Mercy Me! Inflation Expectations Are No Longer Well Anchored
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11 Comments
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2 years ago
The Moore Inflation predictor called this bump inflation pretty closely, until the last couple months, when they were well under the actual number. Note that when I first posted it last fall, Mish said “I’ll take the under. Way under.” In fairness to Mish, he later did the calculations, and realized that the big jump in reported inflation was indeed baked in.
https://fintrend.com/wp-content/uploads/2021/07/MIP-Sep-2020-reality-July-2021-640×465.png
Their current forecast if for reported inflation to drop to 5% next month, and stabilize there until February of next year, before trending back down. The do see a possibility that the Fed is wrong, in which case inflation could stay in the mid 5-6% range, then go up to 6.5% by fall.
https://fintrend.com/wp-content/uploads/2021/07/MIP-July-2021-640×465.png
2 years ago
I buy laptops and TVs that are 80% as good as a new one for 50% of the price and spend the other 50% a couple of years later on models that are 150% better than currently state of the art.
2 years ago
“The New York Fed’s latest shows another huge leap in inflation expectations.”
When does it get to bounds, as in jumping over tall buildings in a single bound? Will that call the top in inflation expectations?
2 years ago
Housing is a bit different since 64% of American households own their homes so an increase in housing prices increases their wealth. For the rest of the index price increases take away from the wealth of everybody so it makes no sense to just replace rent equivalent with real estate prices. I don’t have a magic formula but perhaps an overall country-wide inflation number is not useful anymore since price increases are highly specific to regions.
2 years ago
Even among homeowners, there is a lot of turnover in housing. So it isn’t like people just buy a house and it’s done for their lifetime. So I don’t see runaway rising housing prices to be good for society on the whole. Maybe you’re somewhat protected once you own something, But young people need homes, and their ability to afford them isn’t going up commensurate with housing prices.
For some of us who might have seen this coming to some degree and prepared for inflation in housing, It’s been a sweet deal. My net worth has gone up 25% in a year.
OER seems flawed from the get-go. You’re basically surveying people who don’t even rent, to figure out if rent is going up or not. Dumb, if you ask me.
2 years ago
My view is strictly the view of a homeowner and as such my wealth increases but the cost of living in the house (taxes, maintenance and such) keeps moving up but certainly less than that of the equivalent rent. It is hard for young people to buy houses now but only in the hot markets. If you have a reasonable job in Kentucky you have no problem buying a house. If you live in the Bay area it’s a different story. The movement out of the cities will likely continue because of that fact and it is a good thing since it enables the young to get into the market and it also spreads the jobs around the country instead of being highly concentrated into just a few mega-metro areas. The Second Law of Thermodynamics also applies to social systems and prices.
2 years ago
“Turns out it’s a heck of a lot easier to create demand than it is to bring supply up to snuff.” Jay Powell – last press conference.
In keeping with the same perspective of not thinking about thinking of chair Powell, I can also state with confidence : Its better to be rich and in good health than poor and sick.
Good times ahead.
2 years ago
“Turns out it’s a heck of a lot easier to create demand than it is to bring supply up to snuff.” Jay Powell
Especially true when governments crash supply.
2 years ago
OER is obviously a huge part of what’s wrong with CPI-U. I don’t see how they can keep using the same method of estimating housing. It’s very problematic, and I expect they must be able to see that.
On risk assets like stocks and bonds….those are bought with discretionary income. I can understand why they might not belong in CPI. But housing is the elephant in the room, imho.
2 years ago
The elephant missing form the picture is rent prices.
With eviction moratoriums till end of September, right now we are going through a shortage of rentals everywhere (at least here in California).
Everything that comes up for rent, is listed at least 20 to 30% higher than last year, check zillow price history and you are in for a shock.
I read that in NY some rentals are overbid frenetically similar to what is going on with houses.
As soon as the moratorium is out, the rent prices will explode as a lot of rentals will be withdrawn from the market while dead beats are evicted and places renovated and those that will rent will be at much higher prices as landlords try to recover losses.
But I suspect the moratorium to be extended for another year in September as the delta variant in combination with media hysteria give a new casus belli to our politicians to protect us from ourselves.
2 years ago
I’m raising rents, but I have to….to meet rising costs. Rental RE is a cash flow business…no cash flow equals out of business in short order.
The rents on the houses I own, which are in great demand, are not going up as much as what you just stated they re in Cali. It’s impossible to raise rents to keep up with rising nominal values here right now. Most of my properties have been increasing in nominal value by 4 to 9%…per MONTH.
None of this crazy recent RE change is sustainable over the long run. As an investor, I recommend reducing leverage and doing refi’s to increase cash flow if the numbers work. We might have to ride out some rough times ahead, if risk assets like stocks really tank at some point.
I’ve been lucky as far as tenants go, although I did have one die without letting anyone know….and it was a few days before anybody checked on him. Messy deal there. That one is still vacant since May.