Home » Posts tagged 'inflation'

Tag Archives: inflation

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise

Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise

Doritos

Inflation has been on the rise for the past year and in the last few months it has accelerated. In June 2021, inflation, measured by the Consumer Price Index (CPI), hit the highest level since 2008. By inflation, economists refer to the increase in the general level of prices, which means that prices on average are increasing. The Bureau of Labor and Statistics (BLS) has a basket of goods and services that it tracks and uses to create a measure of the CPI. While inflation is the topic of the day in the news media and everyday conversations, many have not heard about its sneaky cousin, shrinkflation.

The term shrinkflation, is credited to British economist Pippa Malmgren, and refers to the shrinking weight of the products while the price for the package remains the same. This is in effect another form of inflation, since the per unit price of goods increases when products shrink. However, shrinkflation is trickier, since most consumers do not notice it (see here for a few examples of shrinkflation). Shrinkflation is an ongoing process, but we are seeing more of it in the past year, and especially the first half of 2021, as businesses scramble to catch up with increasing costs of production. Shrinkflation is so widespread today that there is a dedicated Reddit page for it.

Many complain about businesses resorting to shrinkflation and regard it as a sneaky way to increase prices. Yet many of the critics do not realize that businesses have no choice but to increase prices. Anyone who is paying attention to prices in the first half of 2021 will know that it is not only the price of consumer goods that it is increasing but also the prices of producer goods

…click on the above link to read the rest of the article…

Michael Pento: First Disinflation, Then Deflation, Then Big-Time Inflation

Michael Pento: First Disinflation, Then Deflation, Then Big-Time Inflation

Suddenly investors are panicked that (hyper)inflation is taking over.

But what if they’re mistaken? That could be a costly mistake if they’re betting their portfolio’s future on it. Because there’s a strong case to be made that we’re now actually entering a period of dis-inflation, one that has a high risk of tipping into outright deflation by next year.

To argue this, investment manager Michael Pento, who pulls no punches, joins Wealthion for this video explaining why the Fed and Congress don’t currently have sufficient air cover to continue the same magnitude of stimulus the market is now addicted to — and thus won’t be able to resume it until after the next painful market correction arrives.

Michael then proceeds to explain why the bond market is such a ticking time bomb right now for investors.

And, of course, he shares his views on his favored asset classes for each stage of the upcoming progression he sees:

1. first disinflation, then…

2. outright deflation, and then…

3. a hugely inflationary response from our central planners

Watch the full interview below:

Lacy Hunt On Debt and Friedman’s Famous Quote Regarding Inflation and Money

Lacy Hunt On Debt and Friedman’s Famous Quote Regarding Inflation and Money

Lacy Hunt takes on the widespread belief that sustained inflation is on the way in his latest quarterly review.
Money Velocity and the Commercial Bank LD Ratio

Hoisington Quarterly Review and Outlook 2nd Quarter 2021

Here are some snips to the latest at Hoisington Management Quarterly Review (Emphasis Mine).

Too Much Debt

In highly indebted economies, additional debt triggers the law of diminishing returns. This fact is confirmed when the marginal revenue product of debt (MRP) falls, where MRP is the amount of GDP created by an additional dollar of debt. In microeconomics, when debt is already at extreme levels, a further increase in debt leads to an increase in the risk premium on which a borrower will default suggesting that the bank or other lender will not be repaid.

Combining both the falling MRP with a declining loan to deposit (LD) ratio, results in a reduction in the velocity of money. In terms of the impact on monetary activities, a drop in the LD ratio means that more of bank deposits are being directed to the purchase of Federal, Agency and state and local securities in lieu of private sector loans. The macroeconomic result is that funds are shifted to sectors that are the least productive engines of economic growth and away from the high multiplier ones.

More than thirty years ago, Stanford Ph.D. Rod McKnew demonstrated that the money multiplier, referred to as “m”, is higher for bank loans than bank investments in securities. The money multiplier, which is money stock (M2) divided by the monetary base should not be confused with the velocity of money. The latest trends strongly support McKnew’s analysis.

…click on the above link to read the rest of the article…

Grocery Prices Could Rise 10 to 14 Percent By October, Grocery Chain CEO Warns

Grocery Prices Could Rise 10 to 14 Percent By October, Grocery Chain CEO Warns

This warning offers a painful reminder of how price inflation hurts everyday Americans.

American families are already struggling amid mounting price inflation that’s eating away at their budgets, with higher costs for housing, vehicles, and more. Yet a top CEO is warning that the growing inflation problem facing Americans could get much worse in the coming months.

The latest June data already show price inflation at a 13-year high, with prices having risen 5.4 percent year-over-year. Proponents of the big-government policies driving much of this increase insist the uptick in prices is only temporary. But billionaire and grocery chain CEO John Catsimatidis just predicted that overall price inflation, for consumer goods generally, will hit a 6 percent annualized rate by October.

In an interview with Fox Business, the CEO warned that his industry is seeing skyrocketing costs on the supply chain side, and that businesses will have to raise prices for consumers as a result.

“Food prices are getting higher, and we expect even more increases by October,” Catsimatidis said. “You have to pass [those extra costs] on [to consumers] or you’re not doing your duty to God, your country, your employees, and your company.”

While we can’t know for certain, Catsimatidis said rising costs could mean an astounding 10 to 14 percent specific increase in grocery prices by October. That’s truly a shocking amount. But this warning offers more than insight into the grocery industry. It’s a painful reminder of how price inflation hurts everyday Americans.

When we hear terms like “Consumer Price Index” or “expansionary monetary policy,” the conversation surrounding inflation quickly becomes inaccessible for many people, whose eyes understandably glaze over amid discussion of the abstract-seeming phenomenon…

…click on the above link to read the rest of the article…

Too Much Money Chasing Too Few Goods and Services

Too Much Money Chasing Too Few Goods and Services

Inflation can be considered a tax, an especially regressive one, falling harder on those with lower income and/or assets.

As we’ve noted previously, the Federal Reserve’s “M2” monetary aggregate began growing significantly faster than the “GDP” measure of economic output in the United States beginning around 2008, amidst the 2007-2009 financial and economic crisis.

With the federal government’s massive fiscal and economic “stimulus” policies arriving together with a pandemic and government lockdowns, M2 growth has recently risen dramatically higher than GDP growth.

Earlier this week, the Bureau of Labor Statistics (within the U.S. Department of Labor) reported that the Consumer Price Index (CPI) rose in June at one of its fastest growing rates in more than a decade. Some people have been pointing to the fact that year-over-year changes in the CPI may be high recently in part because the comparisons to last year’s levels were amidst the onset of the pandemic. But in the second quarter of 2021, compared to the first quarter of 2021 and on a seasonally adjusted basis, the CPI rose at an annualized rate of more than 8 percent, which is the highest quarterly growth rate since the third quarter of 1981.

It’s always worthwhile to keep an eye on alternative inflation measures, given the estimation issues associated with government statistics, and considering the source of those statistics.

Along those lines, a recent survey of small businesses by the National Federation of Independent Business (NFIB) returned a result for prices that hasn’t been reached since 1981.

And the prices component of the monthly Institute for Supply Management survey of business purchasing managers rose in June 2021 to its highest reading since July 1979.

Inflation can be considered as a tax, and an especially regressive one, falling harder on those with lower income and/or assets. Inflation can be considered one cost of government.

…click on the above link to read the rest of the article…

Highest Inflation in Thirty Years Vs. Denial, Hand-Waving and Excuses

Stepping on a Lego in bare feet hurts. Once you know the Lego is there, and it hurts when you step on it, you can’t ignore it. That Lego is right out in the open, after all.

High inflation feels very similar. At first it’s a shock, then it hurts, then you just can’t pretend it’s not there. Unlike a stray Lego brick, though, you can’t just tidy inflation away. (That’s the Fed’s job.)

Inflation robs you in the subtlest possible way. And once you know high inflation is there, and it bleeds your buying power month after month, it’s hard to downplay or ignore. At least for you and me.

But dismissing high inflation and hand-waving it away with vague excuses? That’s precisely what the Fed, the Treasury, the entire Biden administration and cheerleading “experts” appear to be doing.

Why? Because most Americans seem to be ignoring them.

“The headline CPI numbers have shock value, for sure”

This has been widely reported, but just so we’re on the same page:

Consumer prices increased 5.4% in June from a year earlier, the biggest monthly gain since August 2008.

That’s what Jamie Cox of Harris Financial Group meant when he told CNBC, “The headline CPI numbers have shock value, for sure.”

Yes indeed. This is the largest one-month jump since 2008. If you take the “lowest of the lowball” Core CPI measure, which ignores food and energy prices (because nobody really needs to eat, right?) the June annual inflation rate is only 4.5%, the biggest jump in 30 years.

The article called this rise “higher than expected.” That’s one way of putting it. Like saying a wreck that totals your car is “inconvenient.”

We shouldn’t worry, though! This is just transitory, just a blip of supply chains and post-pandemic pressures relaxing. Remember?

…click on the above link to read the rest of the article…

Weekly Commentary: Under Fire

Weekly Commentary: Under Fire

The week had an ominous feel. Ten-year Treasury yields dropped another seven bps to 1.29% – completely disregarding much stronger-than-expected reports on consumer and producer prices. German bund yields fell another six bps to a three-month low negative 0.35%. Equities were down for the week in Europe, but the notable equities weakness was posted by the broader U.S. market. The Midcaps dropped 3.3%, and the small cap Russell 2000 sank 5.1%. Risk aversion typically leaves its initial mark at the “Periphery.”
Treasury market notwithstanding, inflation has become a problem in more ways than one. Consumer Prices (CPI) jumped 0.9% in June, versus expectations of a 0.5% increase. Year-over-year CPI was up 5.4% (expectations 4.9%), the strongest jump since 2008. And for analysts with issues with year-over-year “base-effects”, consumer inflation was up 3.3% in only five months. Core CPI also gained 0.9% for the month, with a 4.5% y-o-y increase. Producer Prices rose a data series record 7.3% y-o-y. Import Prices jumped 1% for the month and 11.2% y-o-y. University of Michigan one-year Inflation Expectations rose to 4.8%, the high since the summer of 2008. Also, at 4.8%, the New York Fed’s survey of one-year inflation expectations jumped to the highest level in data back to 2013.

To this point, inflation has not been an issue for the markets. It has become a problem for millions of Americans. For the institution of the Federal Reserve, it’s a metastasizing malignancy.

I understand why each Fed official sticks tightly with the party line “inflation will be transitory.” They don’t want to rattle the markets with thoughts of a traditional tightening cycle. And I think I understand why they adopted their framework aiming for a period of above target inflation – and why they swore off responding to incipient inflationary pressures. Again, they sought to retain flexibility to remain highly accommodative monetary policy, ensuring financial conditions would remain exceptionally loose (and markets high).
…click on the above link to read the rest of the article…

Bank of Canada Tapers Weekly QE To C$2BN, Sees Lift Off In “Sometime In Second Half Of 2022”

Bank of Canada Tapers Weekly QE To C$2BN, Sees Lift Off In “Sometime In Second Half Of 2022”

As expected, the Bank of Canada took another step to normalize the emergency levels of stimulus, when it announced that it is tapering its bond purchases from C$3BN weekly to C$2BN, in what it hopes to telegraph is a sign of optimism about the speed of the recovery. Naturally, it kept the rate unchanged at 0.25%.

“The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank’s quantitative easing (QE) program, which is being adjusted to a target pace of $2 billion per week. This adjustment reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook,” the bank said in a statement, which while echoing the Fed in claiming that while “the factors pushing up inflation are transitory” their “persistence and magnitude are uncertain and will be monitored closely.”

Looking ahead, the BOC is maintaining guidance that economic slack will be absorbed in the second half of 2022, suggesting a rate hike won’t occur until then. There remains significant surplus capacity in the economy. And while vaccine progress and easing lockdowns are encouraging, the spread of variants remains a risk.

“The Governing Council judges that the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achievedIn the Bank’s July projection, this happens sometime in the second half of 2022”

…click on the above link to read the rest of the article…

Inflation On Track into 2024

COMMENT: Marty, it is amazing how you are the only one capable of forecasting this trend years in advance. I have been attending your WEC events since 2011. You have forecast long ago that the deflation would end in 2020 and that this wave would be inflationary with shortages in commodities. If the world simply raised the white flag and ran the economy according to the ECM, all our lives would be far better. I fully understand your desire to have Socrates continue after you. It’s time to go public.

GH

REPLY: The problem has always been that forecast is just opinion. That is why they try to ignore our forecasts or plagiarize them and pretend they through of this is the shower. The entire global economy was set for shortages to start with. Then these people in government, confronted with the Monetary Crisis Cycle, have taken the dark path to Marxism dangled in front of them by Schwab. They have inspired racial conflict to claim that the people want Marxism to achieve EQUALITY. Schwab puts out this scenario that unrest will get worse because they want his communist solution. It is a brilliant strategy. You create the crisis and then offer the solution. Then you have Gates buying as much farmland as he can and with political pull, he gets Biden to claim there is a surplus of food (a lie) and he then pays Gates for not growing food while over 20 countries are on the verge of starvation.

Inflation continued to surge in June, with consumer prices accelerating at the fastest pace in almost 13 years. The Labor Department’s Consumer Price Index, which measures a basket of goods and services as well as energy and food costs, jumped 5.4% in June up from last year. That’s higher than May’s 5% year-over-year price rise.

…click on the above link to read the rest of the article…

Transitory Inflation Turning Into an Inflationary Spiral

Transitory Inflation Turning Into an Inflationary Spiral

Consumer prices have been rising precipitously this year. If you annualize the Consumer Price Index through the first five months of 2021, you get a CPI increase of over 6%. Federal Reserve Chairman Jerome Powell continues to push the narrative that inflation is transitory, but not everybody buys into this storyline. On the Wolf Street Report, Financial Analyst Wolf Richter said Powell’s temporary inflation is turning into an “inflation spiral.”

Richter said some measure of inflation will likely tick down in the months ahead, but to steal Powell’s term, the relief will be transitory and only serve to offer false hope before inflation starts rising again.

The first bout of inflation always looks temporary. But during those first bouts of inflation, that’s when the triggers of persistent inflation, namely the inflationary mindset and inflation expectations are being unleashed.”

The markets seem increasingly skeptical of Powell’s insistence that inflation is transitory. Last week, the IMF warned of a “sustained” inflation rise in the United States. Many people are starting to talk about the Fed tightening monetary policy sooner rather than later to fight rising prices and worry this could cause a slowdown in the economic recovery. But Peter Schiff says the markets are bracing for the wrong impact. The Fed won’t fight inflation because it can’t. There is no way to tighten monetary policy without collapsing the economy.

It’s not that inflation is going to turn out to be not transitory and therefore the Fed is going to fight it,” Schiff said. “It’s that inflation is not transitory and the Fed is not going to fight it. And because the Fed is not going to fight the non-transitory inflation, it’s actually going to end up getting much worse than people think.”

…click on the above link to read the rest of the article…

U.S. Inflation Is Highest in 13 Years as Prices Surge 5%

U.S. Inflation Is Highest in 13 Years as Prices Surge 5%

The rapid rise in consumer prices in May reflected a surge in demand and shortages of labor and materials

The U.S. economy’s rebound from the pandemic is driving the biggest surge in inflation in nearly 13 years, with consumer prices rising in May by 5% from a year ago.

The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992.

Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3% from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply in May.

A separate reading showed the U.S. labor market continued to heal from the pandemic, with initial claims for unemployment benefits falling to another pandemic low.

May’s jump in prices extends a trend that accelerated this spring amid widespread Covid-19 vaccinations, relaxed business restrictions, trillions of dollars in federal pandemic relief programs and ample household savings—all of which have stoked demand for Americans to spend and travel more.

Overall prices jumped at a 9.7% annualized rate over the three months ended in May. On a month-to-month basis, overall prices rose a seasonally adjusted 0.6% and core prices rose 0.7%.

The annual inflation measurements are being boosted by comparisons with figures from last year during pandemic-related lockdowns, when prices plummeted because of collapsing demand for many goods and services. This so-called base effect is expected to push up inflation readings significantly in May and June, dwindling into the fall.

Compared with two years ago, overall prices rose a more muted 2.5% in May.

…click on the above link to read the rest of the article…

When Inflation is really Deflation

QUESTION: Why is the Fed doing so much Reverse Repo? Do you think it will hit $2 trillion?

JE

ANSWER: I understand that people seem to be talking up the reverse repo activity as doom and gloom. The Federal Reserve has been raising interest rates and boosted the return to fight inflation. The reverse repo facility takes in cash primarily from money-market funds, as well as government-sponsored companies and banks. This facility offered a return of zero percent to eligible users previously, and then the Fed moved it up to 0.05%, while at the same time lifting another rate, called the interest on excess reserves rate to 0.15% from 0.10%. The Fed is actually competing against the US Treasury in taking in cash, which is diverting it from government debt.

What the Fed does not understand because it is beyond their control are the international capital flows. Raising rates to fight domestic inflation is attracting capital from Europe, where banks are charged negative interest rates if they have excess cash. They open a branch in the USA and then send the excess cash to the state, and then they put it at the Fed. In this manner, the Fed has no idea how much money they are actually attracting globally.

I helped the Japanese lower their trade surplus by simply buying gold in New York, taking delivery, shipping it to London, and then selling it and starting all over again constantly. The trade statistics only measure dollars — not goods. You can buy a hot dog and have it delivered in London, and that too would reduce the trade surplus. It’s all a numbers game, and those in government have no ability to figure out the real world.

…click on the above link to read the rest of the article…

Grocery Stores Are Masking Price Hikes Via “Shrinkflation”

Grocery Stores Are Masking Price Hikes Via “Shrinkflation”

The continued decline in Treasury yields has prompted many short-sighted arm-chair analysts to declare that the Fed was right about inflationary pressures being “transitory”. Of course, as Treasury Secretary Janet Yellen herself admitted, a little inflation is necessary for the economy to function long term – because without “controlled inflation,” how else will policymakers inflate away the enormous debts of the US and other governments.

As policymakers prepare to explain to the investing public why inflation is a “good thing”, a report published this week by left-leaning NPR highlighted a phenomenon that is manifesting in grocery stores and other retailers across the US: economists including Pippa Malmgren call it “shrinkflation”. It happens when companies reduce the size or quantity of their products while charging the same price, or even more money.

As NPR points out, the preponderance of “shrinkflation” creates a problem for academics and purveyors of classical economic theory. “If consumers were the rational creatures depicted in classic economic theory, they would notice shrinkflation. They would keep their eyes on the price per Cocoa Puff and not fall for gimmicks in how companies package those Cocoa Puffs.”

However, research by behavioral economists has found that consumers are “much more gullible than classic theory predicts. They are more sensitive to changes in price than to changes in quantity.” It’s one of many well-documented ways that human reasoning differs from strict rationality (for a more comprehensive review of the limitations of human reasoning in the loosely defined world of behavioral economics, read Daniel Kahneman’s “Thinking Fast and Slow”).

Just a few months ago, we described shrinkflation as “the oldest trick in the retailer’s book” with an explanation of how Costco was masking a 14% price hike by instead reducing the sheet count in its rolls of paper towels and toilet paper.

…click on the above link to read the rest of the article…

While Fed Is in Denial, Hawkish Bank of Russia Sees Inflation as “Not Transitory,” Warns of Possible Shock-and-Awe Rate Hike

While Fed Is in Denial, Hawkish Bank of Russia Sees Inflation as “Not Transitory,” Warns of Possible Shock-and-Awe Rate Hike

US Inflation is almost as hot as in Russia, but the Fed is still blowing it off.

Consumer price inflation in Russia is red-hot, having jumped 6.0% in May compared to a year ago, 2 percentage points above the Bank of Russia’s target of 4.0%. Polls in Russia show that food inflation is a top concern, currently running at 7.4%.

But inflation in the US isn’t lagging far behind: The Consumer Price Index (CPI) jumped 5.0% in May. Yet the central banks are on opposite tracks in their approach to inflation.

Federal Reserve governors keep jabbering about this red-hot inflation being “temporary” or “transitory,” and likely to disappear on its own despite huge government stimulus and the Fed’s huge and ongoing monetary stimulus, though some doubts are creeping in among a couple of them. So they’ll keep interest rates at near-zero until at least next year, and they’re still buying $120 billion a month in securities to push down long-term interest rates.

Russia has been on the opposite trajectory, “surprising” economists at every step along the way. This trajectory started on March 19 with a 25 basis point rate hike, to 4.5%, against the expectations of 27 of the 28 economists polled by Reuters, who didn’t expect a rate hike. On April 23, the Bank of Russia hiked its policy rate by 50 basis points, to 5.0%. On June 11, it hiked by another 50 basis points to 5.5%. The next policy meeting is scheduled for July 23.

Is a shock-and-awe rate hike next? Bank of Russia Governor Elvira Nabiullina is preparing the markets for this possibility – so it won’t be a shock, but just awe.

At the July meeting, the central bank “will consider” an increase in the range from “25 basis points to 1 percentage point,” she told Bloomberg TV in an interview.

…click on the above link to read the rest of the article…

Cornered Fed Weighs Dilemma: Market Crash or Runaway Inflation?

The U.S. economy is at a fork in the road.

One route leads to the return of market fundamentals and sane stock valuations, at the cost of a historic market correction.

The other route leads to runaway hyperinflation that eats up the debt almost as fast as it devours the dollar’s buying power. That would likely cause the dollar to lose its hegemony as global reserve currency and bring about a simultaneous market collapse.

Here’s where we are, and where we might be going…

How did we get here?

For the most part, through Fed interventions that suppressed interest rates for the last 13 years, creating artificial demand for U.S. IOUs in the form of bonds, and generally maintaining an “easy money” policy. (And let’s not forget the hundreds of millions of stimulus checks, unemployment extensions, fraud-riddled Payroll Protection Program and the other boondoggles associated with the pandemic lockdown.)

Now, all this works great. For a while. The Fed came out of the Great Recession with $2 trillion on its balance sheet. Today, over a decade later, its balance sheet sits at $8 trillion. And climbing.

Let’s reiterate: This works great. For a while.

Junk-rated companies are able to borrow massive amounts of money (and spend it all on bitcoin, sure, why not?) at absurdly low rates, only 3% over the “safe rate” offered by Treasurys. Everyone who owns stocks made money, at least on paper. We’ve already watched stock valuations climb into the stratosphere as lockdown-addled day-traders took their stimmies to the Robinhood casino to play with the /WallStreetBets and AMC apes. We’ve seen home values skyrocket (15% annually in April 2021 and currently about 30% higher than the peak of the housing bubble).

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase