U.S. Inflation Accelerates to 40-Year High

As usual, take headlines about inflation with a grain of salt.<p>Yes, the <i>year-over-year</i> inflation reached a new peak. But the <i>month-over-month</i> inflation rate has actually been declining since last October: <a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;cpi.nr0.htm" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;cpi.nr0.htm</a><p>So when organizations publish a new article every month saying inflation is &quot;accelerating&quot;, they&#x27;re being incredibly misleading.

This is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years). Around $12 trillion was allocated for covid measures and around $10 trillion disbursed. About half was legislative (income support, state local funding, loans) and another half was Fed mostly benefiting banks (asset purchases and liquidity measures).<p>So far we&#x27;ve seen crazy asset inflation (weird the market is up 30% from pre-covid levels). But now we&#x27;re seeing consumer price inflation. I&#x27;m afraid it&#x27;s not like normal times where you can just &quot;slow down&quot; the economy by tweaking interest rates. You will need to do drastic measures to sop up the trillions in newly generated dollars.<p><a href="https:&#x2F;&#x2F;www.covidmoneytracker.org&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.covidmoneytracker.org&#x2F;</a>

We are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything.<p>I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger.<p>It&#x27;s a good reason to never let rates get this low in the first place. From zero, <i>any</i> increase is an infinite increase in interest rates, and a corresponding crater of NPVs.<p>Welcome to the long run, folks. At least Keynes is dead, so, good for him, I guess.

There are many competing theories for this inflation:<p>1. The increase in money supply.<p>2. Supply chain bottlenecks.<p>3. Corporate greed &amp; tech monopolies.<p>4. Fundamental supply constraints. (mostly in the housing sector)<p>Anybody trying to tell you that it&#x27;s only or primarily one of them has a political motivation. It&#x27;s all 4, with the first 2 being primary and both being important.<p>To effectively solve inflation we need to attack all 4.

Does anybody believe that the 7.5% figure is completely accurate and not fudged and massaged to give an answer that won&#x27;t entirely spook the market?<p>It feels like their strategy is to avoid making a choice and letting the bubble unwind as slowly as possible to avoid political fallout. Unfortunately, we learned as kids that ripping off a bandaid faster is usually best, so this might prolong pain for a while.

This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?

On one hand, after decades of inflation being too low, it&#x27;s nice to see that the spigot works still.<p>But it&#x27;s bizarre that interest rates are being held so low. It&#x27;s unclear who it&#x27;s supposed to help. I get that we need to boost the Covid economy, but if feels like the economy is currently running at every possible constraint - except for lack of money.

I would think that the impact of rising prices would be reflected in reduced profits but it seems like most of the major companies are reporting rather large profits.<p>Could it be some of the inflation is simply companies taking advantage to raise prices not because they need to but simply because they can?

Who would&#x27;ve thought that printing huge amounts of money causes inflation.<p>(yes, I know it was not literally printed)

Can anyone help me understand a seemingly dumb investment choice I made in light of this? I put some money into the Schwabs TIPS ETF (SCHP), back in December. For the most part it&#x27;s been a minor loser. Even today as the inflation rhetoric picks up the price is down 0.5%. Is it because people bought expecting inflation to be even higher? Or is there some lag or some underlying treasury thing going on.

Nobody will ever make the connection between this, and the lockdowns they imposed on humans. Well, nobody &quot;respectable&quot; so the status followers won&#x27;t ever hold the opinion where it matters, the court.<p>&quot;When you are paid not to notice, it is hard to notice&quot; etc.

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn&#x27;t cancelled, it may get effectively cancelled one way or another.<p>Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let&#x27;s just hope the pressure stays up so wages keep on increasing.<p>EDIT:<p>I&#x27;d like to add, wage growth is <i>outpacing</i> inflation[1]. So those middle class family&#x27;s with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.<p>If you want to say wealthy people have more debts, sure in dollar amounts. But I bet dollars to donuts they have way more assets in stock than in their million dollar home mortgages or w&#x2F;e.<p>[1] <a href="https:&#x2F;&#x2F;tradingeconomics.com&#x2F;united-states&#x2F;wage-growth" rel="nofollow">https:&#x2F;&#x2F;tradingeconomics.com&#x2F;united-states&#x2F;wage-growth</a>

And probably soon to 90y high. Most workers getting a significant bump to keep them at work, worldwide logistical mess, one must be naive to think these and everything else won&#x27;t have further repercutions.

<a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;pdf&#x2F;cpi.pdf" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;pdf&#x2F;cpi.pdf</a>

It&#x27;ll be interesting to see how the following dynamics play out over the next few years.<p>I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can&#x27;t remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.<p>The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can&#x27;t control) is to fight inflation via raising interest rates.<p>So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+&#x2F;-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated&#x2F;stable for the foreseeable future (although I haven&#x27;t put any money on this).<p>The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.

If any of this is due to a tight labor market, or whatever you call it when it&#x27;s hard to hire, I wonder if it would be better for society for people to negotiate improvements in how they&#x27;re treated than improvements in how much they&#x27;re paid.<p>Like if everyone negotiates a 20% raise, prices of everything probably increase by 20%, meaning nobody gets shit, and their savings are less valuable. So they come out behind, if anything. But if everyone negotiates a four day work week for the same pay, or better safety standards at work, or shit like that, I&#x27;d bet prices don&#x27;t inflate nearly as much, so they actually could come out ahead.<p>But that seems like a prisoner&#x27;s dilemma kind of thing. If only you get the raise, you come out ahead. If everyone gets the raise, you come out neutral.

Cant imagine real estate not taking a hit when yields go up...

At this point the only thing the fed manages to do is increase wealth inequality.

The price increases at the grocery store whether it be shrinkflation or price jumps, will never come back down. This is going to squeeze a lot of people.