Inflation Expectations Come Unanchored: People Expect Red-Hot Price Increases to Eat Wage Gains plus their Lunch & Dinner

The Fed is going to have a heck of a time calling inflation expectations “well anchored.”

By Wolf Richter for WOLF STREET.

People are getting the drift: Inflation is rising at a hotter pace, and will continue to rise at a hotter pace, and will rise at nearly twice the rate of their pay increases. They understand that inflation is going to eat their pay increases plus their lunch and dinner too.

People are now blowing off the Fed’s ever shakier assertions that this inflation is “temporary” or “transitory” and will somehow magically go away on its own despite the massive monetary and fiscal stimulus still being thrown out there.

Consumers’ median inflation expectations for one year from now jumped to 5.3% in September (red line), the highest in the survey data going back to 2013, and the 11th relentless monthly increase in a row, according to the New York Fed’s Survey of Consumer Expectations today. Inflation expectations for three years from now jumped to 4.2% (green line), also the highest in the survey data.

“Inflation expectations” is a key metric the Fed watches closely. The term cropped up 12 times in the most-recently released minutes of the July 27-28 FOMC meeting. The Fed described those inflation expectations as “well anchored,” which cropped up three times. But those inflation expectations have become “unanchored.”

The idea is that consumer price inflation is in part a psychological phenomenon, that inflation expectations are a key factor in driving future inflation. The idea is that once consumers expect inflation in the future and accept it – what I call the inflationary mindset – they will adjust to it, and pay the higher prices, rather than refuse to buy at those prices.

We’ve already seen this in many places, including the crazy spiking used vehicle prices, and new vehicle prices. And thereby, the theory goes, these rising inflation expectations enable companies to raise prices and get away with it and thereby enable inflation to take off.

Those inflation expectations have been taking off for months, and the Fed is going to have one heck of a time explaining that they’re still “well-anchored.”

By category, inflation expectations are much worse.

People expect much faster price increases where they actually spend most of their money – housing, food, gasoline, health care, and college education – than what they expect for the theoretical overall inflation rate.

These categories are dominant in the basket of goods and services of the Consumer Price Index (CPI). Housing costs – based on different measures of rents – account for one-third of CPI.

So it’s interesting that consumers figure the overall inflation rate one year from now is going to be 5.3%, when they expect the dominant factors that drive this rate to be way higher, ranging from 5.9% for college education to 9.7% for rent:

  • Home prices: dipped for fourth month in a row to +5.5% (down from a peak of 6.2% in May).
  • Rent: +9.7% (new record)
  • Food prices: +7.0%
  • Gasoline prices: +5.9%
  • Health care: +9.4%
  • College education: +5.9%.

They expect price increases to outrun their earnings by a wide margin.

People expect their earnings in a year from now to be up by 2.9% from today, according to data from the same Survey of Consumer Expectations (green line in the chart below); but they expect overall prices to be 5.3% higher (red line). And worse, they expect actual prices in the dominant categories – housing, food, gasoline, health care, and college education – to be up between 5.9% and 9.7%.

People expect inflation to eat all of their earnings increases and eat their lunch and dinner on top of it. In sentiment surveys, consumers have already expressed their frustration with this concept, as they’re coming to understand that inflation is just the loss of the purchasing power of their dollars, and their wages denominated in dollars, and does not represent “growth”:

These inflation expectations are also nurtured by the Fed’s monetary policies – the 0% interest rate policy and $120 billion a month in QE – along with the stimulative effects of the government’s deficit spending.

The Fed, which has been saying it will back off these policies, hasn’t lifted the foot off the accelerator yet, but is barreling through one red light after another.

For consumers, the loss of purchasing power of their labor is real and painful.

For wealthy asset holders, the purchasing power of the dollar is less an issue, and it’s no issue higher up on the wealth scale. There, the fear-factor is what the Fed might do to crack down on inflation because that would bring down bond prices (as yields rise), and it would bring down stock prices as interest rates rise and credit gets more expensive and harder to get, and higher bond yields will attract dividend investors away from stocks, and it would bring down real estate prices because today’s inflated prices don’t make sense at much higher mortgages rates.

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

Classic Metal Roofing Systems, our sponsor, manufactures beautiful metal shingles:

  • A variety of resin-based finishes
  • Deep grooves for a high-end natural look
  • Maintenance free – will not rust, crack, or rot
  • Resists streaking and staining

Click here or call 1-800-543-8938 for details from the Classic Metal Roofing folks.

  202 comments for “Inflation Expectations Come Unanchored: People Expect Red-Hot Price Increases to Eat Wage Gains plus their Lunch & Dinner

  1. Depth Charge says:

    We have THE WORST politicians, bankers and media in history. They are destroying everything that was once good about the USA. RIP.

    • JC says:

      I think the feckless proletariat has some blame. It’s all a reflection of the masses.

      They elect the politicians, choose their media outlets, they are the bankers and Wharton business grads that have mortgaged the future.

      • Augustus Frost says:

        Like him or hate him, H.L. Menken comes to mind.

        • Joe Saba says:

          even after raising rents 10% – fiat $dollar lost nearly 30% in 2021

        • Winston says:

          “H.L. Menken comes to mind.”

          All of the time. Everything was just as corrupt in his time except the graft has shifted from delivery by paper bags full of cash stuffed in closets to far more sophisticated means, but the voters are just as easily manipulated.

      • Sams says:

        In the case of the USA, the design and implementation of the election system may prove the electorate guilty, but not the masses. The masses did not vote. The choises are also wetted in favour of the few and rich.

      • RH says:

        No. Americans just do not rock the boat but are not to blame for its crooked crew. Since the parasitic banksters managed to create by lies their “Federal” Reserve, they have taken over the government and are running America for their own good, not for ordinary Americans.

        • Wolfbay says:

          If they get away with creating a digital currency and send printed fiat directly to their favored constituencies it will get even worse. Absolute power corrupts.

      • Bill and Ted says:

        I call bull, what has happened is the ultra rich have taken control of politicians, bankers and media more than ever before with the wealth they have gained in the last 20 years. Have we really allowed it to happen or are the elections fixed to turn out the way they paid them to? You honestly think the masses know they are voting the way these elite are programming them to when they do vote? The slide into communism will probably continue since we have so many useful idiots helping to make it happen. The elite will be your rulers. You will have no rights and you will own nothing. They are stripping the wealth from those that are unaware with inflation.

        • Sams says:

          I do think you confuse communism with another -ism, fascism. The corporative state where big money and corporations are part of the state and government.

      • Winston says:

        “It’s all a reflection of the masses.”

        Correct. But while it is an attention deficit, low information voting population unskilled in the critical thought process with so many remaining willfully ignorant, it is also proles being played by self-serving politicians. The worst of both worlds, but the same basic situation that has existed throughout history.

      • Masked Ghost says:

        “I think the feckless proletariat has some blame. It’s all a reflection of the masses.

        They elect the politicians, choose their media outlets, they are the bankers and Wharton business grads that have mortgaged the future.”

        LOL. Lot of people here are desperate to shift blame off the 1% and onto the “Masses”.

    • RH says:

      Amen. Check your newer credit card and checking account statements carefully. Banks were fined before for putting in fake charges or miscalculations in them to maximize their profits.

      Now, since I paid off my credit cards, I have been noticing small errors, always in my bank’s favor, in them. I guess their profits from credit cards declined too much.

    • historicus says:

      Powell likes controlling perception
      but he has lost that ability with his incredulous explanations.

      Savers have never ever been punished to the degree they are now….at least 5%
      And by an intentional arrangement of the Fed
      pegged rates and promoted inflation

    • bob says:

      Never mind that people voted these idiots into office. Not one of these morons got into office at the point of a gun.

    • Auldyin says:

      @DC
      And that’s before you get to the ‘ Medical’ industry.

    • Delikon Threetree says:

      This utter B.S. makes me want to take over JPows’ job, end the $120 b/month QE and raise the interest rate starting at 6% beginning yesterday.

  2. AdamSmith says:

    The strategy here should be this:
    How can I design an AI algorithm that will make money on this reality?
    The next question is how can I design multiple financial system algorithms
    to make money on those who invest in all forms of financial engineering.
    Further on, is how can I use AI to skim off the various transactions to make risk free money.
    How will risk parity fare in this world?
    What will the new form of risk parity look like then?
    I see great opportunity in making money with inflation and wonder why there is no sense of how AI might make all of us money since those here are oriented to the question of “How can I make money on this reality?”
    But, what will happen when every college major out of MIT has their own version of “investment algorithms” competing with other algorithms….
    Inflation is just one of the environs to make money.
    That is our mission.
    How will we who do not use AI compete in this emerging reality?
    How much longer will we last in the technological Hunger Games????

    • Cem says:

      You can get started with the basics of AI with python in a day.

      Get yourself a Jupyter notebook through anaconda. Download the required libraries (sklearn, pandas, matplotlib, etc etc). Track down a data source, could be as simple as google sheets stock tool. Start trying out various methods, random forest, linear regression etc etc.

      Additionally all of these tools are free to use by anyone. Watch a couple YouTube videos and get started!

      • Old School says:

        I don’t think any of that makes much difference when the music stops. You better own some cash, precious metals and some of the bluest of the blue chips when things lock up.

        • TheRealMRDyno says:

          I’d be very interested in a list of the bluest chip stocks out there. Maybe Wolf could do an article on that.

      • AdamSmith says:

        When I wrote a book on buying and selling military surplus a client asked me why I would tell everybody about this if it was such a good idea….. For a moment I was dumbfounded. My logic was there is so much of it no one could really corner it…. WRONG I WAS!!!!!!

        It became cornered by one smart, ex military man who commandeered it and it has gone through some evolution but it is now in the hands of a few.

        I am not talking about mickey mouse home kits for everyday people who may have knack for the surface mathematical concepts of everyday life. I am talking about the few brilliant people who have math minds like few will ever have. Couple this to programming and other players like Peter Theil, who by the way, is not really on the programming side of it. He understands what can be done with it and who he needs to partner with and he is now one of the most powerful people in the U.S. let alone the entire world.

        Like I once told a GoDaddy “website expert,” if this was as high powered as you tell me it is you would not be working for GoDaddy…. He quietly agreed and I gave up on the GoDaddy BS….

    • Trailer Trash says:

      No matter how many times people toss around phrases like “artificial intelligence” and “cloud computing”, computers are still only very fast adding machines.

      • AdamSmith says:

        No, they can make decisions faster than a human can and can front-end the bait-tank anchovies on Robin Hood with Citadel skimming from the entire school of anchovies. Study this example and you will change your view….

        • Maximus Minimus says:

          Citadel skimming a few cents of each transaction Robing Hood channels to it is AI? One learns something new every day.
          The real Adam Smith would turn in his grave at such scam.

        • Bead says:

          Garbage in garbage out. Decisions?

        • historicus says:

          High Frequency Trading?
          High frequency theft.

          It is not trading when you dont have an idea, are neither buyer nor seller, until you get a peek at the incoming orders

      • Its not information, or data, it’s speed. The first daytrader needed a fast connection (T1?) which they could not get from their ISP. Now you need algorithms, which are hopefully positioned closer to the source. In history it was the displacement between telegraph (stock ticker) and telephone which created the 29 market crash. Then telephone trading was slower than computers (maybe some of you remember calling your broker to make a trade and watching it happen on your computer) None of it really mattered until they did away with mail in certificates. The next step is to reduce the time to clear a trade which disadvantages the small trader, whose funds are often held up waiting to clear. The stock market is a positive sum market, (the casino adds money to the pari-mutuel pool) – which is not so difficult to game with computer skimming methods, like the first insider to figure out how to capture the half pennies in electronic banking transactions. The only thing important in stock trading is knowing what the crowd will be doing after you make your trade.

        • Rosebud says:

          In ’29 I that it was cuz lag Spanish Flu?

          So lighten up Bix, and dance the Charleston, take a cruise up the river, look over a 4 leaf clover, and have no bananas for sale, unless yer Hunter..

        • Nick Kelly says:

          ‘In history it was the displacement between telegraph (stock ticker) and telephone which created the 29 market crash’

          The factors leading up to 29 are well covered in Galbraith’s The Great Crash. The ticker being late merely made the tension worse. The Crash was well underway when the ticker was seriously late. If it had been just late coms, then the next days attempts to stabilize the market by Morgan Jr would have succeeded. But the probs were fundamental, most historians now tracing them back to WWI.

          b

        • Nick Kelly says:

          A factor pointed out by JKG is the role of the trusts. These were something like mutual funds. During 29, they had sprouted like mushrooms. They held the stocks of actual companies but the shares in the trusts traded separately. Oddly, a trust could create another trust, kind of like a virus. So a trust created by Goldman, like Founders, could start another, Shenandoah.
          The foundation for these pyramids was still the underlying shares of real companies. But if the trust had grown faster, then it could deleverage faster. They could fall to almost nothing, from 50 to 3 overnight. This inherent instability was a major factor in the implosion.

          In a bleak Senate hearing in 34, Mr. Sachs was asked at what price shares in Goldman Sachs Trading Co was offered to the public:
          ‘110 dollars.’
          ‘And what are they today?’
          ‘About 1.50’

          The trading co was held apart from the Mother Ship, so Goldman survived but almost died again in 2008.

    • Petunia says:

      AS,

      AI is nothing more than pattern recognition. The biggest problem is you need accurate data to establish a pattern. Most of the data used to establish patterns is not necessarily accurately derived or true. What you see may not be true, and what you derive from it, may not be relevant.

      In other words, it’s hard to program AI to win/play against a fraud. It’s easier to program a fraud and attract suckers by letting them win occasionally.

      • COWG says:

        AI = GIGO

        Don’t really want to bet my security on a zero instead of one…

        • AdamSmith says:

          Trends are not binary
          Those who think only in those terms don’t think much of trends
          But, trends are valuable especially if you have more players in on the move in different places.
          I am not talking about somebody building a radio shack kit.
          These people are at the level of Peter Theil, Larry Ellison, and other not in the limelight players known mainly in the trade….
          This is big and easy money on all of our little nickels.

          Peter Theil is the most interest as he already has the money and he now is about the power (as in the Department of Defense, CIA and the like) gained by the functions of Palintar that make the rest look like chump change issues.

          Those in the AI realm use our fear against us like one of the ways that lions hunt….
          The old lion is positioned in the grass with all other lions in the pride positions on the other side of the herd prey….
          Once the old lion roars the prey run right into the other pride members waiting on the other side for quick and ready meals made….

          I do not claim to be 100% correct BUT I do say you can talk about the problem all day long and commiserate on how it used to be and how’s that working for you????

          I really admire and appreciate Wolf doing what he does here.
          What this website did for me was get me to where I now see the likely trajectory for all here which seems to be middle class all the way to the investor class with many business types in the mix.

          Conclusion? All the old ways of “investing” are toast in the next say 5 years or less. The earlier discussion on risk parity really made this clear to me as in hardly any interest rate bearing instruments make any money and add inflation and you get prediction hell and oh did I mention taxes too? TOO MANY MOVING PARTS unless you are at the monitor day in and day out. In business you have to put your capital on the line and most will lose at that as the success ratio for most businesses given the cohort chosen is almost nil.

          It is the long game that matters in life….
          I do wish all here the best as I think we are the types of people that make things go round but AI is making most of us irrelevant. REMEMBER THAT THE MAIN FUNCTION OF AI IS TO REPLACE YOU AND ME IN EVERY AND ANY FUNCTION POSSIBLE TO THE BENEFIT OF ONLY A FEW….. US, THE MANY WILL SUFFER…. So, say in the next twenty years, what are you doing to do given this obvious reality that no one wants to admit?

          Did anyone see the WSJ article on using Robot Trains yesterday? Another 150K job gone….

      • Billybob says:

        Ha ha ha!

        Perfect description of our political system Petunia.

      • historicus says:

        There is one thing AI can not quantify…the threat of geo politcal events like an attack on Taiwan
        When markets go nutz, many of these skimming operations shut down.
        Thus when liquidity is needed they are gone

      • OutsideTheBox says:

        AS

        So how long have you been this technology fan boy ?

        Silicon Valley screws up more than the CIA.

        Everytime the credit card reader fails in the grocery store we see the limitations of tech.

        You know, like the self driving cars we were supposed to get five years ago.

        Humans don’t need to worry. You can take out AI with a magnet.

        • AdamSmith says:

          Yes, they do, I have family that was Cyber Army….
          BUT, drones have been highly effective.
          I doubt if you or I could escape being on the goodbye drone list.
          Oh, and they don’t really have to be big drones in highly developed areas that likely you and I live in….
          We have lasers than can fire on and eliminated a single individual at a very long range (although we signed a treaty not to use it).

          I did a paper on the psychological state of the drone pilots that operate from a base 7 miles from my ranch and the only primary source I could find on how a drone pilot can fly a drone mission in Afghanistan killing 14 people, finish the shift, and head on over to his son’s baseball game.
          All that could be found infowise was a study commissioned by the DOD on the impact of the drone pilot “reality.”

          The pilot who borders on the IQ of a genius who is slightly on the Austic Spectrum has a very different psychological view of things that is a common personality feature of techies (Elon Musk for example).

          What comic books are you reading?

        • OutsideTheBox says:

          OMG

          Brother, neither you nor I are important enough to target with a drone….

        • OutsideTheBox says:

          AS

          Unfortunately, WAY too much our technology is designed by autistics for autistics.

          My nephew is autistic and views the world much differently than I do. Great strengths are balanced out by great weaknesses. You insinuate these neurologically different humans have super powers.

          They don’t.

      • Engin-ear says:

        “AI is nothing more than pattern recognition. The biggest problem is you need accurate data to establish a pattern.”

        The biggest “problem” is that current computational capacities of todays’ tech (and for decades to come) are giving the AI a vision of the world processes in a resolution that is so low, that the masters of current AI have an edge that is very small (but real) over other people.

    • Wisdom Seeker says:

      This post embodies the entire attitude problem in the nation, and arguably for the global elites worldwide.

      People with that attitude don’t want to actually do anything to make other people’s lives better (add value). These people just want to find a clever way to skim a profit to give themselves financial power so they can purchase goods and services produced by others.

      This attitude is that of a parasite, not a producer.

      P.S. AI methods fail in complex human systems because people adapt their behavior and push the system into a new regime for which the AI has no anticipatory training. The 1987 crash would be a good example of how hubris in automating trading systems leads to financial disaster.

      • Depth Charge says:

        This attitude is pervasive throughout the US population. Everybody wants something for nothing; nobody wants to work hard anymore. GREED has permeated the minds of seemingly everybody. Look no further than private autos, boats and RVs for sale, the crypto scam, Wallstreetbets, etc.

        • historicus says:

          Work?
          Sitting in the stock market for the last few years has taught what?

          Those who did not or could not went out and worked and if they had any extra money and saved it, they lost.
          Went backwards due to zero rates and promoted inflation.

          So the lessons have been invest, sit back, dont save, borrow and buy.
          Good lessons?

      • Roger Pedactor says:

        People elect the people they do based off policy right?
        Isn’t that the point?

        Because government spending has been out of control for decades and the reforms needed regarding contributions and term limits have essentially destroyed any prayer of rational fiscal responsibility.

        So you can criticize what I viewed as a facetious post poking fun at quants, but I don’t agree that this about people’s desires. Pelosi and McConnel continually get reelected because they make life better for their constituents don’t they?

      • random guy 62 says:

        Completely agree.

        We continue to invest heavily in our business to make products that work better, last longer, and are more efficient. All this in hopes that the market will eventually reward the effort with more dollars later. Our capital structure is simple, though we could probably complicate it to wring our some cash. It feels old fashioned these days, but there are still a lot of us out here doing business this way.

        Still, I often feel it is money/time poorly spent. I wonder if perhaps the millions invested in plant and product over the past few years would have been better off invested in trailer parks, self-storage units, and plain old mutual funds. Let everyone else do the work, and ride on the cart for a change.

        What keeps us on the difficult path of improvement is learning from stories like GE where the hard work of engineering got replaced with silly financial wizardry. In normal times, starving the golden goose eventually catches up with you. Lately… who knows.

        • AdamSmith says:

          Having done product development from conception to completion many times I can appreciate the drudgery and cost of making things to sell. And, the frustration of Chinese buyers boldly attempting to buy bulk purchase at wholesale pricing only to sent to multiple manufactures to copy to sell on Ebay.
          I immediately shut down my website and starting selling wholesale direct which turned out to be the best thing I could have done to compete.

        • Lisa_Hooker says:

          The objective now is to quickly run off with the golden eggs before anyone discovers the goose carcass.

      • AdamSmith says:

        Hear, Hear….

    • w.c.l. says:

      Is there anybody from Long Term Capital Management still around? They could give you some pointers.

      • Nick Kelly says:

        Like: watch out for Black Swans? In the case of those Nobel laureate geniuses, Russia defaulting.

        The best argument against relying on AI is The Black Swan by N. Taleb. Mathematically, something like 1929 shouldn’t happen in a million years.

        Re: the paranoia about it and AI watching me etc. I see it all the time. I surf a lot of tech stuff usually just curious. Sure enough an ad pops up for something in that line. So what? In the old days, a human would note enquiries, and mail offers. In the old days a human would count cars to monitor traffic. Now a machine does it. So what?

        If anything I find the fact that the selection of my ads is an auto process less disturbing than if a human did it.

        • drifterprof says:

          I agree that in theory the concept of providing ads based on personal likes and preferences is not inherently terrible.

          But that tracking can get so extensive it’s like you’re getting a colonoscopy, tax audit, and God knows what else. And the information might be doxxed at any time if hacked.

          Plus the ads often seem designed for morons.

    • shandy says:

      Not to be a smarty pants but can I pass “go” and collect at least my 200 $ or more without going to jail?

  3. michael says:

    “The Fed, which has been saying it will back off these policies, hasn’t lifted the foot off the accelerator yet, but is barreling through one red light after another.”

    Brilliant analogy.

    I wonder if they are on autopilot, waiting for something to break because they have no more effective tools. Raise interest rates the economy stalls, allow rampant inflation the economy stalls.

    The Thelma and Louise movie ending comes to mind.

    • Charlie says:

      Michael, the “auto pilot” you mentioned just happens be the same as the driver-less vehicles that tend to crash. :)

    • BronxJewBoy says:

      can the Fed take the foot off the accelerator and allow interest rates to rise without bankrupting the federal government or for that matter chicago, new york, california etc?

      • Wolf Richter says:

        BronxJewBoy,

        A lot of debt has many more years of maturity left before it must be replaced by new debt. So rate hikes only impact a relatively small (but increasing) portion of debt for the first few years.

        For example, if you just bought a house with a 30-year mortgage, even a sharp increase in mortgage rates isn’t going to impact you unless you want to sell the house (lower price), buy a new house (lower price, but finance with higher rates), or refinance the mortgage (with a higher rate). If you just sit tight for the term of the mortgage, you won’t feel the rate increases.

        The federal government cannot go bankrupt because it controls its own currency. So you can remove this from your worry list.

        States can default on their debts, as can cities. A bunch of cities have already filed for bankruptcy, such as Detroit. They’re in better shape afterwards. There is no bankruptcy law for states, so this would be more complicated. But it would allow states to shed some of their debts, just like Detroit did, which would be good except for municipal bond holders.

        • Gomp says:

          Very true Wolf. Maybe one exception. If you lose your job(s), you won’t be able to pay the mortgage at any interest rate.

        • Anon1970 says:

          What is to prevent the US$ from going the way of the Zimbabwe $?

        • Wolf Richter says:

          That’s wishful thinking, and has been for years. But it hasn’t panned out yet, and it won’t pan out because lots of wealthy people would lose most of what they have, and that’s why this scenario isn’t going to play out because the Fed is the protector of the wealthy. A little inflation is fine. But hyperinflation, no way. The Fed has $8 trillion in assets it can sell. Then watch the dollar jump.

        • eg says:

          @Anon1970

          The United States Army, Air Force, Navy and Marines.

          And all the local police and prisons.

    • Petunia says:

      The wall street crowd is waiting for a crash. Buying for pennies on the dollar is a major way they make money.

      • Motorcycle Guy says:

        Petunia,
        Do you remember the “Flash Crash of 2010? That’s how Goldman Sachs and J. P. Morgan made a ton of money; buying stocks for a dollar that only minutes earlier had traded for forty-five dollars per share and minutes later were again trading at forty-five dollars per share.

        • Petunia says:

          Yes I remember that crash. I also think some of those trades were reversed, but not all of them. I’ll take a wild guess and say big players kept the gains and were able to reverse their losses. Others, not so much.

      • Nick Kelly says:

        They might want a mini- crash, like we’ve seen several times when they bought the dip. They don’t want another GFC. In the early days Goldman almost went bankrupt. It had to convert to a Bank Holding Co so it could be bailed out. (See archived Vanity Fair: The Week Goldman Almost Died) Ironically, Lehman had been offered that status (I think after Bear) but decided it didn’t want the regulatory oversight that came with it.

        And they really, really don’t want another Great Crash. That’s when every one who bought the bargains were in turn wiped out, and 10,000 US banks went under.

    • Wisdom Seeker says:

      To be fair, the Fed has announced that they have held meetings to plan out how to have a plan to start slowly taking their foot off the accelerator sometime in the future… LOL.

      Personally I wouldn’t be surprised to see some shock-and-awe policy changes within the next year. Watch the other central banks for clues; they’re all arms of one big global squid now. I still remember how surprised I was to see central bankers from one country moving to another country – I’d had no idea that national citizenship or loyalty wasn’t a requirement for the job! Who, then, do they serve?

      • Petunia says:

        Lots of dual citizens in the money business.

      • Antwan says:

        Mark Carney from the Bank of Canada to the Bank of England? To be fair, Canadians are Commonwealth citizens and can vote in UK elections if resident in the UK.

        • Wisdom Seeker says:

          Carney was one but there are many others which aren’t even fig-leafed by the Commonwealth concept.

          Keep an eye out in the news for central banker appointments. Some are clearly national-team players, but others… not.

    • historicus says:

      Frozen at the wheel comes to mind.
      Where are the MMTers?

      • Felix_47 says:

        I saw Kelton on a video today. She seemed to think that if we financed this child care infrastructure deal that women would be able to work and alleviate the labor shortages supposedly in truck drivers etc. I should point out that our busiest port, LA Long Beach works one shift per day and is closed on weekends so the backlog is not enough to make the Unions do anything (that is the last time I was there at least.) But she went on about supply chains and we are talking China, Vietnam etc where all our production is and I, for the life of me, cannot figure out why providing child care for minimum wage fast food workers which will be and are the majority of workers in the US would improve supply chain logistics and power availability in China and other Asian countries. If she is that ideological it is hard to see why she is so admired. She insisted more government spending would not lead to inflation and even though I did four years of university it escapes me when I think about the used car market or housing prices. I wish someone could explain all this.

  4. Half Bankrupt says:

    People will include rent, food, and energy in their inflation expectations. The Fed is lucky we aren’t reporting >6% expectations.

    And who’s anticipating a 2%+ wage increase? My company is well into the whisper campaign that they just can’t afford raises due to higher costs.

    • Ron says:

      Behind I’m a truck driver ,wages increased 20% been screwed long enough elites forget labor created this country not them

    • historicus says:

      every union you can think of is thinking strike

  5. Depth Charge says:

    “The Fed, which has been saying it will back off these policies, hasn’t lifted the foot off the accelerator yet, but is barreling through one red light after another.”

    That’s why I always say to not listen to what they say, and watch what they do. The FED are LIARS. Diabolical.

    • BuySome says:

      Envision Rat Fink in a hot rod lettered with “Nu Skule” and “Eat Dust”. When the green flag drops, the fairplay stops, the logic flops, and you just try to beat out the cops (if anyone’s actually on the job).

      • Jim Mitchell says:

        Thanks for the Rat Fink reference! I haven’t thought of that since 1966. Suddenly I feel young!

    • Wolf Richter says:

      Depth Charge,

      But they do use “forward guidance” — an official policy tool — to let markets know what to expect and prepare for it well in advance. There are no surprises anymore, like there used to be.

      Current forward guidance on tapering: taper to begin in November and be completed mid-2022. This has not changed in a few months. Obviously, they’re not going to begin tapering in October when they said November.

      Forward guidance on rate hikes has been getting changed with the potential beginning of rate hikes moving closer with every meeting.

      • Depth Charge says:

        They’re liars through and through, Wolf.

        “Subprime is contained.”

        ~Ben Bernanke

        “QE is temporary, and we will roll off our balance sheet when unemployment dips below 6.5%”

        ~Bernanke WSJ July 2009

        • Swamp Creature says:

          Ben Bernanke should go back to waiting on tables like he used to do in his youth. On second thought, that would be an insult to all the hard working servers out there working their butts off.

        • The Real Tony says:

          Bernanke cause the worldwide fiasco we’re in today. Bernanke destroyed the business cycle.

        • Nacho Bigly Libre says:

          @Tony

          And his boss, who failed to kickstart economy for 8 years and leaned very heavily on ZIRP, QE and other acronyms.

      • DawnsEarlyLight says:

        The definition for the FED’s forward guidance is to buy the majority of 10yr treasuries at auction! Can’t be more ‘forward’ than that!

        Potential? ROFLMAO!

      • Sierra7 says:

        WR:
        “Current forward guidance (by the FED)” might equate to:
        “Blue Horseshoe Likes!”
        LOL!

    • historicus says:

      Dont expect the arsonists to reach for the fire hose

  6. Michael Gorback says:

    Definite lack of familiarity with history. This is a tempest in a teapot compared to the last several thousand years.

    That’s not to say this isn’t bad. It’s actually “normal” behavior for the rich and powerful but believe it or not, far less violent.

    Rome under the emperors. France under Louis XVI. England under Charles I and then Cromwell to name a few.

    But Louis XVI and Charles I are good examples of how the peasants can be pushed too far.

    • AdamSmith says:

      Most here are like I was….. Confused about what all this is going to mean.
      The smart ones like Wolf will do really well for a while but things are much more risky and will it will only get worse.

      Those like most of us cannot and will not last is the inevitable conclusion and we all sound like the cattle right before they go into the slaughter house as those coming to the door are screaming to those coming up behind “RUN, JUMP, DO WHATEVER YOU CAN TO GET OUT!!!!!!!!!

      I urge you to go to one of these slaughter houses and stand there for as long as you can take it to desensitize to what is happening now with increasing intensity.

      • Bobber says:

        Cows live a lazy, cush, quiet life for the most part. They really only have one bad day.

        I imagine it will be the same for those persons fully invested in stocks, thinking a 15% cash cushion redeployed after a 10-20% drop is going to save them. That’s akin to a cow trying to jump out of the ramp at the last minute.

  7. AdamSmith says:

    What will happen to all the old school financial wizards in the new world of AI?
    They are going to disappear with lighting speed living on capital draw down.
    Inflation is the easiest way the government can rob us all….
    What will be left when most of us here have little to no capital and no way to make money with Old School Investing options?

    • COWG says:

      Dude,

      Did you not read yesterday’s article by Kuppy?

      There are no financial wizards…

      Never were…

      It’s all illusions of financial intelligence during the easiest 40 years of financial theft ever…

      Didn’t need to be a wizard…

      Just some really catchy names like HealthSouth, Enron, Bernie, etc..

  8. AdamSmith says:

    Inflation on the ground I estimate at 20% compared to last year and a half.
    If you buy a car, get gas, repair your vehicle, buy many things at Costco, and on and on it is 20% and I have a super low mortgage. What if I sold my home? I could not afford to buy it again. Million dollar homes around me and I am a piker at $750K if in perfect condition to sell.
    Craziness is the theme and no amount of analysis will claim the fear, anxiety, angst, and fear of the future most fell all over.
    Hard to know how to react when you know technology will win the day….
    Old school is toast, the past will not return, best to figure out how to create a “soft landing” when the plane engines run out of gas….

    • COWG says:

      “best to figure out how to create a “soft landing” when the plane engines run out of gas….“

      Best to start out with enough gas to get you where you want to…

      Plan carefully and be ready to change your plan as circumstances change…

      Try to make it as boring as possible…

      Works for flying and money…

    • Swamp Creature says:

      AdamSmith

      Agreed. Inflation is really 20%. Most of Wolf’s data is sourced from the government and like everything the government puts out, it is lies. Like the rental equivalent survey use to peg the housing inflation. Housing going up 19% year over year. rental surveys which show 1/3 of that amount. Gas prices are up here 100% over the prices last year.

      • Depth Charge says:

        Right. And the piece of equipment I was going to buy for my business DOUBLED. 20% is nothing compared to some of the price increases I’ve seen. The FED and .gov are lying through their teeth with their Potemkin Village eCONomic narrative.

    • AnnDrake says:

      Agreed! Finally, the truth be told. It’s 20% and maybe more…

  9. Trailer Trash says:

    “they will … pay the higher prices, rather than refuse to buy at those prices.”

    Yes I could refuse to buy higher priced fuel oil, if I want to freeze to death in a house with frozen pipes (average low temp in mid-winter is 0 degrees F).

    These surveys are interesting. Do random people in the survey really try to guess what prices might be in a year or three? I think what they are really measuring is the effectiveness of establishment propaganda. When people predict much higher prices that tells Dear Leaders that their propaganda is failing.

  10. Bruski says:

    Congress and their new partner, the Fed, are out of control.

    Trillions & more trillions of monetized debt to fund a 10,000 page lobbyist’s list of giveaway spending insanity. The ending will not be pretty.

    B

  11. Seneca's cliff says:

    One way to cure both inflation and the shortage of workers would be good old WWII style rationing, except with a twist. Everyone would get digital ration coupons for a bare minimum of toilet paper, Beans, Gas etc. But beyond that ration coupons would be based on hours worked in production important jobs. So the truck driver would have the ability to purchase more toilet paper than some rich layabout. That way people would have an incentive to work, key goods would not get bid-up based on price and we would signal that our priorities had shifted from financialization and workless income to production, hard work and thrift.

    • PhilMA says:

      CBDC , it’s what’s for breakfast

    • cb says:

      Interesting. That would be one way to implement an alternative universal basic income. Might be fun to watch Powell, Kevin O’Leary and a lot of financial types actually have to work.

    • Auldyin says:

      @Sc
      I’ve still got a Govt petrol ration book issued to me in the 1970’s oil panic.
      Can’t figure now, how come I never used them?
      Bet they’re worth a few bucks now?

  12. Nemo 300 BLK says:

    In other words, the beatings will continue until morale improves.

    • AdamSmith says:

      No the beatings will just continue….lol

    • Lisa_Hooker says:

      “If you want a picture of the future, imagine a boot stamping on a human face—forever. ” ― O’Brien in 1984

  13. GM says:

    When one stops and realizes this is all by design and purposeful it makes perfect sense why the fed and politicians act so irrationally…..if at all.

  14. Nevnej says:

    “they will … pay the higher prices, rather than refuse to buy at those prices.”

    If people are expecting price increases of ten percent, then that would pull forward some demand and contribute to reinforcing the spiral: you may want to refuse to pay those prices, but anything you can buy now instead of later is getting it for a discount on *those* prices …

  15. AdamSmith says:

    Meta-violence is a type of violence where those who execute it do not lay hands on anyone and instead set up events that are as effective in destroying what ever is targeted.

    One example is what is happening to parents in relation to raising their kids. The FREE education system gives the parents NO CHOICE in how the child will be indoctrinated as in all the “new” gender choices or whether or not they will educated to believe that Capitalism is BAD…..

    The American Investor/Saver is suffering intentional meta-violence to destroy the existing system with all its attending destruction happening on an individual basis all without laying a hand on anyone. That is the new reality most do not understand.

    The best analogy to understand looking at the world through the prism of “meta-violence” is like the original version with George Scott playing Uncle Scrooge. Notice that throughout the whole movie, Uncle Scrooge is being shown his life and the impact it is having on all involved.

    This is what we are all experiencing and the reality is nothing can be done to return to the past. The only history that matters is those who know the future….in the new world the PAST MEANS NOTHING.

    • Augustus Frost says:

      What you are pointing out is the upcoming collapse of European civilization. Hopefully, it won’t be complete while I am still here.

      • AdamSmith says:

        No, look to the educational system to see the collapse…
        I’ve been watching it for years as I still take classes

    • JC says:

      Whole lotta assertions with your own personal bias equals more meta violence.

      That’s why from the sufi’s to Merton each and every person is said to their own reality and trying to convince others of it is an act of violence (see not violent communication theory.) Trading what you believe students in public schools should not be taught is just another act of violence.

      • AdamSmith says:

        JC, you misunderstand my intentions.
        Wolf helps all here understand what most do not
        This website is helping many get a handle on this info
        The conclusion you reach will hopefully avoid what is coming….

        Those people in life who will tell you what no one else will are the one’s that matter….

        We can disagree on many things but this is my only intention is to urge serious though about my assertions because if I am only half right I think you would still see we are all toast here….
        The winning crowd hangs with AI and there will not, if any, good investment options that are worthwhile.

    • Billybob says:

      “Culture” and “the state” are the ultimate meta violence. These become so deeply embedded in our psyches that most people can’t even recognize how hopelessly filtered and biased we all truly are.

      There are escape paths and countermeasures, however these meta-violent-narratives are extremely difficult to root out without singular dedication and focus.

      • drifterprof says:

        “’Culture and ‘the state’ are the ultimate meta violence. These become so deeply embedded in our psyches.”

        So true. Culture including toxic corporate work environments, communalist “chosen people” perversions of religion, and so on.

  16. Stoneweapon says:

    This is all by design. . .
    CBDC’s
    UBI
    Equity for Debt forgiveness
    Biometric Digital ID’s
    Demonitization of bank notes
    Implementation of Carbon Footprint allowance

  17. Nevnej says:

    Anyone see velocity of money around? Gone and forgotten like bond vigilantes, but maybe about to burst on the scene with a sudden unstoppable ferociousness? I still think you can’t triple the balance sheet and not have consequences, but ten years ago we learned that there really is such a thing as a free lunch, so just print! Lots of chickens still to come home to roost …

    • Rosebud says:

      You know where to see velocity of money? At a crowded weekend bar full of 20 somethings, 40 years ago when America was under construction.

    • AdamSmith says:

      The velocity of money is the number of times it circulates and as I understand in past times a dollar changed hands 7 times with taxation making it eight times each year. Has this changed? is the velocity of money increased due to inflation? Not quite sure of your meaning.

  18. Marco says:

    This is what happens when you constantly reward Speculators (the Fed) over ordinary, honest, hard-working people

    • historicus says:

      Yep
      Bingo.
      Workers earners savers punished by a promoted inflation coupled with interest rates that punish saving…unAmerican IMO
      And to whose benefit? I think we know

  19. Augustus Frost says:

    This article aptly summarizes the result when attempting to create prosperity without actually increasing production to anywhere an equal extent.

    Once again, a predominantly fake economy, not just now but since 2008: inflated government deficits, artificially low interest rates, the loosest aggregate credit conditions in human history, and the most collectively overvalued asset markets in human history.

    It all adds up to one outcome, a noticeable decline in future living standards.

    Good luck

    • CCCB says:

      If inflation is truly about to take off, then our government is actually taking the right steps … the same steps we should be taking individually

      1. Borrow absolutely as much money as possible at artificially low interest rates.
      2. Pull forward the purchase of every kind of product and service we could need before inflation pushes prices higher and out of reach.
      3. Stretch out repayment terms on the borrowed money as long as possible into the future so as to pay back with devalued money
      4. Keep a minimum amount of cash on hand since it will lose value faster and faster as time goes on

      • OutWest says:

        “….the same steps we should be taking individually”

        But if you are wrong with that all-in strategy, you end up with loads of personal debt, a lot of depreciating consumer products, and very little cash. Even in this environment having a decent cash reserve in my opinion is critical but I’m still waiting for a 50% plus market drop.

      • Fat Chewer says:

        Yes, and without realising it you’ve become a debt slave. It IS just what they want. They want you to keep paying them all that lovely interest for as long as possible. First interest rates will rise so you will be paying A LOT of cash per month. Then, just as you pay off the principal, the property market collapses and you lose 70% of your wealth. Back to square one.

        If this is moving up, I’m moving out.

      • Paulo says:

        Nope CCCB

        If inflation really takes off people need to reduce expenditures down to what they can afford and absolutely need, plus build a cushion for further shock. Buy less, not more. If you have no debt it is all a spectator sport. If you pile on debt expect a life of stress and worry with a possible looming bankruptcy because inflation is always addressed with higher interest rates and resulting unemployment.

        Buying more when you have less to spend is not a solution for individuals.

    • Sams says:

      Not fake economy, it is a finance economy;)

  20. Nevnej says:

    What are the survey results for people with investments? And what do they say for interest rate expectations, staying low? As inflation just goes from 4 to 6 or 7 percent, the fed will be WAY behind the ball and will have to put a bitter pill in the punch bowl, better to just kick the can …

    • Dave says:

      I’m afraid the Fed will have to put a candy bar in the punch bowl to fix this mess. The same kind they used to find at the bottom after being forced to empty the swimming pool. :) I’m starting to wonder if you could find two honest people within the entire institution running our monetary system. Almost seems like a Sodom & Gomorrah situation. Lord help us all.

  21. Charlie says:

    Price increases/dollar value decreases may not only be whats ahead for us, but Shrinkflation will also occur. Same prices/less services, same prices/smaller packaging. I see it every place I go, grocery stores, hardware stores…

  22. MonkeyBusiness says:

    This is what the Fed wants. Mission accomplished.

  23. enough says:

    Why do bond prices go down when interest rates rise?

    When interest rates rise, stocks sell off, and go into bonds, right?

    Wouldn’t that increase bond sales and thus lower yields?

    • qt says:

      No, when interest rate rises, both stocks and bonds sell off and goes into cash. People are waiting to buy both later at much lower prices.

    • Wolf Richter says:

      enough,

      “Why do bond prices go down when interest rates rise?”

      Good question, complicated answer. The short form is: That’s by definition.

      Here is the longer but still over-simplified form:

      Bond yield calculations are complex because they involve the maturity date (“yield to maturity”). But I cheated and used an online bond-yield to maturity calculator to get this.

      If you have a bond with a face value of $1,000, maturing in 20 years, with an annual coupon interest rate of 5%, you will receive $50 a year in interest for 20 years until the bond matures or defaults. When the bond matures, you get your $1,000 back. This is not impacted by interest rates.

      But if you want to sell the bond, and market rates for this type of bond have risen to 10%, you cannot find buyers for your bond at face value ($1,000). No one will want to pay that much for it because it would only yield 5% when market yields have risen to 10%.

      You have to drop the price until the $50 coupon payment represents a 10% yield to maturity on the purchase price of the bond. So you’ll have to drop the price of your bond to $575 in order for your bond to produce a 10% yield to maturity for the buyer (you can check this with a yield-to-maturity calculator).

      The buyer gets the $50 a year for 20 years, plus $1,000 in face value in 20 years when the bond matures and is redeemed. Since the buyer paid $575 for the bond, the buyer has capital gains of $425, in addition to the $50 in annual interest payments. This combination produces a 10% yield to maturity.

      This is how bonds drop by definition when yields (interest rates) rise.

  24. Engin-ear says:

    We have a historic battle here between two forces, kind of Godzilla vs King Kong.

    Inflationary factors:
    – money printing + zirp + reckless risk-taking by people and businesses alike
    – temporaly damaged just-in-time logistics (and its predictability) by temporary restrictions
    – temporaly (or permanent?) shift of demand to durable goods (from services)

    Deflationary factors:
    – fall of money velocity
    – credit saturation
    – rising wealth gap (fall of global solvent demand).
    – demographic cliff
    – cheap oil depletion.

    Also, distinguish the essentials (food, water, energy, shelter, health) from comfort (entertainment and pleasure of all kinds). This might be important one day. The social pain is not the same.

    • qt says:

      I agree with this except

      – cheap oil depletion should be in the ‘Inflationary factors’, right?
      – Add technology to the ‘Deflationary factors’ list. Especially, billion dollars unicorns with cash-burning machines. They lose money on every sale but make up for it on volume. However, investors love pumping money into these unicorns!

  25. George Wood says:

    Amazon’s executive management team doesn’t see any inflation going forward.

    Amazon is offering a bonus of $125 per month for any driver that works 4 tens each week until the end of the year. That works out to be around .75 an hour or less that 400 dollars over three months.
    If you miss a shift for whatever reason, no bonus.

    Packages are already backing up and we are less than a month away from the xmas ramp up where package counts will double.

    75% of all Amazon delivery drivers quit within the first month.
    They have installed cameras in the vans to visually capture driving infractions.

    My DSP alone is returning between 300 – 500 packages a day undelivered.

    Xmas will be a disaster for Amazon.
    Amazon took deliveries in house in part to ensure deliveries especially during peak times like xmas.

    The executive management team at Amazon believes that anyone who cannot delivery 300 packages a day or 1 package every two minutes is lazy.

    Already short 1,000 of drivers heading into peak delivery season, Amazon needs to retain every driver they can and basically double driver count within a month. $125 isn’t going to sway any driver from leaving or taking the position.

    Xmas season will show that Amazon’s deliver anything for free business model is a fail, as tens of thousands of packages will go undelivered. That they offered less than a $500 bonus is telling.

    I start with Fedex next week. I am going to enjoy watching the Amazon Executive team do what they do best, “dictate the fail”.

    • doug says:

      Driver shortage for : ports, amazon, school buses, long haul..
      Automation not there yet…
      That might be inflationary….

    • Anthony A. says:

      It will be fun to watch this. If they decide to give some of the packages to the US postal system, there will be more problems. Our postal system here can’t even deliver mail without screwing it up on a routine basis.

  26. Depth Charge says:

    The truth is that the FED and CONgress have been actively backstopping the wealthy and their reckless bets with their “extraordinary measures” for almost a decade and a half now. It’s time to put these parasites in their financial graves – ALL OF THEM.

  27. People think Volcker raised rates to kill inflation, which is wrong. He raised rates to bring them into line with inflation. Inflation and interest rates were disconnected. Once he reestablished equilibrium then both rates and inflation fell to more normal levels. Higher inflation correlates with higher yields. The problem here on a lesser scale is real rates are historically high, the spread between the two. The degree of economic drag is the same even if nominally rates and inflation are a lot lower. Even with excess reserves piling up at the banks the Fed is loath to tighten credit. Volcker was a holdover Fed chief, like Powell and the markets had been through a lost decade. He has a lot more wiggle room, and no inclination to use it. Inflation can do what it wants.

    • Rosebud says:

      Forty years was about managing an economic imbalance between rates and inflation? Achieving an equilibrium and scoring at the bar?

      Then it would of stand to reason today, rates and inflation are managed to satisfy the Peoples idea(s) of rates and inflation. So fact those nutters and their disinfo, it’s part of the process.

    • historicus says:

      good point

      You can not save… they have made certain of that. 5% inflation with pegged zero rates

      then you must buy what “they” already own

      Stocks and real estate

      Thats the game

      Who got the nod that the Fed would promote inflation and once running hot, would do nothing? For in the past, the Fed would raise Fed Funds to equal the inflation…and it was reasonable to assume they would continue that diligence. But now they shirk their duties and to know in advance that they would ignore their mandates was the inside job.

  28. MonkeyBusiness says:

    From Atlanta Fed President Raphael Bostic: “It is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply chain disruptions — will not be brief,”

    • Rosebud says:

      The Fed will feature entertain Gone With the Wind, after a brief episode of Disney’s Playful Pluto sh*ts on your lawn

      • AdamSmith says:

        lololololol…..
        I will be sure and bring my Oscar Meyer Weiner Wagon and park outside the next Fed meeting. They all remind me of a package of weiners LOLOL

    • Depth Charge says:

      “-mainly the intense and widespread supply chain disruptions-”

      More LIES from these PATHOLOGICAL LIARS.

    • Yort says:

      Per Bloomberg (10/12/2021):

      Federal Reserve Bank of Atlanta President Raphael Bostic said this year’s inflation surge is lasting longer than policymakers expected, so it’s not appropriate to refer to such price increases as transitory.

      “Transitory is a dirty word,” Bostic said in a virtual speech to the Peterson Institute for International Economics on Tuesday. He spoke with a glass jar labeled “transitory” at his side, depositing $1 each time he used the “swear word,” as it’s become known to him and his staff over the past few months.

      • Yort says:

        So the Feds use coin toss 50/50 odds when predicting if inflation continues to go up or comes back down…for real???…LOL

        Per Bloomberg:

        St. Louis Fed President James Bullard, who said he favors starting to taper in November and finishing by the first quarter of 2022 to give the central bank flexibility to raise rates if necessary.

        “The story that inflation will come down naturally is a reasonable one, but I only want to put 50% probability on that scenario,” Bullard said Tuesday in a televised interview with CNBC. “I have got to put some probability on a scenario where inflation stays high or even goes higher.”

  29. Ijn says:

    The choice for central bankers: it seems the economy can collapse on a real basis because prices are too high (inflation), or the economy can collapse nominally because CB’s raised rates to combat inflation.

    Every other fiat monetary system in history has reached this point.

  30. Swamp Creature says:

    Price of of a dental bridge just went through the roof. I’m having one installed to replace a Maryland bridge which lasted 14 years and then didn’t work anymore. I would have been better off doing the complete bridge 14 years ago when the price was much lower. Cost $7,800. Insurance will hopefully pay some of that. Well look on the bright side. I’m helping boost the GDP and helping my local businesses during this pandemic. Money well spend.

    • Old School says:

      That’s a lot, but I could see that it’s individual custom work with some medical liability risk. If you can afford it, it’s better spent on a happy mouth than on some other things.

    • Paulo says:

      At least you’ll be able to chew your boot leather when groceries keep climbing. :-)

      Seriously, ouch and good luck. I just bought a crown last year and that was bad enough.

    • elysianfield says:

      Dental bridges…just paid $3800 (out of pocket) for one within the last three months.

  31. WeyUT says:

    Wolf, what do you think of Austrian economics?

    • Wolf Richter says:

      Ha, I try not to think about all these numerous economic theories that have sprouted over the past few hundred years — most of them debunked long ago by everyday reality. I have lots of other things to do in life. I’m a down-to-earth kinda guy.

      • Depth Charge says:

        “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”

  32. Brent says:

    =Health care: +9.4%=

    Those increases are for bitcoin billionaires,they are flush with money,let’em pay thru the nose…

    During my recent annual checkup I spotted one suspicious-looking MD who was treated like leper and ate his lunch in splendid solitude.

    My favorite giggly Hispanic nurse told me he is a Temp hired thru LocumTenens for $110 per hour for 25 hours work week.

    Well,A Temp is A Temp is A Temp,even with MD dog tag.

    I told the nurse:

    Watch him !
    En algo debe haberse metido
    (He must have gotten into something)
    Qién sabe en qué andaba
    (Who knows what he was up to ?)

    Which caused a burst of merriment.

    And started me thinking:

    Should the necessity arise,would it be more cost-efficient for me to hire MD say,for 1.5 hours directly from LocumTenens ? And get a discount for payment in lowly cash ???

  33. Wolf, you have an article on inflation but how do you define inflation? It appears inflation is no longer easily defined. I go with the traditional inflation is the expansion of the money supply.
    The current Oxford dictionary defines it as “a general increase in prices and fall in the purchasing value of money.”

    How can we possibly understand inflation if everyone doesn’t agree on what it actually is?

    • Wolf Richter says:

      Inflation Cortez,

      A regular dictionary isn’t going to help you here because this is economic data; specialty financial dictionaries might be a better bet.

      This is consumer price inflation, which is measured in different ways in the US. Each measure is very well defined. The most common inflation measure that nearly everyone knows about is the Consumer Price Index for urban consumers (CPI-U). It’s often called just “CPI.” But there is also CPI-W (used for SS COLAs), the PCE price index, etc. CPI has subcategories for each item in the basket, such as new vehicles, ground beef, rent, etc. So there is a CPI new vehicles, CPI ground beef, etc. It’s all very precisely defined. I cover this stuff when the data comes out.

      • John banjovi says:

        These CPI measurements don’t seem correct when I go to the grocery store. Inflation wasn’t always measured with the cpi variations you supplied and over the years it would adjusted many times. It almost appears to me that government statisticians devised a way to misunder estimate inflation.

        I found an excerpt from an article that addresses this and provides an alternate for your audiences.

        “The practical problems with price indexes such as the CPI are the issues of which prices are to be measured and what “weights” will be assigned to what goods. Another problem is deciding what to do about changes in quality. For example, what do you do when Apple introduces a new and improved iPhone at the same price as the previous version?

        To deal with this, government statisticians systematically increase the weights for goods that are going down in price and reduce the weights of things are going up in price. If the quality of a good goes up, the statisticians “hedonically” reduce the price of the good.

        Those sorts of adjustments do not seem fair to most normal people. If you are eating more ramen noodles and fewer lamb chops you can take little comfort in the fact that that the CPI is staying inside the Fed’s target range. Moreover, under the system of hedonic adjustments, every time entrepreneurs and engineers come up with better products for consumers at lower prices, the Fed takes credit for keeping inflation under control.” Source –

        • Wolf Richter says:

          John banjovi,

          The passage you quoted contains some issues and falsehoods. The author in discussing CPI, said this:

          1. “To deal with this, government statisticians systematically increase the weights for goods that are going down in price and reduce the weights of things are going up in price.”

          No, this is not true for CPI. The weights are not changed on that basis in the CPI.

          There is some “substitution” though in a way that mimics decision making in real life for some food products, but NOT gasoline, cars, clothes, housing, etc: if beef gets too expensive, people buy more pork and chicken, and so the purchasing basket changes. Every grocery store can see this in the numbers.

          2. “If the quality of a good goes up, the statisticians “hedonically” reduce the price of the good.”

          This only applies to some goods, such as consumer electronics, cars, etc. Not food or clothes and the like. But it makes sense because inflation measures the purchasing power of the dollar: how many dollars it takes over time to buy the same thing. But if the quality improves, the costs of the improvements are not due to the loss of the purchasing power of the dollar but due to improvements.

          For example, you cannot compare today’s F-150 with one built 30 years ago totally different vehicle in all aspects. The cost of the quality improvements are not due to loss of purchasing power but due to quality improvements.

          That said, I have long held that hedonic quality adjustments have been way too aggressively applied to artificially push down CPI since they were introduced in the 1990s.

          For an explanation of hedonic quality adjustments, go down about halfway in the article:
          https://wolfstreet.com/2021/09/14/inflation-whac-a-mole-new-vehicle-prices-spike-as-used-vehicle-prices-dip-while-housing-inflation-which-exploded-in-reality-barely-budged-in-the-cpi/

          3. “…that that the CPI is staying inside the Fed’s target range.”

          No, the Fed doesn’t use CPI as measure for its target range. It uses core PCE. CPI is nearly always higher than core PCE and is nearly always above the Fed’s target.

          https://wolfstreet.com/2021/10/01/feds-lowest-lowball-inflation-measure-core-pce-hits-30-year-high/

          And for your amusement, here is my WOLF STREET F-150 & Camry Price Index compared to new vehicle CPI:

        • historicus says:

          The PCE allows substitution OUT of items that have risen “too much” in price…
          Now that is a biased metric. Chain weighted.

        • Swamp Creature says:

          Sorry, I have an issue with a lot of these so called “hedonic” adjustments used to guage new car prices verses the same equivalent vehicle 20 years ago. I don’t want a lot of this crap that is now bundled with the new cars. Some is OK, but others like screens which distract drivers from focusing on the road and blocking vision I don;t want. And which have software which becomes outdated and needs to be updated every 3 years like software licenses on your PC. One mechanic dude told me that there are now aftermarket vendors popping up to remove a lot of this unwanted crap for a good fee, after you already paid to have it installed. So you paid an additional $5,000 for all this stuff when you bought the car and then have to pay another $5,000 to remove it. You’re out 10K just to get back to where you started. And then that’s supposed to be a benefit????

  34. DR DOOM says:

    The electorate deserves the inflation it has and will receive. I say bring on the pain in spades they have voted for. Only pain and more pain will focus the electorate on what is important. They might realize if enough self-inflicted inflation pain rains down that their power-less neighbors beliefs and behavior may not be causing it as they have been told by their cool aid merchant in Congress. It might be that the powerful are the cause. Let us see if the electorate can figure it out. I doubt it. They will believe what that are told to believe. Most people want for a King. Liberty is damn scary.

    • RightNYer says:

      I will say, when people voted for Warnoff and Ossoff because they promised them $2,000, where did they think the money was going to come from?

      The problem with universal franchise is that the average person is very myopic.

      • OutsideTheBox says:

        No no no

        The ones with financial myopia occupy the five sided war box on the Potomac.

        You know….the Pentagon.

      • DR DOOM says:

        They got $1000. The electorate is dumber than dirt and can’t do math to boot. God bless em’. They are me.

  35. SocalJim says:

    Here is the big picture.

    If we have inflation, but the economy keeps growing, then things will work out. However, if we have inflation, but the economy stalls, then it will be ugly.

    I bet we have growth with inflation, so I am not so worried.

    And, a vibrating stalled stock market is the perfect setup for another leg up in house prices. I am keeping my fingers crossed.

    • michael says:

      The growth since March 2020 has be a FED fueled frenzy of stimulus.

      Feel free to check out the University of Michigan Index of consumer sentiment (http://www.sca.isr.umich.edu/files/chicsr.pdf) which is already almost back to February 2020 levels.

      Consumer sentiment is taking the other side of your bet.

    • RightNYer says:

      LOL. In what sectors are you expecting growth, pray tell?

    • Lisa_Hooker says:

      I am investing in unicorn farts. I am certain that there will be some investor in the future that will pay more than I did.

  36. Auldyin says:

    “The idea is that consumer price inflation is in part a psychological phenomenon”
    I can’t believe how true this is. I’m seeing it happen with me.
    Because I lived and worked with inflation in the 60/70’s
    I’ve got 15% in my mind for inflation and I’m looking at 4-5% now and thinking what’s all the fuss about, but I’m missing the point that most folks haven’t seen the 70’s, so this is a big deal to them and I suppose in percentage terms it is. From 2% to 5% is +150%, In the 60\70’s, 5% to 15% was +300%.
    The future fear factor of what happens next is probably a major psychological aspect. In that regard, if wages don’t kick off in a big way, I don’t see a 70’s scenario but I didn’t see the 70’s coming either so, so much for that.

    • eg says:

      You and me both. After all the disinflation I’ve seen over the past 40 years, I have a hard time getting worked up over the current numbers.

  37. Nick Kelly says:

    Like: watch out for Black Swans? In the case of those Nobel laureate geniuses, Russia defaulting.

    The best argument against relying on AI is The Black Swan by N. Taleb. Mathematically, something like 1929 shouldn’t happen in a million years.

    Re: the paranoia about it and AI watching me etc. I see it all the time. I surf a lot of tech stuff usually just curious. Sure enough an ad pops up for something in that line. So what? In the old days, a human would note enquiries, and mail offers. In the old days a human would count cars to monitor traffic. Now a machine does it. So what?

    If anything I find the fact that the selection of my ads is an auto process less disturbing than if a human did it.

  38. MiTurn says:

    “They understand that inflation is going to eat their pay increases plus their lunch and dinner too….Food prices: +7%”

    My wife and I are on a fixed income and not keeping up with inflation. So we canned all of our plums and pears and a few assorted other fruit to last us till spring. This is our fruit for the fall and winter. No $s on fresh fruit ’til the canned is consumed.

    Canned a bunch of veggies too.

  39. John Beech says:

    Respectfully, Wolf, it doesn’t matter what expectations are, only what reality proves to be.

    Want to rent that 1500sq ft house for $2000 but the market only bears $1200, then the landlord will wait and wait and wait – or – take a lesser offer. Or ‘if’ someone will pay the $2000/month, I suspect they bail when a) they can’t make rent, or b) as soon as they spot somewhere cheaper.

    Milk’s gone up a buck in the last year, about a 50% increase. How long do you think that holds before dairymen are doing what dairymen do, which is produce more milk to take advantage of the high prices? And while it takes longer to bring a heifer to production than chickens, there’s no question they’re busy doing this very thing right now. And all the dairymen will hit market at about the same time and guess what, excess supply to the market’s demand means we’ll be back around $2/gallon soon enough – in my opinion. Yet dairymen, in common with farmers everywhere (planting whatever seems hot right now) constantly experience feast and famine. So do carpenters. Speaking of which, we recently saw lumber prices skyrocket over $1700/kbf and now they’re down to half that. Still double what we usually see, sub-$400 per thousand board feet, but we have had horrendous wildfires and weird transport issues. I suspect we see $400 before we see $1700 again, you?

    Same will happen with new cars. Dealers have been riding high but I’ve recently begun to see financing ‘offers’ again on television. Tells me inventory is building. No chips? For how long? Automakers use the lowest of the low in tech. Haven’t seen 17M in a while. One pace for 14M this year. Rates are about to go up – maybe. Lot of jawboning is all I see. Market falls in half if they follow through. Who has the stones for that? Not saying it’s not the right thing to do, just that it’s going to entail a lot of pain and with midterms coming and silly season just two years out, do you really see the present administration pushing for this? Anyway, I suspect we see 12M new cars before we see 16M again, and chip supply won’t be the reason.

    Wages are trickier. A government mandated minimum wage increase will percolate through the system and be inflationary. No question. Have you seen the Federal minimum wage get to $15, as law, yet? Me neither.

    Further to this; it’s my opinion the press Walmart has garnered with their recent wage increases and offer to pay college won’t be front page news once they can pay people less and the offers are rescinded (or means tested somehow, you know what I mean).

    Facts are this pandemic really has screwed with people because of the school closures more than anything, in my opinion. More so than any other reason because when half the earning power must stay home to care for the kiddies, then you’re going to have a lot of people not participating in the labor force. Think this is forever? Not me, and especially not if Merk’s little pill works.

    So bringing this back to inflation and its permanence, I am in the camp of wait and see, sorry.

    • Wolf Richter says:

      “…it doesn’t matter what expectations are, only what reality proves to be.”

      It might not matter to you, but it matters in terms of the Fed’s rate-hike decisions. As I explained in the article, inflation expectations are one of the Fed’s official signs of inflation taking off and entailing a tightening of monetary policy — meaning higher rates. That’s what all this is about.

      • AdamSmith says:

        Thank you Wolf for all the info provided…..You really enlightened me to the conclusions reached. My reaction here is a grand finale where I got to see what others think of the same.

        It was my research into Palintar (never spell it right but what’s new) and my knowledge of Peter Theil that was the tipping point in realizing what I think about today and tomorrow….

        Will check in to look on but no more pavlovian bird pecking at the screen looking for the ultimate answer.

        Carry on trojans….

      • Fat Chewer says:

        Hi Wolf, as an avid reader of your blog, I obviously see what you are saying, but I recently read an article that explained how the Australian government knows all these same things as you have described, but then flatly refuses to do anything about it as raising interest rates would have a negative impact on business loans. They are certain that the lesser of two evils is keeping interest rates low. So, this is a political decision and not an economic decision. What are your thoughts on this? My thoughts begin with: “Well, so much for the independence of the Reserve Bank of Australia…”

        • eg says:

          Central bank “independence” doesn’t mean what most people think it means. They serve their political masters.

        • Wolf Richter says:

          The Reserve Bank of Australia is ALREADY tapering its asset purchases, way ahead of the Fed. Rate hikes come after the taper is completed.

        • Giggles says:

          Hehe the only way for the Fed to cut back on the rocket fuel is if the central banker’s cartel breaks down. The party that issues the most important world reserve currency can afford to wait, but not forever.

      • historicus says:

        The Fed has lost the ability to control perceptions and expectations.
        They have proven to be about as truthful as the Acronym Govt agencies we are all familiar with.

      • hrant guevreyan says:

        I just came back from Vons in Los Angeles and a 6 pack of Samuel Adams is now over $ 12 .

        • Wolf Richter says:

          hrant guevreyan,

          Ha, you’re drinking East Coast beer. Change to a local craft brew. There a lots of good ones in your neighborhood. They’re on sale in San Francisco below $10. Some 12-packs of craft brews below $18. Case of one of my favorite local IPAs at Costco around $24 (= 4 six-packs = $6 a six-pack).

        • Swamp Creature says:

          They are running out of Bud Light and Michelobe Ultra here. Must be a supply chain problem. Both manufactured in the USA in St Louis I believe.

    • Sams says:

      A question to ask, is there an adventage to earn more by producing more? And if, at what risk?

      It could be that producers and manufacturers consider the best strategi to maximise profit is to not ramp up production. Cost of investment, raw materials, logistics, labour and risk may show that increasing production is a bad idea. Not enough money is made on the investment.

      Inflation may go lower, but prices will then sustain and increase.

  40. Willis says:

    There is an INTENTIONAL effort to destroy America and American families underway, and it is succeeding. Plan accordingly.

  41. eg says:

    Great. So now I have to add the Expectations Fairy to the Confidence Fairy?

  42. Gian says:

    James Grant, Interest Rate Observer, says the US Federal Reserve is not going to control events anymore but events will control the US Federal Reserve.

Comments are closed.