Post by Admin on Aug 13, 2021 16:12:26 GMT -6
With the new print of the CPI on Wednesday of this week at +0.5% MoM and +5.4% YoY, I have updated the graph used in my previous discussion and added a couple of items.
Please see the previous discussion, also a part of this blog, for a full background. It is linked below.
chasingbaseball.proboards.com/thread/473/transitory-inflation-defined-29-2021
In the previous entry from July 29th, I discussed Jerome Powell and the Fed's definition of "Transitory" for inflation. Given that definition, I took them at their word, this time, and made the assumption that the current inflationary trend in 2021 is indeed transitory and that we will move back to an equal trend, per the data from the previous 10 years, after the transitory period is over.
To re-iterate . . . no one at the Fed knows how long the transitory period will last or how inflation (as accounted for by the CPI) will trend during that period. So, I have made some assumptions in my graphic. So far, the transitory inflation of 2021 is best fit linearly. The July print of the CPI actually increased the slope of the linear fit slightly. You can see the original graphic at the link posted above.
"Black line inflation" refers to the "normal" trend in the CPI of just below 2% annually. "Red line inflation" is referring to the linear trend seen so far in 2021 that is about 9.6% annually given 7 months of data. The blue lines shown are making the assumption that red line inflation trends on its current course until Jan 2022, July 2022 or Jan 2023 at which time there is an immediate change back to black line inflation trends. The lines are plotted out so that we can see the effects on price rises (as accounted for by the CPI) in 2025 due to these assumed trends.
In looking at the graphic below, or if you recall from the previous entry, you can see that if we get 9.6% increase in the CPI this year and then immediately revert back to black line inflation in Jan 2022, the effect is that instead of a 27% rise from 2011 to 2025, we would get a 33% rise. The additions to the graphic this time show that for every 6 months that red line inflation continues beyond Jan 2022, the increase seen in 2025 goes up another 4%.
This is the true definition of the Fed's transitory inflation. Every time the CPI prints, I will be back to update this chart an provide some simple, factual analysis to keep everyone informed on what is going on.
Right now, the trend for 2021 is holding at 9.6%. I do expect it to lessen some by the end of the year and for YoY CPI for 2021 to be somewhere between 8% and 9%, which means that the overall results out in 2025 will pull back some from their current levels. However, we are still staring at something between 30% - 40% loss of purchasing power between 2011 and 2025.
Note that as of right now, we already have a confirmed and documented loss of 24% on purchasing power since 2011. Meaning that if you had a dollar in 2011 and held it in your pocket, it could buy 76 cents worth of goods and services now. If you hold it for 4 more years, it would only buy 60-70 cents worth of goods and services . . . depending on how the next few months turn out. Note that in Dec 2020, you could buy 81 cents worth of goods with your 2011 dollar. According to the CPI, you have lost another 5 cents in the last 7 months.
That's why they call inflation the stealth tax. It takes away what your dollar is worth and even though you are bringing home the same paycheck weekly or monthly, it buys less and less until we all end up with too much time to the next check at the end of the last one. Just the same as if they had raised taxes on you. Worse than that . . . this is not an equally applied tax. Those with enough income that are able to save, invest and buy real assets can hedge against inflation and actually make a profit from it. Those that feel inlfation the most are those living on fixed incomes, those living paycheck to paycheck and unable to save and those that are too much in debt to be able to accumulate any assets. That's right, the poorest among us are the ones that feel the bite of inflation the heaviest, but perhaps that is by design. If you can convince those suffering that it's the rich, the greedy and the system of capitalism that are making their lives more miserable, then there is a whole host of people that will call for the government to fix the problem that the government is creating in the first place. Further, they are willing to relinquish more power and have their freedoms curbed to do so.
I heard a wonderful quote today, I'm paraphrasing it here . . . in these times the public is more gullible, more willing and less diligent than ever before. They are far more likely to trust the emotion of the headline than to read the story beneath it and form their own opinion. We are lucky if one in a thousand sees what is happening as it is happening and by the time the rest of them catch up, it is far too late to do anything about it.
We should all strive to do better than that. Questions and comments are welcomed. Thanks, as always for clicking and reading.
Please see the previous discussion, also a part of this blog, for a full background. It is linked below.
chasingbaseball.proboards.com/thread/473/transitory-inflation-defined-29-2021
In the previous entry from July 29th, I discussed Jerome Powell and the Fed's definition of "Transitory" for inflation. Given that definition, I took them at their word, this time, and made the assumption that the current inflationary trend in 2021 is indeed transitory and that we will move back to an equal trend, per the data from the previous 10 years, after the transitory period is over.
To re-iterate . . . no one at the Fed knows how long the transitory period will last or how inflation (as accounted for by the CPI) will trend during that period. So, I have made some assumptions in my graphic. So far, the transitory inflation of 2021 is best fit linearly. The July print of the CPI actually increased the slope of the linear fit slightly. You can see the original graphic at the link posted above.
"Black line inflation" refers to the "normal" trend in the CPI of just below 2% annually. "Red line inflation" is referring to the linear trend seen so far in 2021 that is about 9.6% annually given 7 months of data. The blue lines shown are making the assumption that red line inflation trends on its current course until Jan 2022, July 2022 or Jan 2023 at which time there is an immediate change back to black line inflation trends. The lines are plotted out so that we can see the effects on price rises (as accounted for by the CPI) in 2025 due to these assumed trends.
In looking at the graphic below, or if you recall from the previous entry, you can see that if we get 9.6% increase in the CPI this year and then immediately revert back to black line inflation in Jan 2022, the effect is that instead of a 27% rise from 2011 to 2025, we would get a 33% rise. The additions to the graphic this time show that for every 6 months that red line inflation continues beyond Jan 2022, the increase seen in 2025 goes up another 4%.
This is the true definition of the Fed's transitory inflation. Every time the CPI prints, I will be back to update this chart an provide some simple, factual analysis to keep everyone informed on what is going on.
Right now, the trend for 2021 is holding at 9.6%. I do expect it to lessen some by the end of the year and for YoY CPI for 2021 to be somewhere between 8% and 9%, which means that the overall results out in 2025 will pull back some from their current levels. However, we are still staring at something between 30% - 40% loss of purchasing power between 2011 and 2025.
Note that as of right now, we already have a confirmed and documented loss of 24% on purchasing power since 2011. Meaning that if you had a dollar in 2011 and held it in your pocket, it could buy 76 cents worth of goods and services now. If you hold it for 4 more years, it would only buy 60-70 cents worth of goods and services . . . depending on how the next few months turn out. Note that in Dec 2020, you could buy 81 cents worth of goods with your 2011 dollar. According to the CPI, you have lost another 5 cents in the last 7 months.
That's why they call inflation the stealth tax. It takes away what your dollar is worth and even though you are bringing home the same paycheck weekly or monthly, it buys less and less until we all end up with too much time to the next check at the end of the last one. Just the same as if they had raised taxes on you. Worse than that . . . this is not an equally applied tax. Those with enough income that are able to save, invest and buy real assets can hedge against inflation and actually make a profit from it. Those that feel inlfation the most are those living on fixed incomes, those living paycheck to paycheck and unable to save and those that are too much in debt to be able to accumulate any assets. That's right, the poorest among us are the ones that feel the bite of inflation the heaviest, but perhaps that is by design. If you can convince those suffering that it's the rich, the greedy and the system of capitalism that are making their lives more miserable, then there is a whole host of people that will call for the government to fix the problem that the government is creating in the first place. Further, they are willing to relinquish more power and have their freedoms curbed to do so.
I heard a wonderful quote today, I'm paraphrasing it here . . . in these times the public is more gullible, more willing and less diligent than ever before. They are far more likely to trust the emotion of the headline than to read the story beneath it and form their own opinion. We are lucky if one in a thousand sees what is happening as it is happening and by the time the rest of them catch up, it is far too late to do anything about it.
We should all strive to do better than that. Questions and comments are welcomed. Thanks, as always for clicking and reading.