Tuesday, July 13, 2021

Inflation is becoming a self-fulfilling prophecy


Wolf Richter, author of the Wolf Street Web site, has put up a short podcast describing how "temporary" or "transient" inflation is becoming entrenched in our expectations.  This is a serious problem, because what people expect affects how they behave and the choices they make.  Some of us have seen this coming for a long time (witness our discussions on the subject in these pages), but others have been "on the fence" about it.  As more and more people wake up to what's going on, the "herd instinct" may take over as the prime mover behind continued and increasing inflation.

Note that Mr. Richter speaks of "5% inflation" and "8% inflation rate" as if they were gospel truth.  That's not true, of course.  He's citing the official figures released by the Bureau of Labor Statistics and the Federal Reserve.  As we've already noted, those figures are woefully - even criminally - inadequate, due to deliberate policy choices and biases in how they're very selectively calculated.  My rule of thumb is to multiply the "official" figure by 3.5 to obtain a more realistic measurement.  Using that approach, Mr. Wolf's numbers become more like 17.5% and 28%.

(If that sounds high to you, go to the supermarket, check current prices, and compare them to what you paid for the same items a year ago.  You'll find my extemporized rate calculations are pretty much spot on.  The just-announced official Consumer Price Index rate of 5.4% for June 2021 would thus, according to my rule-of-thumb measurement, translate to a true inflation rate of 18.9%.  My wallet and our shopping history tell me that's a pretty accurate reflection of current, real-world inflation.)

Here's Mr. Wolf.  I encourage you to spend ten minutes listening to his presentation.  If you're interested in the economy, it's well worth your time.

A few other points that are contributing to higher inflation rates include (but are not limited to):

Those are just a few examples out of many I could have cited.  A one-person web site or blog like this can't possibly keep pace with all of the developments in the field.  Suffice it to say that things are not getting better - rather, they're rolling faster downhill than ever.  I can only urge you to take steps to minimize your exposure to the many risks we face.



Old NFO said...

Just go to the grocery store or buy gas... THEN try to tell me there is no inflation... Grrr

Nick Flandrey said...

The gas is too volatile and cyclical to be a good indicator of the current situation, and it's not even good for long term trends, except for VERY long term. Lots of outside factors influencing the price, including foreign nations policy decisions. Count it in cost of living, yes, inflation, no.

Food has been weird. The house brand thick sliced bacon I finally settled on for "everyday" use has been 24c/oz for 2 years? Long time anmyway. The rise of luxury bacon as a thing is where they seem to have been shrinking package size and upping price.

Coffee is now in 12oz bags that look like the old one pound bags, and the price is up, but I can still get Community brand dark roast at a reasonable price.

I used to look at vac packed smoked salmon as a good indicator as it's an "affordable luxury good" but the price didn't change for so long I stopped looking.

Beef has been all over the map lately. Pork products too. Availability and choices have been skewed to the low end, while the prices (when not on sale) have doubled or tripled.

King crab was $42/pound in my local store last week. Only a couple of years ago it would be $19 on sale at Costco. In the late 90s Kroger in California would have it for $9/pound.

I haven't bought cereal or many other items since pre-covid lockdown, so I don't have recent pricing for some of my normal staples, and using Instacart means I'm paying a bit more for stuff when I don't go into the store myself. That can make it hard to quantify too.

In general though, on a "normal trip" without looking for sales, or using coupons, or just passing on food that was priced too high, my grocery bill is 1/3 to 1/2 again as high, with some items double or triple in price.


TechieDude said...

On our yearly kickoff call, our CEO was talking about supressed demand being unleashed and we'd see the economy with over 6% gdp growth this year.

I used to think he was smart.

You don't get that by doing what TPTB are doing.

Nuke Road Warrior said...

I am "amused" not the right word but "so nail chewing mad that I want to kill something" isn't quite right either, at the so-called "experts" telling us that the inflation (or hyper-inflation) is "temporary" or "transitory." The inflation rate may be temporary, but the loos of purchasing power isn't. Also, any increases in income never catches up with the loss in purchasing power.