Has America entered into a dreaded stagflation?

[Annie]

The inflation rate currently stands at 2.3%, lowest point this year and the average for the last 10 years is 2.6%. The highest rate was in 2008 at 3.85% and the lowest in 2009 was -.34% Please explain why you think we are entering a period of stagflation with inflation rates so low and the rates trending downward. The last stagflation in the US was in 1980 with inflation reaching 13.58% and unemployment at 7.5%.

http://inflationdata.com/inflation/inflation_rate/historicalinflation.aspx

Take out housing deflation, count energy and food, that would be inflation. The wrong items are included and missing from the index.

Why on earth would you take out housing? Almost everyone I know spends 15-20% of their income on housing. It accounts for 14% of GDP. There is absolutely no reason whatsoever to take this out, unless you are trying to manipulate the numbers to show high inflation.

Everyone knows why energy isn't included, it is incredibly volatile. You want energy included? Then you must be prepared to admit for the last month we have been in a deflationary period as energy prices have been tumbling. Which is exactly the opposite of what you are trying to prove.

The bubble burst, the net worth is so far down, if things ever turn around, it will be at least 15 years to get back. That segment though, while it hit most folks hard, is not going to be a worry at all regarding inflation. Indeed, the negative and stability of that negative, makes it an unfair weight on all the other pressures rising to take what little is left of folks income-you know, the 'left over money' to pay that mortgage on the house that isn't worth what one is paying. Or to buy food, which is way up. Or clothing, same as food. Etc.

 

[pinqy]

When you consider 50% of the unemployed have been unemployed for over 2 years....that certainly fits the bill of sustained high unemployment.

You just like making numbers up, don't you? 42.8% of unemployed have been unemployed 27+ weeks. table A-12
So if less than half have been unemployed more than 6 months, how can more than half be unemployed more than 2 years? First inflation, now umployment, you just make numbers up?

 

[BakshisMouse]

As a percentage? Umm, the 60's, 70's 80's and 90's were all higher.

File:Changes in US Money supply.svg - Wikipedia, the free encyclopedia

The total money supply has increased but the rate of increase has remained nearly the same for 20 years.
http://upload.wikimedia.org/wikipedia/commons/c/c4/Components_of_US_Money_supply.svg

that won't last, wait until the borrowing costs which they surely will, rise to the historic norm of 5%....then we are fucked and guess what?

Au contraire! I think that these low borrowing costs will last for a long time!

I think we are following Japan's trajectory.

Indicators for JAPAN

Despite steadily accelerating Japanese federal debt, and multiple S&P downgrades, Japan's borrowing costs have remainded extremely low for over 10 years. Their current yield on a ten-year bond is 0.86%. Plus, they have a long-term deflationary outlook.

In a way, they're having a better time with their current economy than we are having with ours. They never have had such a large unemployment problem as we have now.

 

[Flopper]

Why on earth would you take out housing? Almost everyone I know spends 15-20% of their income on housing. It accounts for 14% of GDP. There is absolutely no reason whatsoever to take this out, unless you are trying to manipulate the numbers to show high inflation.

Everyone knows why energy isn't included, it is incredibly volatile. You want energy included? Then you must be prepared to admit for the last month we have been in a deflationary period as energy prices have been tumbling. Which is exactly the opposite of what you are trying to prove.

CPI includes food and energy. Inflation rate comes from the CPI.
Core CPI is the same number but excludes food and energy due to volatility. The Federal Reserves uses Core CPI as a tool in determining monetary policy.

Actually, the Fed stopped using the CPI about 10 years ago. They use the core PCE now.

Correct, which excludes the most volatile items such as food and energy.

 

[Flopper]

Inflation is truly around 7%...that meets all three requirements for stagflation.

Where did you get 7% as the current inflation rate?

 

[bobgnote]

CPI includes food and energy. Inflation rate comes from the CPI.
Core CPI is the same number but excludes food and energy due to volatility. The Federal Reserves uses Core CPI as a tool in determining monetary policy.

Actually, the Fed stopped using the CPI about 10 years ago. They use the core PCE now.

Correct, which excludes the most volatile items such as food and energy.

. . . which are related; as energy costs increase, food prices rise.

No politician has admitted the desperate need to re-green, despite the crazy media for restricting CO2 and other emissions, such as Kyoto Accords or Clean Air Act.

You cannot petition the lord, with that sort of chickenshit prayer! You need positive action, to re-green the planet. This means hemp and switchgrass and smart plants, for biomass and re-greening deserts, polluted lands and seas, and to farm semi-arable land.

You don't correct shit, by being an asshole. You have to get out, and grow something.

Hidden cost processes in the wars on drugs and Islam need to be reduced and averted.

We will never correct, where real estate inflated, on war, corruption, and immigration. The borders are closed, now. So don't expect a recovery, of a shit-pile, in the wake, of a parade of assholes. Won't happen.

Omitting food and energy from review is a device of propagandists. Meanwhile, CO2 is up to 400 ppm, the top equilibrium without humans is 280 ppm, and CO2 may be headed, for 900 ppm! Earth to assholes! A correction to population will occur, before the lousy, inflation-on-corruption economy 'recovers!'

 

[BakshisMouse]

. . . which are related; as energy costs increase, food prices rise.

No politician has admitted the desperate need to re-green, despite the crazy media for restricting CO2 and other emissions, such as Kyoto Accords or Clean Air Act.

You cannot petition the lord, with that sort of chickenshit prayer! You need positive action, to re-green the planet. This means hemp and switchgrass and smart plants, for biomass and re-greening deserts, polluted lands and seas, and to farm semi-arable land.

You don't correct shit, by being an asshole. You have to get out, and grow something.

Hidden cost processes in the wars on drugs and Islam need to be reduced and averted.

We will never correct, where real estate inflated, on war, corruption, and immigration. The borders are closed, now. So don't expect a recovery, of a shit-pile, in the wake, of a parade of assholes. Won't happen.

Omitting food and energy from review is a device of propagandists. Meanwhile, CO2 is up to 400 ppm, the top equilibrium without humans is 280 ppm, and CO2 may be headed, for 900 ppm! Earth to assholes! A correction to population will occur, before the lousy, inflation-on-corruption economy 'recovers!'

I don't think that headline inflation excludes food and fuel. It just doesn't focus on them exclusively.

The prices of food and fuel are volatile. If we just look at them, the inflation rate is probably higher than headline inflation. However, because of the volatility, they can easily deflate. They are not a useful indicator of underlying inflation.

Headline inflation is often based on "sticky" price inflation.

Some prices in the economy fluctuate all the time in the face of supply and demand; food and fuel are the obvious examples. Many prices, however, don’t fluctuate this way — they’re set by oligopolistic firms, or negotiated in long-term contracts, so they’re only revised at intervals ranging from months to years. Many wages are set the same way.

The key thing about these less flexible prices — the insight that got Ned Phelps his Nobel — is that because they aren’t revised very often, they’re set with future inflation in mind.

Source

These "sticky" prices are not accelerating in value. That should mean something to anyone who cares to read.

^^^^
Still pertinent.

 

[BakshisMouse]

Oh, and lookey here:

Economic News Release: Bureau of Labor Statistics.

Seasonally adjusted changes from preceding month:

(Numbers in order, October 2011, November 2011, December 2011, January 2012, February 2012, March 2012, April 2012, Unadjusted 12 month ended April 2012.)

Food...................... .2 .1 .2 .2 .0 .2 .2 3.1
Food at home............. .2 .0 .2 .0 .0 .1 .2 3.3
Food away from home (1).. .2 .3 .2 .4 .1 .2 .3 2.9
Energy.................... -1.8 -.5 -1.3 .2 3.2 .9 -1.7 .9
Energy commodities....... -2.6 -.6 -2.0 .9 5.7 1.7 -2.6 3.1
Gasoline (all types).... -2.8 -.9 -2.1 .9 6.0 1.7 -2.6 3.2
Fuel oil (1)............ -.5 2.7 -1.0 1.4 2.8 2.7 -1.1 .9
Energy services.......... -.4 -.4 -.2 -.8 -.8 -.4 -.2 -2.4
Electricity............. .2 .2 -.1 .0 .0 -.8 .2 .6
Utility (piped) gas service: -2.6 -2.6 -.6 -2.9 -3.4 .9 -1.8 -11.6

 

[BakshisMouse]

For the above post, it might be helpful to click the link.

For those of you who say that that data must be falsified by Obama minions: What would you be saying if the Bureau of Labor Statistics got similar numbers under a Republican administration?

 

[itfitzme]

Inflation is truly around 7%...that meets all three requirements for stagflation.

Where did you get 7% as the current inflation rate?

It comes from Shadow Stats, run by John Williams. He "estimates" the error in the CPI, then adds this estimated error into the existing CPI. So he basically is saying that the CPI is in error so I'm gonna use it but adds an new error by estimating the error." He plans on publishing the methodology when he can find someone that actually has a degree in economics and mathematics to represent him.

Of course, he doesn't just present the data, if you want to know what the "real" inflation rate is, you have to subscribe. He's got a an excellent thing going there. I wish I had thought of it. He does provide a graph, so you can estimate his estimate the he gets from estimating the error in the CPI estimate.

Of course, his method is surely better than over a half decade worth of research by hundreds of thousands of economists and mathematicians around the globe.

The problem is, over the long run, the two would diverge so much that it would be clearly obvious which doesn't make sense.

For all it is worth, you can just add 5% to the CPI and get the same number. He adds no new information.

Oh, wait, they do.

 

[itfitzme]

But saying it's the current state of the economy (which I agree with, by the way) doesn't really line up with your argument that lack of skills is a major factor.

I try to hold to ideas that are, at least, testable.

When we speak of stagflation , we are discussing two things, unemployment and inflation. I'm just making note of that as a check that I don't inadvertently add to taking things off topic. Unemployment leads to the question of whether we are looking at structural or frictional issues. And, changes may show up in the labor force participation rate which has declined since about 2001. Something has been going on for a good decade.

There are a number of articles that address this.

www.bls.gov/opub/mlr/2006/10/art3full.pdf
Trends in labor force participation

www.prb.org/pdf08/63.2uslabor.pdf
U.S. Labor Force Trends 2008

www.kc.frb.org/publicat/econrev/pdf/12q1VanZandweghe.pdf
Interpreting the Recent Decline in Labor Force Participation

http://research.stlouisfed.org/publications/review/08/01/DiCecio.pdf
Changing Trends in the Labor Force: A Survey 2008

http://ftp.iza.org/dp2991.pdf
What Explains Trends in Labor Force Participation of Older Men in the United States?

These might shed some light on things.

It becomes a question of degrees, magnitudes, as well. There are always some structural changes going on, but if it is a major factor is questionable.

The economy changes incrementally, at the margin. And the trend is the difference between two factors, 100 of one vs 110 of another. 100 jobs added in food service and 110 added in phlebotomy is a trend of 10 in medical services.

A large portion of the unemployment, even the lack of entry into the labor force, is among the 19-25 age group. Are they no finding jobs because there is a lack of demand for unskilled labor products? Is it because there is demand that is being taken up by older or even non-citizen labor? Is it because there is potential demand for skilled labor in medical services? How do we even measure potential demand? The proof is in the pudding, as they say, so we really don't know that there was potential demand until it gets filled. And it can be a combination, sluggish demand due to lack of flow of money that, should it exist, would purchase the services provided if there were workers to provide it.

What I do know for sure is that there is a demand for phlebotomists that will find work after doing a year of volunteer work. There is a demand for trained medical technologist and administration assistant. There is a demand for truckers, free training for an 8 month contract will get a job. And there are opening in established products like grocery stores. Which is adding more faster becomes the question. Which is adding jobs at a rate above normal population grower is more to the point.

The not in the labor force percentage is extremely low in the 30 to 35 year old category. It is excessive in the 19-25 and high in the 60-65 year old categories. A major net flow is from employment to retirement. It is suggestive just looking at the flow and if you ask the BLS, they say that this is correct.

That 19-25 year old category is an indicator of a lack of skills. Though, the displacement by immigrant workers begs the question as to whether to interpret it as a lack of jobs or excess labor.

This is the direction that things are lining up for me. Some of it becomes an issue of where to draw the line between to categories which are a bit fuzzy. Some of it is a matter of it becomes an issue of not being able to really tell what the rate of change is.

I don't have a definitive description of the difference between structural, frictional, and simply depressed economy unemployment. I read a statement that the first two are not simply exclusive. Frictional unemployment is defined as the market trying to match the skills to the job. But, where do we draw the line when it comes to skilled vs unskilled? Is a retail cashier a skilled position? Do bank tellers really need a bachelor's degree? Employers want a drop in fit. What about transferable skills? If employers are not hiring people with transferable skills, is that a lack of training or frictional unemployment.

Oh, and 7.5% was considered to be the natural rate back in the stagflation of the '70s. So is 8.5% that much different?

Oh, and back in the '60s, women were a much smaller part of the workforce, with the labor force and the employment rate being far lower than it is today.

Oh, and here is the perception that really gets me with the economy. Typical control systems seek a steady state at some fixed level. The economy is a constantly growing system, increasing population, efficiency, standard of living, and CPI. The employment rate has been relatively flat, employment just growing with population. If the economy were at "full employment". This is exactly what it would do. So, it is at some steady state condition.

Lacking a definitive description, I accept fuzzy rather than inadvertently force a distinction that I later have to undo. So, yes, I am intentionally allowing the two to not line up.

Have you ever seen a clothing material that is made up of blue and red threads. When you look at it from a distance, it appears purple. It isn't blue, it isn't red, and it really isn't even purple. What color do I call it? Do I describe it as blue and red? If it is 60% red and 40% blue, is it correct to call it red?

I'm comfortably uncomfortable with Shrodinger's Cat being both dead and alive simultaneously.

So, for now, the economy seems to be sitting at the steady state. It has been there for about two years. Clearly, it is not going to jump from 8.5% to 5% overnight. So I accept being comfortably uncomfortable with a slowly changing natural rate with underlying structural changes that cannot be distinguished, at the margin, from underemployment, decreased labor utilization and frictional unemployment.

So, yeah, you are so right, it isn't lining up well.

 

[Polk]

The Fed could decide to raise interest rates & write down or wipe out all the 13week, 2, 5 & 10 year T-Bonds it has been buying with QE1, QE2 & Operation Twist. That way the Government would not miss a debt payment due to high interest on it's debt like Greece. This would prevent inflation.

It would also be really stupid.

 

[EdwardBaiamonte]

I try to hold to ideas that are, at least, testable.

so do you hold the idea that Republican philosophy is superior to Democrat? Why?

for a while you were saying middle of the road? Do you hold a different idea now? Is it all too complex for you?

 

[pinqy]

Example 2
Applewood bacon and standard platter bacon.

Year one
Aplwd Bacon - $3 per lb.
Platter - $2.20 per lb.
Americans spent $1 million for bacon.
Of that 40% was Aplwd or 133,333 lbs. ($399,999)
60% was platter or 272,727 lbs. ($599,999)
406,060 lbs for $1 million spent.
CPI measurment = $2.46 per lb. This is the "consumer experience".

Year two...
Aplwd Bacon increased 4% - now $3.12 lb.
Platter bacon increased 5% - now $2.31 lb.
Because of the increase and higher unemployment etc. people buy more of the Platter bacon.
Year two
Aplwd - 30% of the market
Platter - 70% of the market
Americans still spent $1 million on bacon.
Aplwd = 96,154 lbs ($300,000)
Platter = 303,030 lbs ($700,000)
399,184 lbs sold for $1 million spent.
CPI measurement = $2.50 per lb.
Inflation rate = 1%

True price increase average = 4.5%
CPI - 1%

Government tells people bacon prices have barely rose...basically steady.

Ok, finally back at work so I can make sure my formulas were correct.
First, the CPI-U uses a LaSpeyres index, meaning it uses the weights from the base period.
A Laspeyres is (ΣPtQ0)/ (ΣP0Q0) * 100. Setting Year 1 as the base year of 100 (since that's P0Q0/P0Q0), we look at Year 2 as (3.12*133,333+2.31*272,727)/(3*133,333+2.20*272,727) *100 = 104.6 or an increase of 4.6%

Although in truth, at the level of bacon, consideration is taken of substitution, so a geometric means index is used instead. That would be Π(Pt/P0)^w or (3.12/3)^.4 * (2.31/2.2)^.6 = 104.599 or a change of 4.6%

Alternately, a Paasche index which uses current quantity and past price (ΣPtQt)/ (ΣP0Qt) * 100 could be used, giving (3.12*96,154+2.31*303,030)/(3*96,154+220*303030)*100= 104.7 or a change of 4.7%

A Fisher ideal index combines the two for (L*P)^.5 = 4.65% increase.

It's not possible to use current weights, because there's no time to collect them.

Your bizarre method of just averaging percentage changes without regard to quantity is odd. Your'e saying that a 100% increase for a 50 cent pack of gum carries more weight than the 2% increase in a $20,000 car. You'd have the inflation at 51% using just those two items when in reality the change in cost would be 2%

The whole point is to emulate change in the cost of living, but you for some reason seem to think that's wrong. I don't know what advantage you think your method would provide...it's not measuring anything like reality. Your'e actually underestimating inflation in your example.

 

[Polk]

Example 2
Applewood bacon and standard platter bacon.

Year one
Aplwd Bacon - $3 per lb.
Platter - $2.20 per lb.
Americans spent $1 million for bacon.
Of that 40% was Aplwd or 133,333 lbs. ($399,999)
60% was platter or 272,727 lbs. ($599,999)
406,060 lbs for $1 million spent.
CPI measurment = $2.46 per lb. This is the "consumer experience".

Year two...
Aplwd Bacon increased 4% - now $3.12 lb.
Platter bacon increased 5% - now $2.31 lb.
Because of the increase and higher unemployment etc. people buy more of the Platter bacon.
Year two
Aplwd - 30% of the market
Platter - 70% of the market
Americans still spent $1 million on bacon.
Aplwd = 96,154 lbs ($300,000)
Platter = 303,030 lbs ($700,000)
399,184 lbs sold for $1 million spent.
CPI measurement = $2.50 per lb.
Inflation rate = 1%

True price increase average = 4.5%
CPI - 1%

Government tells people bacon prices have barely rose...basically steady.

While zeroing in on the market for one good (and a food item at that) is a pretty poor way to talk about the inflation, let's take your example at face value. There is absolutely nothing wrong with conducting the calculation in that way. It's called the substitution effect, and it's something that everyone with even an elementary background in economics understands as valid.

 

[ekrem]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

Yes, stagnation is the word I would use.

Sputnik moment they called it.

 

[EdwardBaiamonte]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

of course thats idiotic since the Fed can take money out as easily as it puts it in. Producer price index came out today showing deflation, not inflation; so no inflation yet in sight

 

[BakshisMouse]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

of course thats idiotic since the Fed can take money out as easily as it puts it in. Producer price index came out today showing deflation, not inflation; so no inflation yet in sight

Why is it that this is the only issue that you are actually correct about?

 

[EdwardBaiamonte]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

of course thats idiotic since the Fed can take money out as easily as it puts it in. Producer price index came out today showing deflation, not inflation; so no inflation yet in sight

Why is it that this is the only issue that you are actually correct about?

if the absurd liberal thinks intellectual conservatism is incorrect please state your most substantive example rather than waste our time being stupid

 

[BakshisMouse]

of course thats idiotic since the Fed can take money out as easily as it puts it in. Producer price index came out today showing deflation, not inflation; so no inflation yet in sight

Why is it that this is the only issue that you are actually correct about?

if the absurd liberal thinks intellectual conservatism is incorrect please state your most substantive example rather than waste our time being stupid

^^^^
Back to your usual form so soon?