No because that is why I brought market conditions in. Assuming “no suitable alternative” is available yes cost push is a factor. The point is the consumer isn’t always willing to accept higher prices even if your costs are higher.
These statements about transitory inflation are bs, it is INFLATION!
- Thread starter wildchild
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No because that is why I brought market conditions in. Assuming “no suitable alternative” is available yes cost push is a factor. The point is the consumer isn’t always willing to accept higher prices even if your costs are higher.
Ok, that's good. Because the indicator you posted (the velocity of M2) doesn't follow inflation at all. M2 doesn't follow inflation. Here is an 80 year chart of M2 and inflation, and they are certainly not correlated. If you look at the velocity of M2 for an indication, then you're introducing the variable of nominal (not real) GDP as well. Which is certainly not a good indicator.
So you are not disputing the inflationary impact of giving people money (fiscal stimulus). Or at least that's what I'm getting. If that is so, then we are in agreement completely and a primary driver of inflation has been giving people money (or pumping it into the economy via fiscal - not monetary - stimulus).
But then we're back to "it depends" and talking elasticity. Right now, the consumer has to accept food and energy inflation. Other things, maybe - depending on what we're discussing. Healthcare? Totally inelastic - you get sick and go to the hospital, you won't say "heart bypass? Nope, too expensive, thanks."
Because inflation is in all the things we need and not as much in the things we don't, then it comes down to... ?
We are not in agreement. Velocity and inflation are connected in circumstances where money supply is inflationary. And money supply can be inflationary, it’s just not today. I pointed you to savings rates and credit card balances as they moved to historic highs are being drawn now with the consumer under inflationary pressure.
A little history is needed to understand the noise in the front of the chart you shared and the smoothing. (I know this chart well) since the federal reserve received its dual mandate “money” has changed and become more expansive. This is a lofty discussion and I am sure you will call me a moron for even thinking I have a clue of what money is but it is true. The dual mandate changed money as we knew it and now know it.
Now, I am not able to follow you. For real. The way I am reading you, on one hand you say M2 stock does not impact inflation but then you claim expanding M2 stock with stimulus does. Which is it?
It doesn’t matter because it can be both! What matters is what the consumer does with the new money. If they hoard in savings or pay down debt then new money will not be inflationary but if they spend it then it will be inflationary.
Ok so what happened this go around with inflation? Consumers changed behavior due to Covid and instead of spending on services they made a mass migration to goods. Eating in gourmet became the new eating out during Covid, renovating your backyard became the new vacation.
This imbalance was what cause a demand crunch in goods and created an inflationary crunch. Coupled with Covid supply disruptions and a changed market and voila inflation.
Now I shared a chart showing service side rising a week or so ago with goods falling and commented this is what we are looking for. Not so much more supply of goods but consumers moving back to a healthier services demand.
The truth is that I don’t know where we will end out with the goods to service balance. I actually think many consumers are changed permanently, kind of like the generation who lived through the depression, and we will continue to have historically higher rates of demand for goods, especially diy related stuff and techy social and work stuffs.
So, no, I do not agree with you.
I agree. But paying down debt just leads to potential inflation down the road, for the same reason deflation hampers inflation because discretionary income is eliminated. COVID bucks were given in 2020. A lot of it was, in fact, used to pay down debt which led to spending later on (which we are seeing in the last year).
Again, I don't disagree. Which is why I've said - have been saying it is too much money chasing too little goods. Textbook definition. Consumers mass migration to goods is exactly that. But services weren't spared, because of rising input costs. That's why flights, food at restaurants, etc. are hiking prices now.
I cannot help but feel you are ignoring the massive fiscal stimulus because you have a political interest in that method, which is making you view this with partisan glasses. You cannot possibly think (no one with a modicum of intelligence can) that dumping trillions of fiscal stimulus on to the greater population doesn't cause inflation. Please show me any economist that is worth his/her salt that would agree with that statement.
But then we're back to "it depends" and talking elasticity. Right now, the consumer has to accept food and energy inflation. Other things, maybe - depending on what we're discussing. Healthcare? Totally inelastic - you get sick and go to the hospital, you won't say "heart bypass? Nope, too expensive, thanks."
Because inflation is in all the things we need and not as much in the things we don't, then it comes down to... ?
They have no choice but to accept energy inflation but Walmart noted consumers are changing preferences to less expensive items such as store brand foods or skipping higher priced items altogether. Always read Walmart’s quarterly reports. It will give you a good idea on where the lower quartile consumer is.
I get you think I am being partisan but I have been saying for months a recession is coming and the market will crash. And no one here will say I’m a some sort of perms bear either. I have been calling where are are right now for months. These conditions are not good for democrats but I have been way ahead on this. I think that speaks to me being at least less partisan than you claim I am. I am just trying to read the economic conditions as I see them.
To the point of fiscal stimulus, I legit disagree with you. Like I said, if I saw velocity moving up in any way or had any indication it might I would be saying the Fed needs to act with authority ASAP. But I honestly think they are operating on the wrong lung with these hikes because the inflation we are feeling right now is not due to money supply. I truly, truly believe this.
Fair enough. But I guess I can't reconcile when you admit consumers spent more on goods because of COVID, and this helped drive inflation, but when I say too much money chasing too little goods causes inflation, you disagree. Boggles my mind.
I spent years - years - analyzing SNAP data for a consumer products company. I know all about the lower end consumer and where they spend, and how they spend. The consumer insights, all of it.
It sounds like you're making a hedonics or substitution argument here. That we shouldn't look at the price of steak because people will buy chicken instead. That isn't a real world truth.
This is because the data shows consumers moved a lot of their service consumption to goods consumption. It’s not mind boggling. Let’s say you bought 3 bananas and three apples every week. Then you lost your taste for bananas and decided to double up on apples. Your Apple consumption just doubled but your banana consumption crashed.