Inflation Jumped by 3.8% in Q1, “Real GDP” Rose 1.6%, Dragged Down by Record Trade Deficit and Drop in Inventories

Even the Fed’s repressed inflation measure without food and energy rose 2.3% annual rate in Q1.

By Wolf Richter for WOLF STREET.

The US economy, as measured by inflation-adjusted GDP, grew by 1.6% in the first quarter from Q4 2020, according to the advance estimate of the Bureau of Economic Analysis this morning.

If you read in the headline that it grew by “6.4%,” that sounded impressive, but it was “annualized”; it essentially multiplied the quarterly growth rate (1.6%) by 4. There are not many countries outside the US, if any, that report “annualized” GDP growth rates, because they’re really just misleading for normal people.

GDP inflation jumped by 3.8%, PCE inflation by 3.5%.

The BEA’s broadest inflation measure, the price index that roughly parallels the inflation adjustment to GDP (the “price index for gross domestic purchases”), jumped by 3.8% annual rate in Q1, more than double the rate of 1.7% in Q4.

The BEA’s narrower PCE (“personal consumption expenditure”) price index jumped by 3.5% annual rate in Q1.

And the BEA’s price index that has become the Fed’s measure for inflation, “core PCE” (PCE without food and energy) rose by 2.3% annual rate, tracking above the Fed’s former target of 2.0%. “Former target” because now the Fed is looking for inflation above 2%.

GDP in dollars.

In dollar terms, real GDP in Q1 amounted to a “seasonally adjusted annual rate” of $19.09 trillion. This was still down about 0.9% from the peak in Q4 2019 – catching up:

Consumer spending rose 2.6% from the prior quarter, to an annual rate of $13.3 trillion in “chained 2012 dollars” (to adjust for inflation), a tad below the peak in Q4 2019.

This jump was powered by the $600 stimmies that went out in late December and the first waves of the $1,400 stimmies that went out in the latter part of March. In Q1, consumer spending accounted for 69.7% of GDP:

Gross private domestic investment ticked down 1.3% in Q1 from the prior quarter to a seasonally adjusted annual rate of $3.49 trillion. This includes:

  • “Fixed investment” rose by 2.4% (investment in nonresidential structures and equipment, in residential structures, and in intellectual property) to $3.54 trillion (annual rate).
  • Investment in private inventories fell by $148 billion (annual rate), as numerous items are now in short supply and tangled up in all kinds of supply chain issues and bottlenecks

Record Trade Deficit, a massive drag on GDP. The balance of “net exports” (exports minus imports, namely the infamous trade deficit) worsened by 4.8% in Q1, from the prior quarter, to a new all-time worst of -$1.18 trillion (annual rate 2012 dollars).

Exports add to GDP, imports reduce GDP. It went the wrong way with all of them in Q1. Exports of goods ticked down, and exports of services ticked down; but imports of goods jumped and imports of services rose. The chart makes one wonder how the US economy could perform if globalization and offshoring of everything for two decades hadn’t left us with this mess:

Government consumption and investment rose by 1.5% in Q1 from the prior quarter to $3.37 trillion (annual rate). This includes goods and services that federal, state, and local governments consume, such as fuel for government vehicles, supplies, equipment, and rent for offices. And it includes government investments, such as in computer equipment and infrastructure.

But it does not include stimulus payments, unemployment payments, Social Security payments, government salaries, and other direct payments to consumers, which are counted in GDP when consumers spend this money as part of consumer spending:

The inflationary mindset has set in. Input price increases are squeezing profit margins, and big companies are raising their prices and point at massive inflation overshoot. Smaller companies are too, with boots-on-the-ground view of surging costs in the roofing manufacturing industry. Read…  Forget 2% Inflation. With Margins Forcefully Squeezed, Big Companies Raise Prices, Point at Massive Inflation Overshoot

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  132 comments for “Inflation Jumped by 3.8% in Q1, “Real GDP” Rose 1.6%, Dragged Down by Record Trade Deficit and Drop in Inventories

  1. 2banana says:

    Talk about skewing the numbers…

    “But it does not include stimulus payments, unemployment payments, Social Security payments, government salaries, and other direct payments to consumers, which are counted in GDP when consumers spend this money as part of consumer spending”

    • Wolf Richter says:

      Yes, because GDP is based on measuring spending at the final level. So if a company spends $100,000 on wages, this does not go into GDP. But when its workers spend some of this money that they earned, it goes into GDP as consumer spending. This avoids double-counting.

      • Auldyin says:

        Great stuff, Wolf!
        Write it all down as C+I+G+(E-I)=VxP=gdp and you’ve got the Keynes formula that the ‘Masters of the Universe’ use to drive the economy. The good guy they want is I, which theory says should increase when interest is low, but it hasn’t been working well of late, so now they are going to bump G by way of infrastructure spend, like UK did in the 70’s. It didn’t go to I then, it went straight to P but they keep trying this every so often. It’s all about juggling the terms in that equation plus the Fed chipping in with the interest rate of course.
        C the bad guy seems to be doing great, although hammered by (E-I) also bad as a minus. There’s no ‘price’ for Govt output so they chicane it in at cost, as you say. With your excellant charts, all your readers will now be able to make a better job of seeing what’s needed for the economy than the officials do. Magic!

        • Auldyin says:

          Just had a further thought.
          For China,
          C would probably be tiny.
          I would probably be huge due to tech firms.etc.
          G would probably be huge due to infst spend.
          (E-I) would be huge + due to massive exports.
          There you have it, the difference between the two countries. Eating the seed corn?

    • Michael Gorback says:

      Transfer payments like stimulus checks, SS, Medicare0, etc are really just return of taxes to the public. They are not goods and services. The money goes into the GDP calculation when the transfer money is used to purchase goods and services.

      Here’s how GDP works. Two economists are strolling down a country road. The first economist spots a “road apple” in the middle of the road. He tells the other economist, “I’ll pay you $10,000 to eat this road apple.”

      The second economist agrees to the deal and eats the road apple.

      As they continue down the road the second economist encounters a road apple. The second economist says,”I’ll offer you the same deal”. The first economist agrees and eats the road apple.

      A little while later one them says, “What did we actually accomplish here?”

      His colleague replies, “I’m not quite sure but it generated $20,000 worth of trade.”

  2. Bobber says:

    If GDP is near old highs, and the virus is nearly tackled, why are we looking at doing another $2T stimulus, and why is the Fed still buying $80B of treasuries and MBS per month?

    Makes zero sense.

    Powell says he can keep rates low for another year or two? I don’t think so. He did a quick flip flop before because of his miscalculations. Looks like he’ll have to do it again.

    • Lance Manly says:

      We are down 8 million jobs from Feb 2020, heck we are down 1 million jobs from Jan 2016. It will take a while to dig us out of this hole.

      • historicus says:

        Low interest rates have just about nothing to do with hiring at this point.
        But the Fed points to low rates as a convenient never ending pump for the stock market.
        0%, 1%, 2%… employers really give a damn? If they need workers they’ll hirer them.

        • RightNYer says:

          Of course, and it’s dishonest to claim otherwise. At some point, companies WILL invest in capital projects at lower rates, but only if there’s going to be a demand for whatever they produce. At this point, there’s been so many years of low rates and so much debt that no one is going to invest to expand at this point based on 1% lower interest rates.

          And as you said, employee hiring has ZERO to do with rates, as healthy companies don’t borrow to pay operating expenses in the first place. If you have to borrow to pay employees, you’re a zombie company

        • Lisa_Hooker says:

          @RightNYer – reminds me of 2002 after Greenspan dropped interest rates to the lowest ever. We were flush with cash and unbelievably low borrowing costs. We looked around and decided there wasn’t anything we could invest in. The only reasonable projects were in offshore construction which was too big for us. So we sat on the money.

          As for “If you have to borrow to pay employees, you’re a zombie company.”, not true, it’s done all the time, in fact it’s essential. But good luck finding a bank that will lend it. That is the realm of the venture mafia – oops I meant venture capitalists.

      • Old school says:

        There is one school of thought that recovering jobs from a recession is something the Fed has zero control over, that it’s a self healing process that just takes time to play out. Supposedly there is a simple equation for the rate of recovery.

        In some ways the Fed is making people fat and lazy by printing “wealth” and deceiving people about what it’s going to cost in higher prices in the future.

        • historicus says:

          Why not sell everything you have put it in the stock market go live in a tent for a year and come back and see how you’re doing? That is the picture the federal reserve is painting

        • OutsideTheBox says:

          I agree.

          The many many millionaires and billionaires ARE fat and lazy.

        • Lisa_Hooker says:

          I’m tired of being government-hyped about “new jobs” and “job growth.” These aren’t new jobs, these jobs are a fraction of the people going back to work after a lockout. Of course there will be a spike in employment and GDP, it can’t be helped.

    • Dave Ryan says:

      @Bobber … the government debt interest payments will swallow the entire budget if 10 year treasury rates are allowed to go back to historical norms. We have entered a never ending cycle of the fed buying treasury debt to hold rates down. Actually, it does end … we are in midst of the fifth doubling of national debt since Reagan years and geometric progression absent a conviction to stop it, is inexorable, and will eventually bring down the whole castle of cards.

      • historicus says:

        So the irresponsibility must be met with more irresponsibilities.
        Which is why the Fed NEVER should have put us in this position

        • josap says:

          We are not their clients and the Fed could care less what position we are in.

          The banks are the clients.

        • Yancey Ward says:

          Josap nails it. The wealthy will end up with hard assets when the card house collapses. Everyone else will be hoeing potatoes on teh back yard.

    • MCH says:

      Cause the J team says so, otherwise how else are they going to get you hooked on fiscal/monetary cocaine?

      By the way, to the one member of the J team that wasn’t appointed. REINSTATE SALT DEDUCTIONS, jackass.

    • Finster says:

      With the housing market on fire, why is the Fed still pumping $40B a month into the mortgage market?

      • rhodium says:

        Because they’re corrupt stupid a-holes. You can easily be conservative or liberal to believe that. They’re redistributing wealth like crazy in ways that have no bearing in fairness at all. Eroding trust and creating all kinds of smoldering anger in the lower and middle classes who lost by being prudent or in a particular life stage. The Fed is oblivious to the ways in which they are ripping apart the social fabric and setting the stage for chaos.

  3. fred flintstone says:

    The fed inflation counter department consists of folks that graduated from the Madoff School of Investment and Economics.

    • Old school says:

      To think that Piwell can get up and say that inflation is too low and we have to keep flooding the system with more cash when there is a housing blowoff top tells you up is down, pigs fly and the US debt department is the Treasury.

      • rhodium says:

        They apparently forget about the concept of inelastic vs elastic demand curves. Funny for phd economists. Who knew that with a lot of extra cash and low interest rates certain people would start a land grab? I mean… What else were they going to do with the money? Buy a 5th Tesla and put a helicopter pad in the backyard of their first mcmansion? Start a rare stamp collection?

        • Lisa_Hooker says:

          “Who knew that with a lot of extra cash and low interest rates certain people would start a land grab?” See also 2005-2006 house purchases.

  4. Jos Oskam says:

    A long, long time ago, some fisherman and some baker agreed that instead of directly exchanging a loaf of bread for a fish, it would have its advantages to use a token as an intermediate medium of exchange.
    These good people never intended for that same token to end up, after some time, buying only half a loaf of bread or half a fish. And if you had proposed something like that to them, they probably would have made short shrift of you. And right they would have been.

    Inflation is nothing but organized government-backed theft.

    For me, it is flat-out incomprehensible that a cabal of bankers and economists, aided and abetted by mass media, are able to sell this to John Q Public as a Good Thing, without being tarred and feathered and railed out of town or -preferably- dragged to the guillotines.

    P.T. Barnum most certainly had a point.

    • historicus says:

      Dead on.
      The Fed is an unelected entity with its primary purpose to ease temporary banking issues. And,
      to promote max employment
      stable prices
      and moderate long term interest rates (moderate = not extreme)
      Yet, Powell has unilaterally..
      *Imposed an inflation tax on the People (when he is instructed to stable prices)
      *Pushed long rates to immoderate and extreme lows, making the lender slave to borrower, skewing historical financial standards of Fed Funds equaling or exceeding inflation.
      *Expanded the money supply by 27% all by himself
      The Fed is ROGUE. And who is to stand up and say so? Not Congress who enjoys the cheap money and the funding of vote buying programs.
      THIS IS THE GREAT FLAW in the system.
      Many have said that Democracies fail when the public learns they can vote “largesse” from the Treasury. Well, the mechanics are a little different, but the central bankers are the culprits, the great enablers.
      AND…Thatcher said Socialism doesnt work because you “run out of other people’s money.” But Maggie never foresaw the antics of today’s bankrolling central bankers….and their balance sheet games.

      • bungee says:

        … or -preferably- dragged to the guillotines.
        people don’t go to the guillotines for inflation. they don’t go because they are spraying base money everywhere to everyone, making everyones debt worth less. they go for the opposite reason. they go to the guillotines when they insist on a hard money standard, forcing students to pay back debt in real terms. cutting pensions instead of bailing them out &c.. &c.. forcing a lifetime of hopeless repayment. in an inflationary collapse (which we will experience) the people are strung along one stimmy, ppp, entitlement at a time until its too late (its too late, btw)
        all the threats against powell and the fed are empty. sending him a message or getting rid of him is pointless. whoever is next in line does the same thing or is thrown out. think about this : gideon gono remained zimbabwe’s central bank governor even after he hyperinflated their currency.
        so what are you really gonna do about it?

        • Chris Herbert says:

          The problem is not binary. The Gold standard favored those with gold, today’s standard favors the same crew. What’s missing is an understanding that money needs to be re-directed away from the One Percent down to everyone else. No debt required.

        • bungee says:

          money IS debt.

    • MarMar says:

      FWIW, the idea of the emergence of money from a previously existing system of commodity barter is popular, but historically inaccurate.

      It’s also worth noting that inflation has traditionally been kinder to debtors (the have-nots, generally) than the creditors (the haves).

      • Depth Charge says:

        “It’s also worth noting that inflation has traditionally been kinder to debtors (the have-nots, generally) than the creditors (the haves).”

        Pure, unfettered BS. Inflation hurts the poor more than anybody.

        • OutsideTheBox says:

          Not if they have significant debt.

          That debt dissolves.

          Debtors love inflation.

          Ad well they should.

        • Nacho Libre says:


          Rich guy with a lot of debt (think of someone with a quarter million dollar income, million dollar mortgage and a million dollar 401k) will do very good.

          Guy with low income and lot of debt (think of someone with 70k income, renting, 100k student & auto debt, 25k savings) will do progressively worse.

      • MCH says:

        Ha ha ha ha ha ha. So, if the cost of bread and gas goes up, and you are a debtor, things are better off for you, right?

        I’m guessing it’s because the government is sending you stimulus checks and enhanced unemployment?

        You know, this much be great news to the homeless, cause they are definitely have nots. We’ll inflate the economy, and instead of helping those homeless people, tell them that inflation is better off for you. You won’t feel it, cause you have to beg for food, and have no place to live in the first place. Obviously, the jackasses in the major cities have been doing things wrong, instead of wasting time and money on things like project Roomkey, they should hire social workers to tell homeless why they are better off than everyone else.

        • OutsideTheBox says:


          They are getting SSI and dividends.

          Plus all the cash they hoarded throughout their lives.

          And dont’t forget all the trust funds and unearned (inherited) wealth.

          Also royalties from patents and copyrights.

      • c_heale says:

        I agree, from what I have read money evolved from governments wanting to maintain power using taxation. Money was the medium of this taxation.

    • Old school says:

      True story. I push mow my large yard, because I have back trouble and it’s the best exercise I have found for me.

      I have a 40 -50 year old push mower with Briggs motor that runs and runs and runs. It failed this year and I spent 4 half days messing with it. New plug, air filter, carb diaphragm. No luck.

      Went to see my local Fred Sanford type and bought a 55 year old mower for $25. Left mower and he brings it back the next day in perfect running condition with new wheels, sharpened blade and new pull mechanism . That was $25 more dollars. An exchange of cash. No middleman. No paperwork. All from recycled parts. I am happy and he is happy.

      • historicus says:

        old school
        we lead parallel lives
        Two cycle engines are not long for this world with the battery evolution, but I dpent plenty of time on a leaf blower. Stuck, I went to a repair shop. They wanted $75 an hour to look at it. Back to my bench it went, finally figured out the issue. Winstead key.

        • Beardawg says:

          Had a 1981 Yamaha G1 2-Cycle Golf Cart until I just sold it a few weeks ago. Thing went 25mph, street legal and no maintenance ! So simple in its mechanical construction it was stupid easy to maintain – not to mention it kicked A** on its electric motor counterparts.

      • Lisa_Hooker says:

        I have a reel-type push mower without an engine. Great exercise. It actually cuts grass instead of beating the tops of the grass apart. Ever wonder why golf courses use reel type mowers?

    • Auldyin says:

      Try the ‘late’, ‘great’, David Graeber’s ‘Debt, the first 5000yrs’
      Best seller, rightly so.

  5. DM says:

    Why don’t they ever show CPI annualized?

    • Petunia says:

      Probably because it would make it harder to screw social security recipients, whose benefit increases are calculated by the CPI rates in June, July, and August.

    • historicus says:

      The game is the “rate of change chart”…
      which horizontal at say 2.5% looks like nothing is happening.
      In reality, 2.5% rips 28% off the dollar in ten years. Stable prices Mr. Powell?

      The chart we need to see, and maybe Wolf can dig one up, is the compounding and aggregate inflation chart…the piling up of increases upon increases.
      Remember the deflation fear era from 2009 to 2020? All they showed you was the rate of change…up 1.1, up 1.6, etc.
      The CPI went from 214 to 254 in that period, a circa 18% gain in 11 years. Deflation? Never seen it.

  6. Artem says:

    Save us Jerome, you are our only hope.

    May the FED be with you.

  7. Micheal Engel says:

    1) Dollar General flipped prices from $1 to $2, in order to keep it simple.
    2) Toothpaste for $2 is a little nothing inside a P&G intellectual properties…
    3) The DOW on the cusp of changing trend.
    4) Black voters defect to the other side. Selma bull run
    will end, protest will be purge, and the Dem will show who is in charge.

  8. Yort says:

    $1.9 Trillion last stimmy, $2.3 Trillion for proposed Infrastructure 1.0, $1.8 Trillion for proposed Infrastructure 2.0…anyone else laugh that $1.9+$2.3+$1.8= exactly $6 Trillion??? Humans love rounded numbers, and so does inflation…HA

    Best Inflation Economy ever! Everyone looking forward to anti-on-sale prices on necessities??? Phychopath Monetary God-on-Earth J-Pow sure loves anti-on-sale capitalism…basically print tons of money so people are forced to transfer it directly to banks and big biz in order to survive…brilliant! J-Pow is making Beelzebub envious…

    • historicus says:

      One billion seconds is just under 32 years.
      One trillion seconds is just under 320 CENTURIES!!!

      The small integer game of 1, 1.6, 2.1, Trillion is a disguise of the magnitude of these numbers…tossed around like beads on Bourbon Street,.

      • TXRancher says:

        So true historicus. Numeric anchoring. What would it look like if they listed it as 1000 Billion, 1600 Billion, and 2100 Billion for a total of 6000 Billion?

      • polecat says:

        Can’t live on cheap plastic, you know. Oh wait!

      • Auldyin says:

        You only get essential info’ like this on Wolfstreet.
        I would never sit down and work that out.
        Sets the context of infinity and beyond.

    • Ida Sa says:

      He’s the 6 trillion dollar man. The new Steve Austin.

  9. Old school says:

    Seems like a better measure of state of the economy would be GDP minus government deficit. I know the original thinking was you would run deficits in recessions and surpluses in good times and it would balance out, but that ain’t happening.

    • historicus says:

      The Fed now never retires nor retrieves.
      They had the pedal to the metal when all was running hot. Then the virus hit.
      The Fed never pulls back in good times.
      Its always more on top of more.

    • Auldyin says:

      That’s because their definition of ‘good times’ is steady 2% inflation in the ‘Gdp deflator’ which is the all sector measure of US inflation for everything bought in the country. So far as they are concerned we’ve never had any good times since at least 2008.
      Your idea of subtracting the deficit is theoretically perfectly correct, because that Gdp was attained partly by spending of the deficit, however the justification for the deficit spending is that, it will produce more future growth in Gdp than there would have been without it.
      That’s the sort of dream politicians have, but cynics like me have never seen it, and don’t believe it will ever happen. What will probably more likely happen, in the real world, is that paying back that debt will be a drag on Gdp growth for years and will be shown to have been a bad idea, but heh hoh we don’t make the calls do we?

    • Auldyin says:

      While I’m having a moan it might be a good time to top it all by saying Gdp for the country is only an indicator.
      What really counts to people is Gdp per capita, so if your population grows faster than your real Gdp you could all actually be getting poorer as individuals in spite of the country getting richer, if you get what I mean.
      This is where USA still trounces China because, for roughly equal Gdp, China has nearly 4 times as many people, so the average Chinese is 4x poorer than the average American and they have a Hell of a battle to change that. Again, our politicians tell us that immigration is good for us economically, but only if all who come contribute more than average Gdp per capita,otherwise, Gdp per capita goes down. Stats not rhetoric.

  10. GDP growth ( 10 year moving average ) is falling because people are
    getting older & having fewer babies ( per each woman’s lifetime ) &
    because workers are punished & deadbeats are rewarded
    ( i.e. blame the pigeon feeders, not the pigeons ).

    BigGov’s solution is ever-more-negative interest rates ( after inflation ),
    forcing everyone to spend willy-nilly, destroying the environment.

    A real education is real expensive.
    ( hint: I’m not talking about school$ )

    • historicus says:

      Desperation investing , yield chasing, over leveraging
      and stealing away any chance of saving ones way into financial security…
      this is the Federal Reserve.

    • Saltcreep says:

      Jeff, my point of view here is that GDP growth is failing because we’re way past peak conventional oil, and now the net energy contribution of newer energy sources can’t support the suicidal exponential growth lunacy we are still striving to uphold. That’s why inequality, anger and social problems are increasingly testing the surface of our growth bubble everywhere, regardless of ruling political regimes.

      Population growth is a problem not a solution. We have long since blown through any long term sustainable limits, and are bleeding the planet dry in terms of both non renewable and renewable resources, biodiversity and climate system absorption capacity.

      The only way we can start getting on a supportable path is if we accept that we need to become poorer on aggregate and consume much less, and that we must become fewer in the long run. And to support that we need new systems to govern our economies and finances in order to cater for contraction and a fair distribution of remaining resources, rather than for a dogma centered on growth. Problem is that we’ve already got ourselves so out of whack that we find ourselves in a financial system that either expands and continues to feed inequality, or it utterly implodes…

      • Old school says:

        A free, smart, industrious people come up with solutions to life’s problems. An enslaved, uneducated, lazy people regress to a lower standard of living.

        • Saltcreep says:

          Predicaments aren’t best dealt with by resorting to platitudes.

          The problem for us with the exponential curve is that things seem fine enough for a long time as we travel along the time axis, and then a lot of stuff starts to go wrong very quickly. We have plenty of alarm bells going off loudly enough now, so I fear what we might face over the course of the next doubling period, which for the world appears to pan out at something like 20-35 years, given something like the global GDP growth in the last decade or so (around 2-3% annually). Although I suspect there is a fair argument to be made that GDP growth for PR reasons overstates our actual real impact, so if I’m lucky I may be gone myself before things get really bad…

          “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”
          Kenneth Boulding, Economist

        • Lisa_Hooker says:

          Sure – my strength is the strength of ten because my heart is pure.

          Or if you prefer our leadership policies – my mind is made up. Don’t confuse me with facts.

      • Chris Herbert says:

        No one is listening Salt Creep.

  11. MiTurn says:

    Have you seen the price of beer? Especially from the small craft brewers? I wonder if the CPI picks that up!

    • Old school says:

      Drinking beer from a craft brewery is up a few rungs on the first world must have scale. If inflation gets high, that should be an easy item to drop off the budget.

    • Lisa_Hooker says:

      Have you seen the 11.5oz twelve ounce bottles of beer?

  12. cas127 says:

    I happened to swing by the Numbeo site recently (maybe first time in 3 or 4 years) and some of the stats are starting to get troubling.

    Numbeo tries to crowdsource real life product prices from most of the countries of the world.

    The thing I noticed this time was that US prices had markedly moved up towards the more expensive end of the lists.

    My fairly decent memory was this was noticeably less true even three or four yrs ago (perhaps even surprisingly so).

    Again, it is no particular surprise that DC dollar printing has devalued the USD. (Although I basically assumed equally failed/crooked gvts were doing roughly the same thing as DC).

    But to see it at the detailed micro level is something else.

    Numbeo is detailed but I would like to hear from other readers if they are aware of other websites that list detailed product prices from other countries.

    Seeing the micro level discrepancies really brings home the harm that dollar printing has done to the vast majority of Americans vis a vis their relative position to other nations’ citizens.

  13. Craig J Steele says:

    Juggling numbers is how all governments operate their financial propaganda tools. But one must admit that acceptance of this form of tripe has been further propagated by the financial media. Todays headlines were ” huge beat on GDP of 6.8%”. Now Powell has taken on the role of twisting the numbers to hide the reality of where we are on the economy. At some point soon there will be nowhere to hide and the weaker hands will start warning of serious approaching economic challenges in order to be viewed as not having been wrong or behind the curve.

  14. Phoenix_Ikki says:

    Remember what F boy Powell said about inflation. It’s transitory so it’s all going as planned. 2 or 3 quarters down if we’re still at this or worse, he will continue to smile and say it’s planned as well because people are spending and economy is gaining steam. Yup an economy that’s recovering really well but yet somehow still need lowest interest rates in the history of less couple of hundred years and never ending bond purchase. Your classic case of ignoring that giant lump on your neck because your foot doesn’t hurt at all..

    • historicus says:

      First explained away
      Then welcomed as a sign of economic activity
      Finally, conceded and treated meekly with behind the curve 1/4pt increases that will be meaningless.

      How much of that GDP gain was government spending?

    • Craig J Steele says:

      Hey Phoenix- absolutely correct. The Fed has been saving the economy for over ten years now during the “longest expansion” to the “greatest recovery”. Words like ‘transitory’ and ‘build back better’ are simply set- up words for what we can expect next. The Fed and its marionet operators will only be happy when the have siphoned off every nickel of our money as taxpayers. And we will be left with the biggest bill ever imagined.

    • Anthony A. says:

      Here’s something that is not transitory……went to play golf today with my friends at a course we play once a week, weather permitting. It’s private, but allows the public to play the open tee times. In addition, they give a “senior and military” discount to folks, which is a few dollars off the fee.

      A sign on the pro shop door said that public greens fees are now increased 33%, and no discounts for military service (senior 10% discount still applies). What scumbags…..

      • Fromks says:

        If you think golf fees going up and losing senior/vet discounts is bad, just look at younger generations housing spending. Things are much worse for the next generation.

      • RightNYer says:

        Are they scumbags? Or are they just passing the cost of grass seed, labor, lawnmowers, and everything else on?

        • Paulo says:

          I don’t think so Righty. It is probably because during the pandemic more people are golfing and they don’t need to attract people to fill vacant spots. I read few years ago a golf course closed in NA every week. It was a dying activity as it requires people to spend a lot of time doing it and younger people weren’t committing as oldsters died out. With Covid people were looking for outside activities that could offer social distancing. Golfing surged. That is what happened in our area and it has been featured on the news several times. Courses that were zombies are now busy.

        • Anthony A. says:

          I hear the membership dues have not increased (the monthly). Maybe that’s next. But cut off the military discount? Come on man, that’s chickenshit. Maybe the club owners are Communists…or hedge funds.

  15. Maximus Minimus says:

    It’s an insult to one’s intelligence to call any economic indicator “real”. Unadjusted would be a fine name, but unfortunately has been hijacked by economic beans counters, and the academic clowns.

    • nick kelly says:

      Especially GDP. The previous much older term was GNE or Gross National Expenditure, which at least doesn’t imply a product at the end. The example I can’t resist: the UK narrowly missed a predicted recession not long ago because it was a cold winter and fuel bills were enough to push GDP just positive. A true life version of the ‘broken window’ means of creating GDP ‘growth’.
      It doesn’t matter how unproductive spending is to the GDP. The US gov better keep an eye on the infrastructure bids and beware of ‘shovel ready’ projects.

      • Maximus Minimus says:

        I recon the two big ones are:
        Under counting inflation because housing would skew it much higher, so lets do a benign lying since noone is going to challenge it. Certainly not by the elected representatives of the people.

        Debt fueled GDP growth, because that debt doesn’t matter to academic crooks, and their products that go into government jobs and sigh…media.

        In science, there is a peer process that requires repeatability of experiment or hypotheses even of little consequence.
        The economic charlatans don’t need that; their targets are soft heads of elected representatives.

  16. Until last night I felt pretty sure we had seen the peak in Fed spending but I don’t think they will need to monetize anything. There will never be too few goods, to cause inflation. The dollar cheapens and then the nominal worth collapses in fait accompli. We are deflating here. Buy 30yr bonds.

    • historicus says:

      (9th Indiana Infantry)
      Just like Incident at Owl Creek Bridge, there will be a surprise ending….especially if you continue to think that there is no inflation.
      Contractors can not even bid jobs because they arent sure of prices or the ability to get materials. Corn Soybeans Wheat lumber copper semiconductors shipping containers…you name it….we are in short supply.
      Want a new roof on your house? How many months out can you wait?
      Grocery store shock is in the pipeline.

      • Paulo says:

        Grocery store shock is already here. I looked at some steaks yesterday and just about calved, myself. Thankfully our greenhouse has started producing and we like salmon. We can buy whatever, but don’t. I’m glad my kids are grown these days. It must be brutal to shop for a family.

      • Paul from NC says:

        My dad does steel work in his ‘retirement’ years. He does this so he can afford his property taxes, which were raised about 130% year on year about 5 years ago. He got multiple quotes for a 1″ x 14″ piece of stainless – $100 minimum (he thought it was a joke). It was a small job – just fixing a way could he ask his customer for an extra $100 on top of what he quoted. He went back to the shop and put one together, finished it nicely, from a couple of pieces off his scrap pile. Happy customer only paid $175 instead of $275. Frame should hold up another 50 years. Most small businesses and contractors would not be able to repeatedly do this.

    • Lisa_Hooker says:

      There is demand-pull inflation that can be personally managed by not demanding. Then there is cost-push inflation about which an individual can do little.

  17. Hernando says:

    Hey, I just checked Forbes, Market Watch, Business Insider, Fortune….. everything is awesome!!!

    Buy, buy, buy, buy…

    Seriously though, I’m in a market for a house and it is challenging with all of these greasy speculators out to make a dollar and sellers out to screw a buyer. Not to mention dishonest fog-a-mirror realtors.

  18. Micheal Engel says:

    1) We would like to go back to the bars and the restaurants, but
    we survived without them.
    2) We would like to increase our import from China, but we will survive
    without them.
    3) SPX is a hanging man. SPX will end up Apr with a bang.
    4) SPX bull run will end in May. Since we survived a bloody pandemic, we can survive the next ride.

  19. Seneca's cliff says:

    Its like the late 70’s again without the good music.

  20. Micheal Engel says:

    5) Consumers spending, a lower high. Real GDP, another lower high.
    Federal, State and Local BU above 2009/ 2010 crisis.
    6) We don’t know if the trend up cont.
    7) To extrapolate gov spending and inflation, a bubble need a backbone.
    8) Instead, we might face a prolong period of debt deflation.
    9) We know something about the civil war, but we know nothing what happened after.
    10) The gilded age 1865 – 1896, Stanford prof Richard White books :
    a) The Republic for which It Stand and b) RailRoaded.

  21. polistra says:

    The middle part of the trade deficit chart is the most important. It verifies what we already knew: Trump was a perfect faker on the issue he campaigned on. The deficit held fairly steady during Obama, then Trump the fake “populist” sent more of our industry to China every year.

  22. MarkinSF says:

    Here’s a question. Supposing the US Treasury decided to cancel the entire treasury debt held by the Federal Reserve. What’s the fallout?

    • OutsideTheBox says:

      That would be terrific !!!!

    • rick m says:

      When the Fed and the Treasury weren’t sleeping together it was different, of course we’re holding your debt issue as collateral, we credited your account, didn’t we? Now if Dora the Treasurer wants new drapes the henpecked Fed acquiesces. Canceling the debt you yourself issued isn’t usually possible Seems like the non-Fed debt would see lower yields at first, being non-cancellable unless redeemed, but a fresh slate would mean fresh lending and fresh debt, no monetary restraint means no money worth a damn. Ultimately no net change without responsible policies. What the other central banks and the BIS think might be a whole nother thing, they’re probably pretty tired of watching the circus that won’t leave town. Maybe someone else with more understanding will chime in, it’s a good question. Assuming effects in stocks and the corporate bond markets, but I have no idea what they would be.

    • Petunia says:

      The money supply would shrink by the amount cancelled. The fed just stopped publishing the money supply figures, nobody would know the money supply was shrinking.

    • Old school says:

      Why bother?. If you can perpetually roll debt over at Zirp it’s nearly the same as having no debt. Problem is that gives politicians a license to destroy the economy by passing out money to friends and making opponents have to work for their money.

    • Maximus Minimus says:

      You mean bring forward the expiration date, rather than wait for 1,2,5,10 years?
      The government encouraged by the newfound monopoly game, would quickly borrow back the amount and then some.
      The whole argument for separation being that the gubermint cannot create as much money as it deems fit.
      Now sadly a relic of the past.

    • jrmcdowell says:

      ” What’s the fallout?”

      It’s not really a hypothetical question. As long as the Fed rolls over the debt on its balance sheet, it has already been effectively “canceled” as the govt doesn’t have to pay any interest on that debt as it is remitted to the Treasury.

      This “free lunch” depreciates the currency, however, which is part of the plan. They’re not going to upset the apple cart by announcing an official cancellation (which may have unforeseen consequences), so they’ll continue with the same course.

    • Wolf Richter says:


      It would be considered a “default” by the US government on its debts. Just imagine how much fun that kind of crisis would be. Even just discussing default by the US government on its debts as an option would blow up the financial system :-]

      • polecat says:

        Well Wolf, the A-Dream has to end sometime .. as will the dreams of others …. as per Mr. S Cliff above.

      • Artem says:

        If the default is forced (not voluntary), it would destroy the dollar completely. It would make it very difficult for institutions, foreign and domestic, to continue to hold dollars. People would dump dollars as if it were rubles and US federal government would struggle to find a market to sell more debt at reasonable prices, capping government spending.

        This would mean a recession in the short term and systemically higher interest rates on everything until trust in the dollar is restored.

        A voluntary default would be very confusing and highly unlikely since you have QE infinity to do the same thing with less noise.

      • MarkinSF says:

        I guess my point is this: If this happened, the asset side of the Fed’s balance sheet would go to zero. What’s on the other side of that? Would this really have any effect on the amount of dollars in circulation? I’m just curious to know the effect (outside of any perceived market impact) of this would be.

        • Wolf Richter says:


          Well, you would have to replace the entire banking system that we have today, including the Federal Reserve system, and modern accounting and finance, with something else. You cannot just take one of the hugest pieces out of it and ignore the rest.

          What you’re proposing is a central bank with no assets and no capital and with $7 trillion in liabilities.

        • MarkinSF says:

          @ Wolf
          I’m not really proposing anything. I was just curious what was on the other side of the assets (treasuries) of the Fed’s balance sheet. When you say $7T in liabilities what exactly are those liabilities? Dollars?
          On the other side the Treasury is relieved of $7T in liabilities so what would be the offset of that? A reduction of assets?
          This unknowingness led me to the question I originally asked.
          It just seems like a shell game that is played out as a funding mechanism for the US Government.

        • Wolf Richter says:

          The biggest liabilities are bank reserves (deposits that the Fed owes the banks) and currency in circulation (paper dollars). The third biggest liability can be reverse repos (depends).

      • Lisa_Hooker says:

        That would be da-fault of the Treasury, not da-fault of the FRB. Personally I think they’re both at fault.

    • Chris Herbert says:

      Uh Oh. MMT creeping in. Don’t tell Wolf

  23. rick m says:

    After mischaracterization, denial, minimalization, and grudging acknowledgement of “a little over-stimulus”, they’ll fix inflation (It-that-shall-not-be-named)with wage and price controls. Because they can. Called something different of course. And to be expected by this time next year, or earlier. Starving citizens hang politicians from streetlight poles, so bones shall be thrown. Stealing the coming election will occupy their attentions after that. all hail the Glorious Future.

  24. Cobalt Programmer says:

    Regardless of the Government,

    1. Why do you think FED might increase the rates?
    2. There are people buying T-bills at 0.00% yield.
    3. Even if the yields are negative there are buyers…
    4. If they yields are near zero, why stocks would go low?
    5. inflation do not exist, like a mom searching for child hiding
    6. There will be no more downs, recessions and depression with the current monetary policy.

    • Petunia says:

      The people who buy T-Bills at 0% are guaranteeing they have access to dollars when they need them, usually to pay off dollar denominated debt. They don’t care about the yield, they just care about having access to the dollars. The yield they forgo is usually less than the fees and premium they would have to pay to find dollars later.

      • Mr. Wake Up says:

        Vote for me and I’ll make your food costs tax deductible!

        Now imagine that plus your rent!

        That might be a better option than giving people free money to pay for the cost of inflation.

        • Mr. Wake Up says:

          Speaking of inflation

          Coming to theater near you

          SPX 4600

          On to the next one

          Russell 2000 come baby come come.

          On to the next one

          BTC 100k

          On to the next one

          $150 barrel oil

          On to the next one

          Wolf Street out the wazoo charts that no longer fit on one jpeg

          And then for our final presentation
          after kicking the GFC down the road for 15 years…. goodbye banking system hello total collapse.

          Disclosure: this is not financial advice and I dont own a crystal ball.

      • Swamp Creature says:

        I’m getting 37 basis points on my 1 year CDs with the credit union. Better than nothing.

    • Old school says:

      Long term rates are low for a reason. What is the stock market worth with no growth. Not very much. Dividend payout of sp500 of 1.4% isn’t worth much unless it’s growing.

      • historicus says:

        “Long term rates are low for a reason.”

        When the Fed buys MBSs at below the inflation rate, people know things are out of whack…
        Housing market is locked up, IMO. People who own homes must now realize that the replacement costs of their current home has risen circa 35% in five months.
        Lumber, copper, shingles, etc.
        So they pull their house off the market. Then everyone pulls their house off the market.
        Last CPI YOY was 2.6% (March)….30 Yr mortgages 2.9%
        In 1999 and in 2006 when we had the same CPI gains, 30yr mortgage 6%.
        The markets are skewed by Fed activity.
        and the third Fed mandate, the always ignored one..
        “promote moderate long term interest rates.”
        The wisdom of this mandate is to keep rates from being TOO HIGH or TOO LOW. Too low, immoderately too low, allows those today to steal the wealth from the future via irresponsible debt creation.
        Just what is happening now. TRILLIONS mentioned with ease.

    • Old school says:

      Went back and looked at AAII asset allocation history. In escort history is usually to get caught at top of market with near record low cash and near record high stock allocation. At the bottom they have record high cash levels as they panic sell. Cash levels are very low right now and stock allocation near 70%. We will see if this time is different.

    • Rates will increase without the Fed. Monetary policy is in the back seat. You could buy a long term note with a guarantee at face value, if the dollar takes a big hit. Inflation is being driven by a change in China’s policy toward global commodity pricing (they used various dumping schemes to keep prices low. ) There are producers using the inflation scare to profit, (you don’t t hink?). Energy was negative a few months ago, the cyclical push off the bottom now makes it overpriced according to demand. Fed is always worried about deflation, which is why they want to stay 2% above at all times. The Fed PUT is over, govenrment is in competition with corporations for the hearts and minds of consumers. Would you rather have a new F150, or a forever cure for Covid XX and cancer?

  25. Nemo 300 BLK says:

    I’m a small chemical manufacturer, and we just had our second 5% price increase in 45 days, with more to come. Dramatic price increases for our metal cans, metal pails, solvents, raw materials, corrugated, and freight are the first things that come to mind.

  26. Swamp Creature says:

    Last 12 month price increases

    Lumber +265%
    Gasoline +182%
    Brent Crude +163%
    Heating Oil +107
    Corn +84%
    Soybeans +72%
    Sugar +65%
    Cotton +54%
    Nat Gas +43%
    Platinum +52%

    Now J Powell says there is no inflation and he wants to print more money faster to get inflation over 2%. His main worry is the wages increases may get over 2%.

  27. historicus says:

    Have Fed Funds ever been 3.8% below CPI?

    this is ridiculous
    The Fed is off the rails

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