Baron Creek

Transitory (Part 2)

By:  Baron Creek  •  Nonsense and Ramblings  •  3 months ago  •  4 comments

Transitory (Part 2)
I continue to think many of the factors holding down inflation are transitory - Janet Yellen (Feb - 2016)

Here we are 5 1/2 years later and the script has flipped, so she was right then. But is it really temporary this time around? My unqualified thoughts...

First I will begin with my personal yoy rate of inflation which is 3.3%. I'm not happy about that, but it is better than the cpi-u of 5.4%. Apparently people look at headlines and don't dig into the readily available data. (r-cpi-e is running 4.7% yoy)

Subtracting the new cars, used cars and the gasoline portion of the equation (cpi-u), gives the rest at a  milder 2.1% yoy. I think there is a strong case for many of the index movements to be transitory. When comparing yoy, we should remember the status of the economy in June 2020. Ugh! I'm not even factoring in airline tickets, etc. 

Chips are causing an issue with new cars, thus no dealer is discounting, which is putting pressure on the used car market... as well as the sudden urge to flex those post covid wings. I cannot believe some of this will continue into another year. In fact, that need to vacation, etc. will begin subsiding about the same time the screaming starts about whether kids should wear masks at school, etc. 

So yes, I think some of this stuff is transitory. I worry about stuff that directly affects me. Taking some exotic vacation, driving miles upon miles to get there and back, flying on an airplane doesn't register on my radar. 

Food costs are something I care about and while the data seems to suggest the yoy food at home has risen a moderate 2.4%, that is compared to last June, after it had jumped a considerable 2.9% in just 4 months or and 8.7% annualized rate (r-cpi-e). The weather doesn't seem to be cooperating with food producers and I mean that on a global scale, so not expecting any pull back on grocery prices. It might get worse!

Healthcare costs is something else that concerns me and while I am happy the r-cpi-e has only risen 0.63% over the past year, I hardly expect that to continue, given the history of that index. That is the lowest 12 month rolling percent, dating back to 12-1982 on the r-cpi-e.

As for gasoline, not so much of a worry. I use less than 100 gallons a year. So a huge increase might cause me to shake my head... not much else. I would worry about the cost of electricity, which seems to be edging up a bit faster than I would like. 

Off the beaten path...

I keep reading that restaurant staff are not returning to work in sufficient numbers to make customers happy and content (as if that were even possible in this age of fisticuffs on airplanes). So the numbers do seem to indicate that employment is much lower than in February of 2020... but so is the number of healthcare workers, which is no small number. Something to think about, which, of course, will NOT happen.

I have also read about the cpi-w as being 6.1% yoy. A word of caution... historically the 3rd qtr loses a bit of steam. And for those of us on Medicare... way, way back in 2019, the CMS forecast the 2022 base rate to be $157.70 or 6.2% above current. There are also quite a few seniors in the "hold harmless" that will be moving out of that category. 

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Perrie Halpern R.A.
Professor Principal
1  Perrie Halpern R.A.    3 months ago

Wow... something I totally agree with for a change. Well done!

Bob Nelson
Professor Expert
2  Bob Nelson    3 months ago

Thanks for the data. 

It seems to me that when climbing out of an oddball recession, we can expect all sorts of bottlenecks. The brief lumber crisis was an excellent example. It's hard to see which shortages will persist and which will evaporate. Used-car prices really don't seem to me to be a great trend  indicator. 

Wages are uncertain. What will be the long-term effects of behavior changes - staff and customers - during the lockdowns? 

Bob Nelson
Professor Expert
2.1  Bob Nelson  replied to  Bob Nelson @2    3 months ago

Interesting article in today's NYT:

How Worried Should You Be About Inflation?

Bob Nelson
Professor Expert
3  Bob Nelson    3 months ago

Krugman's column today isn't specifically about inflation... but these days it's a significant tangent to all political/economic writing:

How Big Spending Got Its Groove Back