Inflation

[over9k]

Here you go, read and be enlightened -

Is Inflation Putin’s Fault? | Dominion Funds

dominion-funds.com

Absolute garbage. The idea that you can impose the kind of sanctions that we have on the amount of energy that we have without it creating a significant inflationary effect is absolutely absurd.

That's not to say there aren't other contributors, but the idea that the oil etc sanctions are not a major factor is beyond ridiculous.

 

[waterbottle]

Main contributor was fuel hey?

I confess, the swings on NRGU make me nauseous

 

[JohnDe]

ECONOMY
Wholesale prices rose 0.7% in January, more than expected, fueling inflation increase

KEY POINTS

• The producer price index rose 0.7% in January, higher than the 0.4% estimate.
• Excluding food and energy, core PPI increased 0.5%, compared with expectations for a 0.3% increase.
• In other economic data, jobless claims edged lower to 194,000, below the estimate for 200,000. Also, the Philadelphia Fed’s manufacturing index plunged to -24.3, far beneath the -7.8 estimate.

Inflation rebounded in January at the wholesale level, as producer prices rose more than expected to start the year, the Labor Department reported Thursday.

The producer price index, a measure of what raw goods fetch on the open market, rose 0.7% for the month, the biggest increase since June. Economists surveyed by Dow Jones had been looking for a rise of 0.4% after a decline of 0.2% in December.

Excluding food and energy, the core PPI increased 0.5%, compared with expectations for a 0.3% increase. Core excluding trade services climbed 0.6%, against the estimate for a 0.2% rise.

On a 12-month basis, headline PPI increased 6%, still elevated but well off its 11.6% peak in March 2022.

Markets fell following the release, with futures tied to the Dow Jones Industrial Average down about 200 points.

While the PPI isn’t as closely followed as some other inflation metrics, it can be a leading indicator as it measures the first price producers get on the open market.

The PPI increase coincided with a 0.5% jump in the January consumer price index, which measures the prices consumers pay for goods and services. Together, the metrics show that while inflation appeared to be subsiding as 2022 came to a close, it started the year off with a pop.

Economists are attributing the January inflation increase primarily to some seasonal factors as well as payback from previous months that showed more muted price rises. An unseasonably warm winter may have played some part as well, while fuel prices, which are volatile, also jumped during the month.

A report Wednesday showed that consumer spending more than kept pace with inflation, as retail sales increased 3% for the month and were up 6.4% from a year ago.

In other economic data Thursday, the Labor Department reported that jobless claims edged lower to 194,000, a decline of 1,000 and below the Dow Jones estimate for 200,000. Also, the Philadelphia Federal Reserve’s manufacturing index for February plunged to -24.3, well below the -7.8 estimate.

Fed policymakers are focusing intently on inflation, so the January numbers are unlikely to sway them from their stance that, while progress is being made, no letup is likely.

“My expectation is that we will see a meaningful improvement in inflation this year and further improvement over the following year, with inflation reaching our 2% goal in 2025,” Cleveland Fed President Loretta Mester said in a speech Thursday morning. “But my outlook is contingent on appropriate monetary policy.”

Markets expect the Fed to increase interest rates a few more times this year, according to CME Group data, with the final, or “terminal,” rate ending around a range of 5.25%-5.5%, from its current 4.5%-4.75%.

The higher PPI reading came amid a 5% rise in energy costs but a 1% decline in food. The final demand index for goods climbed 1.2%, the biggest one-month increase since June. About one-third of that rise came from the gasoline index gaining 6.2%.

The services index rose 0.4%, pushed by a 0.6% increase in prices for final demand services less trade, transportation and warehousing. Another big factor came from a 1.4% advance in the index for hospital outpatient care.

 

[over9k]

I confess, the swings on NRGU make me nauseous

Get into FNGU and SOXL and NRGU seems tame

 

[over9k]

I wonder if public service wages deflate if there's deflation?

Cost of living increases/wage increases in line with inflation is just another reason to fudge the official numbers

 

[waterbottle]

Get into FNGU and SOXL and NRGU seems tame

Might try FNGD and SOXS...

 

[over9k]

10/10 piece from zeihan's mailing list this time around.

 

[JohnDe]

Absolute garbage. The idea that you can impose the kind of sanctions that we have on the amount of energy that we have without it creating a significant inflationary effect is absolutely absurd.

That's not to say there aren't other contributors, but the idea that the oil etc sanctions are not a major factor is beyond ridiculous.

That would be true if there were no alternatives, but in this case, there has been good supply from other sources, and on top of that Europe has had a mild winter.

It funny to see your understanding of economics is better than those whose sole job is economics

It is fairly easy to see when inflation started to hit an economy. Prices started to go up before the pandemic, it then increased significantly into the pandemic with housing prices going up as people purchased new and second homes at inflated prices because interest rates kept dropping and they had nothing else to spend the free money they were receiving. With factories shutting down across the globe we started to get supply issues, new cars started to disappear and used car prices skyrocketed. Parts, white goods and TV pricing went up as stock dried up. A series of natural disasters caused supply issues with fresh food, while imports stopped, causing more price increases. And don't forget about toilet paper. This all happened before Russia invaded the Ukraine.

 

[over9k]

Here's how the yield curve moved in response to australia's latest data:



vs:


So about 35 points more now priced in.

 

[over9k]

It funny to see your understanding of economics is better than those whose sole job is economics

I have 1.5 bachelor's degrees and 2.5 masters, so yes, I do have some clue what I am talking about.

 

[waterbottle]

P

10/10 piece from zeihan's mailing list this time around.

Peter Zeihan is that special type of bear pr0n you find just when you think you've seen it all.

He thinks there's another 3% of hikes to go in the US.... Superbear.

I do agree with the general gist of the video though - central bankers are moving towards a tightened credit environment. Not sure where he gets the idea that the Fed balance sheet is going to be unwound from 9 trillion to 0 in 3 years...

Obviously disagree with comments on he Green revolution. Just because it's inefficient now doesn't mean it won't become efficient or that we won't try and persist with it until it becomes so.

Which brings me to my main issue with bear pr0n. It makes you think that we're headed for doom. But reality is, no one with any regulatory influence wants that. If anything, you can believe that 'the powers that be' want some sort of functioning society, and if it's based on capitalism then that's going to require a reward.
So yeah, it looks gloomy in the short term. But people are working behind the scenes to make sure the long term outlook improves.

 

[waterbottle]

Here's how the yield curve moved in response to australia's latest data:

View attachment 153104

vs:
View attachment 153105

So about 35 points more now priced in.

Is it priced in according to barrenjoey?

 

[mullokintyre]

I have 1.5 bachelor's degrees and 2.5 masters, so yes, I do have some clue what I am talking about.

Ha, biggest lie is that anyone knows what they are talking about in economics.
its all guess work, and so inexact that the output from economics is pretty useless, except for pointless arguments about who is right.
mick

 

[over9k]

biggest lie is that anyone knows what they are talking about in economics.

Rubbish. If you know how things interact you can quite confidently say that if x happens then y will follow etc etc.

 

[JohnDe]

I have 1.5 bachelor's degrees and 2.5 masters, so yes, I do have some clue what I am talking about.

Keep going and you will catch up. Until then you are still an apprentice ?

 

[waterbottle]

Dunno how Lowe is going to explain inflation striking the local dick measuring contest

 

[JohnDe]

"For a sign of what has got investors’ hopes up, look at America’s latest consumer-price figures, released on February 14th. They showed less inflation over the three months to January than at any time since the start of 2021. Many of the factors which first caused inflation to take off have dissipated. Global supply chains are no longer overwhelmed by surging demand for goods, nor disrupted by the pandemic. As demand for garden furniture and games consoles has cooled, goods prices are falling and there is a glut of microchips. The oil price is lower today than it was before Russia invaded Ukraine a year ago. The picture of falling inflation is repeated around the world: the headline rate is falling in 25 of the 36 mainly rich countries in the oecd.​

​

Yet fluctuations in headline inflation often mask the underlying trend. Look into the details, and it is easy to see that the inflation problem is not fixed. America’s “core” prices, which exclude volatile food and energy, grew at an annualised pace of 4.6% over the past three months, and have started gently accelerating. The main source of inflation is now the services sector, which is more exposed to labour costs. In America, Britain, Canada and New Zealand wage growth is still much higher than is consistent with the 2% inflation targets of their respective central banks; pay growth is lower in the euro area, but rising in important economies such as Spain.​

​

That should not be a surprise, given the strength of labour markets."​

Inflation will be harder to bring down than markets think​

Investors are betting on good times. The likelier prospect is turbulence​

Given how woefully stock and bond portfolios have performed over the past year or so, you may not have noticed that financial markets are floating high on optimism. Yet there is no other way to describe today’s investors, who since the autumn have increasingly bet that inflation, the world economy’s biggest problem, will fall away without much fuss. The result, many think, will be cuts in interest rates towards the end of 2023, which will help the world’s major economies—and most importantly America—avoid a recession. Investors are pricing stocks for a Goldilocks economy in which companies’ profits grow healthily while the cost of capital falls.

In anticipation of this welcome turn of events the s&p 500 index of American stocks has risen by nearly 8% since the start of the year. Companies are valued at about 18 times their forward earnings—low by post-pandemic standards, but at the high end of the range that prevailed between 2002 and 2019. And in 2024 those earnings are expected to surge by almost 10%.

It is not just American markets that have jumped. European stocks have risen even more, thanks partly to a warm winter that has curbed energy prices. Money has poured into emerging economies, which are enjoying the twin blessings of China abandoning its zero-covid policy and a cheaper dollar, the result of expectations of looser monetary policy in America.

This is a rosy picture. Unfortunately, as we explain this week, it is probably misguided. The world’s battle with inflation is far from over. And that means markets could be in for a nasty correction.

For a sign of what has got investors’ hopes up, look at America’s latest consumer-price figures, released on February 14th. They showed less inflation over the three months to January than at any time since the start of 2021. Many of the factors which first caused inflation to take off have dissipated. Global supply chains are no longer overwhelmed by surging demand for goods, nor disrupted by the pandemic. As demand for garden furniture and games consoles has cooled, goods prices are falling and there is a glut of microchips. The oil price is lower today than it was before Russia invaded Ukraine a year ago. The picture of falling inflation is repeated around the world: the headline rate is falling in 25 of the 36 mainly rich countries in the oecd.

Yet fluctuations in headline inflation often mask the underlying trend. Look into the details, and it is easy to see that the inflation problem is not fixed. America’s “core” prices, which exclude volatile food and energy, grew at an annualised pace of 4.6% over the past three months, and have started gently accelerating. The main source of inflation is now the services sector, which is more exposed to labour costs. In America, Britain, Canada and New Zealand wage growth is still much higher than is consistent with the 2% inflation targets of their respective central banks; pay growth is lower in the euro area, but rising in important economies such as Spain.

That should not be a surprise, given the strength of labour markets. Six of the g7 group of big rich countries enjoy an unemployment rate at or close to the lowest seen this century. America’s is the lowest it has been since 1969. It is hard to see how underlying inflation can dissipate while labour markets stay so tight. They are keeping many economies on course for inflation that does not fall below 3-5% or so. That would be less scary than the experience of the past two years. But it would be a big problem for central bankers, who are judged against their targets. It would also blow a hole in investors’ optimistic vision.

Whatever happens next, market turbulence seems likely. In recent weeks bond investors have begun moving towards a prediction that central banks do not cut interest rates, but instead keep them high. It is conceivable—just—that rates stay high without seriously denting the economy, while inflation continues to fall. If that happens, markets would be buoyed by robust economic growth. Yet persistently higher rates would inflict losses on bond investors, and continuing elevated risk-free returns would make it harder to justify stocks trading at a large multiple of their earnings.

It is far more likely, however, that high rates will hurt the economy. In the modern era central banks have been bad at pulling off “soft landings”, in which they complete a cycle of interest-rate rises without an ensuing recession. History is full of examples of investors wrongly anticipating strong growth towards the end of a bout of monetary tightening, only for a downturn to strike. That has been true even in conditions that are less inflationary than today’s. Were America the only economy to enter recession, much of the rest of the world would still be dragged down, especially if a flight to safety strengthened the dollar.

There is also the possibility that central banks, faced with a stubborn inflation problem, do not have the stomach to tolerate a recession. Instead, they might allow inflation to run a little above their targets. In the short run that would bring an economic sugar rush. It might also bring benefits in the longer run: eventually interest rates would settle higher on account of higher inflation, keeping them safely away from zero and giving central banks more monetary ammunition during the next recession. For this reason, many economists think the ideal inflation target is above 2%.

Yet managing such a regime shift without wreaking havoc would be an enormous task for central banks. They have spent the past year emphasising their commitment to their current targets, often set by lawmakers. Ditching one regime and establishing another would be a once-in-a-generation policymaking challenge. Decisiveness would be key; in the 1970s a lack of clarity about the goals of monetary policy led to wild swings in the economy, hurting the public and investors alike.

Back to Earth​

So far central bankers in the rich world are showing no signs of reversing course. But even if inflation falls or they give up fighting it, policymakers are unlikely to execute a flawless pivot. Whether it is because rates stay high, recession strikes or policy enters a messy period of transition, investors have set themselves up for disappointment.

 

[wayneL]

Rubbish. If you know how things interact you can quite confidently say that if x happens then y will follow etc etc.

Dunno about that, it ain't called the "dismal science" for nothing.

Economies after all, are a chaotic system... butterfly wings and all that rot.

 

[divs4ever]

Rubbish. If you know how things interact you can quite confidently say that if x happens then y will follow etc etc.

like when your cabinet is full of nuts you will attract monkeys and squirrels

 

[over9k]

Keep going and you will catch up. Until then you are still an apprentice ?

Your own link literally says "yes, higher food and energy prices as a result of the war are almost certainly a contributory factor to current inflation levels".

It actually made my argument, not yours.