Wolf Richter on “This Week in Money,” produced by HoweStreet.com, recorded on June 27:
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Inflation is not behind us – unless someone shops at other stores than most people I know here in FL.
You should listen to the interview, not just react to the first part of the headline. It’s the first part of the interview, right there in front of you. All you have to do is click on it. It doesn’t bite. Expand your horizon beyond the retail stores where you shop. Inflation is a lot more than just in retail stores. Inflation is in services, and services is where 65% of consumer spending goes. And it’s not just in the US, it’s in Canada, the Euro Area, Australia…
Howdy Lone Wolf. Just want to thank you again, you continue to say, commenters are fairly well behaved.
Have prices gone up in the last couple months? If not, then no inflation. Just really high f%&2*@$ prices! That isn’t going to change.
I.e., the contraction of the E-$ market raises the U.S. $’s value.
Corporations will continue to raise prices as much as they can wherever they can in order to increase corporate profits. That is the American Way and price gouging is the enshrined way forward and it has nothing at all to do with the Federal Reserve.
When the Fed tightens monetary policy enough to where revenues decline enough and unemployment rises enough so that consumers and businesses get worried, and cut back buying stuff, and when they do buy, they chase down the best deal or don’t buy at all, rather than paying whatever, that’s when companies have trouble raising their prices without losing even more revenues, and so they don’t raise prices, or raise them by smaller amounts. So I just gave you the scenario of a mild recession which might (or might not) bring inflation down to 2%.
What stops price increases is enough buyers refusing to buy at those prices.
Hi Wolf,
You mentioned a good point: Unemployment! When there are massive people without jobs, they have to cut back on spending.
With the Ukraine-Russia war ongoing, I don’t see how supply of raw materials can resume. Meanwhile, the fed is NOT tightening money supply fast enough.
Sorry to be so blunt, but what a retarded thing to say – that last paragraph. Are enough buyers going to stop price increases by not buying gasoline, food, energy, medical services? Sure, people CAN refuse to buy higher priced restaurant prices, movie tickets and (perhaps) cars to some extent, but for necessities we are at the mercy of the inflation monster. I surely don’t want to stop price increases on food by not eating.
I know you’re an intelligent man. You just need to rethink that last paragraph. Thanks!
You are not aware of what happened to food prices, and why they stopped spiking, and why some items saw price declines? I’ll tell you why: because people stopped buying THOSE ITEMS at THOSE STORES. They stopped buying beef and started buying chicken or lentils, the price of beef went back down some until people started buying again. People have to buy “food”, but they don’t have to buy THAT food at THAT store. That’s principle #1. High prices KILL demand, even in food.
Gasoline is the same thing. When gas gets expensive, people drive less, they walk more, the use mass transit, ride their bikes, etc., and when they do drive, they favor their more economical vehicle. Longer term, high gas prices encourage people to buy hybrids or EVs, and structural gasoline consumption drops. This is called “demand destruction,” which is what has happened in 2022 and 2023, and we covered it here. The sharp drop in gasoline demand in 2022 and 2023 brought down gasoline prices.
Autos the same thing. Used vehicle demand dropped after prices had spiked out the wazoo, and dealers had to start reducing prices to make deals, which then rippled through the wholesale market. There has now been a historic drop in used vehicle prices over the past 2 years or so, but demand is still low because prices are still too high, and so prices keep coming down. We’ve covered this a gazillion times here. We now see the same thing in new vehicles, but to a lesser extent.
Some services inflation is more difficult to dodge, which is why it’s so hard to get rid of services inflation. There may only be one service provider (utility), or there may be three, and they’re all on the same price level. So you can reduce the services you buy, or you can stop using that service (I’ve done that with some services, including cable TV, a landline, etc.). If lots of people do that, prices come down. But health insurance is a tough one. Thankfully, we have lots of competition here, so that helps. But in some markets, there is only one health insurer, and there isn’t much you can do other than tweaking your coverage. This is why services inflation has stayed so high, even as durable goods prices have dropped the most in 20 years.
I think you should start reading some of the articles here, no?
With purchases now measured by the payment amount instead of cost, “pay whatever” may go on for the for seeable future. Peeps have been trained for payments versus cost.
If there is price gouging and excess profits going on Dude, pick your place where you can prosper by under cutting those gougers. That is what generally happens to gougers, they open up the market to competitors.
Almost all businesses have competitors
If Walmart “gouges ” , I can buy at Target
If Target is too high, I can buy at Amazon or someone else
That’s one of the advantages of a Capitalist system
Sounds like the CDK thing was not resolved over the weekend. There are going to be a lot of angry car salespeople who didn’t get their commissions.
You are so right about this being a nationwide problem. Thank the “cloud” and the move to SaaS which concentrates risk and fragility. Also PE vultures who bought CDK global and probably fired half the security team.
One thing good that came out of this (temporarily) is that I am not getting pestering emails for me to fill out a survey about how my recent service visit went at the dealership!
Who knows, these types of events might signal a change to return to on-premise IT infrastructure. Pfft who am I kidding? The appetite to outsource to the cloud only strengthens.
One thing’s for sure though, if I’m a hacker, I’m definitely targeting PE firms based on their propensity to slash the IT department costs.
…successful criminals must likewise perform comprehensive ‘market research’ when developing their own ‘marketing strategies’…
may we all find a better day.
Excellent commentary Wolf. Clear and concise!
Great summary of the new and used car markets! I am glad you noted that the buyer’s strike is over. I recently placed an order for a Model Y. Interesting to see whether it’ll claim the spot for #1 best selling vehicle in the US after the recent 0.99% APR promotion (which I did not get in time). Money saved up for a house is now going towards the new vehicle instead. Signed a house contract but after a breakup am no longer in need/want of buying at this crazy housing peak.
Cheers, Wolf and fellow readers/listeners!
Howdy Youngins. The Lone Wolf mentioned the 70s 80s inflation cycle. Learn some history at the us inflation calculator historical rates, and the debt calculators showing US debt then and now. Also, become a squirrel before it is too late……..Disco Fever time again………..????????
WOLF!
Is your alter ego Debt-Free-Bubba? :)
Howdy Gabriel. HEE HEE. Learning can be fun. If DFB had teachers like this in the olden days?????? OH Well……..
I still think DFB is a Bot!
Howdy AA. Just an old school retired fool with an internet connection….. Came here to learn about the FED. Now the youngins keep me entertained and coming back…….. Love typing words like
” Starter home ” to see what happens…. HEE HEE
Type in “rate cut ” and see what happens!
CDK just came back online about two hours ago for several dealer groups I’m familiar with. Let the frenzied data entry begin.
This 166 year old eyesore is still for sale in Markham, Ontario Canada. It looks almost as bad inside as it does out and the actual size is just a shade over 2,000 square feet. Asking only $2,378,000. I’ll see what it sells at.
https://www.flickr.com/photos/yorkregiongovt/34325216403
https://www.realtor.ca/real-estate/27039451/3-david-gohn-circle-markham-wismer
Any reason you stopped posting the transcripts of these a few days after release of the video?
These are NOT my podcasts. I’m just the guest being interviewed. You have to ask Howestreet for transcripts.
My own podcast is the Wolf Street Report (with transcripts), but I’m not doing it anymore because YouTube kills podcasts in favor of video as it’s trying not to get crushed by TikTok.
Krugman said inflation really is beaten today in his column, and that the Fed can start easing. Me thinks he cherry picks the lowest of the lowball numbers and calls that “inflation”.
Me thinks you’re correct. No one gives weight to Krugman.
Krugman is a leader of the “do what it takes” crowd to avoid recessions. The logic behind his views will never be fully explained.
I wonder if he’s still consulting for Japan. Their currency has fallen 50% as a direct result of his advice.