US inflation means families are spending $709 more per month than two years ago

https://www.cnn.com/2023/08/11/economy/inflation-rate-spending/index.html

by paulpauper • 3 years ago

171 315 3 years ago

cnn.com

axpy906• 3 years ago

Assuming $709 an average number over all cost of living locations. We’re spending more than that.

maxlamb2• 3 years ago

709 is the average increase, not the spend

zranger• 3 years ago

Too pedantic I assume to point out that by definition inflation means they aren't actually spending more?

candiddevmike2• 3 years ago

As a parent with kids, I really don't know how folks are getting by with the prices of everything. I know folks who keep eating out, buying new vehicles, and even building new houses and I'm left scratching my head wondering how they afford all of this.

I'm not saving nearly as much as I was years ago and I think my "lifestyle" has decreased post COVID (few vacations, eating out is a treat, gifts are for birthdays/holidays). Is everyone swimming in debt?

throwaway2203• 3 years ago

yup, with daycare costs we're technically top 10% and still kinda hand to mouth in a MCOL area.

coffeebeqn2• 3 years ago

My savings accounts look wistfully as I spend more on daycare per kid per month than I used to pay for rent not too long ago

candiddevmike2• 3 years ago

I think the concept of cost of living areas is out the window. Mortgage and rent may be relatively COL dependent (kinda, but everyone is incentived to even it out nationwide), but for everything else I actually think the competition within big cities/"HCOL areas" drives down prices. In my "LCOL" flyover area I'm seeing $30+ pizza and $18 burgers, along with $10 beers at bars. It's insane.

fullshark2• 3 years ago

Is everyone swimming in debt?

Probably

https://fred.stlouisfed.org/series/CCLACBW027SBOG

fuckthisshit3• 3 years ago

Debt is a socialized hallucination. If people refuse to give up on it, we can just take the money back from the rich too through taxes. Reaganomics legalized looting pensions to invest on Wall Street. There's precedent for expropriation of wealth of the dying. What are a bunch of retirees going to do? Fight back against 20-30 somethings?

Boomers benefited from New Deal then killed it. There is no market, just a legalized generational Ponzi scheme.

011000115• 3 years ago

Not so bad when adjusted for inflation but not great: https://usafacts.org/articles/the-state-of-household-debt-in...

I'm not sure what it looks like if you adjust for population growth.

Debt to GDP is looking good, but with wealth inequality as bad as it is(thanks Jerome!) I'm not sure that matters as much.

011000115• 3 years ago

I don't know how most people are doing it. For me it's because the asset bubble has inflated my stock income. I suspect a lot of folks who owned homes, stocks and other assets are feeling the wealth effect. For the rest of society, I don't know why they're not in the streets with pitchforks.

Geee• 3 years ago

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

itake5• 3 years ago

my stock income

My investment portfolio profits (or RSU vests or bonuses) never make their way to my checking account.

Are people really dipping into their investment accounts to cover living costs? Maybe for home or car purchases?

newhotelowner2• 3 years ago

One of the biggest opponent of minimum wage increase are the one who's in that category.

43% of Ohio voters voted against their own interest last week. Majority of them are in lower side of the income.

paulpauper• 3 years ago

wages have gone up too

qbasic_forever6• 3 years ago

Not nearly as much as inflation. Groceries alone are up something like 40% in the last 2-3 years. Your and everyone else's wages have not risen that fast on the whole.

coffeebeqn2• 3 years ago

Have they? My last raise was 4%. Looking at job postings upgrading my salary looks difficult

silisili3• 3 years ago

Same. I make decent money and used to save thousands per month. Now I'm lucky to stash away high hundreds a month, but any expense like new brakes wipes that out.

I wonder how in the world everyone else is getting by. Maybe we're all just smiling and pretending here...

xenospn• 3 years ago

I live alone and just realized I’ve been spending $1300/month this year on groceries. For one person.

throwaway67342• 3 years ago

How? Where is all of your money going?

qbasic_forever6• 3 years ago

There is a _LOT_ of debt being added, household debt is up to something like 17 trillion dollars from like under 10 trillion pre pandemic.

IMHO vehicles are huge drivers of debt. There are almost no cars under $30k now, and the average sale price of new cars is pushing up near $50k. This is for bog standard stuff like Hondas and Fords, not luxury cars. Used cars are incredibly expensive too. People are financing cars for well over 5 years now--I've heard of people on 6 and 7 year loans now just to make monthly payments possible. It's nuts.

gruez8• 3 years ago

IMHO vehicles are huge drivers of debt. There are almost no cars under $30k now, and the average sale price of new cars is pushing up near $50k. This is for bog standard stuff like Hondas and Fords, not luxury cars.

I went on toyota.com and a base level corolla is only selling for $22,795. This includes a "Delivery, Processing & Handling" charge of $1,095. If for whatever reason you think that driving a compact car is beneath you, you can have a mid sized car (toyota camary) for only $27,515.

judge20202• 3 years ago

Credit card debt in the U.S. alone hit 1 Trillion https://www.cnet.com/personal-finance/credit-cards/credit-ca...

JumpCrisscross4• 3 years ago

is a _LOT_ of debt being added, household debt is up to something like 17 trillion dollars

Household debt to GDP is around at a multi-decade low [1]. Payments as a fraction of disposable income, similarly low [2]. Total debt is rising [3]. But non-housing debt rose 5.8% from Q2 2022 to the same quarter '23; that's about inflation.

[1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N

[2] https://fred.stlouisfed.org/series/TDSP

[3] https://www.newyorkfed.org/microeconomics/hhdc

adventured2• 3 years ago

There is a _LOT_ of debt being added, household debt is up to something like 17 trillion dollars from like under 10 trillion pre pandemic

Consumer debt service payments as a percent of disposable personal income - is at 5.6%. In 2016 it was around 5.5%-5.6% - despite far lower interest rates. The same figure was 5.6-6% in the 1995-2000 years.

Household debt service payments as a percent of disposable personal income - at 9-10% this year is at one of the lowest levels in 43 years. That figure was over 11% in the 1995-2000 years.

The ratio of household debt to gdp is around 0.73%. That's lower than 2011-2019 years.

US households are in fact in decent condition, despite a loud minority of people proclaiming the end of the world. The facts do not support the dire claims.

Household assets in Q1 2023: $168 trillion. Liabilities: $19.6 trillion. $149t net worth.

Household assets in Q1 2016: $106 trillion. Liabilities: $14.5 trillion. $91t net worth.

In seven years US households added $62 trillion in assets against $5.1 trillion in liabilities.

The US has gotten dramatically wealthier in the past seven years. That's how people are affording everything.

US gdp per capita is $80,000 (with ~337 million people). That's nearly France + Britain combined. There is a vast underestimation of how much income the US has and how rich the US is.

The US median household has a higher net worth than either Sweden or Germany. And the US household income and disposable income figures are typically among the highest in the world.

koprulusector2• 3 years ago

There are now officially 10 year car loans, 40 year mortgages.

throw__away73913• 3 years ago

IMHO vehicles are the main reason Americans don't feel as rich as they actually are. I've spent the past year living in 22 countries in Europe, Asia, and South America and it's pretty clear in comparison that this is where the money is going. Americans have way, way more income than basically anyone else, but it's all going to cars and driving and the necessary infrastructure and costs associated.

CalRobert• 3 years ago

Just moved to the Netherlands and being car-free covers something like half the rent alone. Nevermind that I don't have to deal with taking it to the shop, to get smogged, paperwork for reg and tax and insurance, etc. etc.

syntaxing• 3 years ago

SAME! I barely saved this year so far and I haven’t been splurging on anything. The car I bought before the inflation burst is now 25% more now. I make good money relatively but I still feel like we’re drowning. Every grocery run is over $200 even if don’t get meat, just the fruits alone are eye watering nowadays.

matsemann• 3 years ago

In addition to inflation, the 4 percent points bump on interests also hurts. (Where I live we mostly have non-fixed mortgages)

Waterluvian3• 3 years ago

I think a lot of people get into a mindset that a 25 year mortgage is meant to be paid off in 25 years, so that mindset guides their entire frame of reference for how large a lifestyle to adopt. I’m not saying to rush through a mortgage. Do whatever you want. But consider not getting into a situation where you’re somehow struggling even though you’re one of the lucky few who can afford to even own a home.

When times get tough they’re no more secure than those who make less.

I’ve seen this with many peers who have Teslas and 1.5M homes who are now struggling despite such an income.

fullshark2• 3 years ago

Is it not meant to be paid off in 25 years?

sarchertech7• 3 years ago

Paying off your mortgage early only really makes sense when you're getting close enough to retirement that you need to move more of your money to less risky investments with a lower rate of return.

zer8k2• 3 years ago

Paying off your mortgage with an interest rate less than inflation is a mathematically verifiable horrible idea. You're short the dollar deeply. Keep that short position for as long as you can because on a long enough horizon you'll be right so long as the Fed continues to manipulate the market.

That doesn't necessarily mean lever up. But it does mean take that extra X% you'd put into your mortgage and place it in some CDs/Bonds/whatever. Or even better, if inflation is still higher than the current rate you could even use it to buy an investment property and then pay that off as slow as possible as well. Let the banks hang themselves being long the dollar!

Debt is only bad when you're losing. The problem is it takes a level of sophistication to understand when you're winning. Hence, the need for Ramsey-type all-or-nothing solutions.

xwdv2• 3 years ago

Debt slaves.

ren_engineer• 3 years ago

401K early withdrawals are up almost 40% YoY and credit card debt is also up massively. If interest rate increases do lead to eventual job losses things will get ugly fast

real estate is the thing to watch, if even a small number job losses happen people will have no choice but to sell even if they want to keep their low interest rate(home prices have stayed relatively flat because everybody is staying put, so low inventory on paper). Interest rate increases have resulted in significantly lower buying power, so home prices will have to drop. Forced sales will cause others to rush for the exit and cause even further price drops

coolbreezetft222• 3 years ago

With kid moving up to public school from pre-k we'll be saving an extra 2500$/month now. And in a couple years when our younger one is old enough that'll be another 2500$/month saved so I'm feeling pretty optimistic.

AuryGlenz8• 3 years ago

Those prices are insane. I'm in a rural area but our daycare is $150 a week.

Aurornis• 3 years ago

I know folks who keep eating out, buying new vehicles, and even building new houses and I'm left scratching my head wondering how they afford all of this.

You can never judge people's financial situations from their spending habits.

Someone in my extended family spent years living large, buying new cars, building new houses, and wearing nice clothes. They had a family business and always said that the business wad doing well. Several years later the husband died unexpectedly. His wife was suddenly struggling to make ends meet, despite nothing actually changing with their "business".

As we later discovered, they were experts at amassing debt. The business wasn't really successful but they had used every possible angle to get more lines of credit, debt, "investments", and loans. They had even made a habit of "buying" supplies from vendors with Net 30 terms, reselling them, and then never paying the vendors back. They moved from state to state to scam new vendors every time they were blacklisted by the all of their local vendors.

That's an extreme example, but it highlights how appearances can differ so much from reality. More commonly, I think a lot of people just never learned how to save anything at all. I know an alarming number of people in their 30s who still haven't bothered saving anything more than the $1-10K they have in their checking account at a given time. When the number goes up, they spend it back down. You could have the same net income as these people but never achieve their level of lifestyle spending because you're doing some savings.

On the other end of the spectrum, many people are actually doing well. Wages are up (contrary to what you see on social media) and people's investments have done very well in recent years. Many of my friends are doing quite well for themselves by simply getting working a little harder to get jobs that pay a little above average and then carefully budgeting and investing over the long haul. Do this for a couple decades with some careful attention paid to where you live and the job you get and it's not hard to get a rather comfortable financial position by 40, especially in tech.

HenryBemis• 3 years ago

I have been listening to plenty of "finance gurus" (i.e. my favorite is Dave Ramsey). I see (here in EU) that young people have 1-2 credit cards. I understand that in the US the number is higher. The dream for any young (female) professional at the tender age of 25 is to own a couple of very expensive bags ("because I deserve it" using credit cards of course).

Consumerism going steady. At least in the US you have the 401k. When I begin a discussion with friends/ acquaintances on "hey guys anyone got a decent EFT? I go my VOOG and SOXX all set up but I am looking to diversify further with some water, consumer, international, etc" and they look at me as if I speak some ancient language.

So.. most save minimal, invest nothing. Paycheck-to-paycheck is a big thing in the US and it is happening in the EU now.

(and don't get me started on parents of 14yo kids buying their kids the new iPhone every darn year)

lotsofpulp9• 3 years ago

(and don't get me started on parents of 14yo kids buying their kids the new iPhone every darn year)

Yes, you should not get started because according to Apple’s 10-K, it does not happen on any meaningful scale. Objectively, phones are being used for longer and longer time periods.

scarface_7414• 3 years ago

I really struggled trying to reply to this without sounding snarky and that’s not my intention.

But it’s simple numbers. They spend less than you do or make more.

JumpCrisscross4• 3 years ago

I really don't know how folks are getting by with the prices of everything

There is a lot of regional variation in production [1] and income [2][3]. On the whole, real disposable income and savings rates are up [4].

But someone in the midwest (income up, annualized, 7 to 11% Q4 '22 to Q1 '23) or Florida (7.9%) is seeing a very different economic landscape than someone in California (0.7%) or Indiana (-1%) [5].

[1] https://www.bea.gov/news/2023/gross-domestic-product-state-a...

[2] https://www.bea.gov/system/files/rpp1222b_0.png

[3] https://www.bea.gov/data/income-saving/personal-income-count...

[4] https://www.bea.gov/news/2023/personal-income-and-outlays-ju...

[5] https://www.bea.gov/news/2023/gross-domestic-product-state-a...

asdgioanionio• 3 years ago

Because their pay also increased. People can generally afford higher prices. Real wages have remained remarkably stable in the last few years.

The article itself says this. Somehow, it manages to spin it into bad news.

Even though prices have soared, real earnings, which adjust for inflation, are stuck at late 2019 levels.

People can afford the same lifestyles they could a few years ago. The US weathered the outbreak of war in Europe and the worst pandemic in generations without serious economic hardship. Somehow, in CNN's view, this is a problem. Real wages haven't been stable. They haven't been resilient. No, they've been "stuck".

lacrimacida• 3 years ago

As a parent with kids, I really don't know how folks are getting by with the prices of everything. I know folks who keep eating out, buying new vehicles, and even building new houses and I'm left scratching my head wondering how they afford all of this.

I hear you perfectly. What I did a while ago was to fully embrace a more frugal lifestyle where attention and time are the most valued. So consumption went to a minimum and all that. Now after prices jumped up we’re where we started and despite being frugal we’re left with a lot less. It is quite unsettling to be honest…

markus_zhang• 3 years ago

Many SWE, for example, are getting good salaries so they can definitely afford that. Just a few hundred samples cam skew one's observations.

wonderwonder3• 3 years ago

It's death by a thousand cuts. New backpack for the oldest, new shoes for the youngest, oil change for the wife's car, leaf guards for the gutters so they don't clog the French drain I had to have installed due to my living room flooding. Dog has to get shots or heartworm meds... Choose the month and there is guaranteed to be $250 - $2000 in incidentals as a homeowner with kids. Wife's student loans kick in next month, $750 a month. It's crippling and I am lucky enough to do fairly well financially. I'm complaining but I'm aware that millions have it way worse than I do.

AndrewKemendo• 3 years ago

Single Father of three here. I’m not swimming in debt but I’m definitely reducing my spend every month significantly.

The price of meat is going wild - on track to double this year

oneTbrain23• 3 years ago

Considering China and middle east largely dumping USD transactions and debts, you will see whatever pricing you have today to double in coming 10 years (assuming Joe and very similar to Joe quality controlling America government for coming decade - mostly now fraud so elections result wont change much). Park your money away from USD (e.g. gold or Bruneian dollar) and prepare your kids for other things than America-centric such as learning to code, and learning Chinese. My nieces are even learning Russians and Koreans beside Chinese and they are in their 20s.

prepend6• 3 years ago

I switched from regular grocery stores to aldi/lidl/walmart. And from eating out 2-4 times a month to eating out 1-2 times.

I also switched to more staple foods like lentils and beans and rice and canned vegetables instead of fresh vegetables. And to buying ground beef on sale and freezing.

It seems kind of crazy that prices keep going up and even simple “luxuries” like a coffee while networking went from $3.5 for a small latte at my local coffee shop in 2019 is now $5.5.

I think for some people it doesn’t seem to affect them and they just pay the higher prices but base costs seem to have really gone up a lot for my family. Fortunately some big expenses are fixed (mortgage and transport) but if they had to change it would be extra rough.

l5870uoo9y• 3 years ago

Most of that increase in spending is driven by housing costs…

I am casually investigating the possibility of moving from Berlin to Copenhagen and some of the apartments in Copenhagen that I am looking at have risen close to 30% in the last few years. This burden of course mainly falls on the younger generations.

ModernMech2• 3 years ago

Every year for the past 5 years I’ve gotten a “merit raise” which hasn’t met inflation, so I’m effectively making less than I was when I started at my job despite having 5 years more experience. My organization puts a negative value on experience, and the only way I can get an actual raise is to jump ship. The story of my generation.

Meanwhile they complain about a hiring and retention problem. Gee, I wonder why?

taway90210002• 3 years ago

> Meanwhile they complain about a hiring and retention problem.

This happens at every company because they realize most people dont leave, or so few leave that it is worth the few that leave.

You have three options

1. Leave

2. Work less given your effective pay increase. Invest the time into finding a better job and into leetcoding

3. (not ethical, but commmon) work less given your effective pay increase. invest the free time into freelance work to make up for lost pay.

AuryGlenz8• 3 years ago

I get a kick out of our local A&W that's had the usual "please be patient we don't have enough workers" sign up for at least a year, with another sign under it saying they're hiring starting at $10 an hour.

I wonder why they don't have enough workers when almost every other retail business around pays 50% or more than that, and it's not like their employees would have to go through a grueling tech hiring process to jump ship.

toomuchtodo• 3 years ago

Because as long as they’re still able to be in business, they’ll just keep dragging along without paying more. Scale this across the economy appropriately.

Is the customer still showing up and living with “please be patient”? Then why reduce margins by paying more?

the_only_law• 3 years ago

Reminds me of when I was visiting a couple years ago, seeing commercials being run by companies desperate for skilled labor, while paying less than the local McDonald’s…

scarface_7414• 3 years ago

Any reason you haven’t changed jobs? A company has at most one full review cycle to not keep up with market before I start looking.

derwiki2• 3 years ago

Not OP but depending on how much job hopping you’ve done, you need a long stay on your resume so it might not be a great option.

ModernMech2• 3 years ago

For me it was first because of covid. I started in Jan 2019, and by the end of my first year when I was scheduled for a raise, I didn’t get it because everyone was tightening things due to the pandemic. So I took a team player attitude and did what needed to be done to get through that period.

Covid receded, and I got an okay raise but it was still below inflation. Then inflation got crazy(er) and my rent finally went up 30%, so that’s when I started making noise about it. They gave me another raise which was higher than they gave anyone else, but still below inflation again.

So now I’m telling them I want at least 10% over what I was making in 2019 or I’m out. Already have something lined up if they try to lowball me, I’m sick of this.

bko• 3 years ago

What I don't understand is this 2% price target. Prices could go up 10% one year, and well call it a success if next year we "tame inflation" by only having our prices go up 2%. Why can't we target to get prices back down? For those on a fixed income, this is money we lost forever. We expect (and see) some prices go down every year (mainly electronics) and it works fine. But god forbid the price of milk goes down a bit after rising 20% in two years.

TuringNYC7• 3 years ago

> What I don't understand is this 2% price target.

It is statistical trickery and a headline number used to make people think things are OK. It is also a convenient number for COLA increase targets which make people think their incomes/pensions are going up (when effectively they are not on a real basis.)

Also, as you note, we re-baseline each year and dont talk about the cumulative compounded inflation e.g., over the past 5yrs.

Americans on fixed incomes (e.g., pension, social security) and those without wage elasticity (e.g., restaurant workers) are absolutely miserable right now because they are squeezed from both sides, even after modest wage increases in 2021/2022. This is not good for a Democracy.

dublinben• 3 years ago

Low wage workers have actually seen the most wage growth recently.

https://www.epi.org/publication/swa-wages-2022/

bagacrap3• 3 years ago

Restaurant workers are probably the biggest winners over the past three years. Their wages are a large component driving inflation.

Mountain_Skies• 3 years ago

Some inflation is seen as good by economists because it pushes money that would sit on the sidelines into "productive" uses. It creates an incentive and a need for risk taking or stored wealth will be eaten away. That this doesn't align with most individual's goal is of no concern to those most interested in productivity and GDP growth.

WalterBright14• 3 years ago

Some inflation is seen as good by economists because it pushes money that would sit on the sidelines into "productive" uses.

The ever-popular Scrooge McDuck cash vault theory. Nobody has a cash vault. Any "cash" is stored in banks, which loan it out into the economy. People who borrow money save/spend it.

sarchertech7• 3 years ago

Between 2008 and 2018 milk prices went down from $3.80 a gallon to $2.90 [1]. So we're actually barely above 2008 prices in non-inflation adjusted dollars.

To your specific point about targeting negative inflation, that's deflation, which most people believe is bad for the economy. Even if there are types of "good deflation", government policy inentionally targeting deflation would almost definitely be a bad thing.

1. https://www.usinflationcalculator.com/inflation/milk-prices-...

FormerBandmate3• 3 years ago

People get hired off the 2% because that’s a baseline level of growth. When the economy is in deflation people will constantly get fired every year, growth basically stops, and you end up with a highly risk averse Japan-type situation.

This is a drastic oversimplification but that’s basically it

kec• 3 years ago

Deflation means a dollar tomorrow is always worth more than a dollar today meaning a rational person should strive to spend as little money today as possible. This eventually locks the entire economy up into a death spiral.

grardb• 3 years ago

I'm curious to know if this is a real phenomenon that has been observed. Would you be able to point me in the direction of resources to learn more about this?

The reason for my skepticism is that even without deflation, a dollar tomorrow is usually worth more than a dollar today, yet tons of people* don't save or invest much/any of their money, even if they're able to.

* I'm speaking from the perspective of an American FWIW.

ZeroFries• 3 years ago

Even with the prices of commodities falling, stock prices can still rise, and as long as this is higher than the deflationary rate, investing still beats hoarding.

WalterBright14• 3 years ago

This eventually locks the entire economy up into a death spiral.

The US economy had zero net inflation from 1800 to 1914. No death spiral.

The whole "2% is good for the economy" is propaganda to hide the fact that deficit spending causes inflation and is a tax on the economy.

tmountain• 3 years ago

Governments are afraid of deflation (prices going down) because consumers can go into a holding pattern (stopping spending while waiting for prices to continue to decrease) which can cause the economy to stall out.

rhyme-boss2• 3 years ago

Prices drop and people spend less? That's silly.

brink• 3 years ago

If our government was actually as "green" as they say they are, they'd aim for this because consumers would slow down consumption to only buy what they need. But they know that inflation is another form of tax, and they're too greedy to say that inflation is anything but "good".

mahogany2• 3 years ago

Is there any evidence that modest deflation actually causes this "holding pattern" in the overall economy? I see this theory stated a lot for the reason that deflation is bad, and it definitely checks out on a basic logical level. But economics is complex right? So I'm curious what the evidence is in the real world.

I can imagine this happening with large deflation (10%, say), but what about 2% or 1%? It's not obvious to me that people would not buy a TV they really wanted if they knew it would be $392 instead of $400 next year. If consumers actually acted this sensitively toward a drop in prices, then wouldn't nearly all consumers wait for sales for all purchases? But we know that is not the case. Hell, if consumers were this sensitive toward their finances, they certainly wouldn't pay lots of interest on avoidable credit card debt, right?

cjbgkagh2• 3 years ago

Speculative asset bubbles seem to tank money velocity more than small amounts of deflation. I think the 2% inflation target roughy yields the maximum long term sustainable capital gains tax.

nostromo2• 3 years ago

Nobody is going to wait a year to save 3% on food or energy.

AtlasBarfed• 3 years ago

Well personally I'm cutting out as much consumption as possible, how is inflation not resulting in big drops in people spending?

You know what causes a downward spiral? People stop buying things, sales drops, layoffs / cuts, people buy less, etc.

I see companies freak out over 1-2% drops in sales, how is inflation not causing people to drop consumption by 10%? I don't travel, I'm eating out WAY less, I am price/bargain hunting far more. I never buy gas without gas price map checking. I'm holding back on as much purchases as possible. I don't even think about buying any clothes not on sale. Hell, I basically don't buy clothes unless absolutely needed.

slaymaker1907• 3 years ago

It’s because that’s called deflation and mainstream economics predicts that it is absolutely catastrophic to the economy, at least if it is seen generally across the whole economy. Obviously, individual goods can decrease in nominal price, but general deflation is thought to lead almost immediately to depressions and recessions.

naijaboiler• 3 years ago

Correct

em500• 3 years ago

Most of the other responses are missing the point of your question. You really asking why central banks don't engage in targeting the price level, rather than price changes (=inflation). In price level targeting, they'd aim for higher (lower) inflation next year if they under-(over-)shot their target this year.

Academics and have studies the pros and cons. I don't have time to post summaries, but maybe someone else can step in:

https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed...

https://www.ijcb.org/journal/ijcb2002_3.pdf

jliptzin5• 3 years ago

You’re supposed to be getting raises to keep up with inflation. Inflation means rising cost of everything, including your labor. What is your source of a fixed income? Even social security has cost of living adjustments.

If it’s an annuity, you can get annuities that vary based on changes to the CPI. If you put a lot of money into a fixed annuity years ago, you did not properly hedge interest rate/inflation risk.

phone8675309• 3 years ago

What you call "not getting a raise" is what companies called "getting a discount on labor"

dragonwriter• 3 years ago

Stickiness of nominal wages means thaf deflation leads to more rapid downsizing in industries facing slowdowns (including transitoy ones), which is among the reasons that the Fed, faced with a dual mandate of price stability and promoting full employment, prefers small positive inflation. There's also reason to believe that deflation is more likely to be sticky once entrenched than inflation, because the knock-on effects produce more deflation.

For those on a fixed income, this is money we lost forever.

Yes, that's a fundamental problem with fixed incomes and why minimum support programs don't tend to use fixed nominal benefits across time. Most people aren’t on fixed incomes, and if we tried to manage price levels around people on fixed incomes, not only would it be bad for everyone else, but it would also threaten the investments underlying the sources of those fixed incomes (which aren’t really fixed, because they can drop, including to 0.)

kevmo• 3 years ago

America should have elected Bernie Sanders.

ndesaulniers• 3 years ago

DNC wouldn't let us.

cscurmudgeon• 3 years ago

America should elect someone who acknowledge the scientific reality of the law of supply and demand.

VancouverMan• 3 years ago

Based on the situation in Canada today, I don't think that would be a good idea.

Pretty much every economic problem and distortion in Canada today can be directly attributed to the socialist policies put in place by the various left-wing and "right-wing" (who are still quite left-of-centre) governments over the last half-century or so.

For example, significant taxation and public debt are needed to pay for the bloated, inefficient, and low-quality provincial public health care and education systems, as well as the various government bureaucracies.

Large, unaccountable bureaucracies have resulted in there being intrusive regulation all over the place, even when it's completely unnecessary.

The high taxation, the intrusive regulation, and onerous bureaucracy make starting and operating businesses in Canada far harder than it should be.

Things that should be simple and routine, such as hiring and paying an employee, becomes a significant burden, especially for small businesses.

Ever-increasing minimum wages, which in many cases are economically infeasible relative to the real wealth that the employees would be creating, discourage job creation, and introduce economic distortions throughout the supply chain.

Excessive regulations have also made it unnecessarily challenging and costly to build homes and buildings for businesses, resulting in high property and rental costs.

The extremely high levels of immigration have only exacerbated many of the aforementioned problems.

That's all just the tip of the iceberg.

Socialist policies have been quite detrimental to Canada, and have noticeably decreased the standard of living over time.

coolbreezetft222• 3 years ago

I just got back from visiting my family in a mid-sized Ontario city and it seems pretty great to me. All of my close friends from high school own homes close to where they work, even the ones who didn't go to university/college. A ton of homes were also actively under construction. Everywhere I drove there were new retail businesses and signs for jobs/hiring. Overall it just seems much more balanced than Seattle where you need to be a dual income tech couple to afford a home

WalterBright14• 3 years ago

Biden did everything Sanders wanted and then some. Look at the result. We're all paying a heavy price.

allthecybers3• 3 years ago

My spouse and I have been talking about this quite a bit lately. Even with two incomes from tech employment we are watching our budget since it feels like everything is extra expensive lately. The income gains we’ve made have only allowed us to maintain versus climb to the next level of lifestyle. It makes me wonder where we will start falling behind.

Obviously we are fortunate to not live on credit cards and have our bills paid, but it feels like we worked hard to get here to be no better off than we were.

I wonder how other folks in the middle class are making ends meet especially trying to afford a home with employers forcing RTO/RTH to HCOL in many cases.

SomaticPirate• 3 years ago

I feel like these anecdotes make more sense with numbers. What is your combined household income? > $250k? I mean, if this is where people are feeling pinched I agree I have no idea how the middle class is surviving

allthecybers3• 3 years ago

Our household income has been in the ballpark of ~$200k for the last three or so years.

scarface_7414• 3 years ago

I bet wherever you are living you have a household income in the top 20% locally. I bet you’re spending a lot more on “something” than the median wage earner in your metro area.

allthecybers3• 3 years ago

Interesting assumptions. In our case you are incorrect. We really don’t ‘spend a lot more’ on anything. Our house was purchased in 2020 under what the bank would fund us for. We are already priced out of our own neighborhood. We have one car paid off and another will be paid off this fall. Our last real vacation was in 2018 and we don’t have kids or pricey hobbies. However we have observed the cost of everyday goods to be growing more expensive every day.

linguae• 3 years ago

This bout of inflation is very demoralizing. In 2020-21 home prices rose by over 30% in the area I was considering (the Monterey Bay Area). Home prices have stabilized since then, but unfortunately interest rates nearly doubled, pricing me out of the market (I tried to buy in 2021 when interest rates were low, but competition was heavy and I lost out to bidding wars). I’d have to move far outside the Bay Area (like Sacramento or Fresno) to be able to purchase a home in a safe neighborhood at current valuations and interest rates, and even then Sacramento has gotten pricey since 2020 (though still a bargain compared to the Bay Area). Food prices (both dining in and at the grocery store) have risen considerably, and my rent has consistently gone up by 8% annually. Yet my salary at my non-FAANG enterprise employer hasn’t caught up with inflation; I get the customarily low merit increases. Unfortunately switching jobs is very difficult right now due to layoffs and reduced investment in tech, not to mention I like my employer and switching jobs in an attempt to make more money means giving up the nice work environment I’m in.

While I’m able to get by, I feel that I can’t get ahead. I don’t see home prices falling anytime soon; the current high home prices are fueled by a lack of inventory caused by people not wanting to give up their 3% interest mortgages, yet if interest rates fall, demand will increase, pushing up purchase prices. The only way out is building more homes, except due to NIMBYism and geographical constraints, the only affordable new homes that are being built are in the Central Valley. I’m seeing the writing on the wall; eventually I’m going to need to make some drastic changes in my career and my location if I hope to own a home instead of being a perpetual renter.

TuringNYC7• 3 years ago

I feel blessed to work in Tech, where -- however bad the economy is -- most of us dont face absolute deprivation as those in some other industries.

That said, basic expectations of things growing up are just unreachable for many. My parents lived much more comfortable lives than I do. My grandparents even more so.

Recall how food inflation was a major suspected cause of the Arab Spring (https://www.pbs.org/newshour/world/world-july-dec11-food_09-...).

US leaders should be careful. People get upset when they have nothing to feed their children. I hope we solve these problems with sensible fiscal and monetary policy.

rayiner2• 3 years ago

That said, basic expectations of things growing up are just unreachable for many. My parents lived much more comfortable lives than I do. My grandparents even more so.

My wife’s grandma got married as a teenager to a trucker passing by because her family couldn’t support all their kids. This was not unusual in that generation.

TuringNYC7• 3 years ago

Firstly I'm sorry to hear about your family's situation. I certainly dont mean to imply everything was rosy.

I will compare very roughly and anecdotally across generations. I'm an Engineer (CS). So was my father, though he ended up doing accounting. So was my grandfather (civil.)

My grandfather owned a home by 23 on his engineering salary.

My father owned a comfortable home by 35 on his salary. The salary:homeprice ratio was almost 1.5:1

My salary:homeprice ratio for the same exact house as my father is 4:1. Arguably, i'm better educated than my father and grandfather, and have much better credentials.

Im not trying to be ungrateful for what has been given to me, but the ratios seem completely off.

tiffanyg• 3 years ago

My parents lived much more comfortable lives... grandparents even more so...

Interesting how you stopped at "grandparents".

To be clear, absolutely not intended as any kind of attack on you or what you've written - just some thoughts passed on to me that made it easier to be grateful for that which is in my life, period:

Consider past generations - we're in "the 1%" by that metric alone. No / hardly (any "real") medicine, completely unstable food supplies, other tribes coming over the hills and killing everyone ... and, that's describing more of the "history" part of human existence, to date.* Further, a core bias of psychology is "the golden age bias".** Including feelings as simple as: when events are in the past, things can seem so "neat", "orderly", and ... "simple". Oh for one income to feed a family of four, right? But, how many had that experience - what proportion? And, that ties in with "survivor bias" etc.

Don't get me wrong, instability is a PITA. I get where you're coming from. It's not as though I don't have such thoughts. But, I can always come back to various bits of wisdom I've picked up from a myriad of sources, including a phrasing I've always liked that AFAIK is from Bill Maher:

If you think you have it tough, read history books.

That always helps me to remember that I didn't just watch my village burn to the ground due to the Mongol or European or etc. raiders, my relatives get raped and murdered, my child die of ... well, just about anything ...

... maybe some in this thread will find these ideas useful as well.

* Zooming out a bit more ... I always find it amusing walking in a park, especially - hearing the birds chirping, seeing the squirrels "frolicking" ... what passes for a pleasant "pastoral" experience for us, is filled with advertisements for sex / nasty "neighbor property line disputes" (birds chirping), animals desperately trying to find the next meal or water, etc.

** https://rationalwiki.org/wiki/Good_old_days

TuringNYC7• 3 years ago

1000% agree with you that things were much worse once we go beyond grandparents. Just antibiotics and democracy alone have improved every person's life.

> AFAIK is from Bill Maher: If you think you have it tough, read history books.

Be careful when Conservatives tell you to be complacent or grateful. There is a typical line "you are worrying about your $15hr minimum wage when kids half your age work in coal mines".

You can use such arguments for all sorts of nefarious purposes "you think your public school is overcrowded? go to Africa" "you think healthcare in the US is bad? go to rural Nepal" "you think crime is high in SF? go to 1800s NYC"

But why should we aspire to that? Why not aspire to more?

therealdrag04• 3 years ago

Also just the proportion of people doing HARD jobs. Being a farmer was brutal and not long ago 70% of the population worked in agriculture; now it’s like 2%. Machinery had simplified many tasks from ag labor to even housework. The laundry machine has been a game changer for women I’ve heard.

supernova87a• 3 years ago

I think a big problem, especially with companies, is that as soon as any cost of some input touches a new price level, that price now starts to get baked into the planning. Even if it was only for a very short blip, and even if the actual average costs later go down. It gets very sticky, but only in the up direction.

Have you talked to any kind of building work contractor, insurance company, etc. lately? They've all jacked up their prices just because their supply prices touched a certain level and now they have to plan for it. And to be sure, some of them are using the cover of inflation to test how willing people are to pay more.

Inflation really is a vicious cycle. And I don't think we've in recent memory seen prices actually decrease after an inflationary cycle. Do things pegged with CPI even allow for negative inflation?

nine_zeros2• 3 years ago

This is accurate. Once the unit price is calculated with the temporarily higher input price, they are not going to reduce the unit price for as long as possible, even if input prices go down.

And what's worse? The FED does not want negative CPI. They want slowly rising CPI. A negative CPI is deflation, something they want to absolutely avoid. They don't want prices to go down. They only want them to rise up slower.

Which leads to us humans always stuck on the hedonic treadmill. If one is relying on wages, one is absolutely fcuked in this system. The only way to keep up is to keep switching jobs to a higher pay.

jliptzin5• 3 years ago

It’s a pretty easy problem to solve, just have wages increase automatically on an annual basis in line with changes to the CPI. That would be in addition to any raises due to good job performance or a promotion. Or even on a monthly basis during periods of high inflation. Obviously, companies avoid this simple solution because they make money on the delay between raising the price of the product they sell and when they actually start raising their worker salaries. Ideally, they want you to keep your head down and never ask for a raise.

HDThoreaun4• 3 years ago

I don't think we've in recent memory seen prices actually decrease after an inflationary cycle.

This absolutely happens with individual goods. Egg prices are back to normal. Car prices are going down.

Madmallard• 3 years ago

Being on disability SSDI adjusts for inflation. However, if you get coverage from multiple providers, they may not all do this. In my case, half of my disability coverage was provided by a private insurer, who does not adjust for inflation. So I just lost $354 over the last two years per month. Pretty toxic cancerous environment for the disabled.

mjevans• 3 years ago

(this) Inflation is driven by rent seeking. If there were enough housing for everyone to live reasonably close to the jobs they can work there would at least be a check/balance against that destructive economic activity. However be it 'neighborhood character preservation', review processes biased towards failure rather than with clear goals and approval if met, or tax structures that fail to encourage socially beneficial outcomes; too many factors are against new generations (generally) building wealth, including that of social communities where they have stable career paths.

kleiba• 3 years ago

It is my understanding that the US has been able to control the inflation rate relatively well. Our fiscal policy has brought it down relatively quickly as compared to other nations. Is that not correct?

DougHolland• 3 years ago

It is paranoid of me to envision conversations planning this, a conspiracy amongst corporations? I don't remember ever seeing prices rise so steadily, so quickly (and I am old).

WalterBright14• 3 years ago

Take a look at any graph of deficit spending, and compare it to inflation. You'll see what the problem is.

predictabl3• 3 years ago

Yes, it's a conspiracy called "unchecked late-stage capitalism", and "feckless anti-monopoly policies".

You don't need much of a conspiracy when virtually every industry, everywhere has gone through significant consolidation.

It's even a problem for the military. Private contractors are gouging the US Government to the tune of *billions* and we can't do anything about it because critical parts, once produced by a few competitors, now have only one producer.

AuryGlenz8• 3 years ago

I'm not a high paid tech worker like the rest of you, but I've never really considered the price of individual grocery items as a factor in buying it. If something was on sale - great, and I'd prefer that over other options. Otherwise I'd just fling stuff in my cart.

Now? I regularly don't buy things after seeing their price. It's not that we can't afford it, but I simply can't stomach the price. I'm not paying $11 for two shrinkflationed bags of "regular size" Doritos apparently on sale. An empty calorie snack like that just isn't worth it for me, and it pisses me off that they'll charge that much for what's basically a small amount of corn...and that enough people still buy it to maintain that price.

Eventually I may adjust to these new prices, but in the interim I'm regularly shocked at what things cost and it's causing me to spend less.

derwiki2• 3 years ago

It’s definitely pushed me to buy basics (eg produce, pasta, protein) from Costco and cook at home more. So the silver lining is that I eat healthier, and have discovered that I enjoy cooking.

Fraterkes• 3 years ago

Just out of curiosity, what are people here spending on groceries weekly? (Around 40, 50 for just me I think)

zer8k2• 3 years ago

$150 or so. That's my fault because I like to eat good food. However, even then, my bill has gone up about 30% or so. I love coke zero and I have had to cut back, probably for the better, because a 12 pack has not moved off the $10 mark for a year now.

The real killer has been gas, electric, water, property tax, etc.

pb7• 3 years ago

Can you give a quick summary of what meals you eat for $50/week?

indymike• 3 years ago

Family of seven. We've largely stopped eating at restaurants and started buying store brand instead of name brand at the grocery store.

karaterobot• 3 years ago

Inflation has not been that high over the last two years. That $709/month is due to profit taking, I imagine. Inflation in the U.S. has not exceeded single digits in 40 years, and has been <3% for about a year (slightly over 3% last month).

pessimizer• 3 years ago

WTF is "typical" supposed to mean? It's in the source, too, which is a tweet. [edit: and apparently a personal email to CNN?]

  Teacherman @jboyd33488892
  Replying to @Markzandi

  Is that extra $700/month a mean or a median?

Also in the replies from @David_Charts:

  Hourly wage gains have exceeded inflation vs. pre-pandemic:

  +20.5% wages of prod & non-supv workers
  +17.4% inflation (CPI-All)
  +15.5% inflation (CPI-Core, ex food & energy)

  Yes, workers have more purchasing power now than in the vaunted 2019 economy.

https://fred.stlouisfed.org/graph/?graph_id=959796

dopylitty• 3 years ago

It's always seemed extremely disingenuous to lump all price rises into a single number called "inflation". It makes "inflation" seem like some kind of magic force that just happens and can only be solved by the equally magic application of something like fiscal policy. But it's not magic, price rises are the result of active and deliberate choices by companies and countries which could be solved with actual policy changes.

Housing prices go up because there is a shortage of housing and the housing that exists is being used as investments. The solutions could be to make it easy to build more housing and also to make policy changes to encourage other ways to save money.

Energy prices go up because we've wedded ourselves to fossil fuels that are controlled by very few players who can set whatever prices they want. The solutions might be to diversify energy sources and reduce energy consumption.

Food prices go up because of energy prices and because food companies are gouging for profits. The solutions might be to reduce the dependence on fossil fuels for food production and to not allow food production to be a for profit enterprise.

The prices of other goods went up because there was a global pandemic that disrupted supply chains around the world. The solution might be to build a more resilient system for providing goods rather than one that's cut to the bones to increase profits.

There are real solutions to the problems that cause price rises but as long as we treat "inflation" as some sort of magic force in the universe those solutions will continue to be ignored in favor of magical thinking and political arguing.

WalterBright14• 3 years ago

It turns out that printing money to fund deficit spending isn't free at all.

Dig1t• 3 years ago

It seems like this might be a new form of taxation.

Instead of taxing people directly, which requires voter approval and creates bad press for the politicians involved, why not instead just create the money you need and pass the costs down to taxpayers in the form of inflation?

It is the worst kind of tax though because it affects the poorest people the most, since rich people have their assets that rise with inflation.

lotsofpulp9• 3 years ago

Devaluing currency (and promised benefits) is not a new form of taxation. My grandparents used to tell me the the things they bought with eights of a penny. Social Security retirement age and benefit formula “bend points” have been repeatedly altered to reduce the value of the benefit.

missizii• 3 years ago

How are families coping? In my friend group:

- Homeschooling at-home parents take on a side hustle (teach piano lessons, mobile notary, dog sitting)

- Buy a side of beef

- Buy beans in bulk (25# boxes)

- Grow a small garden for salad greens and herbs

- Don’t eat out

- No extracurriculars that cost money

- Use the library whenever possible

- Vacations are now camping with 2nd hand gear

- In general, buy used. As a result, prices in 2nd hand market are also inflated.

sharts• 3 years ago

It’s not hard to end inflation. FDR did it overnight. But some solutions are simply too taboo because they would disproportionately affect the wealthy.

Guess we get what we vote for in the end

US inflation means families are spending $709 more per month than two years ago

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