Category: Inflation

Inflation in New York City is only 2 percent

by philg

“Looming Rent Increase of Up to 9 Percent Tests Adams’s Housing Priorities” (New York Times, May 4, 2022):

The powerful Rent Guidelines Board, which the mayor controls, will take a preliminary vote on Thursday on proposed rent increases of 2.7 to 4.5 percent on one-year leases and 4.3 to 9 percent on two-year leases. A final vote is expected in June.

The annual decision by the Rent Guidelines Board, which affects more than two million residents who live in buildings built before 1974 that have six or more units, always ignites passionate debate and an intense lobbying effort from tenants and landlords.

Note that the headline is kind of a lie, implying that rents might be going up by 9 percent in one year (the standard period to look at).

The good news is that, if you are one of the two million people who live in an apartment whose rent is set by the central planners, your personal inflation rate, at least for housing, could have been as low as 2.7 percent. How does this compare to the official government CPI? The word “inflation” does not appear in the NYT article (see “Team Transitory”).

Just a day later, the horror of 2.7 percent inflation was averted. “Panel Backs Rent Increases for More Than 2 Million New Yorkers” (NYT, May 5, 2022):

The New York City panel charged with regulating rents across nearly one million rent-stabilized homes voted on Thursday to support the largest increases in almost a decade.

The move, which must be formally approved next month, would raise rents on one-year leases by 2 to 4 percent, and on two-year leases by 4 to 6 percent. The increases are another reminder of the affordability crisis the city faces as it emerges from the pandemic.

Related:

  • “‘They’ll have to carry me out in a box’: inside the apartments of the luckiest renters” (Guardian, February 2022): Growing up on the Upper West Side, Hattie Kolp, like any kid, didn’t think much about the apartment she and her family moved into in 2002, but the roughly 1,500-square-foot two-bedroom has become the center of the 30-year-old’s life as an influencer. She shares photos of the apartment’s details that hint at the building’s 1890 construction – like an original butler’s pantry and ornate fireplaces – with her 90,000 TikTok followers and 52,000 followers on Instagram. … “My parents knew this was not their forever home, so they didn’t really care to do any projects,” says Kolp, who assumed the lease from her parents in 2018. … For New Yorkers who are acutely aware of how much a place like this should cost, Kolp’s rent – $1,300 per month – is jaw-dropping. Plus, it’s rent-stabilized – meaning it can only increase in rent modestly once a year. There are only 1m such units in New York City.
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How is Berkshire Hathaway an example of investment genius if it holds cash while inflation rages?

by philg

Berkshire Hathaway has been holding roughly $140 billion during a period of raging inflation (source):

This is about 20 percent of the company’s market cap (about $700 billion). The standard explanation for this is that it gives Berkshire Hathaway the ability to pounce on great deals, but Elon Musk is managing to buy Twitter without having had to let inflation erode a substantial percentage of his portfolio for 2+ years. The company’s annualized operating earnings right now are about $22 billion (CNBC). Inflation has been 8.5 percent. So the company is losing $12 billion to inflation annually, more than half as much as its headline “earnings”.

Admittedly the S&P 500 is flat compared to a year ago as well, so if Warren Buffett had done the obvious thing of parking money in the S&P it wouldn’t have done significantly better. Gold didn’t rise smoothly as the dollar fell in purchasing power. Bitcoin is about 32 percent lower today in nominal dollars than it was a year ago. But isn’t there something better to do with all $140 billion rather than leave it for exposed to the depredations of the government’s money-printing operation?

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13 percent raise for Amazonians

by philg

A friend works as a “DevOps Engineer” at Amazon in Maskachusetts. She just got a 13 percent raise, not performance-based, to compensate her for inflation and prevent her from quitting.

State-sponsored NPR today says that the inflation rate is just 8.5 percent: “U.S. inflation rises 8.5 percent, sharpest increase since 1981”. Is that number consistent with our Lived Experience?

What if you want to buy a replacement rebuilt engine for your little airplane? There was a 14 percent price increase in July 2021. There was an additional 15 percent price increase in March 2022 (Rotorcorp). So prices are up 31 percent compared to a year ago? Not if we hold delivery time constant. The Rotorcorp article:

Perhaps the most challenging issue out of Lycoming is not just the spiraling prices, but the extended and growing lead times. At time of this writing, Rotorcorp is still waiting on Cylinder kit orders placed in July of 2021 and has had lead times “bumped” numerous times to in excess of 12 months for some parts. Engines are now in excess of 8 months.

Rotorcorp is responding with increased rolling inventory replenishment orders to maintain critical spares stock to support our customers, but we are HIGHLY encouraging customers approaching 2200 hour service, or needing engine overhaul/replacement to place their cylinder and engine orders up to 9 months ahead of anticipated delivery.

So the apples-to-apples price might be 50 percent higher (you’d have to buy out someone else’s order to get an engine within a few weeks as was previously standard).

Let’s try not to ask about the rebuild price on the engine in this P-40 (from Sun ‘n Fun 2022):

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Is a non-indexed-to-inflation capital gains tax Constitutional?

by philg

We’ve had runaway government borrowing and spending, plus money-printing by the Fed, for the past two years. Now we have runaway inflation, which has led to some eye-popping asset prices and a government eager to collect a share of these assets even before they’re sold (“unrealized gains”). See “Biden to Include Minimum Tax on Billionaires in Budget Proposal” (NYT, 3/26/2022):

The tax would require that American households worth more than $100 million pay a rate of at least 20 percent on their income as well as unrealized gains in the value of their liquid assets, such as stocks and bonds, which can accumulate value for years but are taxed only when they are sold.

Legal questions about such a tax also abound, particularly whether a tax on wealth — rather than income — is constitutional. If Congress approves a wealth tax, there has been speculation that wealthy Americans could mount a legal challenge to the effort.

Due to the threshold of $100 million in assets, I’m a huge supporter of this bill! (though I’m concerned that it won’t be long before either the threshold is reduced or $100 million is the price of a Diet Coke). But it makes me wonder about whether the whole framework of capital gains is Constitutional.

Let’s ignore the mechanics of taxing someone on gains that exist only on paper and just focus on traditional capital gains taxes on realized gains (i.e., money received after an asset sale). The government is mostly in charge of what happens to the value of money because the government can decide interest rates, money printing rates, and how much the government will borrow and spend. The Sixteenth Amendment gives the government the power to tax incomes:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

But it isn’t income when an asset goes up hugely in nominal dollars because dollars have been devalued by the government’s actions. This has been mostly ignored in U.S. history because mostly inflation hasn’t been too extreme (though, of course, for long-held assets, the cumulative effect could still be dramatic). Consider a person who hits 70 and sells some stocks purchased in 1972 to fund retirement. Let’s suppose that these shares were purchased for $10,000 in 1972 and sold for $65,000 today. According to the government’s own CPI calculator, the investor suffered a loss, not a gain, on these shares (no income). Yet, if he/she/ze/they lives in California, more than $20,000 in tax could be owed (20 percent federal long-term capital gains, 3.8 percent Obamacare federal tax, 13.3 percent state tax).

How has the current system persisted for so long without a serious Constitutional challenge?

Related:

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Inflation chronicles: storage container monthly fee bumped by 8 percent

by philg

We have some stuff in storage (see PODS versus PACK-RAT for moving and storage). The monthly storage rate was bumped last month by 8 percent (over a price quoted in June 2021).

A local (Palm Beach County) dentist said that he’d raised hygienist wages by 20 percent to partially compensate them for the increase cost of rent (our building has boosted prices for new tenants by 70 percent compared to a year ago).

Back in February, Ford did an unusual mid-year price increase on the F-150 pickup truck (“All Trims See A Minimum Price Bump Of $1,500 USD”).

Our Netflix subscription will be boosted by 11 percent compared to a price set at the end of 2020. (I think we will cancel this $186/year service because they don’t show too many high quality movies and I don’t have the patience for long series.)

The local car wash is up to $29 from $25, a 16-percent increase compared to fall 2021 ($37 with tax and tip to remove the Happy Meal residue):

What have you all seen lately?

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Professor Krugman’s Nobel-grade thinking about inflation

by philg

Six months ago, the New York Times’s in-house Nobel-winning economist wrote “Wonking Out: I’m Still on Team Transitory” (9/10/2021):

if we finally get this pandemic under control, the inflation of 2021 will soon fade from memory.

Professor Krugman was correct about Joe Biden getting the pandemic until control. When the Science-rejecting Donald Trump was in the White House 350,000 Americans died with/from COVID-19 in 2020. Due to President Biden’s leadership and the vaccines that He developed, we’re on track to suffer only roughly a third of a million deaths in 2022.

Professor Krugman also seems to have been correct in predicting “the inflation of 2021 will soon fade from memory”, but maybe that is because the inflation of 2022 has been so much more dramatic?

The Nobel laurate is back this week with “How High Inflation Will Come Down”. He starts by doing what my former hedge fund manager friend says nearly all analysts do, i.e., extrapolating from recent events:

Rising prices will get worse before they get better.

Something new for an American journalist or politician… He blames Russia:

Russia’s invasion of Ukraine has caused the prices of oil, wheat and other commodities to soar.

This time it is different:

Forty years ago, as many economists will tell you, inflation was “entrenched” in the economy. That is, businesses, workers and consumers were making decisions based on the belief that high inflation would continue for many years to come.

Things are very different now. Back then almost everyone expected persistent high inflation; now few people do. Bond markets expect inflation eventually to return to prepandemic levels. While consumers expect high inflation over the next year, their longer-term expectations remain “anchored” at fairly moderate levels. Professional forecasters expect inflation to moderate next year.

If the professional forecasters are good at their jobs, why aren’t they absurdly rich via trading on their own previous forecasts and, thus, retired from forecasting?

Nobel-grade thinking… Prices will go down as soon as prices go down:

A lot of recent inflation will subside when oil and food prices stop rising, when the prices of used cars, which rose 41 percent (!) over the past year during the shortage of new cars, come down, and so on. The big surge in rents also appears to be largely behind us, although the slowdown won’t show up in official numbers for a while. So it probably won’t be necessary to put the economy through an ’80s-style wringer to get inflation down.

Professor Krugman agrees with what Chauncey Gardiner pointed out, i.e., that there will be growth in the spring:

The inflation of 2021-22 looks very different, and much easier to solve, from the inflation of 1979-80.

What if it takes a few springs for inflation to subside?

Related:

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Porn for Californians

by philg

From Lost River Road in Stuart, Florida:

(the “lost river” runs right along Interstate 95 and features a Marriott as well as a Cracker Barrel)

The $4.20 price for gasoline is actually not the lowest that we’ve recently seen in Florida. One station had it for $3.98. By contrast, the Google shows that the Chevron gas station where I used to fill up near HP Labs in Palo Alto is at $6.16.

Related:

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Is $1,000 the new $500 for airfare?

by philg

Friends and family trying to visit us here in the Florida Free State are finding that airfares are usually over $1,000 if the luxury of lugging a bag on board and picking a seat is desired. Before coronapanic, the standard price was around $500. Is $1,000 the new $500? Or is Florida a special case of high airfares? (Unclear why it should be; there are a tremendous number of airports capable of handling commercial flights and it is reasonably easy to drive to an alternate airport.)

A discount airline on final approach in Juno Beach:

Related:

  • “Are EU Markets More Competitive than Those in the US?” (NBER): Industries that experienced significant increases in concentration in the United States, such as telecom and airlines, did not experience parallel changes in the EU.
  • “Why Airfares in Europe Are Lower Than in the U.S.” (The Globalist; 2010): The total average fare per mile in the United States for the above five flights was 23 cents per mile, while in Europe it was 11 cents. Remove the taxes and fees and Europe’s cut-rate airfare advantage is even clearer: The base fare per mile in the United States for the five return flights is 19 cents, while in Europe it is just six cents per mile — one-third of the U.S. cost.
  • “Europe Shows Us Real Airline Competition” (2015): The largest European carrier has only 13% of the market, and the top four airlines have 39% of the market. But in the US, the largest carrier – newly merged AA/US – has a 25% market share, and the top four airlines have taken 83% of the market. Another clue to the vibrancy of the two regions is that in the EU, after the top nine airlines share 64% of the market, that still leaves a huge 36% chunk for all the many other carriers. But in the US, the top nine airlines leave only 3.4% for the few remaining US airlines. Indeed, the very idea of ‘top nine’ airlines in the US is sadly a rather ridiculous concept. As you can see in the chart, by the time you start to get past the top six, the remaining airlines are struggling to get as much as 2% market shares.
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