> 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.
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.