CPI inflation remains at 12-year high.
By Wolf Richter for WOLF STREET.
What caught the media’s attention in today’s CPI inflation data was that the expectations by economists had finally risen enough to where CPI came in a notch “below expectations,” after having exceeded expectations for months, and often by a lot.
The Consumer Price Index for all Urban Consumers (CPI-U) rose 0.3% in August from July, and 5.3% compared to August last year, the third month in a row of 5%-plus year-over-year increases after having risen 5.4% year-over-year in July and June. The three months were the fastest increase in CPI since June 2008 (5.6%), and all four months were the fastest since January 1991, according to data released by the Bureau of Labor Statistics today:
The 0.3% month-to-month increase in the overall CPI reflected:
A decline of 0.2% for the month in the CPI for durable goods, which was still up 12.8% year-over-year, after having been up by 14.6% at the peak in June, the biggest year-over-year spike in the data going back to 1957 (red line in the chart below).
An increase of 0.5% for the month in the CPI for non-durable goods (mostly food and energy), which pushed the index up 7.4% year-over-year, matching the multi-year record of May (green line).
An essentially unchanged-for-the-month CPI for services, which was up 3.0% year-over-year (purple line). The services CPI is dominated by the CPI for housing costs, which accounts for nearly one-third of total CPI, but it barely ticked up, despite soaring actual housing costs – more on that phenomenon in a moment.
CPI understates services CPI by massively understating housing costs.
Homeownership costs and rents, not including utilities and other housing-related costs, are the largest and most crucial category, accounting for 31% of the overall CPI, but it hardly inched up despite home prices that have surged at historic rates.
“Rent of primary residence” weighs 7.6% in the overall CPI, and it ticked up just 0.3% for the month, after having been stuck at a monthly increase of 0.2% all year. For the 12-month period, it rose 2.1% for the year, up from the 1.9% year-over-year increases in prior months. This CPI for rent had been running in the 3.5% to 4% range since 2016 until it softened in the spring last year. There are big urban areas were rents have sagged over the past year; but in many other cities, rents have spiked. Depending on where tenants live, their personal rental inflation is going to look a whole lot different.
The CPI for “Owners’ equivalent rent of residences,” which stands in for the costs of homeownership and weighs nearly one quarter in the overall CPI, inched up just 2.6% year-over-year. But measures that attempt to track reality have exploded. The national median price of existing homes spiked by 23% year-over-year, according to the National Association of Realtors. And the Case-Shiller Home Price Index spiked by a record 19%.
The Case-Shiller Home Price Index tracks the price changes of the same house and is therefore a measure of house price inflation. The disconnect between the record double-digit home price increases of the Case-Shiller Index (purple line) and the CPI’s homeownership component’s puny increase of 2.6% (red line) is due to the CPI’s structure.
The CPI for “Owners’ equivalent rent of residences” doesn’t track actual home-price inflation or home prices, but is based on surveys that ask homeowners what they estimate their home might rent for. So the CPI for “Owners’ equivalent rent of residences” is a measure of rent as seen by the homeowner.
The effect is that the entire services CPI, thereby the overall CPI, is artificially kept down by the way housing cost inflation is measured.
Food costs, which weigh 13.9% in the overall CPI, rose 0.4% for the month and 3.7% year-over-year. The CPI for meat rose 8.0% year-over-year.
Nearly half of the food CPI is “food away from home,” which rose 4.7% year-over-year, the biggest increase since 2009, not spiking but working its way higher as restaurants are carefully raising their prices to meet the higher costs they’re now facing.
Energy costs spiked 2.0% for the month and 25% year-over-year. Energy accounts for 7.3% of the overall CPI. Within the category, motor fuel spiked 2.8% for the month and 42.5% year-over-year. The price of natural gas pumped to the home jumped 21% year-over-year. The CPI for electricity service rose 5.0% year-over-year.
The CPI for used vehicles fell by 1.4% in August from July, the first decline from the ridiculous spike as some price resistance is finally starting to crop up. It pushed down the durable goods CPI, shown above. Retail prices follow wholesale prices, and used vehicle wholesale prices started ticking down in June from their equally ridiculous spike, but prices remain ridiculously high. The CPI for used vehicles is still up by 32% from a year ago.
This chart shows the index value (not year-over-year percent change), which essentially hadn’t increased in two decades despite large price increases on dealer lots, thanks to aggressive “hedonic quality adjustments” (see below). It took the pandemic price spikes to break the stranglehold that “hedonic quality adjustments” had on the index:
The CPI for new vehicle spiked the most since June 1981. Month-over-month, it spiked by 1.2% and year-over-year by 7.6%. Inflation Whac-A-Mole: even as the used vehicle CPI starts ticking down, another index spikes, which is how inflation works, circling from category to category.
“Hedonic quality adjustments” hold down the CPIs for new & used vehicles. CPI attempts to measure price changes of the same item over time. When the price increases because the product gets better, then the portion of the price increase related to the improvement of the product isn’t considered inflation (loss of purchasing power). And this makes sense.
These “hedonic quality adjustments” are an attempt by the BLS to account for improvements in vehicles over the years. For example, over the decades, the estimated added costs each step along the way of migrating from a three-speed automatic transmission to a 10-speed electronically controlled transmission are removed from the CPI.
In reality, the hedonic quality adjustments have been way too aggressive, with the political purpose of concealing from the public the true loss of the purchasing power of the dollar, and the purchasing power of their earnings. Every government over the past few decades has toed the line on this strategy.
I illustrated the aggressiveness of the hedonic quality adjustments in my F-150 and Camry price index going back to 1989, which shows how prices have soared even as the CPI for vehicles remained nearly flat. The recent spike in prices was too much too fast and overpowered the hedonic quality adjustments.
This loss of purchasing power is “permanent.” The only event that can undo tiny fragments of decades of losses of purchasing would be a period of deflation when prices on average are dropping, as the dollar is regaining some purchasing power that had been lost in prior months. In the US, the is an extremely rare event that happened only a few quarters during my lifetime.The rest of the time, inflation ruled.
This is the loss of purchasing power of $1 starting in January 2000. Note the brief episode of deflation during the Financial Crisis, when consumers found that they could buy just a little more with their money. But the fun didn’t last. In July and August, it was below 62 cents:
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Interesting to see price of rents in primary residence go down so much, despite double digit home price inflation??
The divergence of the Owner’s EQ Rent & the Case-Shiller Index is just absolutely stunning. And it’s starting to look a good bit more exaggerated than 2005-2007. The funny thing is when about realtor backed market analysis that says this housing market is different than 2008.
What a joke. The data speaks for itself. And when you have institutional investors buying whole subdivisions for twice the builder’s asking price, then you’ve got something that’s just as bad or worse than giving people loans that really can’t afford them.
I just raised all rents 10% – glad it’s transitory – that is right into my pocket
gotta keep up with minus(-8.5% real interest rate – ie devaluation)
“I just raised all rents 10% – glad it’s transitory – that is right into my pocket
gotta keep up with minus(-8.5% real interest rate – ie devaluation)”
You are part of the problem. It’s “right into [your] pocket” yet you have to “keep up with the minus”? Are you factoring in capital gains and homeowner subsidies, courtesy of generationally low interest rates and ridiculous central bank policies? No, you are not. You are opportunistically gouging your renters, who may not be able to afford the increase. It’s a scummy move on your part.
Several of my neighbors are selling at the top and renting until the prices return to “normal” The prices they are getting are ridiculous and selling overnight.
I wish I could talk my wife into doing this but the kids have a few more years at home.
Inflation is here to stay. Owning residential rental real estate is the best hedge against inflation. Better than gold because it produces current income too. If you own it in a self-directed IRA, its tax free, even better.
Well I do think there is a difference here. Before it was built on thin air but now most buyers are qualified – although maybe tapped out they at least have incomes and put money down so it’s not strippers and realtors with 8 houses anymore.
But the main difference I see is that housing is a real asset and now we have inflation worries. I mean I can see a fall coming but then kind of like with gold I would think the market reacts to a new bout of crazy monetary heroin and that’s also a big part of the price increases and we know that isn’t stopping.
In the information age I would guess that inflation could be accurately measured if desired, maybe even to two decimal places.
It seems to me that this delta makes sense, as they measure different things. EQ tracks changes in what owners would be willing to rent at, and Case-Shiller tracks the change in home prices. Lower interest rates can instantly increase home values, but do not instantly lower home owners monthly mortgage payments. As a land lord you focus on spread between operating cost and rent. Not to mention renters are locked in for 12 moths. Rental rate fluctuations will always be more muted than home prices. As the FED starts tapering we will see how much pricing power landlords really have.
I’m a farmer and would just like to add my two cents. In agriculture inflation has been really high. Tractors are scarce and expensive (for many reasons, especially used ones) and there’s all sorts of shortages. A year ago seed garlic was around $8 a pound, now it’s commonly $30, and you have to order it from the Midwest or Idaho. Nowhere local can stock any. I also have read and heard that fertilizer is going through the roof, conventional and organic
Don’t worry! The FED still says after 9 months that this will all be transitory. However in the real world, there appears to be no end to real labor shortages due, in part, to COVID. Wait! These COVID vaccinations aren’t really vaccinations, are they? Nope! They’re shots, because we’re not going to eradicate COVID. So, these labor shortages are transitory why Mr. Powell?
> CPI understates services CPI by massively understating housing costs.
A TON of us moved away from HCOL areas into LCOL thanks to Remote Work during COVID. On top of that, higher mortality among the old is allowing younger people to buy homes at an auction as I did a few months ago completely killing housing costs for good.
So whether the CPI is understating housing costs or not at the individual level depends on people’s mobility.
Was your purchase price below market at auction ?
I totally doubt any meaningful supply of homes to younger / first time buyers is coming from auctioned homes. Maybe you got really lucky. Normally, in an auctioned home, the company / bank selling the property requires a payment in relatively short order less than a week. You can close and get a loan that fast. So if you did what you did, you’re either an outlier or you had the money to purchase the home outright. And, I seriously doubt you bought this house at any sort of significant discount, unless it’s in somewhat of a distressed area which these days are few and far in between. Most auctioned houses today are being sold at near market value, because there’s so much demand. Again, you might have gotten lucky, but for the most part, you’re an outlier. 28 year-old John Doe isn’t making his first home purchase at the county courthouse steps.
My vote is an outlier. I know two people who have been bidding on houses the past few months and they add 15k to 35k over asking and keep losing and losing. These are 1st time home buyers that have good jobs.
One listing was for 250k and she bid 285k and lost. i have seen a 500k listing get a winning bid at 605k. Bids need to be 15% to 20% for move in ready homes.
This is on flyover country where there is still plenty of land to build homes…. but the only new homes being built cost 400k and up which is 5x the median family salary.
Thus homes under 300k sell like hot cakes.
Thus anything under 300k and probably even 350k is selling like hot cakes.
i am not sure how long this can continue but it does.
Owner’s equivalent rent absolutely under accounts for the “real” cost of homeownership. Along with spiking housing prices, hazard insurance and property taxes are going up significantly as well.
As for cars, with 44% of the $10+T in 1st mortgage debt having been created in the last 12 months, the over priced car situation will get sorted out in the next 12 months or so. In due time, all the equity people sucked out of their homes will be spent, including what was thrown at new & used cars. In addition, we’re probably 12 months or so from the mortgage refi business drying up, especially when the FED starts to tapper MBS and then raises interest rates within 9-12 months.
Once this happens, all of those tons of new cars sitting in parking lots waiting on chips will become nearly worthless. I certainly hope GM & Ford are planning for this.
@Jay,
I don’t think FED is going to taper and hike rate sup. FED sees inflation as transitory and in the end they’d be proven right. In reality, all inflation is transitory.
The Fed will probably bump rates a quarter point every once in a great while.
Nothing that will make any difference but they will shout from the rooftops
“We did our job and raised interest rates!”
Way too little and way too late.
we all should know for whom the FED really works!
The biggest mistake learnt people have is that they think FED cares about the common people.
But FED would do all to keep the pretense going that they care about poor people. It means they may do lil tapering and lil rate hike
FED only cares about the rich and they are one of them. I work for a big company in a low position. I can’t do short tern trading or option trading of my company’s stock as it is consider insider trading although i have absolutely no insider info as i am quite low down.
Look at the FED.. these folks are market movers and they are neck deep in stock trading…. height of corruption.
Unless common Joe has ripped naked and have no food nothing would change. I don’t believe democracy works as well.. Just two parties taking turns to serve the same masters/
Thanks for making such a moot point, but for those who lived through the late 70’s through 1985, inflation probably didn’t feel all that transitory.
The FED will have to start to taper by the end of this year. The pace is certainly questionable as it for raising interest rates.
What will cause interest rates to rise will be a seesawing stock market over the next few years. The FED can’t keep purchasing the amount of debt at this pace forever. At a certain point, the stock market isn’t will stagnate and investors will finally stop buying treasuries, because of their very meager returns. Low demand means higher yields.
We are about 10 to 15 years behind Japan regarding interest rates. Japan has kept interest rates barely above or at zero for 25 years. The U. S is a youngster and has only been doing this for 11 years.
“We are about 10 to 15 years behind Japan regarding interest rates. Japan has kept interest rates barely above or at zero for 25 years. The U. S is a youngster and has only been doing this for 11 years.”
Another rationalization as to why the US can liver beyond it’s means indefinitely. Japan is a creditor nation which had the benefit of the rest of the world expanding when it’s bubble burst.
The bubble has infected every global economy that matters. How is the US supposed to get around that?
In reality, life is “transitory”…because like Jim Morrison said, “no one gets out of here alive.”
On a long enough timeline, no one survives.
But do you care to leave a better country, and economy to your children and countrymen?
I do….
We have a Corp owned 2019 King Ranch F250 we are going to replace next year, so I priced out a loaded 2022 F250 Platinum today. While not shocked, the msrp was $89K as optioned. Msrp on the loaded 2019 was $82K. All that has changed is the screen in the dash and the taillights.
I have a tritoon I bought new at the boat show in 2019 for $62K OTD with a trailer. I can sell that boat for what I paid for it today but if I want to replace it, the msrp is over $100K.
Boats are one sign of an overheated economy. I remember thinking RVs were dead, the boomers were riding Harleys. Once the greatest generation passed, used RVs would be a drug on the market. House boats replace RVs? What was that movie, Dear Brigitte? The family lived on a houseboat in Marin.
As an under 30 year old, house boats do have alot of appeal. It would probably take decades to become a common thing though. Most people I know (who are under 35), don’t show alot of interest in RV’s, some but not many, but regular boats have much more interest.
Given the skyrocketing prices to park RV’s and the price of RV’s themselves, I would guess hotels will kill off most RV’s eventually.
NEMO300BLK,
It sounds like someone might have mastered the art of what counts as a business expense.
TR,
Check out the canal boats in England… them folks been doing it for many, many years…
I’ll check those out.
Ordinary, less wealthy Americans keep taking it. It is good that the US Congress is working hard to preserve the trillionaires’ and billionaires’ fortunes by not making them even have to pay a fraction of the percentage of their assets that ordinary Americans pay each year in taxes according to news reports
Tax loop holes are what we need to preserve the kleptocracy, I mean our aristocracy. It is good our politicians (like LA superior court judges), once bought, stay bought.
Except for the wealthiest who can buy influence through political contributions, the US tax system is absolutely awful deal for the rest of the most affluent.
The wealthy who are economically mobile would be better off abandoning their US citizenship and getting one elsewhere. That’s what a few did about 20 years ago (John Templeton, John Dorrance) until Congress made it a lot more difficult if not impossible.
The populist dream of stripping the political defenses of the wealthiest so that they can be plundered to finance the fantasies of the progressives is never going to happen.
No one exists to pay for someone else’s political wish list.
Dear Augustus Frost,
My comment was sarcastic, not a suggestion. I could not disagree more vehemently as to your own apparent suggestion that we should all give up, effectively kneel down, and let the ultra-rich enjoy themselves.
Those who study history know that until Reagan arrived, the ultra-rich had to pay taxes or (as to those few paying taxes already) a much fairer portion of their wealth in taxes. Thus, the idea that we should accept the kleptocracy of the rich and let them keep evading and avoiding taxes is ludicrous.
We just have a corrupt capture of the IRS, SEC, most of the US Congress, and courts, right now by a particularly clannish group of crooks. However, as the French aristocrats who also were able to avoid paying taxes and were above the law, e.g., like Weinsten for years, or Epstein, or Madoff, for decades learned, you cannot fool all the people all the time.
For now, too many Americans still have too much to lose, or think that they do, to rock the boat. That will not last forever the way that the banksters who own the “Federal” Reserve are gutting our economy.
One more thing, you may want to read about the incident “Affaire du collier de la reine” (made into a great movie) which did much to discredit the French royalty and ultimately, with other factors, led to the guillotining of Luis XVI. Like the French, Americans will take a lot of guano for a very long time.
However, as the British learned during the American Revolution, there is a limit to the amount of guano to the face that they will take. So far, many of us are just voices crying out in the wilderness, but we are being joined by more and more people crying out for justice in the wilderness. The thieving banksters and their “Federal” Reserve will keep our numbers slowly growing and growing and growing and eventually, we will not follow the tools of the ultra rich.
Car makers have their lobbyists write the new law so that they can raise car prides $10,000 dollars on EV. How nice to use printed money so nicely.
But remember, they are perfectly trustworthy in other matters and issues…
“The effect is that the entire services CPI, thereby the overall CPI, is artificially kept down by the way housing cost inflation is measured.”
“In reality, the hedonic quality adjustments have been way too aggressive, with the political purpose of concealing from the public the true loss of the purchasing power of the dollar, and the purchasing power of their earnings.”
It’s been brought up before and I’ll bring it up now…when will you be creating the Wolfstreet index? Everyone knows that CPI is cooked and really only used for propaganda purposes, also to lend bogus credibility to COLA’s for the social security checks. More and more folks need to quantify what inflation actually is to combat the misinformation they spew forth. You’re a number cruncher and can most certainly do this.
The primary purpose of the CPI is to control SS COLA’s. If the 2021 COLA is in the neighborhood of 6%, that will certainly validate the its propaganda aspect you speak of.
check out Wolf’s latest post. validated.
Bob…Wolf,
Since housing makes up so much of monthly expenditures, the monthly Zumper/ApartmentList/etc surveys make a pretty decent proxy for metro-specific inflation.
Zumper has been putting out Top 100 reports for 4 to 5 yrs.
The apparently defunct RentJungle had metro specific rents going back to 2011. Some talented Googling might be able to retrieve RentJungle’s vanished stats.
Pravda would announce the winner of the Soviet election as having garnered 98% of the winning votes, while we’re going the other way with absurd numbers, and CPI inflation is always 2%, never varying much.
We are nothing like the Soviet Union! America would never create an oppressive political environment where people could be fired for pointing out things known as true only a few short years ago —before the onslaught of Internet propaganda! Never! Not on my watch! I, Jay Powell, leader of the Fed, will fight against this with every fiber of my being! I am the last great hope of these United States of America! Oh…I’m rambling…but yes this inflation is bad. I created it on purpose to protect my homies in Congress. I created the fake chip shortage to jack up car prices. I promoted keeping everyone out of work to jack wages. My bad. I hope I get a second term for all I have done.
You are very clearly ”losing it” jp,,,
But please continue on here in spite of that!
Majorly ”entertaining” and amusing, in spite of that!!
“The people who went through the last bout of massive inflation as adults in the 1970s and early 1980s, the people who have actual experience with large-scale inflation and remember what it was like – the over 60 crowd – they expect inflation to hit 6.0% a year from now (red line in the chart below).”
This isn’t about experience, it’s about being a heavy user of healthcare services that are locally produced. Think about nurses wages, in NIMBY areas, patients will have to pay more to account for inflating housing costs. The nurses need housing!
Not every service can be imported, healthcare’s biggest component is actually local. Inflate housing costs and those on fixed incomes who need healthcare will suffer.
Elderly landlords who are super healthy (my mother, for example) highly benefit.
In the computer industry, it is common for feature specs to improve year over year for the same or lower price. So you get a bigger TV every year for the same price and the same size TV price drops. You get a faster processor for the same price. There is a portion of this that should not be counted as a hedonic adjustment because it is the nature of technology to improve products over time.
Deflation in prices is actually a good thing and if it suppresses demand, so what? Maybe we need a little demand suppression. People are consuming way too much of things they truly dont need and are not saving enough money for the things that they truly need to save for – retirement and healthcare, etc.
Inflation benefits the rich, deflation favors the poor.
Our economics reward people who spend frivolously and punishes the people who are frugal.
Inflation also rewards governments with massive debts and obligations.
Look at the new iPhone and devices. Same prices as last year but double the storage space, better cam, and bigger battery! With that said, who needs a new phone every year. I just brought a new phone this year after my old Samsung phone of 4 years cracked and stopped working properly. I will keep the new for a while.
We’re all fools put money in 401 k except market crashes we loss 50% then keep putting more money in very foolish
Gametv – agree on your points, and I’m confident even the Fed knows that inflation favors the rich, yet the Fed and his members are getting rich in the process of inflating the money supply, so an unbelievable conflict of interest. At this point the Fed can either allow the markets to crash, and lose somewhere between $30 to $40 million of his long only ETF portfolio (per public records), or he can keep the game going a little longer and cash out slowly, as some some of the Feds have been doing as of last week.
Keep an eye on the Fed holdings, as I think it spooked the markets last week when two Feds started selling due to “poor optics”…
Yes it does, you’re absolutely right about that. I’ve been bitter for a decade because what “should” happen never does and the most ridiculous and irresponsible always win.
… and the CPI saying you get twice as fast computer now so the price went down 50% is just absurd as are all of those things. Just like with cars too .. sure you get cool new things but cars cost triple what they used to!
It’s all just ridiculous ways they keep from having to stop what they are doing and do the right things. If only we could be governed by the people for the people instead of allowing corporate interest and career politicians without term limits to run things. That basically is the answer to everything….. if it were voters that decided things instead of corporate money we would just do all the common sense things we should.
I finally did my own inflation fighting today and told Comcast and its effing artificially idiotic (AI) chat bot, which I hate more than anything, F-U.
Literally.
“We don’t recognize your response,” the AI chat bot said, hahahaha
Today I finally got fiber to the house for broadband from a local company, the first real competitor for Comcast in the area. I now have nearly 1 giga bits per second download, 12x the speed of shitty Comcast, and nearly 1 giga bits per second upload, nearly 200x the speed of shitty Comcast, at HALF the price.
Comcast had doubled my broadband subscription fee a year ago. When I called to negotiate, I got it’s effing chat-bot. There is no experience more aggravating than an AI chat-bot. I’m finally free from Comcast.
A monopoly or near-monopoly makes executives greedy and lazy and fills their heads with shit for brains.
Broadband charges fall under CPI for services.
> I now have nearly 1 giga bits per second download
AT&T gave me that in the REO house I bought at auction vacant for LESS than what I was paying in Denver and NYC for a crappy connection.
Remote work… just works!
As a result CMCSA down $4.38 today.
Yes, I did it :-]
Wolf,
I’ve had Comcast for 30 years. I have the double play. Internet and TV.
My phone is still on RJ11 horse & buggy technology. Works during power outages which we have very often here because of an incompetent Power company PEPCO. The only thing worse than COMCAST is AT & T and Verizon. They are all monopolies that have poor customer service and are very dishonest.
Bernie Sanders some years back mentioned that in cities where cable companies have competition, their pricing is well….more competitive. And naturally where there is lack of competition, then they charge whatever they please. Glad to hear that competition has reduced your costs.
The things I don’t miss about living in Florida are Comcast and hurricanes, in that order.
I don’t live in Florida, but I would agree. I couldn’t pay Comcast to get a tech support person on the phone. It’s rediculous.
Who did you end up using on your broadband?
I think there are a few choices available now besides Comcast and Verizon. I discovered Wave a few years ago, and they’ve been decent. Although I start to hear about sonic recently, but think they are part of (or partnered with) AT&T.
Anyway, good for you, the non-negotiations with Comcast always bugged me, I was happy to be rid of them a few years back.
MCH,
Yes, Sonic, of Santa Rosa, privately owned. They started doing Bay Area dial-up in the 90s. And they just expanded their fiber into my neighborhood. My understanding is that they have some partnerships for their connectivity, etc., including with AT&T. The bucket trucks that came to string the fiber and install the drop were all Sonic branded. The number I called (real human) was Sonic’s, and everything else I have had contact with is Sonic as well. No AT&T involved as far as I can tell.
Nice work, Wolf. Very pleased for you dumping Comcast.
I have the same feelings w.r.t. chatbots, both useless and annoying. One minor correction to your comment box postinghowever, In my experience the executive heads are filled with s–t for brains, long before they get greedy and lazy.
My personal opinion is most of this is being caused by the Tech world reaching the end game of Moores Law. No longer can we expect to increase computing power and lower price a the same time. Just look at the top end CPUs. It used to be Intel could build a 1 billion dollar fab and crank out the next generation chips and sell them for $800 at the start.( back in the pentium days) Now TSCM talks about spending 25 billion dollars or more and make chips that sell for less than that. This has profound consequences for the entire semiconductor chain and is sucking the profit out of the whole ecosystem. This loss of profitability is causing the shortage and perhaps the end of an Era. Just before Covid, the death of Moores Law was the main topic of conversation in the bars frequented by Intel Engineers where I live. Sure modern car chips are not cutting edge, but adjustment to the post-Moores law era is causing the whole edifice to crumble.
Loved the CPI of used cars chart. Motor oil runs thru my veins. What a train wreck of a financial metrics.
Found a great Tweet that flows into this absurdity today from a guy named Sven Henrich
“Summer 2021: The Fed continues to run QE at $120B per month with PPI at 8.3% & CPI at 5.3%.
Summer 2019: The Fed cuts rates 3 times with unemployment at 3.5%”
I have noticed some declining used car prices in my folly. Is this the peak?
The CPI numbers really need a “committee” to re- evaluate the valuations.
The Fed and Congress really need to consider even allowing inflation to even exist. A dollar is a dollar – how about forever?
Balance our stupid budget like I balance my stupid beer guzzling and McNugget eating budget. I am solvent. McDonalds could run the country better than our current governors…they make a nice profit and pay a dividend.
I liked and voted for Ross Perot in 1992. He was different but spoke my language.
Thanks again Wolf.
Thanks again to the cadre of regulars and irregulars who make this site awesome.
“I have noticed some declining used car prices in my folly. Is this the peak?”
Looks like the peak of the used vehicle spike. Used vehicle wholesale prices have now dipped for the third month in a row. Not by a lot, but they dipped. Retail CPI lags about a month or two.
“Summer 2021: The Fed continues to run QE at $120B per month with PPI at 8.3% & CPI at 5.3%.”
This is why the FED is full of sh!t. They are purposely doing all of this. Nobody questions them. Jerome Powell should be led away at gunpoint. This guy is an absolute maniac for what he’s doing.
I agree. The FED’s balance sheet is $8.4T. The last time they sold $600B in assets from their balance, the REPO market freaked out. Nowadays, they have nearly twice the amount of reserves to get rid of. And, every central bank is in a similar position around the world. It boggles the mind to try to sort out how this will play out over the next 12-24 months.
Your vote for Perot was a defacto vote for Clinton. Thanks a lot.
Ahh yes, the lesser of two evils argument.
I voted for GWB in 2004 on that rationale, and vowed to never make that mistake again.
Another proud Perot voter here.
Who cares between Clinton and Bush 1, which got elected?
As if there’s a difference?
typo: “…higher costs their not facing.” Maybe should be “now facing”?
thanks!
CPI-All items rose 0.3% month over month vs. 0.32% from July to August 2020. Hence annualized CPI inching down slightly from 5.4% to 5.3%.
But the next 4 months of comps are (Aug-Sep’20, Sep-Oct, etc.) 0.14%, 0.04%, -0.06%, and 0.09%. So there’s a chance the annualized CPI could still go higher this autumn, despite M/M rates decelerating. The peak annualized CPI reading might not come till December.
Well,one thing that for me will be interesting is if we get the 9% (15% Old School) inflation that , according to the Exchange Equation is already baked into the monetary pie. Oi’ Uncle Milton drove around California with the equation on his car tag. What the hay , I am going with Uncle Milton on this one because I don’t know. I do not believe the Fed will tighten until the electorate get punished and punished some more to the point Congress can no longer ignore the political pressure to do something other that flogging each other over busy work BS.
We are in Stagflation. Inflation is close to double digits and the economy is stagnating. Most of the data the government puts out are lies. The underground economy is the only part of the economy that is doing well. Just hired a landscaper who did some good work for me on some trees a few years ago. Just paid him $200 cash for a 1st class aeration job on my lawn. More and more people are doing this. The major tax burden in now borne by the poor slobs who work for minimum wages.
Clearly reported that the vast, vast and increasing part/percentage of US Federal Income Taxes have been paid by the folks just below the oligarchy in USA…
Not to say we should not, ”tax the rich”,,,
IMHO we damn sure should as was done in various decades ago, especially the decades directly during and after WW2, at the clear instructions of the ”oligarch in charge, FDR, may he RIP ”…
In those days, the oligarchs at all levels understood very clearly that they owed their lives and lively hoods and ability to continue to manipulate the international ”financial” world, to WE the Peons who had given almost every thing, and in many many cases, everything, to protect them, etc., etc.
Now, with all that forgotten,,, the world wide oligarchy has not only forgotten what was done to protect them,,, but has also been very clear about screwing the very part of WE the People, world wide, who protected them against the Nazi and other clear facist entities of that era.
Sooner and later, all the oligarchs will come to realize their error in that specific regard…
Inflation is going to run hotter for longer than the FED expects, or there’s going to be a housing crash.
My bet is that housing rolls over.
It just might as part of the cascading economic effects likely to occur when the stock market finally rolls over and we experience a lost decade of stagflation. Like the roaring 20’s things might end the same way with some really tough economic times and no tools left in the fed toolbox (and little remaining appetite for MMT).
It’s going to be tough for the remaining savers as their money is getting devalued so quickly it’s going to push some go out on the risk curve at all time highs in asset markets.
OER has to be the dumbest measurement since phrenology.
OK, I admit it. I had to google it :-]
At the current real inflation rate, if things don’t change in the next few years, I’m going to lose a large percentage of my savings just keeping it in the bank
Our unelected monetary policy makers forcing savers into distorted assets to just break even
After the worker/Saver starts pushing his savings into the risky stock market or overpriced housing, there will be a liquidity crunch and it will be incredibly hard to service those reoccurring carrying costs.
When stocks drop a drop fast and hard. I don’t think the next time this happens the FED will jump in like they did in March 2020
And then the asset stripping will begin
Do the hedonic adjustments only go one way (ie dampen the CPI). Let’s say the quality gets worse – the best example being airlines where the leg room keeps getting smaller and amount of carry on luggage gets less generous – do they make an upward adjustment to the price? Wolf you’re the source of all knowledge on all these things and I’m sure you know. Thanks.
“The CPI for “Owners’ equivalent rent of residences” doesn’t track actual home-price inflation or home prices, but is based on surveys that ask homeowners what they estimate their home might rent for. So the CPI for “Owners’ equivalent rent of residences” is a measure of rent as seen by the homeowner.”
Who are these homeowners? Has BLS ever contacted You? Wouldn’t be surprised if they call one another while “ working.”
Gilbert,
Just google it. Here is an explanation from the BLS about the methodology. Go down to “Shelter”
https://www.bls.gov/opub/hom/cpi/design.htm
I was never called honestly for any of these surveys
Rental and house inflation is catastrophic. Look for more homeless camps, i.e., “Hoovervilles”.
“In a typical year, landlords file 3.7 million eviction cases”
https://evictionlab.org/
China contemplating a national property tax