Some prices collapsed, others skyrocketed, and the Consumer Price Index went haywire. Here’s what I’m seeing beyond the near term — and it’s not “deflation.”
By Wolf Richter for WOLF STREET.
Amid soaring prices of meat, beverages, fruit, veggies, and other food at home, and surging costs of personal goods, medical care services, and household furnishings, and amid a collapse in prices of gasoline, car rentals, public transportation, car insurance, lodging away from home, and other things – amid these diametrically opposed price movements, the Consumer Price Index went, as expected, haywire today. And we’re going to look at some of those gyrations beyond it.
First, here’s what got buffeted around:
The overall Consumer Price Index fell 0.8% in April from March, the steepest one-month drop since December 2008, when the economy was going through peak-Financial-Crisis 1. This brought the increase over the past 12 months down to 0.3%, the lowest since October 2015 during the oil bust at the time.
The “core” CPI – CPI without the volatile food components and the extremely volatile energy components – dropped 0.5% from March to April but was still up 1.4% from a year ago.
But wait…
What if we take out the most chaotic and largely temporary price movements at both ends to get to what the undying loss of the purchasing power of the dollar might be? Because that’s what consumer price inflation is.
There is a consumer price index that is not buffeted around by the month-to-month collapse of some prices and surge in other prices; The Cleveland Fed’s “Median CPI,” which is based on the data from the CPI, removes the extremes at both ends since these extremes are often temporary and distort long-term inflation trends.
The Median CPI rose 0.1% in April from March and rose 2.7% for the 12-month period. The chart shows the 12-month Median CPI (red line) as an indication of underlying inflation – vs the 12-month “core” CPI (CPI without food and energy):
The Median CPI tracks the mid-point (median) of the 45 major components of the CPI. Each component has a weight in the index – the “relative importance” (%). For example, in April, the “relative importance” of Motor Fuel was 3.0% of the total CPI.
Housing costs, which combined weigh about one-third of CPI, are split up: “Rent of Primary Residence” (to track inflation of rents) and “Owners’ Equivalent of Rent of Residence” (to approximate inflation of homeownership). But “Owners’ Equivalent” is split into the four regions of the US. Rent weights 8% in the Index. Owners’ Equivalent of Rent for all four regions combined weighs 24.5%. So total housing costs – rent and Owners Equivalent – weigh 32.5% of the index.
The table below shows the price movements of the major 45 CPI components in April, ranked from the biggest price decliners at the top to the biggest price gainers at the bottom, but converted to an annualized rate, meaning April’s price change extrapolated to an entire year (if you don’t see all four columns on your smartphone, hold your device in landscape position):
| Component | 1-Month Annualized % Change | Relative Importance % | Cumulative Relative Importance % |
| Motor Fuel | -93.5 | 3.0 | 3.0 |
| Car and Truck Rental | -88.6 | 0.1 | 3.2 |
| Fuel Oil and Other Fuels | -72.5 | 0.1 | 3.3 |
| Public Transportation | -69.3 | 1.2 | 4.5 |
| Motor Vehicle Insurance | -59.4 | 1.7 | 6.2 |
| Lodging Away From Home | -58.6 | 0.9 | 7.1 |
| Women’s and Girls’ Apparel | -48.9 | 1.2 | 8.3 |
| Men’s and Boys’ Apparel | -43.0 | 0.7 | 9.0 |
| Footwear | -38.3 | 0.7 | 9.6 |
| Infants’ and Toddlers’ Apparel | -36.3 | 0.1 | 9.7 |
| Watches and Jewelry | -35.9 | 0.2 | 9.9 |
| Motor Vehicle Fees | -12.1 | 0.6 | 10.5 |
| Motor Vehicle Parts and Equipment | -6.2 | 0.4 | 10.9 |
| Tobacco and Smoking Products | -4.9 | 0.6 | 11.5 |
| Used Cars and Trucks | -4.6 | 2.5 | 14.0 |
| Misc Personal Services | -3.7 | 1.0 | 15.0 |
| Recreation | -2.6 | 5.9 | 20.9 |
| Personal Care Products | -1.6 | 0.7 | 21.6 |
| Medical Care Commodities | -1.1 | 1.7 | 23.3 |
| New Vehicles | -0.5 | 3.8 | 27.0 |
| Personal Care Services | 0.0 | 0.7 | 27.7 |
| Communication | 0.8 | 3.8 | 31.5 |
| Midwest: Owners’ Equivalent Rent of Residences | 0.8 | 4.3 | 35.8 |
| Motor Vehicle Maintenance and Repair | 1.0 | 1.1 | 36.9 |
| Water/Sewer/Trash Collection Services | 1.0 | 1.1 | 38.0 |
| Energy Services | 1.2 | 3.1 | 41.1 |
| South: Owners’ Equivalent Rent of Residences | 1.3 | 8.3 | 49.4 |
| Food Away From Home | 1.8 | 6.3 | 55.7 |
| West: Owners’ Equivalent Rent of Residences | 1.8 | 6.8 | 62.5 |
| Rent of Primary Residence | 2.4 | 8.0 | 70.5 |
| Education | 2.8 | 3.1 | 73.6 |
| Alcoholic Beverages | 3.2 | 1.0 | 74.6 |
| Tenants’ and Household Insurance | 3.3 | 0.4 | 75.0 |
| Northeast: Owners’ Equivalent Rent of Residences | 4.5 | 5.1 | 80.1 |
| Household Furnishings and Operation | 5.8 | 4.6 | 84.7 |
| Medical Care Services | 6.3 | 7.4 | 92.1 |
| Miscellaneous Personal Goods | 11.3 | 0.2 | 92.3 |
| Fresh Fruits and Vegetables | 15.4 | 1.1 | 93.3 |
| Dairy and Related Products | 19.4 | 0.8 | 94.1 |
| Other Food At Home | 25.2 | 2.0 | 96.1 |
| Processed Fruits and Vegetables | 36.9 | 0.3 | 96.4 |
| Cereals and Bakery Products | 40.7 | 1.0 | 97.4 |
| Nonalcoholic Beverages and Beverage Matls | 41.1 | 0.9 | 98.3 |
| Meats, Poultry, Fish and Eggs | 66.6 | 1.7 | 100.0 |
So will the dollar gain purchasing power? Hardly.
In my entire lifetime, there were only a few quarters when the dollar gained purchasing power (deflation) – and only a little. The rest of the decades, it relentlessly lost purchasing power (inflation), and during some of these years the loss of purchasing power was in the double digits. There is no reason to think that this pattern will change going forward. So I’m never worried about deflation – if there is any, it’ll be brief.
But right now, prices and the data that attempt to reflect them are going haywire. Since late February, the supply chains have been thrown into turmoil as buying patterns changed, including a massive shift of consumption from businesses and institutions to consumers at home. There were episodes of panic-buying and empty shelves. In other parts of the supply chain – such as those for hotels and restaurants – similar items were piling up with no place to go.
Ecommerce boomed to the point of exceeding fulfillment capacity, and sales at stores that sold groceries boomed. But much of the rest of brick-and-mortar retail was shut down. New vehicle sales in April plunged by about 44%. Used vehicle sales plunged similarly.
All this has an impact on prices – and if you’ve been to the supermarket, you’ve seen the impact there, as stuff is getting pricier. But filling up your car got a lot cheaper.
The government is borrowing trillions of dollars – mostly monetized by the Fed’s money-printing machinery – and is distributing these funds to various entities including consumers via unemployment benefits and stimulus checks, to companies, and to investors in form of investor bailouts. Much of this money is going to get spent, even if it isn’t along normal spending patterns.
In this chaotic environment, the price measurements can produce chaotic results. The Median CPI eliminates the chaotic outliers on both sides of the CPI and shows that underlying inflation is ticking down some but isn’t plunging.
And you can already see the impact of fiscal stimulus at the grocery store. A lot of people are out of work, but many of them receive unemployment benefits, and just about all of them have already or will receive the stimulus payments. This money is getting spent.
There is now a huge amount of fiscal and monetary stimulus being thrown into the economy at the same time. The monetary stimulus has already led to a massive bout of asset price inflation in the financial markets since March 23. And the fiscal stimulus – the ca. $3 trillion already under way and whatever future stimulus package might still emerge – which will get spent in the economy will put upward pressure on consumer prices. And there is a good chance that beyond the very near term it will lead to more consumer price inflation – meaning, a steeper loss of purchasing power of the dollar than we have seen in recent years.
Tenants’ collapsing one after the other without replacement has a pernicious impact on property prices. Read… US Commercial Real Estate Prices Plunged in April, Mall Prices Collapsed
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As I posted over a year ago on this site, folks will be lined up six deep at various street corners fighting for panhandling space. Folks, we are now and have been for a while beyond political parties as they have all betrayed the people. So sad at the very least, but criminal is more like it. Here is to hoping that Dante is right (re: the various rungs in Hades and who occupies them).
Don’t hold your breath on those circles of Hell: a customer was just telling me about being a guest of the Clintons – if that’s Hell, give me the lowest circle, it sounds just fine!
Wolf,
I was surprised by the cost increases in food. I typically use Costco, Trader Joes, and Sprouts market as a reference point for food prices.
I see eggs, bananas, milk, and fruit prices in general as still not much changed from before. Although I have to say, I tend to usually look at sales prices, and focus on those rather than just normal pricing. But stuff like eggs and milk aren’t usually on sale anyway, and at least at the places I’ve shopped at, they don’t seem to have gone up.
We’ve done a couple of take out dinners recently, and we look at our food bills in aggregate and wonder why bother.
I wonder where is these price changes are coming from. Just curious to see how this is coming up.
MCH,
I just went to Safeway today. Wow!! I had a huge cart full with all kinds of stuff that has shot up (but granted, bananas were still 79 cents a pound … but before they were on sale for less). My wife went to Trader Joe’s the other day and said the same thing.
But I have to say that it’s nice to see toilet paper, while expensive, stacked high everywhere.
Oddly, I still don’t see toilet paper in Costco. It’s strange why Costco can’t keep this stuff in stock.
I think we bought a package just before the C19 nuttiness started, that was like back on Feb 25th, where the stock was still relatively plentiful in Costco. I usually keep a spare package of Charmin around. But I was surprised that 2.5 months on, still no Charmin at Costco.
Hopefully all of those hoarders got what they deserved, a garage (or bedroom) full of stuff that they now have to slowly use over the course of the next ten years.
As for the rest of the stuff, I think meat is going up slightly, sausages at Sprouts have gone to $4.99/lb regular price, as opposed to $3.99/lb, but we don’t consume that much meat anyway. Fortunately, fresh fruits and vegetables hasn’t gone up much.
It really is strange how the processed stuff has become more expensive. Its not exactly healthy for you, but there are all sorts of odd dislocations. I wonder bread prices are like now, we were never big consumer of breads in the first place, but thanks to C19, our breadmaker is seeing significant usage.
I’ve heard that particular story everywhere.
I think retailers are taking advantage of the hoarding and disruptions to increase food prices.
I’ve been baking my own bread.
Walmart finally had one small display box of Charmin when I went in recently—I figured the 12-pack would be $2-3 more expensive, but didn’t budge a cent. So props to WM or manuf. for not increasing price when they could have gotten away with it (supply/demand). So glad to have Charmin back!
WOLF: the case of a misplaced “S”. One too many in your title. Transfer it to “April’ ” above the chart.
Here, in the UK, there is a shortage of flour for home-baking.
The joke is, that for the trendies, that flour has become “the must
have white powder”!!!.
We use an electric mill for the flour, you can buy the wheat berries online. Freshly milled whole grains are far superior to the stuff that has been sitting around for a month.
Concerning the toilet paper: Apart from the hoarding, I know that in Europe raw material for it is sourced from recycled paper and there is a supply problem right now. The lockdowns caused less paper to go to the recycling centers so prices for recovered paper have substantially increased. We may see more supply shortage inflation in the coming months as supply chains got disrupted and take a while to recover.
Re: toilet paper
Invest in a bidet ya filthy barbarians. ;)
“Over the course of 10 years”
And how will that impact on consumer demand ?
Not to mention other items such as food that are in ‘short supply’
And may not be resupplied as prior due to Worker shortages..
Farm, winery Laborers…
Can’t use my breadmaker here in the UK, except on rare occasions, because it’s almost impossible to buy the flour.
And it’s not just strong flour for breadmaking, but all types.
I moved just a little too late in stocking up. I shall be more ruthless next time.
I’m down to pan-cooked oatcakes, which are actually delicious in lashings of butter.
May be that you are getting there after an entire truckload of TP was bought out by customers. The last trip to Costco there was a line of TP and Paper towels the entire length of the store! They sell that out in a morning though.
I wonder why bananas are 67 cents a pound in BC? We sure don’t grow ’em, and our dollar was 72 cents, yesterday. And no shortages of paper products, either. I just saw a meat sale in the flyer. Items like GH peppers are expensive, but the remaining prices seem to reflect the normal ebb and flow of manager purchasing strategies. Toilet paper prices haven’t budged.
My sister-in-law is a grocery store front end manager and she hasn’t reported any massive disruptions after the initial panic subsided.
I think the answer lies in the virus numbers. We had just 7 new cases here yesterday (population 5 million) and the trend is still downward. Plus, there is national cohesion and big big support for all levels of Govt Covid19 policy. Support for federal Govt and provincial govt handling of crisis is around 70%. There is the usual conspiracy wingers, but overall there is a cohesive plan at all levels, plus high confidence in the universal medical system)s).
If a locale lurches from one plan to another, is in conflict with those who should be natural allies, when business accuses Govt of destroying them and threatens legal action, and personal freedoms are more important than the common good, you are going to have disruption. Building anger. Scapegoating. All coinciding with an election calendar and rapid re-openings not always based on good advice. (A hair cut is not an essential service) The western states seem to have their plans based on science, but that doesn’t protect against supply chain chaos if there is a resurgence of cases elsewhere in the next few months.
We also have had Covid outbreaks in meat processing plants. However, I have yet to see shortages in meat coolers and only once saw a limit of two items at Costco. Other stores did not have limits to purchases. 50% of Canada’s meat production is exported to US. I expect if we see shortages our Govt will just restrict exports.
With this re-opening, I would be inclined to stock up our pantry. Perhaps that is what is happening as well.
Interesting, it was recently reported back on April 23, 2020 that two major beef processing plants shut down in Alberta. The report says that they make up 70% of Canada’s beef processing capacity. Not sure if the two plants have repoened yet. They were JBS and Cargill. Perhaps it will take another two weeks for customers to see the beef shortage in Canada?
Wolf, Thank you for your great site.
We are high-end organic only eaters.
I saved Costo and W.Foods receipts for a year, compared them to Safeway shopping for an older relative. 100% Organic is about 8% more expensive than conventional overwatered crop, chemically laced, pesticide food. which doesn’t satisfy as much as organic, thus ends up costing the same as one eats more of it to feel full.
Added health expenses down the line.
Average price per adult per day for Costco organics, Whole Foods, everything purchased, is averaging about $10 per adult per day.
Cheapest foods to most expensive in our experience:
Brown and white Rice, Dry Beans, Pasta. Can be doped with pasta sauce, olive oil, Sri Racha, herbs, plus fresh garlic, bottle of ten dollar wine, works out to about $4 per person for a meal.
Opposite end of scale rip offs: Amy’s pizza, $9 for 14 ounces at W.Fools, cheese is not even organic, takes $18 worth to feed two adults one meal.
If you cook double the quantity of basics, one has leftovers, saving the prep time, clean up and the utilities. e.g. Brown rice as above, next morning brown rice with milk and cinnamon.
Live in the Sierra foothills. Shopped this morning in a Save-Mart in local town. Most all the shelves are what we used to call in the business, “shot”. Last time i shopped for groceries was on the 16th of April. Shopping today I came away with most all of what I went for lacking couple items. TP aisle still completely shot..April was able to purchase a “6 pak TP, Today..some brand of “ME” TP in one small corner; Didn’t need so didn’t buy. “Sanitary Wipes”, any kind of hand sanitizer, nadda.
I found what I principally go there for, fresh produce.
Dairy ok. Eggs shot. “Outside” brand never saw before labeled “AAA” large really in my world were “small” size. Didn’t buy. Bought instead another brand that looked good for size. Last time egg prices were up. This time not much change. Milk which I drink very sparingly was same as month ago.
Plenty of ice cream and other frozen goodies but shelves were “down”.
In my day (or normal times) operating a store that looked like these past few months would have trashed a company and gotten all kinds of managers fired.
But, all in all, I bought almost all that I came for.
Driving home I also thought of the “biggies” like WM, Safeway, Save-Mart, Raley’s, Trader Joe’s, and other “chains” are open and so many of the smaller ones are closed and possibly in dire financial straits because of this or that rules.
Very few shoppers wearing masks (I wore my mask and gloves) or gloves; very few clerks ditto.
Anybody who thinks a “recovery” is going to be a “V” is insane.
Anecdotal evidence smaller service companies in Santa Clara V. are going back to work with no customers calling for services.
Living in the Foothills, gated community:
Lots of “flatlanders” that have 2nd homes up here have been coming up regularly; some have come up and stayed. Almost all the small town businesses are closed; any restaurants that are able are attempting to do the “order, pickup” routine.
Where do I live? Tuolumne County, CA.
I still think, temporary supply-chain shocks aside, we are headed into real deflation. Capitalism needs customers and America has ridden the consumer into the ground.
I was already able to negotiate a 50% reduction in two major ongoing business expense. Soon the expectation to pay less may catch on. Why are those rents so high? Why is a latte $5? That kind of thinking could catch on quickly among distressed people.
Yes, but that kind of thinking disappears when the government hands out money. In my entire life, there have not been more than a few quarters of mild deflation. The rest was inflation, and for many years, a lot of inflation. And now the government spends more than ever. It just hands out trillions.
It hasn’t really handed out that money in a way that helps the consumer. Maybe 10 cents of every dollar that’s being spent or guaranteed by the federal government is going to the average American. That dime to the working man isn’t going to create inflation. Instead, the Corona response is actually worsening inequality. And inequality is the root cause of deflation.
“It hasn’t really handed out that money in a way that helps the consumer.”
This.
We are in a deflationary period. End of story. Except for assets which are not really inflation measured, or anything the rich buy because the Fed is giving them free money.
Our leaders are doing what they’ve been doing for 50 yrs or so – neoliberalism, which to progressively transfer all wealth from workers to the rich.
Because of the present day crisis, they are doing it even faster, because they think their past policies are a success, so just do success faster.
Unless we start getting more $1200 checks, consumers are still mostly dependent on income from work. As long as unemployment is high you won’t be getting any nice raises for awhile just like last time, so it’s going to be difficult to get inflation without a collapse in the real economy. Since the rich are the beneficiaries of asset protection by the doubling down fed and gifts from the govt, little is fundamentally changing and we’ll probably see an acceleration of the growing inequality from the last ten years.
On top of it all there is now the push for the “gift” of nirp. One of the primary functions of money could be about to deteriorate even more.
Rhodium, I agree. Specifically regarding nirp, it stands a real chance if happening IMO for 2 reasons: 1). It is the logical next step of practically all the policies of the Fed & Washington have implemented for decades. 2). The financial sector is growing larger & larger as a direct result of Fed & Washington policies (it has been shown large financial sectors are huge negative to economic growth) and this ever stronger financial sector is ever more likely to override the banks that oppose nirp.
timbers,
You’ve been praying for years for NIRP, from what I can remember here. It seems you’re hoping you will be paid for the mortgage that you have on your house, and that this income from your mortgage would supplement the income from your job and the rent you get from your renter(s). And that if you get paid for taking out a mortgage, why, you’d certainly take out many more mortgages and just quit your job and just live off the negative interest you’re making on all those mortgages ?
I guess that means that you received your stimulus check. I have not.
Joe in LA,
The government’s unemployment insurance payments go directly to consumers, including the extra $600 a week. Many lower-income people now are getting more money from unemployment insurance than the got from their wages. This is a direct stimulus to consumers, many of whom will spend every dime.
Plus the $1,200 per taxpayer and retiree handed out, plus the $500 per kid. Last number I heard is that 128 million received the money. But some people still haven’t received theirs.
Plus some of the PPP loans (forgivable) that went to very small businesses (mom and pop operations).
Plus, plus, plus… these are all FISCAL measures, meaning the government pays them out.
This is separate from the MONETARY measures that the Fed is doing.
I grew up poor. I never want to go back to being poor. I looked up to those around me that did well. I learned what they did to do well. I am not rich but I have been retired nicely for 15 years now. I never felt that the rich did not deserve what they made.
Besides communism and some extreme cases of socialism what is infecting our citizens today?
If you and others that feared this ‘inequality’ did a little bit of study you would find that equal outcomes have never, ever worked. Witness USSR, Cuba, Venezuela to name a few. Think!
I think the 28 day off-the-run T-bills already went negative the end of March 2020 (in the charts I follow.) The 10 year is less than 1% and the FED might have to be a reluctant follower down the rabbit hole because of Govt debt refinancing.
Deflation hides under the bed and in the closet of every Keynesian. They simply cannot imagine a world where we aren’t a few heartbeats away from devastating deflation. It never happens. It won’t happen. All that money printing will find it’s way into prices, and it’s happening already. And through it all, we will be warned of the pending deflation lurking around every corner by the usual suspects.
But what is the plan behind (and after) handing out all that money, may I ask? Jump starting the economy within months and return to business as usual, only with trillions of debt more? Is there even a plan or a long term vision apart from keeping the whole structure from imploding?
That should be a major concern to us all IMO: that the TPTB are actually clueless and have no other solution than trying to keep everything afloat with funny money. That’s all there is it would seem: a contingency plan which basically consists of ctrl P.
The liquidity is supposed to avoid the heart attack for the real economy.
Otherwise it is a literal starving for significant part of unprepared population.
Meanwhile, this liquidity shower will benefit different people inequally.
HD:
I have no problem with the money that the gov is “sowing into the winds” for the medium size and smaller businesses/individuals. All this compensatory monies is limited in amounts and time.
Many, many of them will find themselves with no more business or jobs when this is all over. They will be really unemployed, period.
A “normal” recovery just ain’t gonna happen.
Guess we’ve exchanged heart attack for heart failure.
Couple of things relevant to this question Wolf:
1. Don’t know how old you are, but there has been deflation here twice in last 75 years; both right at the beginning of WW2 and after that one and Korea when war wages disappeared; I do remember the one after Korean War, was told about the other one.
I remember going to grocery to help mom in mid 50s, taking 5 carts full out of the place for less than one 60# bag of good food costs today. (We were a household of 3 adults, 5 kids + neighbor kids almost every day.)
2. Currently, top quality foods have not gone up a bit in the ”natural food” store we shop at a lot, nor has my fave wine from Spain, YET.
3. And of course, there was massive deflation after the crash formerly known as Great.
4. The difference, as you point out is the Trillions,,,Trillions being thrown around this time,,, mainly, as has been pointed out clearly, at the cronies and masters of our paid political puppets.
5. The real question for all us Peeons is how long this unlawful, awful, absurd, and obnoxious squandering of our ”money” can continue, and what will happen when it stops? And let’s all be very clear that sooner or later it will stop.
I strongly suspect that the federal government’s largesse is not so much stimulus money but more of a bailout to allow Wall Street (and to a lesser extent Main Street) to pay monthly operating costs and consumer rents/mortgages/car payments/ utility bills etc. if that is the case then we will undoubtedly see some level of deflation over the next several months. The recovery will be more like a marathon than a sprint. We are going to need an awful lot more stimulus to reignite the economy once we are over the worst effects of this pandemic. Only then might we see some level of inflation.
Was going thru some drawers in my apartment today and found my official letter from 2008 with regards to my stimulus payment. It was 600$ back then.
Agreed.
Powell has stated that a great part of inflation is perception. And he and other talking heads really are talking up the deflation aspects….
But shortages and empty shelves do not a deflation make…
The Fed and others will do all they can to explain away any bumps in prices as “temporary”. That is predictable and perception controlling rhetoric.
And when millions of Americans refuse to file taxes, or pay medical, rent, mortgage, credit card or loan payments, that will be “temporary,” and should end as soon as the government does something effective like create Universal Health Care and real bailouts for the people as a MONETARY,
Fed created measure, versus a FISCAL measures, meaning the government pays them out as part of their fiscal year budget?
Thank you for that ongoing economic education Wolf.
Wolf, I am older than you and have seen the same thing. Except during severe recessions, the march higher in prices has always been there. In fact, real interest rates have been negative for most of the last 45 years in the US
Sorrry, concerning my above comment, I should have said that real interest rates have been NEGATIVE for most of the last 45 years in the US
dr spock,
Thanks for clarifying. You threw me for a loop there. WOLF STREET autocorrect fixed it
Wolf, How many quarters have there been in your life where the government has shut down >80% businesses? The uncertainty alone will cause massive deflation. Even booming businesses do not want to expand due to the prevailing uncertainty.
Foobar
Yes. You’re talking about the demand shock. But there is also the supply shock — by production being shut down. Supply shocks entail inflation. Actually both are true. We have a demand shock and a supply shock at the same time, which is very rare. So prices are going crazy right now, in both directions.
‘And there is a good chance that beyond the very near term it will lead to more consumer price inflation – meaning, a steeper loss of purchasing power of the dollar’
1. The US $ is losing it’s purchasing power, almost every year be that be 1 or 2%. Of course it’s worse in Healthcare and education over the last 2 decades.
2. There is demand CRUSH and supply shock, the latter may rectify slowly over 6-12 months. But demand crush may be partially mitigated by Fed/Govt actions for the next 3 months or may be 6 months. And then what? Back to pre-corona ? It is well known those days are gone for good, for the near future.
The savings jumped from 8% to 13%. How many jobs jobs will come back and how many months after? NO one really knows especially in the hospitality industry.
The attitude towards debt and the psychological impact will be entirely different for an economy based on consumption.
The on going de-leveraging DEFLATION of ASSETS will have more impact on the top 10% who apparently contribute towards 50% of discretionary portion of consumption. There may be inflation in some segments like imported goods and quality food, otherwise it is deflation
The Fed isn’t monetizing anything and out of that 3 trillion(probably more like 2 trillion in released funds. Let’s don’t forget states are neutering jobless benefits) was replacement income. I don’t see anything else getting done this year.
I see little upward pressure on inflation and frankly, much of that food will be in disinflation by years end.
Bobby Dents,
“The Fed isn’t monetizing anything…”
Read this:
https://wolfstreet.com/2020/05/06/us-national-debt-spiked-by-1-5-trillion-in-6-weeks-to-25-trillion-fed-monetized-90/
Remember the outcry when Reagan raised the national debt to 2.6 trillion? Now a trillion is chump change.
Yeah that was just the first tranche of a 40 year long wealth transfer regime from the American public. Seems like the debt is almost exponential. Next stop $32T…
I think the low integer game is in full play..
One Trillion, Two….little numbers to most people…
But lets call the Pelosi Bill, the 3 Trillion bill, by another name..
Let’s call it the
3000 BILLION bill…..and see if that registers with people the magnitude of what is beings spent
What comes after trillion?
Someone needs to add digit slots to the National Debt Clock again.
Intosh:
Quadrillions is what comes next!
I have a full pantry for the first time in my life and I’m an old guy…been stocking up for the past few months out of a sence of responsibility. I avoid whatever is in short supply and eat healthy.
There is after all a difference between needs and wants. A diet based on fresh food always costs less.
Price inflation is relative…and I’m out and around in my town.
In Australia major supermarkets have reduced the prices on meats by 10% ,due to closing down of restaurants to much supply .
I see deflation in food prices in indonesia… in IDR and esp in USD terms.
I suspect once supply side issues start to clear up in the US, it will be the same in the US.
Same thing here in Italy, and some stuff is reappering on the shelves as well, albeit we probably won’t see supply chain start to normalize until well into June.
Even if it took until September, it will be a lot faster than people who have lost their jobs (and left the labor force) can consume to keep prices steady. LFP in the US never recovered from 2008 (GDP output gap anyone?), and we just made another leg down there.
Wolf, why do you say that deflation is a worry? Isn’t having more buying power always a good thing?
1929 marked the beginning of a deflationary crisis. When you’re out of a job and your personal income plunges, your buying power takes a hit anyway, regardless of consumer prices in the store.
Unless you’ve just managed to load up on free money from the Fed. Then you can go out and buy real assets on the cheap. It’s a great way to asset strip a population.
Deflation is a good thing for consumers. Consumers want price deflation and wage inflation (more money for same production).
But deflation horrible for companies; they want price inflation (they can charge more for their products) and wage deflation (they can pay their workers less).
And deflation is a horrible thing for governments; they want lots of inflation that allows them to whittle down the weight of their irresponsible debts.
So it depends from what point you look at it. Personally, I think we should have a long-term policy of zero inflation and everyone can over time adjust to it.
Long term policy of zero inflation…
That is precisely the Fed mandate, together with low employment and moderate interest rates.
Judging by that criteria, the Fed has failed.
Memento mori,
Currently the Fed’s goal is “price stability,” as defined by the Fed. Currently, the definition of “price stability” is 2% inflation as measured by core PCE which is closer to 3% CPI inflation.
No, as long as I can remember the Fed has always shot for 2% inflation. To ward off deflation?
The Fed’s mandate is “a low and stable rate of two percent”, not zero. Big difference.
Ironically in the 53 years before the Fed the dollar was basically worth a dollar – 86 cents. In the 107 years since the creation of the Fed the dollar is basically worth 4 cents.
Fifty years of a working at 2% inflation means 100% of your wages are inflated away after 5 decades. I always knew I was working for nothing…smiling
Anybody who cares to read the 1978 Humphrey Hawkins law will know that the Fed is directed by CONGRESS to seek full employment and then ZERO inflation. Not 2 percent, but zero. Going back a decade and more, the Fed, led by luminaries such as Yellen and Bernanke, has advanced a policy of actively embracing inflation. The 2% inflation was never mandated by Congress.
All these pro-inflation policies followed by the Fed are in violation of the letter of the Humphrey Hawkins law.
The third and frequently forgotten mandate in the Humphrey Hawkins law commands the Fed to employ policies that will produce “stable interest rates.” But the economists have long since stopped talking about this. And no, 0% interest rates arent moderate by any measure.
All the above is true.
As well, it affects individuals in a bad way too. People went through this living in Japan where they had deflation for the past 20 years or so.
What happens in real life, is each time people lost their jobs (which happens often during deflation as the economy is generally bad) when they would find a new job, the salary (and benefits, if any) would be lower than the old one. This would happen repeatedly. For people with ‘lifetime employment’ (a small group and shrinking these days), they’d get pay and bonus cuts..
All along though, the mortgage is still the same, so practically, it means that the more one would pay off their loan, the bigger it still got anyways (due to deflation effects on the real value of money) as each subsequent job they got, would pay less than the old one they had.
I really thought one of the original mandates of the Fed was to keep the monetary basis(dollar) stable and prevent both inflation and deflation.
This 2% is just a recently publicized goal.
Let’s face it there is no way $28 trillion gets repaid. There are two choices: devalue(dollar)(inflation) or default. Given those two choices the Fed is always going to choose devaluation and will continue to kick the can down the road for as long as possible.
The longer they kick the can the more money they make.
This happened to a degree following the GFC but it’s more chaotic and unpredictable now given supply chains fracturing and loss of effective demand.
Bi-flation.
Inflation in staples and things you must have, deflation in discretionaries and things you want to hold value.
C
Ok, so 1929 was deflationary not because prices dropped, but because wages, employment and thus buying power decreased due to the massive layoffs?
So, because of ‘rona, we are in a mini instant depression?
Deflation is caused by money destruction. It is default on debt, and the revaluation of assets that causes money destruction.
the only people who default on debt anymore are poor people.
There is a big difference between money destruction and debt destruction. Either or both can lead to loss of purchasing power and deflation. Shortly we might have debt destruction, if debts are defaulted upon. Now, we are having money creation as the FED is busily digitizing.
Where is the money destruction? There may be credit destruction, job destruction and loss of purchasing power, but I don’t understand this money destruction meme. The FED is digitizing like crazy.
Revaluation of assets does not cause money destruction.
Most of the money today is digital. It is simply a entry on a ledger. It is created by credit purchases out of thin air. In reality what the vast majority of money today actually is in nothing more than promises to pay in the future.
When you swipe your credit card say for $500 to buy new tires, the money for those tires is created then and their by your promise to pay in the future. The interest for that purchase is also created which is where inflation comes from. It inflates the purchase price of all credit purchases by the amount of interest paid on the purchase. So those $500 tires may be $600 by the time they are actually paid for.
If you default on your credit card bill, and refuse to pay for those tires, the money simply disappears. Both the principal and interest.
Now imagine how much money begins to disappear when something like an airline goes bankrupt and does not pay for it’s planes, or buildings, or loans. Now that bankruptcy translates into problems for the airlines creditors, and suppliers who may be forced into bankruptcy themselves, and then their creditors have problems, and it spreads throughout the economy… Leverage works in both directions….
FOMC officials have spoken out against negative interest rate policy but the US central bank has a history of capitulating to dovish market expectations.
That is a quote from FX Street.
Capitulating to Wall St would be more accurate.
Understanding that you get paid to borrow with NIRP is probably what will tip them over. Now let me see: -0.5% on 26 Trillion dollars is….a lot of incoming interest money. That’s a double gain because they are also saving on the outgoing interest. Well, it’s that or wait for inflation to whittle away the debt. Meanwhile, the rest of us burn either way.
I would not have thought it possible but now I am leaning to the Fed going to negative rates. You would think not because negative rates kill banks. But at this time the bond market is pricing in negative rates and if the Fed does not bail them out and go negative the poor babies might lose money. We can’t let that happen now can we?
With Kudlow & Mnunchin in charge, I think you can guarantee negative interest rates by the end of the year.
Part of the equation is the cost of carrying the national debt.
Nobody is in charge. Fed has the authority, and he refuted NIRP today. He doesn’t have the votes. Dollar goes up, blows up, goodbye.
Harrold:
With “Green Shoots Kudlow” and Mnunchin in charge I can almost guarantee we’ll all be gnawing on cold turnips by years’ end!
Negative interest will not happen because it would be harmful to bank profits. The Fed’s concern is primarily the health of its member banks, the health of the economy is secondary.
Sometimes those two things cannot be served by the same policy.
I sold my Wells Fargo at $30 thinking the Fed was going negative on rates. Look at Europe to see what happens to bank stocks in a negative rate environment. I don’t own any financial stocks at this time, because that’s where the problems lay.
Check the relative importance of alcoholic beverages number. Off by a log, I think.
1%? (center column) sounds about right.
At least 10 in my book. :>))
We are deeply concerned about inflation and have been allocating to precious metals as a hedge for some time. I can’t believe we won’t see deflation in broad stock and real estate mkt prices though. It seems to me there was an inflationary bubble in stock and bond prices that has burst as confidence in The Fed’s control over it all has been shaken.
PM appear to be inversely correlated to strength of US $ compared to other currencies. it is stuck below 1800!
The appetite for $ in FX currency mkts and EM mkts is more than What Fed can do with their usual dollar ‘swipes’ Once deleveraging starts earnestly watch out for defaults in EM mkts worse than in 90s!
Has NIRP been a success in any other countries that implemented it? If not and the US copies it then I guess you will deserve the results and the people that implement it are INSANE because they already know what the results will be before they do it.
Has NIRP been a success for the benefit for the majority of the citizens of the countries that implemented it?
To me the idea is dumb!
For the next few year, the prices of rents, home furnishings and, what is now becoming online college education with no room and board, should be going down.
Rich, I agree. It will be interesting also to see any fundamental changes in some you listed, like education. Will online education become the norm and the brick-and-mortar campus the anomaly? Especially with the current discussion to not reopen college campuses (or even public high schools) in the fall. There are other such examples.
The cost of on line college will be a fraction of campus lecture hall schooling…
Tuition levels will be difficult to defend….
and then what of all the teacher pensions? Maybe they just might be forced to dip into their endowments….
gee whiz.
Tuition levels will fall due to the lack of foreign students paying full prices.
I believe rents are on the rise.
Commercial real estate followed by residential will probably be in a deflationary spiral but both have been asset bubbles propped up by 12 years of artificially low interest rates.
Many colleges are in trouble. You may see minor reductions but that will offset by universities cutting costs any way they can. That typically means employees. You will probably see some colleges shuttering. Unfortunately these will probably be smaller state universities and not the predatory for profit satellite schools.
The value of a college education is in the size of the list of contacts and the prestige of the degree with which you leave.
An education has always been widely available to anyone willing to study, relatively cheaply in terms of money.
Lisa-bullseye!
A better day to all.
Wazooflation.
In the end, the majority of people don’t have enough money to cause inflation. I have been over spending lately due to the stimulus and a tax refund. When that money is spent, I will go back to not over spending. I just can’t afford inflation.
BTW, the elephant in the CPI room is social security and medicare. No SS increase next year is likely. Not so likely is controlling medicare. All in all, people on a fixed income will likely be cutting back even more, adding to deflationary pressures.
P.S.
The unemployment mess is surely going to force more people into retirement earlier than planned. So even more people on a fixed income.
Petunia – there are some that were depending on cash flow from conservative investment. Now that there isn’t any interest on savings/investment some may be forced to return to work.
We are pretty much on a fixed income at 77 and 75 years old. I guess we will be driving more and eating less going forward. (SS with no pensions and some savings earning next to nothing)
Buckle up. Entitlements and SS cuts are the only way we can fix the enormous deficit caused by the pandemic or so we will be told. The Greek chorus shall begin shortly. Whether before or after the election, you’ll hear a few test notes shortly. Covid-19 provides the perfect cover to take a crack at the long time goal of some of our most endearing pols.
On a hopeful note, once that occurs maybe a small majority of people will finally realize we are all mostly in danger, lose the polarity, and do something about it. Or not…
I saw the crap coming and stocked up on everything in February. I have been doing online orders of groceries since. I notice prices increasing, especially at Costco. What has surprised me the most is the ease in ordering online. Even local farmers have gotten into the game delivering eggs, milk and produce weekly where I live in semi rural CANADA. Not going to restaurants and bars during two months has reduced my overall costs considerably. Makes me wonder if these changes will become somewhat permanent regardless of COVID.
Wolf it’s the opposite here I live In a small farming town 45 minutes from the cbd of Adelaide in Australia. Fillet steak has fallen to $14kg from $50kg. Strawberries $2.50 for 500 grams. Now everything in season is at rock bottom prices plus the usual export farm goods they are giving away.
About a month ago, I bought some beautiful bison steaks (range fed, grass fed, organic…) for a song at our local run-down grocery store that had never before carried bison. Obviously, it had originally been destined for high-end restaurants that were all shut down. I love bison. And this stuff is expensive and you can normally only get it online or at specialty stores. But now that supply is gone… no more bison for me :-]
We also still see a lot of Australian beef at our local Trader Joe’s and they still have it.
Aaaah, the days of the 1970’s meat shortages when the buffalo came to roam your plate…sweeter than cattle. But what of the old boiled tongue sandwiches with lots of butter on fresh bread. The learned taste for liver. And further back, when granny overseas sent blood sausages and marzipan cakes right through the regular mail. I would (figuratively) kiss a German’s ass for those tasty Bavarian meals based on venison. And Konigsee trout served in view of Mad Ludwig’s island estate, on a soldier’s income no less! Alas, I’ve lost my appetite for foods that will never match up again. Did stock up on the Irish Whiskey (brand witheld) just in case of upward pricing or disruptions…the old folks were right about the medicinal qualities and it’s proverbial weight in gold. Note: advacados were once something massive for kids to dodge when they fell from trees in backyards, not these puny nuts we trade silver prices for.
Also a friend of mine who is the state sales manager for one of the big chicken processing businesses here told me sales have fallen out of the sky.
“And you shall see… a cow… on the roof of a cotton house, and oh so many startlements.”
Quote from the FOMC minutes.
The grocery stores are price gouging, and I expect there to be blowback from that. To take advantage of people during a crisis when many are struggling is pretty low even for a heartless corporation. But it does make for easy pickings for politicians going after them to make a name for themselves…..
I went shopping yesterday at our neighborhood Winco. No shortages (except my favorite braunschweiger), nor price gouging (eggs, 98 cents a dozen). Toilet paper galore. Was completely normal, except for the masks and enforced social distancing at the checkout.
Still stocking up. Second wave in the fall…
Good for you stocking up, MiTurn. And people should be planting gardens if they have dirt.
And if you don’t need the food? So what, give it to someone who is short of supplies like all gardeners do. We’re still eating beans and tomatoes from last year. Last night we had a giant fresh salad from our garden, with home made soup. People can live well for a fraction of the cost if they have some dirt. No gym membership required, and no yoga pants in the garden.
Yup, concur Paulo. I’m a big-time gardener. And, yes, great exercise to boot! Zucchini anyone?
Paulo,
Another good comment I mostly agree with, after 16 years of building a very solid ”farmstead” on 56 acres, mostly hardwood forest, 10 in meadow, gardens, etc…
EXCEPT for the yoga pants part??? WTF dude,,, how much more entertainment do you need beyond those?? (Just kidding, of course!)
And our hope is that, similar to us, who STARTED in our late 50s,,, all the folks with any inclination what so ever, with dirt, will get out there and plant gardens, fruit trees of what ever sort works for their climate, etc… (Due to very elderly parents, we moved from there to a normal house with yard in FL) , and now have, bearing: avocado, citrus, bananas, figs, and the easiest of all, papaya all over the yard in just a couple of years… lychee coming soon, we hope
btw, there are several very good on line sources for the kinds of non hybrid seeds that you can save year after year and that will not only produce very good results, — our experience was that those ‘heirloom” and similar seeds, etc., actually produced more and more delicious tomatoes, garlic, etc., every year when they were replanted on the same soils,,, and without any kind of ”fertilizer” other than what came out of the chicken shed and the cuttings/hay from the pastures…
It looks like the Asian markets and European markets are pretty much down across the board while all the US market futures are up this morning. In fact the US market futures seem to be up almost every morning regardless of the news although they don’t always finish up as witnessed by the last few days. Is it just me or does this smack of some level of intervention in an attempt to prop up the US stock markets? We know our president measures economic health by the level of our stock markets. Personally I think there is a lot more pain yet to come. Maybe it is just me getting paranoid in my old age. Either way – got gold anyone?
Meet the PPT = Plunge Protection Team.
Have another look at the markets now.
I think the PPT has not been paying their AWS server bills for the last two days ;)
Fed only did 1B in REPO today.
Yup 3 kg bought in 2016 at 1275 an Oz And 5k ozs of silver 250 K in dollars 60k in Euros and two houses and two rental apartments Am I diversified ?
We are generally not big spenders, but due to all the craziness, we having been spending much more than normal. The money is extra money from a tax refund and the stimulus. The biggest portion went to stocking up on groceries, drug store items, and toiletries. The next big chunk went to new tires and kitchen items, all of which we had needed for awhile. None of these items were bargains.
My observations are that product prices are higher now in general. There are shortages of meat and any type of cleaning products.
I splurged on some new earrings, my first ever bronze pair. Bronze is the new gold and silver. The Bronze Age is once again upon us.
When we were kids during WWII, our new age jewelry was twiddled out of lead foil from the inside of cigarette packs.
We wore it until it oxidized and turned black.
We used to make bracelets out of gum wrappers. Now they have women in Asia doing the same thing for big companies.
Did you see the moldy goods in a leather shop in Malaysia (not positive on country)? Thought of you!
noname,
Your mum did a crappy job.
lol. i imploy brevity and it often leaves me with a feeling of “oops”.
i wasn’t implying you were mouldy :O
what i meantersay: “knowing your interest in leather handbags, i thought you would be interested in seeing those pictures”.
and if that’s how you feel, i shall not comment to you again. i can see the NY coming through, not my cuppa tea. adieu.
All this prepping, is it going to hinder the consumer recovery?
What will the market for toilet paper, cleaning supplies, alcohol, canned goods, food and other prep items look like in August, as people have no need to buy these things?
On the other hand, maybe the kick the can financial fear mongers are using prepping as a means to artificially boost the consumer economy?
IMO deflation will happen regardless of the money being borrowed and injected into the economy by the Government due to the fact that more money will be lost through loan default than what the government can replace. The thing to keep your eye on will be bankruptcy stats.
The government programs are a feeble attempt to bridge the time period between the beginnings of the lockdowns and the return to normal economic activity.
The problem is, we are not returning to normal economic activity. Many of the businesses which closed are not reopening, and many who do reopen will not survive. Entire business models have been blown up, and consumer psychology has been badly damaged.
We have all seen how leverage works to create wealth, but few have ever seen it work in reverse. It is a highly destructive force and leverage has never been higher.
When leverage begins to work against borrowers, their wealth is wiped out and they end up deep in debt. However it does not stop there. Their insolvency infects their creditors who now have their wealth affected by borrowers default.
The virus is a good analogy for what is going to happen financially. Debt default will spread from one balance sheet to the next as the financial troubles of every borrower who cannot pay become the problem of their creditor, and their creditors, creditors.
I do not think the government will be any more effective stemming the financial virus, as they have been with Covid.
“Jdog”:
> IMO deflation will happen regardless
> of the money being borrowed and
> injected into the economy by the
> Government due to the fact that more
> money will be lost through loan
> default than what the government can replace.
>
> The thing to keep your eye on will be
> bankruptcy stats.
Yes, defaults are killing money
faster than the Fed can create it.
Smarter millennials don’t want to work;
the more you give them, the less they work.
China picks up the slack; deflation ensues.
Fear grows like a cancer; eventually,
landlords and stockholders run for “the door”
( 30 year treasuries ); the yield curve inverts.
The Fed has a fast printer;
but zombies default faster.
The printer tray is on fire.
Millennial are turning 40 this year, you may need to update your meme.
I think its now people complaining about the lazy Generation Z kids graduating college and not getting jobs, those slackers!!
Harrold thinks I was talking about:
> lazy Generation Z kids, graduating college
> and not getting jobs — slackers !!
All ages, not just the younger ones,
work less, given the option.
GenZ no longer has universities to attend;
you’re all shut down, indefinitely.
China steps in to fill the gap;
so the supply is still there,
even if the demand isn’t.
Money coming out of the Fed’s printer
is going straight into “the fire”
( defaulting ).
If you really want to see deflation look into real estate listings in exclusive Fairfield County in Connecticut . You know places like Westport and New Canaan.Prices are lower than in 2000 for the most part . Too bad the taxes are out the Wazoo
Frederick,
“Taxes out the wazoo” are a big factor in those property listings’ prices. CT is pooched.
jdog, I pretty much agree. I think we may have some chaos in pricing, especially of food and maybe other consumer items (due to supply chain disruptions). We could see some actual Stagflation in the near term. But in the bigger picture I see defaults and eventual bankruptcies going forward. Not tomorrow.. but maybe starting in the late summer and fall and into next year. All this monetizing by the FED will have evaporated by then and the public will not want Wall Street bailed out any more. Many/most of the jobs lost will not return.. If they do, it will be short lived. It takes income to be a consumer and so many people just fall thru the cracks.. regardless of the efforts of the gubbermint to bail everyone out from the everything bubble collapse.
I am still amazed that, with crude prices at a historic low, gasoline prices have not dropped in over a month. And they didn’t drop much then. Bunker fuel prices haven’t moved much either, although supply has had issues. My belief is that the gas guys are trying to make up profit lost from drastically slower sales.
It may just be due to my buying habits, but I’m also not seeing a major increase in food prices. I did notice quantity limits on meat sales for the first time in my memory.
This “here’s a check for $1200, no watch us suck $20,000 out of your retirement” ponzi scheme is going to end badly.
Refineries base their pricing on the level they hedged, not at what’s currently available on the market. The big oil guys already bought their May oil futures in January or February in advance to get it into their tanks and ready for processing, so they haven’t really profited from that few-day miracle.
I was thinking about the gas-price thing last night in bed, or in my dreams. Negative-price territory but gas went down 10c…ok
> I am still amazed that, with crude prices at a historic low, gasoline prices have not dropped in over a month.
Refineries can be idled.
Propane is a minor byproduct of gasoline refining; as such its supply is essentially inelastic. You have to refine enormous amounts of gasoline to get tiny amounts of propane (this is why industrial facilities never use large amounts of propane — only natural gas).
Aberdeen is the propane-by-rail terminus for about a quarter of Washington State. Propane prices here have risen 50% in a month (from $1.99 to $2.99).
Refineries can be idled.
Sorry I dont agree with your price analysis. In eastern TN, the only thing more expensive now than at years start, that I have noticed is meat, but that has been trending higher for years.
I can look at my ebay, Amazon and Walmart purchase history and find that costs are not ‘skyrocketing’ but are either steady or slightly increasing.
Health insurance costs are just evil stupid, at the same time, hospitals are closing.
It seems to me that big government has reached the ultimate goal. Being able to borrow at at negative real rates allows politicians to spend enough to dominate the economy.
It might be important to get data on how much of the unemployment benefits and stimulus check money will be used to pay for rent/mortgage payment vs. everything else. The table clearly shows that among ‘everything else’, food is a priority. A claim that ‘free money’ is driving inflation in the food sector would have to show that that the handed out money preferentially goes into those sectors of the economy. One might assume that staying in your house/apartment is a major priority for most people.
A friend of mine is getting the $600 on top of unemployment and he is using it to paydown student loans.
However, there is most certainly a significant limitation of the ability of the Federal Reserve—or any government agency for that matter—to inject emergency liquidity in a time of crisis: for example, liquidity available in the first instance under the Orderly Liquidation Fund authority in Title II of Dodd-Frank is limited to 10 percent of the total consolidated assets of a failing financial company.[20
https://www.americanbar.org/groups/business_law/publications/blt/2019/04/section-13-3/
I saw an article today that Pelosi is dreaming up a $3T stimulus package. That’s $8,500 to every man, women, child in the US, on average.
Think that would create any inflation?
She now has the Fed’s encouragement.
Own a balanced portfolio, sit back, and watch the carnage. You will lose money one way or the other, but you’ll be fine as long as your losses are no more than average. The only way to get hurt is to go way out on a limb in any category including cash, CDs, stocks, RE, ST bonds, LT bonds, gold, or whatever. Nothing should be over 50% of total.
A balanced portfolio? Really? The stock market is already tanking after the rally had lost steam and Powell’s rejection of NIRP today pushed it over the edge. RE as you can tell from Wolf’s work and elsewhere is at risk for decline due to the drop in demand. Bonds are a no-no due to insanely low yields and talks of NIRP and likely acquiescence of the fed to NIRP down the road.
What’s left? Cash, PM and bitcoin. PM and bitcoin also sell off when the market crashes hard as what happened in March. So then what? Cash. There’s your answer buddy. Despite potential inflation, it’s the only thing that’ll retain any value and put you in a spot to buy the other aforementioned assets when the carnage is over.
Totally disagree Gold has been up steadily for awhile now If you buy and hold you can’t lose owning precious metals in this insane environment Cash will impoverish you over the longer term Just buy the flipping dip already in gold that is
What happened in gold in March? Have you already forgotten? What makes you think it can’t happen again?
Checkout the indexes during GFC (Oct ’07 thru March ’09)
S&P lost nearly 60% Nasdaq 70-80% ( nearly 90% during 2000 bear!)
Besides diversification, one needs UNCORRELATED assets in one’s portfolio to weather the BEAR. That means ‘going against’ the mkt! NOT many willing to do!
Been in the mkt since ’82!
Many will lose more than in 2008! Reason- humongous record debt levels – CC, auto, Student ++
Bingo.
After last night’s brutal loss for Democrats in CA-25 (first time a Republican has flipped a seat in CA in decades) Nancy has decided the only way they can win is to straight up buy votes. We’ll see if it’s effective in 6 months.
Bernake once said he would use helicopters to drop money to stop a Depression and deflation.
Good luck with that, but the depression model is clearly established.
Assets such as equities and real estate get massively re-priced downward.
Bonds, along with credit experience huge default rates.
Assets face forced liquidations, putting downward pressure on valuations.
Gold being an asset deflates.
Cash is destroyed at an alarming rate by credit default affecting the supply / demand ratio.
Cash gains value as the value of assets fall.
The Senate says it will not look at any more stimulus until July, and Trump said the House proposal is dead on arrival, so it looks like Pelosi’s new bill will not be a factor…
Their are reasons food and Staples prices went up and they do not include stimulus. Their was a big change in supply channels as people sheltered in place. Restaurant purchasing declined dramatically and consumer purchasing rose dramatically. While consumers shifted from just-in-time refrigerator inventory to 1-2 months supply restaurants slowed purchasing. So while big box and supermarkets rise prices wholesale restaurant suppliers and farmers markets where throwing food away.
This is not inflationary or permanent just a channel disruption.
Deflation when 1) Consumers see prices will be lower in the future. Fed prints stimulus money and savers refuse to spend. (Big difference between bailing out banks with loans they pay back and giving consumers cash) Money leaves the economy faster than it is created. No creation of money occurs when debt results in economic activity. Money velocity goes negative and system freezes.
2) Public loses confidence in the currency.
3) Investors borrow money at zero interest to put into savings.
After deflation means of production halt, causing supply gaps, which causes inflation. Fed gets whipsawed with their puny 1/4 pt moves. They go big which breaks the confidence
barrier. Largest problem they have is energy, they caused deflation with low rates and they doubled down. First gasoline hits multiyear lows, then there is none, and then there is but its $10 a gallon.
4th straight week of increased mortgage apps. The big bad housing crash so many predicted, is not happening.
Just Some Random Guy,
You keep citing data where you chopped off the part that doesn’t fit into your propaganda. What you forgot to say is that mortgage apps FELL 10% compared to a year ago. What you cited was the week-over-week change. Here is a chart of what that looked like for three big states:
Yes it’s lower than that last year. But the delta between 2020 vs 2019 has been shrinking every week. It’s down to only 10% nationally. You are using examples of 3 states that are still locked down. How about looking at Texas, Georgia, Idaho, Montana or many of the other, states that have re-opened and doing a 2020 vs 2019 comparison. The numbers will look vastly different. If Gavin wants to commit financial suicide, so be it. Don’t assume the rest of the country will follow.
Just shopped at my Trader Joes’s for the first time in about two months. The prices were shocking. Looks like the Fed has finally got what it wanted.
Jerome Powell today a brief history lesson:
“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,”
Solvency problems? How can that possibly happen with Jerome handing out $TRILLIONS$ in bailouts and pre-emptive debt jubilees to the rich Wall Street corporate fraudsters?
“Powell made his comments during his webcast appearance with the Peterson Institute for International Economics, according to prepared remarks.”
The Peterson Institute was founded by Republican Peter Peterson who among others thing spent billions of his own money in a crusade to destroy Social Security and Medicare by spreading lies often repeated by posters here, that these programs cause deficits.
Pete Peterson was appointed by President Obama to head the Bowles-Simpson Deficit Commission (demonstrating there is little to no difference in major policy btwn the Republican/Democrat duopoly) which called for cutting/destroying Social Security and Medicare to “reduce the deficit” dispute the fact that these programs are self funded and have nothing to do with deficits and cutting would not reduce deficits even one penny.
“Prominent supporters include JPMorgan Chase CEO Jamie Dimon, Democratic Leader Nancy Pelosi, then-Secretary of State Hillary Clinton, and Republican Senator Tom Coburn; Democratic Representative Chris Van Hollen has called for a deal based on the Simpson-Bowles framework.”
The more things change the more they stay the same.
Currently, the cost of carrying the national debt is not significant. Has not been significant for decades. We mostly lend to ourselves with no effect to bar more lending to ourselves.
“What can’t be paid won’t”
It is almost 20% of the budget. You call that insignificant? And the only reason it is that low is artificial pressure on interest rates.
Shortages are usually fixed quickly, eg tp, particularly when underlying demand is constant, Meat may take longer bc maybe hard to separate workers. We are shipping meat to China, trump might redirect this to locals.
Giving money to layed off workers is unlikely to replace their former purchasing power, not least bc not all qualify for benefits.
PpE in short supply high demand, can’t make it here, prices stay high until imports meet demand, but small part of economy.
Home prices will fall, rents too as people evicted.
1930’s were last deflation period, gov will mitigate some, avoid bank failures/ lost savings, but low demand likely to force deflation thru low demand, both bc fear of, and actual, loss of wages. Also note neither dems or reps want to give money to former workers, spending fatigue likely as time goes on.
Early days given our country has and will continue to perform the worst of all nations re the virus.
Need universal masks, testing, and a month of lockdown in all states. Don’t hold your breath…
Cheap cars, houses… stock prices do not affect CPI.
Lots of American beef in my local supermarket here in Korea.
Wolf,
Would be interested to see an article about savings. I read that savings rates are up to 50 year highs. People certainly are going to spend their stimulus checks but many will also pay down debt to reduce interest payments and save as well.
Yes, the spike in the savings rate is caused by the plunge in spending because a lot of stuff is closed (the aggregate formula is basically: income – spending = savings). So yes, some people don’t need the cash and aren’t spending it. Others are spending every dime. All these data points are going out of whack right now.
Isn’t paying down debt also considered “savings” when they calculate the savings rate?
No. Paying down debt doesn’t enter into this particular equation. “Saving” in this instance only means “not spending.” Paying down debt, investing, buying a house, etc. are not “spending” activities… they’re investment activities.
250 million people did not suddenly have an epiphany that they needed to start saving money. They just didn’t have anywhere to spend it. I see it every day. People spending all they make and barely making it to the next payday. All that has been saved and then some more over that will be spent over the next 6 months. I’d say take my advice to the bank but it will probably end up at the restaurants, beach, and the liquor store. Do not doubt it. A leopard cannot change its spots.
“Almost 50 million people saw their credit limits decreased or cards closed involuntary, according to a CompareCards survey conducted in late April.” From CNET
This is supposed to have happened since the mass layoffs.
More good news.
Wells Fargo and Chase have stopped writing HELOCS, and I expect other banks to follow. I expect banks to begin cutting back credit across the board to limit losses. If they are cutting credit limits on credit cards also, the effect will be that consumer spending will decrease due to lower credit supply.
Ammo isn’t listed…
Wolf, I work as a parts department manager at a DC dealership. We are surveyed monthly by a BOL guy on our pricing. I had an employee that was dealing with this but we had to cut back and the task fell in my lap. The guy called looking for pricing as he usually does and I quoted him what our door rate on the parts were. He said, wow that went up a lot, these are your wholesale prices correct? I said no, that is what a customer pays to walk out the door with our parts. He then argued with me that the prices do not reflect reality of what we charge. I said, if you’re investigating CPI wouldn’t you like to know what a customer pays? He avoided the question and said that the other man would give him the lower wholesale prices if he asked. I told him that I wouldn’t help him give bad information to the public. He hasn’t responded to the email. I got the feeling he’s been instructed to find pricing that fits the narrative and found a fit by taking advantage of my ex-employee’s willingness to just get him out the door. Think how skewed the CPI really is if they have been basing it on wholesale pricing and not retail pricing. Even if they did research on the wholesale prices, they could arbitrarily set retail mark up at their discretion to manufacture CPI.
That’s interesting. Thanks. I’ve always wondered how they establish internet pricing, which is based on “variable pricing” and changes by the minute, depending, among other things, what the various sites know about you, including what cookies you have on your device.
Loving whatever the cookies are saying about me. I came for economic advice and stayed for the spicy lingerie advertisements on the side. Please don’t tell me I am the only one getting those.
I get them too. Eye candy.
It’s a race between expanding money supply faster than productivity (inflation) and debt deflation. I’d recommend preparing for both.
In the meantime I spent my lockdown staycation resurrecting my hydroponic gardens. 15 tomato plants running, over a dozen romaine lettuce plants with gigantic leaves that I’ve harvested twice already, getting another run of spinach ready (the remainder of the last crop is in the freezer), and a few tubs of zucchini and squash. Freezer is full of venison and other wild game meat, including a nice cut of black bear. If meat gets scarce I’ll head up to the lease and get some more. A 75 cent 30.06 bullet buys a lot of meat.
Also set up a portable solar generator system to back up the hydroponic lights.
Has anyone seen cans of lysol disinfectant sprays anywhere? I’d like to know if it’s still sold to the general public.
I know this comment is not post specific but we are in a global crisis and I’m at ground zero.
Some Lysol Disinfectant Spray is nothing but 60% ethyl alcohol, and a hydrocarbon propellant. I have a can of that sitting in front of me. The can says “Kills cold & flu virus” and “kills 99.9% of viruses and bacteria.” I believe there are Lysol sprays with more active ingredients. Likely just isopropyl alcohol in a spray bottle would be as effective.
Is there a risk of massive inflation, like in Venezuela? I’m worried that my pension and savings will be wiped out.
John Sanders:
> Is there a risk of massive inflation,
> like in Venezuela ?
>
> I’m worried that my pension and
> savings will be wiped out.
I doubt consumer prices will rise;
but asset prices will fall.
Switching to U.S. Treasury bonds
might be a good idea.
Thank you. I appreciate your kind response.
Has anyone seen EIDL monies yet?
Thanks for getting into the misinterpretations of deflation and inflation- and especially that fed. mod-mid-cpi. That sure changes the real picture to a lot more clearly terrible!