Fed’s Lowest Lowball Inflation Measure Hits 30-Year High

“Transitory” is the new Spandex.  

By Wolf Richter for WOLF STREET.

For its measurement of its inflation target – the “symmetrical” 2% – the Fed uses the “core PCE” inflation measure because it is the lowest lowball inflation measure the government publishes, and it understates actual inflation even more than other indices. “Core PCE” excludes food and energy, which can be volatile but make up a big part of what people on the lower half of the income scale spend their money on.

And today, this lowball core PCE measure of inflation rose by 3.62% compared to a year ago, the hottest inflation reading since May 1991:

The month-to-month increase of 0.331% was roughly the same red-hot as the month-to-month increase as in July (0.338%), according to the Bureau of Economic Analysis today. This works out to be an annualized pace of 3.9% (12 x 0.331%), which is higher than the current 12-month core PCE of 3.62%.

The PCE price index with food and energy included jumped by 0.4% for the month (4.8% annualized), and by 4.3% from a year ago. This is the hottest PCE inflation reading since January 1991:

There are not many people still working in finance, including at the Fed, that have experienced this type of inflation as adults, and even fewer that have had to deal with this type of inflation professionally.

In the spring, the Fed brushed off the hot inflation readings with the meme that there were just “transitory” and would be gone by the end of the year. Now the story has changed. Now the Fed is getting comfortable with saying that “transitory” is going to last into mid or late 2022. Transitory is the new Spandex.

But the entire inflation scenario has changed. The cause is not a quickie supply chain disruption that’ll just go away. The cause is grotesquely overstimulated demand that has changed the entire inflationary mindset among businesses that are now confident that they can pass on higher costs and among consumers that suddenly don’t mind paying a lot more for stuff, when they would have previously gone on buyer’s strike, which would have prevented those price increases in the first place.

Fed Chair Jerome Powell did just that, admitting that inflation pressures would run into 2022 and blaming tangled-up supply chains but not what’s causing supply chains to get tangled up. Read… “Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

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  118 comments for “Fed’s Lowest Lowball Inflation Measure Hits 30-Year High

  1. Wisdom Seeker says:

    They printed $4,500,000,000,000 out of nothing and all we got… was this lousy inflation.

    Can’t buy a house anymore, too expensive.
    Can’t buy a car anymore, nothing for sale and too expensive.
    Sometimes the food you want doesn’t exist at the store.
    Sometimes the clothes you want don’t exist at the store.
    You order online and maybe you get it, or maybe it’s “backordered” and shows up 3 months late (if at all).

    They can print money but they can’t print goods, and everything they’re doing is messing up the supply chains!

    • ChangeMachine says:

      If the outcome of a policy is easily predictable, that was the purpose of the policy.

      • Wisdom Seeker says:

        Strongly disagree… google “Cobra Effect”. Most policy changes produce a buffet of thoroughly unintended consequences.

        • otishertz says:

          There have been a lot of unintended second and third order effects that are still playing out from the politicization of medicine, lockdowns, etc. but it is very hard to believe that the meatheads at the Fed didn’t know that printing $4.5 trillion would lead to inflation.

    • Twinkytwonk says:

      All of the above and if you are in the UK you can’t get petrol either.

      • buda atum says:

        We have an easy solution in UK. You watch out for protests demanding wage inflation. They already offering it to truck drivers and farm workers, and if they don’t inflate wages for other workers we know how to strike, despite how hard it’s become since the Iron Lady changed the rules.

        • Wisoot says:

          Taxes up, petrol up, gas up, elec up, soft wood up, car insurance on the up, food prices up, the UK price trend is definitely up.

    • RH says:

      Prices will continue to rise on many goods, because we are now talking not just about monetary inflation but inflation caused by fundamentals: reduced supply, increased shipping costs, etc. Decreased demand as a result of economic disruptions and thereby, reduced income may limit price rises on other goods.

      • ChangeMachine says:

        I thought you were going to say “Prices will continue to ride until morale improves!”

    • 2banana says:

      Can’t save in a safe bind, savings account or CD anymore, lose it all to inflation…

      And 2022 is going to be worse.

    • RH says:

      It is hilarious that the consequences of the CCP’s corruption and inept incompetence may actually rescue the corrupt, US banksters and Wall Streeters. Otherwise, the massive inflation as a result of their corrupt and reckless monetary policies (which coincidentally would always “coincidentally” benefit banksters who charge you 25% on credit cards then pay less than the real inflation rate for those same funds which they borrow from the American people via their “Federal” Reserve cartel) would otherwise have caused Americans to rise against them. This is like an old-fashioned satire.

      • Depth Charge says:

        I have no sympathy for suckers who use credit cards. If you don’t have the cash, DON’T BUY IT.

        • RH says:

          So compassionate and kind of you, Depth Charge, to give them such good advice and not even charge for it. FYI: many, less-wealthy Americans live from pay check to pay check and must use their credit cards to buy food or other necessities for their families. Other readers, will more kindness than rocks, can read “Many Americans who can’t afford a $400 emergency blame debt” in msn.

          I guess your prescription to them would be: “Just tell the rug rats to wait, stop sniveling about hunger pains, and we will get to eat by next Friday, after I get my pay check, and it clears!” Commendable, very commendable. The important thing is that we never force the rich to pay taxes, which they paid before Reagan, right?

        • Lisa_Hooker says:

          So pay the balance in full when it’s due? Duh!

    • Old School says:

      It is amazing how government runs through money. I saw Congress approved $6.5 billion of additional funding to pay for Afghanistan refugee resettlement. That works out to about $65,000 per person.

      You could ask yourself, why couldn’t that money come out of the State Department’s budget as they already had funding for Embassy that is no longer used or Defense Department as there is no longer an Afghanistan army to stand up.

      No, we got a crisis and need some money.

      • ChangeMachine says:

        Instead of the pentagon budget going down now that the Vietganistan Meltdown is nearing completion, The House has approved a $25B raise for them. Must be a performance bonus.

  2. Billybob says:

    Can we end the Fed yet?

    Taleb is right. Goddamn astrologers.

  3. DR DOOM says:

    Inflation will arrive officially when Congress feels the heat from the electorate pain. The pain still ain’t enough to move the average Joe or joette to hammer the real culprit,Congress .The Fed is not accountable to Joette or Joe. joette or Joe never get to question The Chair. The Chair is dangerous to Joe and joette as Sen Warren said to The Chair , albeit for proabaly the wrong reasons. At least a public figure took a shot. The Manchin letter should have also called The Chair out as dangerous to joe and joette. Sen. Warren should have read the Manchin letter to The Chair and then called him dangerous for all the honest world to see and hear.

    • jon says:

      The electorate won’t feel the pain. They’d be kept in ignorant/comatose stage by slew of entitlements/incentives. Much of which are coming in 3.5T dollar recon bill

      • DR DOOM says:

        Jon: can’t argue with that . That’s the way to do it. Get your stemmie and throw in the rent for free.

  4. Yort says:

    Powell stated this week that he finds the inflation “frustrating”, but don’t worry, his long only ETF stock portfolio has moved from 40-50 million to around 60-70 million…so he should be just fine! Everyone else, not so much…

    CNBC today:

    Inflation ran at a fresh 30-year high in August as supply chain disruptions and extraordinarily high demand fueled ongoing price pressures, the Commerce Department reported Friday.

    That’s the highest since May 1991 and reflective of inflationary pressures that Fed Chairman Jerome Powell said earlier this week he finds “frustrating.

    • Depth Charge says:

      Meanwhile, Weimar Boy is still QEing to the tune of $120 BILLION per month. Don’t listen to what they say, watch what they do.

    • historicus says:

      He says he’s concerned about the unemployment…with record job openings!
      Yet, for the employed…..the inflation rate the Fed promotes and allows is inflicting terrible damage on the WORKING AND SAVING families of this nation.
      Where is his concern for these people??????

  5. Tbv3 says:

    The Fed officially adopted a 2% inflation target in Jan. 2012, though the target might be said to date unofficially to 1997, when Bernanke and Fred Mishkin published “Inflation Targeting: A New Framework for Monetary Policy?” in the Journal of Economic Perspectives.

    In Aug 2020 the Fed announced:

    “the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

    Here are per annum PCE Core growth rates:

    1 yr PCE Core chain = 3.6%
    2 yr PCE Core chain = 2.6%
    3 yr PCE Core chain = 2.3%
    4 yr PCE Core chain = 2.2%
    5 yr PCE Core chain = 2.1%
    6 yr PCE Core chain = 2.0%
    7 yr PCE Core chain = 1.9%

    PCE Core chain since Jan. 2012 = 1.8% per annum
    PCE Core chain since Jan. 2000 = 1.8%

    Above data is from the Fed’s FRED website for “Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index)”.

    • Wisdom Seeker says:

      Thanks for this data! I was wondering the same thing and you answered my question.

      Sounds like next Fed-Spandex weasel-words after “transitory” will be “moderately above” and “for some time”… not to mention “likely”.

    • Old School says:

      I believe if you used real rental rates in the inflation numbers you would need to add about 2% to the inflation numbers in the chart.

      In some ways the understatement of housing cost explains a lot about the squeeze on the middle class especially renters. It gets masked through homeowners feeling wealthy because of asset appreciation, but that may not last.

    • historicus says:

      Challenge the premise.
      The Fed has no RIGHT to promote any inflation!
      That is a tax….and only Congress (who answer to voters) can lay taxes.

      Now to the data….
      stack those numbers upon one another, then add compounding.
      2% in ten years trims 22% off the value of the dollar. “stable prices”?
      Now throw in 5% “transitory” ….. and other alleged “blips”…..
      This Fed is off the rails…..promoting that which they are allegedly bound to fight, and not lifting a finger when it becomes damaging even outside their planned damage.

  6. Kim says:

    This is just the tip of the iceberg. We should have had a balanced budget years ago except in times of war. Now we just keep digging a deeper hole because none of us want to take the measures required to fix it. We are voting on passing multi trillion dollar bills and yet can’t pay our bills with the money that is coming in the front door so we have to borrow more. Insanity.

  7. Anthony A. says:

    Boots on the ground report:

    Today I was in a local neighborhood Denny’s, which we frequent a lot, having breakfast with my wife. We know the store manager by name as she has been there several years. When checking out this morning, I casually mentioned to her at the cash register that I noticed the price of a glass of diet Coke (wife drinks this stuff) jumped from $2.19 to $2.29 and my hot coffee jumped from $2.19 to $2.25. No big deal I said.

    She then said that some menu items will be increasing as well, primarily lunch hamburgers as their “case lot” of frozen burgers jumped from $74.80 to just over $150.00. I don’t know how many burgers are in the “case lot” and I didn’t ask. The new menus are at the printers she said.

    It’s everywhere folks, and coming to a store near you soon!

    • Yort says:

      Boots on Ground – I have watched the fast food industry increase starting pay from $13 to $15, and now there is talk of $17…and this is in 6 short months! I also know the local hospitals are giving employees $5,000 if they can bring someone in to fill an open position, and it was only a $750 bonus 8 months ago. I am also hearing of 20% pay raise increases at the hospital, with $10,000 signing bonus. I’m just as concerned about the psychological shift in inflation than the actual inflation itself, as the personal savings rate dropped again this month, yet the personal income increased only 0.1%…so the bottom 99% are flying backwards with the Fed’s “inflate away the debt” scheme. Inflation PTSD is not something the Fed or govt can solve easily once it becomes a wide spread issue in the minds of the majority of consumers…it really becomes a multi-decade or even a generational issue if inflation is allowed to get out of hand for very long…

      The reason I bring up “Food and Healthcare” is because they are not discretionary, so high inflation on non-discretionary products and services affects us all while we attempt to survive a willfully ignorant Fed and fiscally insane govt…

      Take steps now as stagflation is almost guaranteed at this point…

      • Yort says:

        Miss typed “Personal Income” —should be 0.2%, not 0.1%. Point being, real income is falling, even using the artificially low manipulated Fed data for inflation…

      • economicminor says:

        Yort
        “Take steps now as stagflation is almost guaranteed at this point…”

        What steps?

        What your plan, buy as much as you can, including health care? Store food and fuel?

        How about electricity? You certainly can’t buy the next couple of years of breakfasts at Denny’s or anywhere else.

        How does a person position themselves for Stagflation?

        • SnakeEater says:

          I get my stagflation preparation advice from the mainstream news media. It’s essentially this, I go to Lowes or home Depot, and as long as there aren’t 5 gallon buckets on back order, I buy some for my family and fill them with sand.

          Then, whenever I hear the news I just put my head into it for a few minutes and when I pull my head out, everything seems to be right in the world.

    • MCH says:

      Everything is awesome. Quick, people can’t afford this, where is the $3.5T social infrastructure bill. Hell, we need to make it $35T. Cause you know, hamburgers is a human right.

  8. Minutes says:

    Spandex is fine if you are Olivia Newton John. Jay Powell in it….not so much.

    • otishertz says:

      More like spanx that hold your cheeks together and make your butt look better.

  9. Xavier Caveat says:

    I’m wearing my PITS (Powell Inflation Temporary Statement) button proudly today.

    A passer by asked what does it mean, and I responded: ‘it’s the pits’.

  10. GSH says:

    Meat prices are on an interesting trajectory. A tomahawk steak (serves two) was $25 at our local Westcoast Walmart four months ago. Yesterday, it priced at $52. That is at Walmart, we are not talking Whole Foods etc.

    • Wolf Richter says:

      My wife works in the meat supply chain. The company buys meat from packers by the container and exports it (refrigerated and frozen). There are many cuts that have doubled in price this year. Some specialty cuts (for overseas customers) are no longer available at all as packers are prioritizing their most profitable cuts. There is some resistance among their customers and some substitution, but mostly they order and pay.

      Packers are making record profit margins. This is “pricing power.” Only a buyer’s strike could stop it. But there is no buyer’s strike. People are still buying and paying. That’s what has changed.

      • Wisdom Seeker says:

        The one other thing that can stop Pricing Power is legitimate competition delivering increased supply.

        But competition’s not in the current deck of cards.

        I’m not sure it’s even in politicians’ vocabulary anymore…

        • Wolf Richter says:

          Totally agree!

          There are like four big packers… an oligopoly that decided to no longer compete but just raise prices by looking at each other.

          But consumers could go on a buyer’s strike and eat a lot less meat for a month, and watch what happens. But consumers are not doing that. They’re still buying no matter what the price. That’s the inflationary mindset.

      • Kunal says:

        I’m not sure what you mean by buyers strike Wolf. People aren’t going to stop eating or living. For essential items there will never be buyers strike till all citizens are bankrupt.

        • Wolf Richter says:

          Kunal,

          People can live just fine by eating less meat — meat prices being the topic of this thread.

        • Depth Charge says:

          Seems more like “price gouging” to me. Everybody’s trying to suck up that stimulus money.

        • Old School says:

          Human behavior is interesting. It is recognized that there are cycles in spending behaviour we business cycle and credit cycle. Government used to be counter cyclical, but the last 20 years has been stimulus all the time if you include deficit spending.

          At some point there will be a down cycle or if not we will go until things get so crazy we have collapse. Government printed too much recently and there is too much money chasing too few goods. If Fed is too late combating inflation it’s going to hurt like “heck”.

        • Sierra7 says:

          Kunal (et al):
          I personally have been on a modified steak buying strike for several years.
          Can’t get a decent cooking/tasting steak for years now.
          Good hamburger, the same. No taste and tough!
          Standards have changed. Poorer quality meats overall.
          No, I do not buy nor have bought the kinds of meats I like for several years.
          I am involved in a kind of buyers’ strike!

      • topcat says:

        If packers are making record profit margins then that isn’t inflation, well profit inflation maybe.

        • Wolf Richter says:

          Inflation is not defined by whether someone makes more or less money on a product. It’s defined by the price of the product.

      • 2banana says:

        I am tracking the “Hamburger Helper Indicator” to get insight on this.

      • K-Agri says:

        Wolf – I would love to see an article on the meat industry. Beef farmers are literally going bankrupt, yet prices are rising for consumers. There are a few ranchers on YouTube who give a good overview of what’s going on. Oligopolies in meat packing are not good for anyone. I can’t fathom why more people aren’t outraged over it.

        • The value added in the meat industry comes in the feedlot. That takes time and money. Then Covid hit the packing plants especially hard. US consumers are opting for healthier cuts, grass fed. You can’t just leave range cattle out for an extra few months to fatten. Eating beef has become a symbol of conspicuous consumption. I feed my cat beef, while half the world makes due with soybeans. I personally eat almost none of it, beef that is. We may all be eating cat food soon.

        • Lisa_Hooker says:

          @Ambrose – I am setting up to manage a herd of free-range cats as I can see cats as food as a viable source of protein. A bit like rabbit. They will help to control the rats too.

      • Sams says:

        Go on a buyers strike and do what with the money?
        Behind the CPI “inflation” there is real inflation, namely monetary inflation. Holding cash or bank deposits is an outright loss straight away.

        The trouble is the monetary inflation that no longer just inflate asset prices, but now also causes price rises on goods and services.

        The FED have the key, reel in the monetary inflation. When it makes economic sense to save, more people will do it.

    • economicminor says:

      Interesting subject. My wife and I slow travel a lot over back roads. We went to Wisconsin from W Oregon and around Oregon this year.. Slow.. Takes us 6 weeks to go to Wisconsin and back.

      There are many 10’s of thousands of acres that in the paste cattle were raised on, with either no cattle or just a few. Lots and lots of land with NO use. Fenced and old cattle pens and loading chutes but no cattle.

      We were wondering why. I came up with a couple of scenarios.

      1/ that most of the old ranchers are to old to ranch and their kids went away to university to never return? Thus no one left to be a cowboy/girl..

      2/ That the conglomerate meat farms/feed lots have so consolidated and basically run the small farmer out of business.

      Yet the demand for high quality grass feed beef is there.. It is hard to find even in a rural area.

      Around here, 30 years ago there were auctions up and down I5 but now there are only a few, many hundreds of miles away. I use to see auctions around the country but none any more.

      We don’t seem to have essential workers in any field from ranching/farming/dairy to truck drivers or hardly any profession that actually requires physical labor.

      There is definitely something wrong in the USA.

      • K-Agri says:

        Economicminor – there is one key piece you are missing. Four meat packers control 80% of the US meat supply (not unusual, it’s very similar in other places too).

        These meat packers determine the price per pound for live beef cattle and because there are so few, they can fix the price for the entire market, so the do. They force the prices to the point where most beef farmers are on the verge of bankruptcy, in essence stealing the ranchers portion of the profits.

        Now it’s the customers turn, they have a similar level of control over the retail market, this is the “pricing power” Wolf refers to.

        It’s just another extremely inefficient market, with a couple of big players tilting the scales to their benefit and ruining it for everyone else.

      • VintageVNvet says:

        How about a major drought now happening in many parts of the western USA these days em?
        While in a national wildlife preserve in MT couple years ago, the ranger in charge told me they had average of 12,000 head in the surrounding valley each summer, starting in June until the grass was gone for the year, then trucked to the feed lots.
        Most of the beef cattle left these days is in places where it is still possible to ”dry farm”, as irrigation is too expensive for cattle on the hoof,, only good for hay and feed crops, etc., and many former active ranchers know they are on top of the ”short list” for losing their water rights sooner and later, even before those growing other crops.

        • K-Agri says:

          Absolutely, regional weather patterns have great effect on certain Ag commodity prices, on a seasonal basis. The key here is to look to the commodities that have a more efficient market place (not beef as I mentioned above) and see the effects of weather on specific seasonal prices.

          Wheat is a great example. Most wheat in North America is grown in the west. Prices spiked in July and held firm once the market realized they were in for a dry season.

          Corn has a very different chart, as there is a lot grown out east, and we had a decent amount of rain.

          The live cattle price charts don’t make near as much sense…

      • economicminor says:

        And yes drought is probably part of it.
        Conglomerates are probably a big part.

        Most of what I see hasn’t been used in years.
        Lots of land that was once used and now isn’t.
        Even here in Oregon along the coast where the drought or irrigation isn’t much of a factor.

        A lot of the small operators are gone whatever the reason.

        • K-Agri says:

          Economicminor – in the west of Ireland, if you look up at the base of Croagh Patrick you will see the remnants of stone walls stretching up the side of the mountain (small mountain, big hill :) These were fields used to grow potatoes immediately prior to and during the famine. The amount of rocks will tip you off to the low agricultural quality of the land, but times were brutal and people were desperate to grow whatever little they could. Needless to say it hasn’t been farmed since then.

          As technology progresses, yield per acre on high quality farmland has risen almost exponentially and prices remain low; large farms in high quality soil areas do well, small farms on poorer soil fail to make a profit and shut down. Today’s market just doesn’t support farming poor soil. As someone who grew up on a farm, it’s sad to see farms shut down. The reality is modern farming is so efficient, farmers can feed far more people with far less man power and land than the past. It just doesn’t fit the popular narrative that we are running out of land and won’t be able to feed the worlds population in the future. I know a lot of farmers, many of whom get government grants not to farm (in Europe), but to act more as custodians of the countryside. Most of the farms I know of are running far far below peak capacity, it makes no economic sense for farmers to go full bore, the most profit for them is in the low hanging fruit, not the high expensive to harvest fruit! I sometimes wonder if the worlds farmers were fully incentivised to use all of their land to maximum efficiency, how many people could they feed? (Leaving aside future weather and climate for the moment) It would surely be an incredible number of people!

  11. Max Power says:

    Just wait ‘till housing hits the CPI.

    I think this calls for a new Yogism: This rise might be “transitory”, but it sure is gonna last a long time.

    • jon says:

      Home prices have risen 25% or so in last 1.5 years but does not show in CPI because of manipulation. I doubt it’d show

      • Old School says:

        I just looked at Zillow for our town. I about fell out seeing how many recent listings and especially the prices. I think in our area people are just seeing it as an opportunity to see if they can cash out at a big profit and hoping they can go on to next stage of life

  12. Bead says:

    Trying to find my old WIN button, remembering the Great Kahn and the “moral equivalent of war.” Those were the days.

    Hope my vaporcoin hedge saves me.

  13. ru82 says:

    Some PE ratios of these tech growth stocks are crazy high. So is the Price/Sales.

    Then there is AT&T. Forward PE of 7.5 and pays a divy of 7.7%. Payout ratio is 65%. So they do not have to borrow to pay the divy. Stock price is at Covid lows yet revenue is 3% higher than covid lows but still 5% below pre covid. But the stock took a 30% hit on what is now a 5% drop in revenue?

    Verizon looks pretty cheap too. Divy of 4.6% and a 51% payout ratio. Price is around covid low but revenue is now higher than pre-covid.

    Go Figure

    Both are pretty much at Covid lows yet their revenue has returned to pre-covid.

    • Anthony A. says:

      Looks like T and VZ have already “reverted to their mean”. Neither are going out of business anytime soon and are both paying great dividends.

      They certainly don’t fit the new “growth model” of paying in advance for future performance that may not happen (kind of like professional athletes).

      • ru82 says:

        Look at the price of Tmobile stock TMUS. They do not pay dividends but do stock buybacks. Stock is up 50% and was up 80% from pre-covid and 100% from covid lows. Profit margin is only 5% while VZ is 15%. Debt ratios is worst than T and VZ. Of course it has a PE of 40 while T and VZ are 10 or below I think. None are going out of business. They have a moat because everyone cannot live without their cell phone.

        But buybacks seem to be the key?

    • Bobber says:

      Anything with declining real revenues might be a value trap. Stock analysts are probably factoring in modestly declining cash flows, plus a discount for super high debt levels. The market believes the Fed is going to start tapering, and higher interest rates are not kind to heavily indebted companies.

      The flashy dividend operates like a fishing lure.

      If it happened to GE, it can happen to AT&T. Be careful.

      • ru82 says:

        True.

        Can you explain declining real revenues. I look back an in 2014 AT&T had 146 billion in Rev and 13 billion in net income and in 2019 it had $181 billion in rev and 18 billion in ioncome. So over 5 years pre covid t was increasing

        Lots of companies saw a decline in revenues because of covid.

        Tmobile bought sprint and its debt ratios are now worse than AT&T yet the stock shot up after covid.

        • Bobber says:

          You need to factor in the acquisitions and look at organic revenue growth, less inflation.

        • crazytown says:

          AT&T purchased DirecTV in 2015. That boosted revenue but was an absolute disaster for the company with the gargantuan debt and declining subscribers in satellite TV.

          They recently spun off DirecTV (still own 70%) and admitted defeat. But think of how much money was wasted in interest on debt for that garbage investment.

          Now they will have to spend insane capex to lay fiber to keep up with internet competition. Where I live I can get Spectrum internet 200 Mbps (with options for 400 Mbps or 940 Mpbs) or AT&T 50 Mbps (and that’s as high as they go) for the same price. Tough choice….

    • Cas127 says:

      Not relevant to the telecoms mentioned, but *many* financials are also at low PEs…because a lot of people strongly suspect their “assets” (loans) are being carried on the books at a much higher value than they are actually worth (due to insider under-estimation of future writedowns and writeoffs due to future loan defaults).

      Corporations have a fair amount of leeway regarding the valuation of assets on their books, and therefore can somewhat control the timing of income gains and losses (due to writeups and writedowns). PEs sometimes reflect this discretionary power.

    • Masked Ghost says:

      I recall somebody (maybe Wolfe) covered AT&T some time back.

      If I recall correctly, it has a lot of debt that is being kept out of sight.

      • jm says:

        They’re giving off the part of their ops that brings in the huge revenue stream in order to reduce debt. So dividend will drop going forward. But if you buy before that you get a piece of the operation hives off. Google it to understand the implications.

  14. Jeffery Allen says:

    These comments are extraordinary and spot on. I am speechless and there is no need to add any further comment/analysis. In conclusion, the comments cover every conceivable point of fact. Wow!

  15. SocalJim says:

    Here is a story.

    I decided to find a family a decent used SUV. That was so hard. So, I struck the deal about 2 months ago.

    Then, the Toyota semi chip shortage story hit the wires. Prices on the type of vehicle I was looking at jumped 20% …. in 2 months. So, my SUV trade is in the money.

    Lesson is these days, you are better striking a deal on consumer items quicker. A lot of items are like this.

    • Seneca’s Cliff says:

      Not too fast, a friend of mine was tired of losing out on buying a small Toyota SUV , because someone else would beat him while he ran a carfax report. So it grabbed the next nice one on Craigslist without delay. Turns out the thing had been wrecked and it steers like one of those IKEA shopping carts with 4 swivel casters.

    • Wolf Richter says:

      SocalJim,

      That attitude CAUSES those price spikes. A buyer’s strike is the solution to price spikes.

      It’s precisely that attitude, which is now widespread, why I think red-hot inflation will persist.

      • MCH says:

        Wolf, for that to even be remotely possible, you’d have to wean two generations off of cheap Amazon stuff, a mentality of instant gratification, and an attitude of entitlement.

        You’d have about as much luck chopping off your own head and then expecting it to survive without the rest of your body.

        As the kidnapper in Taken would say: “Good Luck”

        • Wolf Richter says:

          Yes, that’s precisely why I think inflation will persist. The mindset has changed. People are paying whatever.

        • otishertz says:

          Christmas will be interesting after the end of extended UI and other transfer payments. So much demand was pulled forward by consumers who spent all that free money.

          Prices may go up enough to mask less demand in the future. Who can say for sure but I have to believe that consumers will need less crap in the future after binging on consumer crap for 18 months.

        • Old School says:

          Things can change quickly. Government came to the rescue with Covid and stuffed society with money. In the GFC people really tightened up best I can recall.

          I think the policy makers attitude this time was it’s better to do too much than too little, so we got inflation. Might should have tried to do the right amount instead.

  16. David Hall says:

    China tried to switch to carbon neutral energy while boycotting Australian coal after a trade dispute. Now they have rolling blackouts threatening industrial output with a cold winter approaching.

    Wholesale beef price increases are so high, I might be suspected of lying if I printed them. That might trickle down to the poor hamburger consumer.

    They raised the HOA fees again does not increase the value of my home.

    • MCH says:

      Chinese coal imports are way up… the marching orders is given, stock up on whatever resources to deal with the winter. Cause it is certain that if the power starts going out, monitoring the internet for dissent is not going to work very well.

      • Mojer says:

        That’s right MCH. You shouldn’t believe a word of what the Chinese propaganda says, the shortage of electricity was due to the lack of price increases of electricity by consumers so the government has now allowed this price increase and the electric power stations of coal are running at full capacity by buying the highest-priced coal on the market and making substantial profits again. The government wasted no time in declaring to the world that it was to decarbonised the planet which made even my dog laugh.

    • 2banana says:

      Chinese carbon neutral…

      While building new coal power plants.

      The Chinese don’t have to play any Paris Accord games for another decade.

      Even though they are the #1 polluter in the world…today.

      • MCH says:

        @2banana

        Please be considerate, the Paris accords are for the rest of the plebs. Do you still want your cheap crap from Walmart, or your consumer electronics to represent to those around you how sophisticated you are?

        If the answer to any of that is yes. Then we strongly suggest you don’t mention China and Paris accords in the same sentence, paragraph, or web page, one has nothing to do with the other.

        :)

  17. sunny129 says:

    ..’consumers that suddenly don’t mind paying a lot more for stuff’

    especially when the majority is buying on credit (debt)!?

  18. Tom S. says:

    I hope Bernanke is paying attention. Printing money to speed up what would have naturally been a 1-2 year contraction is causing inflation and shortages. Once supply returns it’s going to be time to sell assets. Similar to previous major crashes. Curious if will have an even longer contraction than had we not pulled out the bigger bazooka the first place.

  19. Frank says:

    After a long absence, new auto ads have started again. So maybe there is a upper limit to what people will spend.

    • Anthony A. says:

      Auto ads offering all kinds of price reductions/deals/warranties “forever” are all over Houston, Texas TV stations. Driving into downtown Houston yesterday (I-45) I saw mostly full car lots, both new and used.

      I think the bloom is coming off the rose for auto dealers.

      I think a shortage of pickup trucks is still going on here but this is Big Truck country and the dealers can’t get enough of them anytime.

      • Wolf Richter says:

        Pickups and SUVs are the only thing anyone in Texas wants to buy. Car sales have totally collapsed. Texas has always been truck country. But that dynamic has vastly accelerated. If you cannot buy a truck in Texas, you cannot buy anything.

      • otishertz says:

        Anyone who uses a truck to do work as intended can find a completely worthy old Chevy that is easy to repair by monkey see monkey do university of utube.

        Most of these “truck” buyers are using them to haul plastic kayaks and labradoodles, wearing crocs… terrified of getting a scratch on the paint or dirty fingernails.

        Older trucks are built much stronger as well. Give me a naturally aspirated chevy v-8 and five wrenches and I’m good.

  20. MonkeyBusiness says:

    Don’t worry, the good people of USA, I’ve been told again and again by someone in the know that Powell and Yelen are playing 4D chess against the Chinese!!!!

    Believe in their wisdom!!!

  21. Mendocino Coast says:

    Great Post Wolf :)
    So if you turn your charts ” upside down ” and read them thats’ how much our Money has gone down more or less correct ?
    I think got it right.
    I think if AOC and Warren run for President & Vice I don’t care who’s i charge they will get my vote

  22. jon says:

    FED wont see any meaningful inflation until they have gotten rid of their assets which would be hit hard by inflation real estate and stocks. then they’d see inflation and then increase the rates aggressively which may never happen

    • drifterprof says:

      The FED meaning:
      1. The cartel of banks institutional assets?
      or
      2. The individuals’ personal assets who manage the cartel of banks?

  23. Dudu says:

    “Stagflation is here” according to BofA analyst.

    Well there you guys. Next is for Jerome 🤡 to say that Stagflation is here.

    All the measurements (AI) are in place to make people poorer.

  24. polecat says:

    Cyclops, in response to Wolverine complaints re. Xmen attire : “What would you rather wear .. yellow spandex??”

    Here’s where it relates to the Fed : Imagine Jeffrey et al .. wearing stretchy tights wodded – a fat yellow backstripe – on a ground of fiat green $$$ signs .. cape billowing with a big FU insignia emblazoned, for all the Realm to see …

  25. Brent says:

    The price of decent fish like wild-caught Rainbow Trout and Arctic Char doubled during the past year.It is around $25 per lb now.

    • K-Agri says:

      Mmmm arctic char:) I once had it on a First Air flight to Iqaluit. Still the best in-flight meal I have ever eaten.

      • Brent says:

        😀
        As they say in the military RHIP – rank has its privileges.

        Rainbow Trout & Arctic Char for me,canned Mackerel for my Cat.

        Recently I noticed a quizzical,ironic expression on his face.

        I guess he is prescient and soon we both will be munching on Mackerel.

  26. Marco says:

    Wolf, they do not care. The FED WANT Inflation. This is going to be ‘Taper lite’ if at all and full pedal to the metal.

    • historicus says:

      Don’t expect the arsonists to reach for the fire hose.

      The Fed is rogue and in complete violation of two of their THREE mandates.

      And not a word from the fully invested powers in Washington DC.

  27. Auldyin says:

    “even fewer that have had to deal with this type of inflation professionally.”
    Wowee! So I’ve got a chance of a come-back. I’ll do it, if they guarantee to keep my blood/alcohol level above 50%. The oldies are the best. Slower but better.
    Yup! It’s wild out there and here in the UK but 2 things to keep in mind:-
    1) What prices are doing now was caused 12-18 months ago so trying to remember back you’ve got stimmies on top of lock-down. In 12-18 months time, now will be what determines prices and there are certainly more shortages but stimmies are dropping back.
    2) If wages don’t go up to match prices people will very quickly run out of money to pay the higher prices which will bring about W’s buyer’s strike and could see prices drop very quickly by which I mean a couple of years.
    Right now people are paying the higher prices because they’ve got the money to do so. If they don’t get a pay rise they won’t afford $50 steaks for long.
    Just sayin’

    • Sams says:

      There is the possibility that when less people can afford those high prices, the supply side will adjust supply to match the new lower demand. Reducing prices will reduce margins and high margins may trump high earnings.

  28. Michael Gorback says:

    “The mindset has changed. People are paying whatever.”

    But are their incomes also whatever? This is a sugar high. Stimulus checks, rent moratorium – a deadbeat’s dream.

    But this is not a nation of trust fund babies. Well before the pandemic it was widely accepted that the average American family would have trouble with an unexpected $400 expense.

    Running on fumes. I know the pattern well. My parents went bankrupt twice, which is probably the best negative lesson in personal finance you can get.

    You can’t keep paying whatever if your income is sub-whatever.

    And then we will finally bump into the Paradox of Thrift, where people stop buying (I wouldn’t call it a strike, it’s a natural response when you see your savings shrinking and it’s definitely not a strike when you’re broke).

    Then you’ll see the great unwind.

    I feel like I’ve been watching the Sorcerer’s Apprentice from Fantasia since 2009 with fumblebutts taking the “easy” route without the wisdom to see beyond the next effect. Bernanke never understood why QE wasn’t working.

    • Depth Charge says:

      Agree wholeheartedly with this. The willingness to pay means nothing without the ability to pay – or borrow. All the free cheese is gone, and once things start heading south then the lenders are going to start pulling back all the loan offerings and this entire charade is toast.

  29. A says:

    Inflation is going to rip and wages aren’t going to go up. This is a setup for a really really bad time.

    • historicus says:

      That’s why there is a “stable prices” mandate with the Fed.
      Too bad they ignore it, huh?

      They say they are concerned about employment, yet provide near free money to the federal govt to dole out promoting idleness…with record job openings!
      But when 5% inflation rips into the working families……they dont lift a finger. Savings also trimmed by 5% or more…..

    • Ronnie says:

      My wife works at BMO and she says they are going to give her soon a $18 an hour minimum pay which is $3 an hour wage increase or 20%. This is a big jump up in wages. I don’t know all the details if this is no one year or two years but regardless, it is a big increase in wages 20%.

      We are concerned now that gas, food, electricity, insurance, medical, rent and many other expenses, costs will be going up even more now. I told my wife, regardless of the higher pay, we need to start saving more now. We looked at our budget and we can save an extra $225 To $250 a week a month if we drive much less, order less take out, coffee, donuts, cut down on alcohol purchases, cigarettes, streaming services, we have 5, it is time to cut at least 3 of them. We need to build up our emergency fund, it has only $15,000 or 5.5 months of our expenses.

      We should have at least 30 months or $82,000 in our emergency fund or somewhat time period less liquid money like CD’s, staggered, laddered over the few years.

  30. Spencer Bradley Hall says:

    Lending by the Reserve and commercial banks is inflationary (and has a Cantillon effect). Whereas lending by the nonbanks is noninflationary (if savings aren’t expeditiously activated, and judiciously put back to work, then a dampening economic impact is generated, a decline in Vt).

    The U.S. Golden Era in Capitalism was financed in 2/3 by velocity, i.e., the thrifts grew much faster than the banks (which created the political problem).

  31. polecat says:

    Wealth infusion Announcement:

    “Feeling poor? .. that dole-in-the-stocktradedumps johns gotcha down?? .. Then YOU need to take some Clarida Today .. or yesterday … or whenever suits your grifter’s urge!

    Disclaimer: May cause excessive keyboard ‘sell’ finger, rapid onset of insider-trading syndrome, severe aversion to honesty, humility, and integrity, plus a multitude of fake physiological ‘ailments*’.

    *no worries – you’ll STILL receive that golden retirement .. ALL without repercussion!

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