Not my recollection at all. Cite?
Right, this is my understanding, too. So, like, why would the Fed raising interest rates, making it harder to borrow money for the purposes of addressing supply shortages, do one damn thing about inflation?
No, just Vermont.
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Is food up more than 10%? I know that I’ve been shocked at the price of Costco steak very specifically, but I haven’t felt like aggregate food prices have gone up a stunning amount. More food data here:
As far as shelter goes, the biggest component of “shelter” inflation is “owners’ equivalent rent”, rather than renters’ rent. (In the link from earlier, Shelter has a 33% overall weight, but rent of primary residence only has a weight of 7.4%, while owners’ equivalent rent has a weight of 24%.) So while it’s probably true that many people (recent homebuyers and renters) have experienced a big increase in the cost of housing, many many people (like me, who hasn’t moved) have not.
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As someone who has traded interest rates for 10 years and has a decent understanding of Monetary policy… I have not a single clue on this one.
I don’t think the Fed raising rates will do a thing to combat inflation.
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Maybe I just notice things when they shock me and don’t otherwise, but yeah, meat has been going crazy. And Costco milk was $3.45 last time I went there. It was $2.39 less than a year ago.
What is “owner’s equivalent rent”?
I assume it’s the costs of owning a house that aren’t Principal being paid back.
So interest, taxes, upkeep, insurance
No one is going to happy with the real answer.
Likewise. It may temper the portion of inflation that is due to too much money supply, but with covid and labor shortage hitting supply chains and the war hitting fuel prices (probably permanently imo) – higher interest rates won’t fix that stuff, may make it worse afaict. It may tank stock valuations though. Anybody remember stagflation?
My cite is living through it and recalling conversations with friends about it as it was happening, I don’t know where to find that kind of data.
At least unemployment is low, so there’s that.
It is super straightforward when applied to housing prices. With interest rates at X% I can afford to make mortgage payments on a $1mm loan. With interest rates at X+Y% I can afford only a $500k loan. Therefore I will bid less for houses when interest rates are higher.
That’s existing housing. Same deal applies for new construction loans and increased demand for construction causes increased demand for labor and materials throughout the home building supply chain, increasing prices.
Same deal with auto loans and demand for both cars and the supply chain for car components.
Of course the end result of “solving” the inflation problem this way might be just making more people homeless and car less.
That’s the thing, everyone thinks their access to money in an inflationary environment is well deserved. The demand is to prevent other “undeserving” people from having access to money to bid against them for goods/services.
Owner’s Equivalent Rent, almost by design, has been fairly stable over time:
11-page description from the BLS:
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf
Key points in bold:
Housing units are not in the CPI market basket. Like most other economic series, the CPI views housing units as capital (or investment) goods and not as consumption items. Spending to purchase and improve houses and other housing units is investment and not consumption. Shelter, the service the housing units provide, is the relevant consumption item for the CPI. The cost of shelter for renter-occupied housing is rent. For an owner-occupied unit, the cost of shelter is the implicit rent that owner occupants would have to pay if they were renting their homes.
And I’ll just copy the methodology here and enjoy the arguments that are about to start:
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So if I said that I knew that they got expensive due to supply chain disruptions and it was also based on living through it and recalling conversations with friends, how would someone objectively determine who was right and who was wrong?
I guess the only argument that the Fed hiking rates will curb inflation is that it will depress demand down to a level to meet supply and prices will go lower as a result?
Do you work somewhere connected to the supply chain? If not, then drawing a definitive conclusion is up to the reader I suppose.
Yes I work for the largest global gaming device manufacturer. Our end customers are mostly corporations (about 50% US and 50% ex-US). Our experience was that the various stoppages/shutdowns in manufacturing facilities made sourcing raw components for our product much more expensive. Think something like a plastic connector on a harness that used to cost 1 cent now costs $3 (if you can find it). Also our shipping costs went way up across the board. This led us to raise our prices.
Frankly, I thought it was well understood that the inflation related to electronic assemblies was based on disruption to the global supply chain. This also corresponded to all the financial media that I was consuming. Just the latest shutdowns in the past several weeks in southern China have again screwed things up, pushed up BOM costs and extended project schedules.
I actually never heard the argument that it was due largely to American consumers spending their stimmies, so I was interested in taking a look at whatever articles or studies you had that backed this up.
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In 2020? My understanding was that didn’t hit prices until later, once existing inventory had been sold.
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Oh you are talking about how it got expensive to buy laptops and such in 2020? Yes that happened. Desks and office chairs got expensive too. You’re saying that was primarily due to stimmies and not a spike in demand due to people being confined to their home due to the pandemic?