One thing to keep in mind is that the way the BLS measures shelter inflation is known to be extremely laggy. And shelter makes up 34% of the basket. High frequency metrics of shelter costs (like new leases or Zillow's metrics) show that housing is currently deflationary (i.e. below zero).
However the CPI metrics is still reporting shelter inflation at 8.0% YoY and a 9.6% annualized rate MoM. Within the next few months we should see a very notable decline in the shelter component of inflation as it heads towards zero. The reality is because of this lagginess, "true inflation" this time last year was probably closer to 12%+, and as of the last few months is probably closer to 3%.
But there are good reasons for CPI to measure all leases and not just new leases. It depends on what your goal is of your measurement. If your goal is to measure the prices of a basket of goods representative of what urban consumers are spending money on, then measuring the prices of all leases is better than new leases.
I would agree that a good forecast of inflation would incorporate what is happening with leases now, but I would disagree that this means anything for "true inflation".
I think most people see inflation as the change in cost to transact today vs some previous moment, as opposed to the change in broader prices paid, since a majority of the items normally talked about in the media are perishable/consumables like food and energy.
I sure hope that makes its way to real rents by the time it’s time to renew. I’d love to hardball for the first time in 10 years and demand a lower rent instead of it slowly and sometimes fastly creeping up every year
The fact that 6.x% year over year is interpreted as some kind of victory is comical. Last year it was 7.x%. This year it is 6.x%. Exactly how long are people on the bottom rung of the economic ladder expected to hold on until inflation is brought back anywhere near the claimed 2% target. At this rate it's going to take a loooong time to get there. I have to imagine the fed is not very pleased with this.
The fed? They were the ones that initiated the largest QE spree of all time so that their friends and masters don't lose their fortunes in an unexpected recession.
The very same recession they are now trying to cause to get inflation under control, just that now there is way more debt and the recession will be much worse. As a side benefit this recession is expected so the oligarchs can go into cash and buy everything up for 30% less.
edit: I shouldn't talk, my central bank is the ECB which is much worse and much slower. We're just lucky the fed is the world's central bank so we benefit from their actions a little.
Yes the fed has been fairly transparent that they intend to raise unemployment via higher rates in order to combat inflation. Well unemployment is still very low and inflation is still relatively high. Perhaps they will decide to do another 50bps hike instead of 25bps.
That's just not true at all. They have correctly observed that tight labor is contributing to inflation and fighting inflation could lead to higher unemployment. That's just nature taking it's course. Unemployment is absolutely rock bottom right now and the current regime of tightening has not put a dent in it. The Fed could not possibly be getting any clearer signal that they are doing the right thing now.
Right, the quick answer is that wages have to go up, but then that causes more inflation. So the real answer is that the tax system needs to be overhauled to redistribute such that economic disparities are reduced for the first time in multiple generations.
But I don’t see that happening anytime soon. Not sure how this ends.
Why kind of statement is this? Of course it's "some kind of victory" because it's better than it was before. No one is saying it's over, but the expectation is that once the trend goes downward, then we've broken the back of the problem and further tightening will likely cause us to overshoot. There is no possible way to make inflation drop from 8 to 2 in a month unless you trigger massively deflation in 6 months. The current data says the rudder is in the right position and we just have to wait for the ship to come about.
6.4% is the "headline" number. Some of the statistics that go into the inflation calculation are often manipulated [1].
Likely, the realistic number is much higher and has been for a while. Anecdotally, people only care about the incremental direction of their quality of life - is it going up or going down? The trend for that speaks for itself.
Headline inflation, like every other headline number, is an indicator. Not a useful metric that people are going to go to the store and expect everything to cost 6.4% more. They calculate it in a consistent way so we have fixed milestone to measure against. The Fed has a limited set of tools and they can only act on aggregate demand and lending. When it comes to specific outliers (like rent) you need legislation.
The MoM number was consistent with expectations (according to Bloomberg). The headline number expectations are harder to deal with because the report came with changes to seasonal adjustment factors as of Friday and a change to the basket of weights.
There's popular and political pressure (EDIT: maybe mostly up here in Canada) to avoid more rate hakes, but I don't see how central banks -- at least in North America -- can realistically avoid another one. The Bank of Canada did a .25% hike last time and has signalled that it really wanted/wants to keep things flat and stop hikes; but then a jobs report came out last week that showed an unexpected drop in the unemployment rate and 150,000 new jobs added. Similar situation in the US.
Tough situation, it should be interesting how this spring shakes out in the real-estate market.
Shame they couldn't get Carney back in, guy is one of the most pragmatic and responsible central bankers we've seen in a long time. The fact that he's running a hedge fund is a real shame.
Heck Powell has even gone so far as to reference Volcker multiple times. It's clear he doesn't want to take his foot off the neck of inflation till he thinks he's brought it to its knees.
Neither are correct. Inflation is a year-over-year metric. Prices now are 6.4% higher than they were in January of 2022. Prices then were 7.5% higher than they were in January of 2021.
In general it's not very informative to talk about a change in the derivative ("inflation rose"). But if you did, you'd have to talk about an immediate delta and not a YoY. So in fact, the headline is simply incorrect. CPI inflation was 6.5% in December. So in fact "inflation is dropping".
What makes you think inflation is a year-over-year (YoY) metric? At the end of the day, inflation is an increase in the general level of prices. Whether you use YoY or month-over-month (MoM) doesn't really change that.
Now, you more commonly see YoY numbers cited because annualizing MoM numbers results in a lot of volatility. Seasonally adjusted MoM numbers are actually what the CPI report mentions first [1].
If you look at macroeconomic models, the inflation variable is typically defined as a one period change in prices (or potentially instantaneous, for continuous time models) as that makes the math easier to work with.
I should probably add that I'm being a little pedantic. For your broader point, the journalists could more accurately say that "the year-on-year percent change in the CPI eased to x% from y%" to be more accurate, but I think most people who are reading it understanding that saying "inflation eased to x% from y%" to be a shorthand for that.
The headline of the article itself more accurately describes what you're saying. Not sure if either the headline was changed, or the need to shorten the headline for HN's annoyingly restrictive character limit caused it to be confusing.
Compared to December, the CPI rose 0.5%, the most in three months, mostly due to the higher cost of shelter, food, gasoline, and natural gas.
And you think inflation is dropping?
Also, if you look at the annual inflation rate, well;
2014 - 0.8% (!)
2015 - 0.7 (!)
2016 - 2.1
2017 - 2.1
2018 - 1.9
2019 - 2.3%
2020 - 1.4% (!)
2021 - 7%
2022 - 6.5%
2023 (so far) - 6.4%
So, this means the FED will raise rates, by a lot. Because they cannot keep a 6.4% inflation rate going. And we have not had a business climate with inflation this hiugh for years. You can pretend like things are fine, but they are not.
Or simple math because if purchasing power of currency goes down by 2% then nominal profits have to increase to maintain the same profit margin.
If a business has a 3% profit margin, would you expect them to have a 2% profit margin 5 years from now, and 1% profit margin 10 years from now, and 0.1% profit margin x years from now?
Engineers don't always get these, as their pay isn't based on the living cost, but on the market value of their skills.
Workers on the minimum wage should typically get cost-of-living adjustments, because they get a wage and not a real salary.
This is why this is called the minimum wage. They don't get money based on their contribution to the company, but just the amount of money to cover costs, and to be able to show up at work and be healthy the next day. So their wage should increase with inflation.
In some country, the minimum wage is calculated on the minimum amount of money that anyone should spend to keep the economy running. It's a bit more than the amount to still be alive the next day, but the same logic and the adjustment would still apply.
Engineers (which seem to make the bulk of the reader in HN) are usually paid on a market value basis. You negotiate your salary based on your skills, not the price of commodities ! (You can't reasonably complain to HR about the rising price of eggs when you get more than twice the minimum wage).
If you want a raise, get better skills and a better job ! Because you can afford that car even with the inflation. If your market value changes, your salary will also change.
But there is no direct link with inflation.
For example, inflation soars, but layoffs are happening in Cali, so salaries don't go stonk.
EDIT : check out https://en.wikipedia.org/wiki/Minimum_wage#Economic_models !
In a liberal perspective (with supply and demand and stuff. I don't like it, but it's a spherical cow), the rising minimum wage doesn't impact the equilibrium, it's just a new line. So whoever was on a equilibrium much above the minimum wage won't be affected !
Only the least paid jobs will be adjusted for inflation (when the minimum wage is over the equilibrium, or close to it)
> You negotiate your salary based on your skills, not the price of commodities !
Salaries are denominated in USD - so a decrease in the value of USD is less than it was. Unless your value to the company also decreases with inflation, then salary should be renegotiated.
>your value to the company also decreases with inflation
Management capitalizes on the difference between the value that is created and how much you're paid. (according to yet another liberal perspective that I don't like).
So why would they increase your wage, if other companies are doing layoffs ?
>then salary should be renegotiated.
Yes, but from your perspective, the perspective of unions (or from a Trotskyist perspective where workers create value and collectively decide to share it). Not HR's
I had the "opportunity" to graduate in times when more layoffs were happening than nowadays (covid). And I can tell you how these companies that still hired were accepting the cheapest applicants, instead of sharing the value they would create (I was even hired bellow the minimum wage, because the local government was promoting contracts of 'apprenticeships' as a loophole to not pay engineers who were desperate for a first experience)
I can also tell you how fast I changed jobs and had a dirac of better pay, despite a continuously increasing productivity, just because the job market changed overnight.
So HR doesn't care about your value. They check your market value, and what you would bring to the company for that market value (the difference being their loss or their profits)
They don't pay you because they like you, nor because they like engineering. They need their work to be done, in an efficient and reasonably cheap manner ! (and they would happily pay you a minimum wage or bellow, if that were your market value)
> Management capitalizes on the difference between the value that is created and how much you're paid. (according to yet another liberal perspective that I don't like). So why would they increase your wage, if other companies are doing layoffs ?
Right - any employer is going to pay as little as they think they can get away with. As an employee, you have to convince them of two things: that you can make more elsewhere, and that you provide more value to them than your labor costs.
> Yes, but from your perspective, the perspective of unions (or from a Trotskyist perspective where workers create value and collectively decide to share it). Not HR's
Well... at least in the environment that I'm operating in (the US), employment is an arrangement at the discretion of either party. I'm saying that significant inflation is justification for the employee to request modification.
> I had the "opportunity" to graduate in times when more layoffs were happening than nowadays (covid). And I can tell you how these companies that still hired were accepting the cheapest applicants, instead of sharing the value they would create (I was even hired bellow the minimum wage, because the local government was promoting contracts of 'apprenticeships' as a loophole to not pay engineers who were desperate for a first experience)
I'm almost 40, and have been in tech in some form for almost two decades. From my perspective the labor market is cyclical.
The current state isn't nearly as bad as it would appear based on my observations. I'm still getting lots of recruiter spam, and my network is still sharing open positions privately - if anything, that avenue in particular has _increased_ since the pandemic. Yes, layoffs are happening, but companies are still hiring as well. That seems to be doubly true for more experienced engineers.
At the end of the day, everyone has to decide what they'll accept. I know that I would take less compensation to continue working where I am than I'd require if I were to be wooed away to another employer. I know the environment where I work now, and I believe in our "mission". A new employer would represent a significant additional risk to me, and additional compensation would be required to offset that.
> So HR doesn't care about your value. They check your market value, and what you would bring to the company for that market value (the difference being their loss or their profits)
I agree :)
The value I bring to the company is the _upper bound_ to what compensation I could reasonably ask for. My cost to the company is a function of my total compensation.
I don't expect to capture all of that. From my perspective, my employer is enabling me to convert my labor into real value. That service is itself valuable, as I don't have a way to do it on my own at the same rate.
I _do_ expect that inflation will mean that my employer will raise the cost of our product over time - because money is worth less. Some of that increase can be passed on to me, and to other employees that are willing and able to ask for it.
> They don't pay you because they like you, nor because they like engineering. They need their work to be done, in an efficient and reasonably cheap manner ! (and they would happily pay you a minimum wage or bellow, if that were your market value)
Agreed, and I have no issues with that. That's how I _want_ it to work!
I wouldn't be willing to work for less than about 2/3 of what I'm making today, because that's what I can earn completely on my own. Anything over that means employment is the more profitable option for me. At that point, it's a matter of asking:
* am I producing more value for the company than I cost?
* am I able to find a more acceptable arrangement elsewhere?
Fascinating how different outlets are reporting this. The WSJ right now has it headlined "Inflation Cooled to 6.4% In January". https://www.wsj.com/
So is it rising or cooling? Can the central banks ease rate increases? Or does the WSJ just hope and pray that the Fed will stop, just please make it stop?
Cooling doesn't mean dropping. It means less hot. If you take a lasagna out of the oven to cool but decide to cut in after only waiting a minute, it will still be too hot. The Fed is trying to keep your lasagna nice and warm after burning the last tray.
Reporting is always shit, you can't really trust the journalist or the editor that put the title to give you an accurate picture
Both are true, too
Inflation cooled, because Year over year in January is 6.4%, while in December it was 6.5% and in November it was 7.1%. So it has a downward trend
Inflation was 0.5% month over month in January, which was higher than the market expected 0.4%
The overall story is that inflation seems to be slowing down, but the market seems to think that the slowdown will happen quicker than it actually is, possibly making the Fed raise rates
It rose. Period. There is more inflation. That is what the .5% increase means. And yes, you are right, the WSJ just wants it to stop. Or shoudl I say Rupert Murdoch wants it to stop.
Calculating a single number meant to represent inflation is silly. Inflation is more like a multi-dimensional field, analogue to air pressure, inside of a complex system (the atmosphere) and as such cannot be represented by a single number.
Additionally the entire system of bureaucrats and politicians involved into calculating inflation have no incentive to accurately report inflation.
They want to save on pensions, social security entitlements and wages. The bankers and economists want to make their fund performance look better in real terms by downplaying inflation.
Keeping this in mind, I suspect inflation as has been somewhere around the S&P500 returns each year, but the people in power obviously benefit from linking wages to a cooked inflation number while they largely keep their money's value through investments.
Past 7 months inflation is 3.25% annualized, while fed funds rate is expected to be 4.75% next month. We're seeing high interest now for inflation that was 8 - 16 months ago.
Everyone was telling me last week that this was not going to happen.
There is no way inflation will be reduced until the FED rate is well above 7%.
If you thought you were hearing about a lot of lay off the last month, just wait. People do not have money, and when they do not have money they cut spending.
Economists surveyed by Dow Jones had been looking for respective increases of 0.4% and 6.2%. So it was not "within expectations". And CORE CPI is even more improtant it increased 0.4% monthly and 5.6% from a year ago, against respective estimates of 0.3% and 5.5%.
"While price increases had been abating in recent months, January’s data shows that inflation is still a force in a U.S. economy in danger of slipping into recession this year."
ANNNNNDD....they changed the weighting.
"January’s CPI report will take some time to analyze, as the BLS changed its methodology in how it reports the index. Some components, such as shelter, were given higher weightings, while others, such as food and energy now have slightly less influence."
Food and energy? Less influence? Housing prices, which are slowing, giving more weight? Hmmmm.....
Consensus is a band with 6.2 being the median. No serious analyst would have said it “can’t be over 6.2”. 6.5 was the top of the bell curve I saw as late as yesterday.
6.4 is just not a weird number and won’t change any market expectations.
However the CPI metrics is still reporting shelter inflation at 8.0% YoY and a 9.6% annualized rate MoM. Within the next few months we should see a very notable decline in the shelter component of inflation as it heads towards zero. The reality is because of this lagginess, "true inflation" this time last year was probably closer to 12%+, and as of the last few months is probably closer to 3%.