Deflation, inflation? Where are we?

[First]

lmao @ bam bam threads.

 

[Siddhartha]

http://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp

Inflation Rate in Percent for Jan 2000-Present
Our Inflation data (see table below) is calculated to two decimal places while the government only calculates to one decimal place. Therefore, while being based on the government's index our data provides a "finer" view. January and February 2005 is a perfect example, according to the government statistics both months had an inflation rate of 3%. In January however, our data shows it as 2.97% and February shows as 3.01%. Therefore instead of the inflation rate being "flat" it is actually rising slightly. In another example we see August 2003 and September with the Government saying the rates were 2.2% and 2.3% respectively. This would lead us to believe that inflation rose .1% during that period. In actuality however, it rose from 2.16% to 2.32% or a .16% increase, substantially more than .1%!

The Inflation table below is updated monthly and provides the current US Inflation Rate plus Monthly Inflation Rate data back to January 2000. The Inflation rate is calculated using the Current Consumer Price Index (CPI-U) published monthly by the Bureau of Labor Statistics. CPI Index Release Dates

InflationData.com Current Annual Inflation Rate
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave
2010 2.63% 2.14% 2.31% 2.24% 2.02% 1.05% 1.24% 1.15% NA NA NA NA NA
2009 0.03% 0.24% -0.38% -0.74% -1.28% -1.43% -2.10% -1.48% -1.29% -0.18% 1.84% 2.72% -0.34%
2008 4.28% 4.03% 3.98% 3.94% 4.18% 5.02% 5.60% 5.37% 4.94% 3.66% 1.07% 0.09% 3.85%
2007 2.08% 2.42% 2.78% 2.57% 2.69% 2.69% 2.36% 1.97% 2.76% 3.54% 4.31% 4.08% 2.85%
2006 3.99% 3.60% 3.36% 3.55% 4.17% 4.32% 4.15% 3.82% 2.06% 1.31% 1.97% 2.54% 3.24%
2005 2.97% 3.01% 3.15% 3.51% 2.80% 2.53% 3.17% 3.64% 4.69% 4.35% 3.46% 3.42% 3.39%
2004 1.93% 1.69% 1.74% 2.29% 3.05% 3.27% 2.99% 2.65% 2.54% 3.19% 3.52% 3.26% 2.68%
2003 2.60% 2.98% 3.02% 2.22% 2.06% 2.11% 2.11% 2.16% 2.32% 2.04% 1.77% 1.88% 2.27%
2002 1.14% 1.14% 1.48% 1.64% 1.18% 1.07% 1.46% 1.80% 1.51% 2.03% 2.20% 2.38% 1.59%
2001 3.73% 3.53% 2.92% 3.27% 3.62% 3.25% 2.72% 2.72% 2.65% 2.13% 1.90% 1.55% 2.83%
2000 2.74% 3.22% 3.76% 3.07% 3.19% 3.73% 3.66% 3.41% 3.45% 3.45% 3.45% 3.39% 3.38%
Note: Red indicates Deflation, NA indicates data not yet released.
Get more Historical Data from InflationData.com

 

[bamacre]

http://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp

So even according to gov't numbers, we're in a period of inflation. Yet fiscal and monetary policies seem to be set to further increase inflation. How much is enough?

 

[BigDH01]

I honestly had no idea about the "poor harvests." So perhaps, imperfect examples.

But how can we be dealing with deflation when the dollar is falling and gold and silver are going up? BTW, I'm using the modern definitions of inflation and deflation (I am fully aware of the "older" definitions). So, we can agree (here) that inflation is rising prices and deflation is falling prices. Do we have falling prices outside of the housing market?

Just because the price of gold and silver have increased doesn't mean the "dollar is falling." There haven't been across-the-board increases in prices that would be indicative of large amounts of inflation. The reason I don't care about the price of gold or silver (and the reason why the vast majority of the country doesn't care) is because people don't buy or need gold or silver. I don't care that gold sits at 1300/oz because I don't need and have no use for gold. It is not something even remotely required for my survival in society. The things that I actually purchase and need haven't seen this kind of inflation (another reason to suspect what you are seeing with these commodities is just another bubble).

If you want to see how the gov't calculates CPI, you can go here:

http://stats.bls.gov/opub/hom/pdf/homch17.pdf

If you want it broken down by category, you can go here:

http://research.stlouisfed.org/fred2/categories/9

If you want to break it down into actual products, you can go here:

http://www.bls.gov/cpi/cpid1008.pdf

I'm not going to summarize the report, but there are a few items in my life that are cheaper. For one, I recently purchased a house which was about 10% below its market value about 3 or 4 years ago. The interest rate I got at the time was also incredibly low (4 7/8). This translates into real monthly savings compared to just a few years ago. And this is a major household expense that drastically affects my ability to spend in any other area.

I'm also a computer enthusiast. I recently helped a friend put together a very nice machine for much less than 1k, including a six core processor and SSD. I run a server at home to distribute content which means I'm always purchasing hard drives. I can get a 1.5 TB drive from Newegg today for 70, which is the lowest I've ever seen for a drive of that size.

I've noticed that the cost of new electronic equipment coming down quite a bit. A new plasma tv is ridiculously cheap now for rather large sizes and decent panels. Blu Rays have seemed to come down a bit too. My wife and I are also looking into trips next Spring break and the prices seem cheaper than they were a couple of years ago.

My cable/internet service is about $70/mo with all the premium channels and high def (on contract). I've already scoped out PlayOn though through my WD TV Lives which works well. I'll be moving to that service plus internet when my contract ends and will save quite a bit of money there. Not sure about cars as I've never financed a car purchase. I don't pay bank fees either, so I can't comment on them.

As far as food, besides it being a volatile measure, it hasn't been high enough for me to notice. The wife and I put a fixed amount into a shared account that we use to pay monthly expenses. That fixed amount has always been too much (running a surplus) and that hasn't changed, so our monthly living expenses have been at least somewhat stable.

I only notice higher prices in two areas, healthcare and education. Healthcare has been discussed ad nauseam, but the increases here aren't tied to some increase in money supply but to several other supply/demand issues. Tuition has once again gone up quite a bit here but it was due to drastic cuts by the state (which is also the reason a lot of service fees have gone up).

 

[BigDH01]

So even according to gov't numbers, we're in a period of inflation. Yet fiscal and monetary policies seem to be set to further increase inflation. How much is enough?

Inflation is at an annualized rate of about 1%. I'd say for someone who's so anti-inflation, that's pretty freaking good.

 

[Siddhartha]

So even according to gov't numbers, we're in a period of inflation. Yet fiscal and monetary policies seem to be set to further increase inflation. How much is enough?

Going by the chart I linked, currently inflation is lower than it has been in the last ten years. Last year the US was deflationary.

 

[juiio]

So even according to gov't numbers, we're in a period of inflation. Yet fiscal and monetary policies seem to be set to further increase inflation. How much is enough?

They're trying to fight the contraction of credit. It is unsustainable, but they feel it is the only option.

 

[bamacre]

Inflation is at an annualized rate of about 1%. I'd say for someone who's so anti-inflation, that's pretty freaking good.

Yeah, for now. But we're still inflating. Which leads me to my next response...

Going by the chart I linked, currently inflation is lower than it has been in the last ten years. Last year the US was deflationary.

Ahh, so the goal is to get back to the inflation levels of say, 2-4%? 1.85 is just too low.

That would be nice. Because it was pretty easy to get credit back in those days.

 

[Siddhartha]

Yeah, for now. But we're still inflating. Which leads me to my next response...



Ahh, so the goal is to get back to the inflation levels of say, 2-4%? 1.85 is just too low.

That would be nice. Because it was pretty easy to get credit back in those days.

The "right" level of inflation is debatable. But the numbers do not support the fears of high inflation that some people have.

 

[glenn1]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

It's entirely possible to have asset deflation at the same time as you experience goods inflation.

 

[IronWing]

Both.

However, credit is contracting:

The system can't sustain credit contraction. You can probably theorize what steps will be taken to fight off the effects of credit contraction.

Um, that graph suggests that we are a bit over 50 quadrillion dollars in debt.

 

[Zebo]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

Look at commodities coffee, sugar, metals, beef, oil, etc all up some 60% since last year. That's inflation.

Housing is deflating because people without job can't afford US houses not to mention geographical logistics.

Commodities OTOH can be shipped anywhere in the world and world is saying your dollar aint worth much these days.


Housing will just get lower. Why hire Americans when Chinese will work twice as hard for a tenth as much?

Stocks should rise and commodities through roof as Americans quantitative easing continues

 

[Zebo]

Both.

In terms of raw money supply, we've had inflation recently:

However, credit is contracting:

The system can't sustain credit contraction. You can probably theorize what steps will be taken to fight off the effects of credit contraction.

This it's a pyramid scheme whereby 3T of new debt needs to be created annually to service that 50 trillion or things start collapsing.

Blue chip borrowers can still get credit and wall street but about 80% of Americans has been shut down. The other 20% know better than to borrow when there is no demand.

 

[juiio]

Um, that graph suggests that we are a bit over 50 quadrillion dollars in debt.

You're right, it is mislabeled. it should be millions instead of billions. It is "only" $50+ trillion.

 

[JS80]

we are currently in a deflationary environment, except the fed is propping up certain asset prices (treasuries, MBS, etc). the huge unknown is, what will happen when the economy starts the uptick and the increase in money supply "comes home to roost." Will the Fed cut it off just as easily as it eased? Or will they be too tempted to let inflation run high to manage debt levels? Nobody knows, and that's why there's a huge rabble, and why a shiney yellow metal is going up in value in a deflationary environment.

 

[Docnasty]

Takes a while for all the newly printed dollars to circulate and for price inflation to occur. It is not a matter of if, but when, hyperinflation will occur.

Our fractional reserve system and the federal reserve are the root cause of inflation. There was a point in time where the dollar was rising slowly in buying power, from 1832 to 1913. Since 1913 the dollar has lost 97% of it's purchasing power.

 

[LunarRay]

Me thinks that Deflation is not only a reduction in prices but also the behavior of the people in that condition... Sorta like it is only cold when you get undressed in the Arctic...
IOW, how might you be able to tell if a person is waiting for price drops before a purchase or that he's not the money to purchase at all... Stated differently: A general reduction in price might be the result of a normal and expected move to result in equilibrium based on a myriad of dynamics that individually mean one thing but in combination mean another...

I figure most folks usually are caught up in inelastic consumption... forgetting differential calculus and our use of negative expressed as positive... hehehehe, How much Petrol will you purchase at any price if you've not alternative means of getting to work but via your car?... Do you suspect the price of Petrol will go down? I don't! Same with lots of stuff...
So when you see the same volume of Oil flowing in and the price dropping.... I'd say we are in 'Deflationary' times... But, I'd include lots of gotta haves at any price to make that kind of statement... Except when my wife wants a new car... "Wait honey till next year they'll only cost half as much.."

But, I suppose the issue is that when folks don't buy suppliers don't need workers... and then they can't buy... and that is the dilema. So where it starts is more to do with the mind set of folks who cut off their noses to spite their faces...

EDIT: I should mention that some folks don't see deflation as being bad... Ireland for instance in 2009 had the Minister for Finance speak on the 6.6 percent decrease in cost of goods, etc. and spoke in terms of having to consider this in the budget for child care and the like... IOW, not a mention as to it being a bad thing... even though it hadn't happend since 1960..
And still other folks don't think deflation is a reality... I'm not sure just how they escape the numbers and the definition but whatever...

 

[Darwin333]

Cotton, soybean, sugar, corn, to name a few.

Don't forget oil.

Basically most of the stuff you HAVE to buy.

 

[Darwin333]

If you kept reading my post, you'd see that I said credit is contracting. If you look at the numbers, the contraction of credit currently dwarfs the expansion of money supply.

Most people don't realize that as far as the economy is concerned credit and cash are damn near interchangeable. They are almost the same thing, your CC "spends" just as well at the store as cash does (assuming you have credit of course).

 

[Darwin333]

Inflation is at an annualized rate of about 1%. I'd say for someone who's so anti-inflation, that's pretty freaking good.

What is wrong with no inflation and no deflation?

BTW, if we truly are looking at 1% y/o/y inflation why are a lot of people/entities basically letting the .gov borrow their money for free or worse for a loss? I would expect to see bond prices shoot the moon if any "real" inflation is expected in the near future.

 

[BigDH01]

What is wrong with no inflation and no deflation?

This is basically where we are at right now. It would be incredibly difficult for any monetary regime to hit your goal, 1% inflation is probably about as close are you're going to get.

Or were you just generally asking why we might want people to invest their money instead of hoarding it in a jar under their mattress?

BTW, if we truly are looking at 1% y/o/y inflation why are a lot of people/entities basically letting the .gov borrow their money for free or worse for a loss? I would expect to see bond prices shoot the moon if any "real" inflation is expected in the near future.

So you're arguing that real inflation is actually lower than 1% and that the market is expecting it to remain this way for the foreseeable future?

 

[yllus]

BTW, if we truly are looking at 1% y/o/y inflation why are a lot of people/entities basically letting the .gov borrow their money for free or worse for a loss? I would expect to see bond prices shoot the moon if any "real" inflation is expected in the near future.

Government bonds are returning nearly nothing because of nearly global uncertainty in equity markets, not because of the expected rate of inflation. And if inflation was to go up, bond prices would go down (I should clarify, their prices on the resale market would go down).

 

[PingSpike]

Food. Utilities such as electricity, water, sewer, TV, internet, garbage collection etc.. Credit card interest rates, bank fees, teller fees, loan origination fees, etc.. Building materials.. wood, metal, supplies..

HD TV prices are down. Since Americans eat HDTVs, burn them for fuel, live inside homes created by cobbling together HDTVs, and spend the vast majority of their monthly budget buying HDTVs that they surf to work on we are suffering deflation.

 

[bamacre]

The "right" level of inflation is debatable. But the numbers do not support the fears of high inflation that some people have.

I disagree. Not anytime soon, but if we don't make some serious fiscal changes, it will be inevitable. When interest rates rise, and they will, our interest payments on our debt will explode. SS and Medicare expenditures are rising, and will continue rising for some time. There's going to be a lot of pressure on the Fed to finance all this by printing.

 

[bamacre]

Or were you just generally asking why we might want people to invest their money instead of hoarding it in a jar under their mattress?

What an attitude! Calling saving by this lurid name of “mattress stuffing”! What next? Why not go door to door with police to take the dirty mattress money? Inflation is not any different, it is involuntary, and backed by the power of the state.

Money has two main purposes: medium of exchange, store of past work (saving). People should be allowed to save their work however they want.

You are saying that “the economy” is better served by heating up their seat until they start hopping around and trying to give away their money like it was uranium banknotes. How is this reasonable unless you are some kind of fascist?