Inflation

[JohnDe]

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.

​

Okily Dokily

"The oil price is lower today than it was before Russia invaded Ukraine a year ago."

Yet fluctuations in headline inflation often mask the underlying trend.

 

[over9k]

Oh my god you actually linked the economist.

 

[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.

I politely disagree with your theory that oil sanctions are currently the "major factor" to current inflation. The Ukraine war is definitely having an effect on inflation, but currently not to the extent that you are trying to pass off here. My reasoning is explained by the following article, and for a quick understanding I've highlighted a section.

"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.

 

[moXJO]

P


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.

I'm actually pretty heavy on the longs. Definitely feeling gloomy. But crowds are dumb as all sht and I ain't here to prove how smart I am.

So long as I make a profit, I'll keep nodding my head.

 

[JohnDe]

Oh my god you actually linked the economist.

One more for you: The argument that the current inflation is caused by Russia’s leader, Vladimir Putin...

This narrative is wrong, plain and simple.... US inflation rates jumped above 4% in April 2021, the highest reading since 2008. And inflation kept rising, well above 5% in July 2021, north of 6% by October, hitting 7% by the end of the year (the highest readings in 30 years)....​

​

Russia’s full-scale invasion of Ukraine started February 24th 2022....​

​

Yes, inflation rates have continued to climb since, moving above 9% in June this year. And, yes, higher food and energy prices as a result of the war are almost certainly a contributory factor to current inflation levels....​

​

the war was not the cause of high inflation. We already had a serious and growing inflation problem before the war started. All the war has done is exacerbate a pre-existing inflation....​

​

What, then, did cause this inflation cycle, the worst since the 1970-1980s inflation.... the world’s central banks printed a lot of money. Money printing, historically at least, has been inflationary. Close to 30% of the dollars in circulation today in the global financial system were printed in the last two years. It’s no coincidence, we would argue, that many of the 2 year inflation numbers for assets like housing, or even personal consumption goods like cars or eating out, have seen prices rise by about 30%. All of that new money had to find somewhere to go....​

​

with the economic recovery from the COVID pandemic already well underway last year, labour markets in the developed world very quickly moved close to full employment. Labour shortages were already becoming a problem in some sectors of the economy early last year. Into this hot economy with limited capacity to increase supply, the US government decided to pump a $1.9 trillion fiscal stimulus (funded with debt and money printing by the US central bank). Further pumping up an already hot economy at close to full capacity....​

​

The major central banks, led by the US Federal Reserve, were too late in their response to this. The usual playbook for reducing inflation in a hot economy is to raise interest rates. The timing of this is critical, wait too long and inflation can get out of control as it starts to change expectations of economic participants. If people start to think inflation will remain high, they will demand higher wages and change spending habits, thus entrenching inflation for longer and creating an ‘inflation cycle’....​

​

Unfortunately the central banks were late to the party, again, led by the Fed, who kept rates at their lowest levels in history through 2021, effectively continuing to stimulate the economy via monetary policy despite the fastest rise in inflation in the US in more than 40 years. This complacent response is now costing us.​

 

[mullokintyre]

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

Causation, slightly different to correlation.
For every economic prophesy that turns out correct, there are approximately 11 billion that were wrong (based on the economic theories of J.W. Malstead)..
Mick

 

[over9k]

I politely disagree with your theory that oil sanctions are currently the "major factor" to current inflation. The Ukraine war is definitely having an effect on inflation, but currently not to the extent that you are trying to pass off here. My reasoning is explained by the following article, and for a quick understanding I've highlighted a section.

"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."

I politely point out that I said A major factor, not THE major factor, and that you have engaged in a strawman argument as a result of misreading my statement.

Furthermore, I also restate what I have stated in many many many other prior posts in this thread which is that there are a lot of deep, structural, uncontrollable (by a central bank) factors like a global baby-bust which are driving a multi-decade inflationary trend (i.e that this trend has legs) and actually agree with your assertion RE: there's a lot more going on than just the russia-ukraine war.

E.g:

 

[over9k]

Causation, slightly different to correlation.
For every economic prophesy that turns out correct, there are approximately 11 billion that were wrong (based on the economic theories of J.W. Malstead)..
Mick

Correct, but not the whole story. Half correct. It depends highly on what is being predicted.

E.g if we dropped a few nukes on some oil facilities in the persian gulf tomorrow, the oil price would go stratospheric because reduction in supply = higher prices.

It is not a case of mistaking a reduction in supply resulting in an increase in prices to be stating correlation to be causation because these things are causally linked.

Where economics types make fools of themselves is in trying to be precise about something they simply cannot know, e.g trying to say that if we nuked riyadh tomorrow the oil price would hit XYZ level. It is only when someone is trying to make a precise prediction that you know you're dealing with an economic snake oil salesman.

 

[JohnDe]

I politely point out that I said A major factor, not THE major factor, and that you have engaged in a strawman argument as a result of misreading my statement.

I suggest that you go back & read your posted comment -

"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."​

 

[over9k]

Yes, I said A major factor, you said that I said THE major factor:

I politely disagree with your theory that oil sanctions are currently the "major factor"

 

[over9k]

I'm actually pretty heavy on the longs. Definitely feeling gloomy. But crowds are dumb as all sht and I ain't here to prove how smart I am.

So long as I make a profit, I'll keep nodding my head.

Yeah, as I just mentioned in another post, I never take precise numerical predictions seriously, but that doesn't mean that the core point/gist of a statement isn't without a lot of merit.

 

[JohnDe]

Yes, I said A major factor, you said that I said THE major factor:

Hahaha who's playing the 'strawman argument'? Grasping at straws, the & a

"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."​

 

[wayneL]

A major factor

This is why I invoke chaos theory in the field of economics. We can consider major factors interest rates oil prices and whatnot, and they will be major factors for consideration.

This makes economic considerations forecastable, but not predictable. There may be an effect, but to what extent? And, to what affect do those butterfly wings flapping in San Francisco affect the overall economic outcome in Timbuktu over the next 2 to 5 years?

On a very micro level, how will macroeconomic conditions effect my ability to raise prices as opposed to my input costs? There is an interesting juxtaposition between quality of work, quantity of work, and ability to pay, at the moment.

There are a lot of overarching factors in both micro and macro economics, but there are also many (very many) factors which are. more nuanced in their effect

 

[over9k]

Hahaha who's playing the 'strawman argument'? Grasping at straws, the & a

"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."​

No, this has been my entire point all along. I said A major factor, you misread it and attacked what I'd said thinking I'd said THE major factor, and now you've dug yourself into a hole.


I'll restate it seeing as reading comprehension isn't your strong suit:

The russia-ukraine war and the subsequent western economic sanctions, responses etc have been a major factor in inflation.

 

[JohnDe]

No, this has been my entire point all along. I said A major factor, you misread it and attacked what I'd said thinking I'd said THE major factor, and now you've dug yourself into a hole.


I'll restate it seeing as reading comprehension isn't your strong suit:

The russia-ukraine war and the subsequent western economic sanctions, responses etc have been a major factor in inflation.

And I will re-state what I have been saying for several posts - the Russian invasion of the Ukraine is not a major factor of the current high inflation, it is a contributor to inflation, but I repeat, not a major factor.

The argument that the current inflation is caused by Russia’s leader, Vladimir Putin, goes something like this: Russia’s unprovoked invasion of Ukraine is the primary cause of high inflation today. Both countries are major commodity exporters, especially so in the case of energy and food. ​

​

This narrative is wrong, plain and simple. The Biden administration’s un-ashamed parroting of this narrative for political gain...​

​

The task at hand is to understand where currently high levels of inflation came from. Was it Putin’s fault? Well, let’s look at the numbers. Inflation levels had remained at or very close to 1-2% in the US and Europe for nigh on 30 years leading up to the 2020 pandemic. Many economists, political leaders, and leaders within central banks, concluded that low inflation was now a permanent fixture of the modern economy. ​

​

But this started to change in 2021. US inflation rates jumped above 4% in April 2021, the highest reading since 2008. And inflation kept rising, well above 5% in July 2021, north of 6% by October, hitting 7% by the end of the year (the highest readings in 30 years). ​

​

Russia’s full-scale invasion of Ukraine started February 24th 2022.​

​

In response to the pandemic the world’s central banks printed a lot of money. Money printing, historically at least, has been inflationary. Close to 30% of the dollars in circulation today in the global financial system were printed in the last two years. It’s no coincidence, we would argue, that many of the 2 year inflation numbers for assets like housing, or even personal consumption goods like cars or eating out, have seen prices rise by about 30%. All of that new money had to find somewhere to go.​

The oil price is lower today than it was before Russia invaded Ukraine a year ago.

 

[over9k]

And I will re-state what I have been saying for several posts - the Russian invasion of the Ukraine is not a major factor

Oh no, you're not getting off that easily:

I politely disagree with your theory that oil sanctions are currently the "major factor"

 

[frugal.rock]

And the winner of the biggus dickus award is.....
Monty Python

 

[over9k]

And the winner of the biggus dickus award is.....
Monty Python

Oh I don't care about e-peen, I'm a happy warrior, this is fun.

 

[JohnDe]

Oh no, you're not getting off that easily:

I don't know what you're trying to prove by showing me what I know I said and agree with. I agree that the Russian oil sanction is not a major contributor to the current high inflation. Whereas you are trying to prove what you said "Absolute garbage." "It is a major contributing factor, to be fair."

I'm glad you mentioned the "strawman argument" first, pretty much what you have been doing for the past few posts.

 

[over9k]

I don't know what you're trying to prove by showing me what I know I said and agree with. I agree that the Russian oil sanction is not a major contributor to the current high inflation. Whereas you are trying to prove what you said "Absolute garbage." "It is a major contributing factor, to be fair."

I'm glad you mentioned the "strawman argument" first, pretty much what you have been doing for the past few posts.

No, you thought I said that it was THE major factor and have been trying to defeat that argument, but it's not the argument I made, I said A major factor.

You simply misread my post and have kept digging the hole.