“Inflation Heated Up in January, Freezing the Fed” (Wall Street Journal, today):
Consumer prices rose 3%, as fight against inflation continues to face headwinds
So prices are going up 0.247 percent per month, the rate that compounds to 3 percent after 12 cycles?
Consumer prices rose briskly in January, extending a recent pattern of price increases at the start of the year that likely derails the prospect for Federal Reserve rate cuts anytime soon.
The Labor Department said Wednesday that prices rose last month 0.5% from December on a seasonally adjusted basis.
0.5 percent per month works out to 6.17 percent annually.
So… the current inflation rate is 6 percent and we are told that it is 3 percent.
Related:
- Leftover Inflation? (November 2024, on the spiral)
- Can our government generate its own inflation spiral?
- Economist answers my question about high interest rates and high deficits
If you’re looking for a Valentine’s Day present that won’t break the bank, a piston-powered Cirrus SR22 for $1.2 million:
(Don’t forget state income tax on top of this unless you live in one of the states that sensibly doesn’t tax aircraft purchases (Maskachusetts being a surprising example!).)
If we specified pre-Biden delivery terms of 4 months, the price would be higher. Cirrus currently has 1.5-2-year waiting list.
That is for Non-Turbo Cirrus. So if you enjoy flying west of Mississippi, above the turbulence layers between 5k to 9k or avoid ice layer in winter, add $120k!
You are correct if you use month-to-month inflation to predict yearly inflation. However, the 3% increase measures the change in prices since last year. My heart goes out to the unfortunate Cirrus buyers. In the words of Marie Antoinette, “let them buy Cessna Citations.”
So we had 3% annual inflation last year? LOL.
I trust the information published by the US Bureau of Labor Statistics. The current yield on the US 1-year Treasury is just over 4.25%, a rate determined by the free market. This suggests that quite a few people share my opinion.
What was treasury yield in hyper-inflationary 2022 and 2024? What is another strawman instrument yield?
Anon who trusts US BLS: Couldn’t a 1-year risk-free yield of 4.25% nominal be consistent with substantial inflation expectations? People don’t have a lot of good alternatives for cash and might be willing to buy even if they expected a zero or negative real return. If there were 1-year TIPS offered I guess we could figure that out, but to my knowledge the shortest-term TIPS has a 5-year term. I do think that the most reasonable inference from the 4.25% nominal rate is that investors are expecting inflation to be about 3.5%. But maybe Congress and the economy will surprise investors with larger-than-expected deficits!
Anon who thinks investors might be stupid: https://ycharts.com/indicators/1_year_treasury_rate shows that investors were completely blindsided by the raging inflation that was obvious to Joe Sixpack. The 1-year rate was 0.4% at the beginning of 2022. Headline inflation was 6.5 percent during 2022 (see https://www.bls.gov/opub/ted/2023/consumer-price-index-2022-in-review.htm ). Inflation in the prices of things that an investor might have wanted to buy was probably at least 10 percent.
Bad news for people like me who think that markets are wise!
Philip, you make excellent points. Smart investors and markets have been unpleasantly surprised in the past. However, the best approach is to trust the government (unless you have better data) and the markets. The price of bonds is determined by people who are far smarter than I am, with access to superior information and technology—all which, to be fair, isn’t too hard.
Why do you want to tie treasuries to inflation? Their yield may correlate with inflation back in the 80th but today we have totally different situation, different society and highly leveraged BS economy. Institutional investors need large pools of treasuries as collateral and banks do not get large chunk of their assets from average Joe’s CD accounts anymore. Average individuals are just getting poor, with having small yield being a better alternative then nothing for those who think that equities are too risky. But they are not making market for US Treasuries. Those who use them for leveraging and hedging are making market in treasuries.
@perplexed this is capitalism.
RH, ??? More of an institutional Marxism. Notion that all spheres of life can be quantified is taken from Marx. Definitely a hybrid of classical capitalism, cronyism and socialism. No brokers are jumping from high floors anymore, just getting bailed by taxpayers and virtual money
@perplexed I work in Private Equity and I agree with you. But what is the solution and where do we go from here.
Philip, a stronger argument for your view that the price of US bonds might not accurately reflect true inflation expectations is that the Federal Reserve and other central banks are among the largest buyers of US Treasury bonds. This significant involvement means the market isn’t entirely free.
https://www.apolloacademy.com/who-is-buying-us-treasuries/