI.

CPI is nearly completely worthless for identifying inflation in the cost of living, which is what actually matters.

[dragonwriter]

> The true increase in the cost of living is much higher than the official CPI.

There's a decent argument that it's slightly higher, especially when you talk about the minimum cost at the low end, because of hedonic adjustments included in the CPI.

There's not, that I've seen, a good argument that it is “much higher”.

> CPI is nearly completely worthless for identifying inflation in the cost of living

This claims is desperately in need of supporting evidence or at least argumentation.

[Supermancho]

https://chapwoodindex.com/

There are resources outside the CPI or individual verticals, to measure inflation.

[throw0101a]

> There are resources outside the CPI or individual verticals, to measure inflation.

No, there are not. CPI is about measuring consumables that one needs to live: food, shelter (either rent or mortgage carrying costs), utilities, clothing, etc. If you want to measure something outside of this basket of goods, then use another word, because "inflation" / CPI is already taken and you're overloading it and causing confusion by conflating different things.

This "index" is garbage. Please see "Inflation Truthers":

> But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year.

> If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years.

> And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year, that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value.

* https://awealthofcommonsense.com/2021/01/inflation-truthers/

* https://news.ycombinator.com/item?id=25644580

So if the GDP grew "only" ~2.5%, then any inflation above that (as the 'truthers' claim), would mean were actually in a recession/depression for the last decade… which makes no sense. If inflation is >5% (per the truthers), then the economic growth would have had to been on top of that, for a nominal growth rate of >7%.

Has anyone been claiming a US GDP growth of 7% or more?

[Supermancho]

> No, there are not.

Yes, there are. What a tiresome exchange.

What the CPI represents is rather narrow, which is described right in the CPI reports, along with links to their numbers https://www.bls.gov/news.release/cpi.nr0.htm

Ultimately the faith in the CPI depends on what you want to ignore. The sampling is 29% of the wage earners from the most populated centers. https://www.investopedia.com/articles/07/consumerpriceindex.... Of course it's biased toward consumerism, but that's a huge problem with calculating the cost of anything today. Even with that caveat, is that a 1.8% increase in shelter cost from 2019-2020? That's not realistic.

Like the unemployment rate, these stats have long ago become politicized to the point they are a reflection of what needs to be portrayed. These numbers (CPI, GDP, Unemployment, etc) can and are manually changed by whatever ad-hoc method that is convenient. It's important to have some insight as to what's going on that would result in a huge disconnect, rather than handwave off the "cranks" who must be complete morons because they are "the other side".

> So if the GDP grew "only" ~2.5%, then any inflation above that, would mean were actually in a recession/depression for the last decade

What you consider a recession and I consider a recession are different things. Consumerism skyrocketed and domestic manufacturing cratered. Commercial property has also bottomed out. The velocity of money has slowed ~2012 until we're at the height of efficiency in velocity...which is molasses. Money doesn't move on anything that isn't land, because that's the lowest risk at this time and middle markets/individuals are failing or barely subsiding.

> If inflation is >5% (per the truthers), then the economic growth would have had to been on top of that, for a nominal growth rate of >7%.

Economic growth is about debt growth, like it or not. All the new debt is in real estate (stocks and bonds for companies and individuals), which is where the inflation is living. see property prices in Los Angeles growing at about 7% year over year, same as a bag of cheetos and wholesale soda costs...but the monopolies are still duking out loss leading with $1 fountain sodas so nobody cares.

Property is immune to the deflation (cannot be outsourced, et al) and the only debt that banks are interested in, on a risk basis. Due to the ungodly improvements in efficiency (and outsourcing) most goods have been subject to massive deflation and have made the functional monopolies (and new tech) look super valuable, driving the tech stock frenzy. Unfortunately, those efficiencies have been maxxed out, more or less. You won't be seeing TVs drop from 700 to 70 (like they did from 7k to 700), the will go back up along with the food prices that have been slowly rising. This rise has been balanced out by the fantastically low prices of goods (eg 40oz Bag of Cheetos have risen just under 10% year over year) or loss leaders duking it out ($1 sodas from Hardees/McDs). Too bad your fast food is still routinely over 15$ a person.

I don't think it's prudent to throw my hands up and say "I just don't understand why things are the way they are, when I have a single number to tell me everything is ok." The CPI is a garbage index. There are reasons why the markets are the way they are and it's not hard to see, regardless of what the US gov wants to say about it.

[SpicyLemonZest]

This index doesn't pass the sniff test. 10% annual inflation would mean that someone making $100k today has the same standard of living as someone making $40k in 2010.

[MrRiddle]

How can you have inflation while most of the services and commodities people are using are not increasing in price? Sure, you have equities rising, but that’s about it. Inflation because call options are flooding the market? Bonds are going down, real estate market is stagnant.

[dayofthedaleks]

Inflation in consumer goods appears in insidious ways, such as shrinking portions in grocery items, decreasing quality of materials, and crapification of services.

[snomad]

A McDonalds double cheeseburger meal costs $8.

I remember when that was 3.99 not too long ago. Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

[throw0101a]

> Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

It was captured. It's just that food, and specifically restaurants is only one component of CPI. In Canada it makes up 5% of the basket of goods ("Food" makes up 17%):

* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...

You are probably 'suffering' from familiarity bias:

* https://www.valuewalk.com/2018/08/familiarity-bias-investing...

* https://en.wikipedia.org/wiki/Familiarity_heuristic

[dragonwriter]

> A McDonalds double cheeseburger meal costs $8.

> I remember when that was 3.99 not too long ago. Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

Probably not exactly (and maybe not even approximately), because while restaurant meals are included in the CPI, the CPI is a somewhat broader index than the “McDonald’s double cheeseburger meal index” (also, McDonald's prices have regional and even store-to-store variation, and it's possible your local prices have varied differently than average for that particular item.)

[manquer]

There certainly is a big Mac index.

The price of big Mac is used as purchasing power proxy.

McDonald's is pretty efficient in their supply chains to use as rough proxy to real world idea of how things are. The variations you talk about don't add up to 100% change in price OP mentions.

[fastaguy88]

Prices vary. While the price of a McD's meal may have doubled over some period of time (or space -- compare your neighborhood McD vs the one at OHare airport), MIT's billion prices project shows pretty conclusively that prices on average have been going up very slowly (< 2%/year) since the 2008 Great Recession.

[mamon]

Commodities prices might not be increasing right now, but that's not the point. The point is, Jeff Bezos's wealth is approaching $200B, Elon Musk is not far behind. Quantitive Easing and similar policies seem to be designed to increase wealth inequality - one more decade of such policy, one more big crisis, and all wealth will be concentrated in the hands of 0.01% richest men. Meanwhile middle class businesses are being drawn to banktruptcy by COVID-related lockdowns. We are slipping back in feudalism - soon most people will be at mercy of government, and small elite of billionaires.

[trident5000]

Wages are stagnant which means they dont need to raise the price of goods on the other side, theres your uptick in inflation.

[jonas21]

I don't get it. If wages are stagnant and prices are stagnant, isn't that by definition zero inflation?

[AmericanChopper]

You have to do quite a bit of statistical gymnastics to come to the conclusion that wages are stagnant. Wages are almost always increasing. The stagnation observations come up when you account for inflation (a statistic called real wages). Until recently, real wages had peaked in 1973, so if you only had two points of data, February 1973 and March 2019, they would make a perfectly flat line on a graph. That’s where you get your “stagnation”. In reality, they steadily trended downwards between the early 70s and mid 90s, and have since then been steadily trending upwards between the mid 90s and today. I’m sure COVID is going to confound this to a non-trivial extent, but in 2019 they were at the highest level recorded.

[trident5000]

Prices are not stagnant. You can see that quite clearly from the average price of a big mac over the years.

[trident5000]

"wheres the inflation?" "why cant I afford a house I dont get it"

[titzer]

"Official" inflation is based on the CPI, consumer price index, which is based on a basket of goods, not including CoL things like housing.

edit:

I stand corrected. It does include housing, but this "Owners' equivalent rent of residences" counts the cost of a Mortgage, which of course is majorly impacted by interest rates. It doesn't include the value of the housing market directly, though.

Does anyone actually think that the housing market is counted correctly? It is clearly outpacing inflation by a lot:

https://dqydj.com/historical-home-prices/

[em500]

You probably need another correction: CPI does not count the cost of a mortgage, nor interest payments in any direct way.

What the CPI estimates is the price of shelter, by surveying renters how much rent they pay, and house owners how much rent they think their house would rent for.

It's a bit frustrating that there are so many misunderstandings around this topic, while the BLS has clear and extensive explanations on their website.

https://www.bls.gov/opub/hom/cpi/

https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

[chii]

it's more that people have an innate desire to own (their residence). When they see prices of houses grow, they feel disenfranchised. They blame it on inflation - because to them, the house hasn't changed when its price grew.

[1915cb1f]

This is untrue. Housing is part of the CPI, and you can see everything that's included here:

https://www.bls.gov/cpi/tables/relative-importance/2019.txt

[dragonwriter]

> not including CoL things like housing.

CPI includes both actual rents and imputed rents for home ownership. It doesn't include asset costs because it's a consumption price index, and doesn't measure additional costs to acquire non-consumption assets.

[trident5000]

CPI is a convenient basket for the fed to sell bonds ideally at a positive yield. Thats why things are left out.

[throw0101a]

> for the fed to sell bonds

The Fed does not sell bonds, the US government (through the Department of Treasury) does. They are independent of each other.

(Then-President) Trump got lots of flack for going after US Fed Chairman Powell due to the desire to keep this independence as clear-cut as possible:

* https://thehill.com/policy/finance/450283-powell-asserts-fed...

[trident5000]

You are correct, I typed that too fast.

[SpicyLemonZest]

Under the conventional definition, "inflation" exclusively refers to an increase in the general price level, so it doesn't make a ton of sense to talk about "finding" the inflation or one sector or another. An increase in prices within specific industries isn't inflation, just a price increase.

(Of course, you're free to use nonstandard definitions if you'd like, but you can't just toss other perspectives out the window because they use the conventional ones.)

[lr4444lr]

Not to mention the inelastic necessities of healthcare, education, and housing, which don't make it into the CPI basket.

[chii]

> the inelastic necessities of healthcare, education, and housing, which don't make it into the CPI basket.

they are all covered: https://www.bls.gov/cpi/questions-and-answers.htm#Question_1...

see :

https://www.bls.gov/cpi/factsheets/medical-care.htm

https://www.bls.gov/cpi/factsheets/college-tuition.htm

[lr4444lr]

I stand corrected. Is this a new addition? Does it look at what people actually pay, or what insurance does? (Not trying to undermine your point - just genuinely curious.)

[Jommi]

You're right and wrong. You're talking more specifically about asset price inflation.

Read this: https://www.valuewalk.com/2014/11/central-banks-asset-vs-pri...

Btw it's an incredibly good topic and if anyone wants to talk more about it I would love to start a clubhouse room.

[alexpetralia]

Yes this failure to distinguish different types of inflation (wage inflation, financial asset inflation, consumer goods inflation) is a big analytical oversight.

[dragonwriter]

Like producer price inflation, asset inflation isn't what people are talking about when they talk about “inflation” without modifiers, which refers to consumer price inflation. When people predicted inflation from QE, they were predicting consumer price inflation. And depending on how you look at it, they were either right and that was entirely the point of the policy (if you look at the difference between actual results and what was predicted without the policy) or wrong because they failed to consider the deflation that would happen without the policy (if judged by a net standard rather than delta from without-the-policy expectations.)

Pointing to asset price inflation to say “there is the predicted inflation from QE” is the fallacy of equivocation; shifting definitions to suit the argument.

[username90]

Giving people more money doesn't make them buy more basic goods, just more assets, so price of normal goods doesn't go up but price of assets do.

[dragonwriter]

> Giving people more money doesn't make them buy more basic goods, just more assets

Under normal circumstances, in the limit as starting income approaches infinity, this is correct (marginal propensity to consume approaches 0 and marginal propensity to save approaches 1.)

In the limit as starting income approaches 0, OTOH, the opposite is true (marginal propensity to consume approaches 1 and marginal propensity to save approaches 0.)

While there may be some future society with the distribution of income such that the former limit is a decent approximation of average behavior, but for real current societies the latter limit is a fairly good approximation, with observed society-wide marginal propensity to consume in modern developed countries, IIRC, around 0.9 (90% of added income goes to spending, 10% to savings/investment.)

> so price of normal goods doesn't go up but price of assets do

Were that true, supply gluts in a commodity used for money (like, say, the result of Spain bringing in vast hoards of New World precious metals) would have no impact on nominal consumer prices while driving up nominal asset prices.

This is, empirically, not true.