Mise
isle of lucy
They should probably have a higher target then 
The case for moar inflation.
- Thread starter Hygro
- Start date
ParkCungHee
Deity
- Joined
- Aug 13, 2006
- Messages
- 12,921
So why do you think fears of inflation are so high?
One thing I've noticed is that there's tons of people out there on the internet worried about inflation, saying it's destroying their savings etc., and I'm left wondering what planet their on, considering how low the inflation rate has been during this recession.
One thing I've noticed is that there's tons of people out there on the internet worried about inflation, saying it's destroying their savings etc., and I'm left wondering what planet their on, considering how low the inflation rate has been during this recession.
Mise
isle of lucy
I think they're seeing prices rise on e.g. Petrol or getting a big shock on utility bills and thinking that prices are rising on everything. Some things just stick in people's minds better - we always notice when prices go up, but rarely notice when they haven't gone up in years (e.g. TVs).
Tahuti
Writing Deity
- Joined
- Nov 17, 2005
- Messages
- 9,492
Considering the importance of petrol in our economies, increases in petrol prices do lead to higher inflation overall due to increased energy and transportation costs. See the 1970s petrol crisis for instance.
Can't believe I'm saying this considering my track-record here as a free trade proponent, but maybe it would be an idea for Japan to temporarily increase the tariffs on the import of natural resources (Japan lacks) since that would probably end the deflation overnight.
Fears of inflation are not high. Not among the professionals in any case. And I don't mean academic economists. I mean the banks. Look at mortgage rates being offered. Those are 30 year loans being offered at rates that won't cover more than 2-3% inflation, and will be wiped out at 5% or better inflation. Those banks are betting that inflation will not be high.
On the other hand, in the short run the price of oil and food is up. And oil is a driver of all other prices. Plus there are a lot of people out there who simply have an old school monetarist (that is, wrong) view of money and see that the Fed is increasing the money, therefor there must be inflation, which is an argument from ignorance.
So the less people know, the more they fear inflation. The more they do, the less they expect it.
ParkCungHee
Deity
- Joined
- Aug 13, 2006
- Messages
- 12,921
This is more what I'm wondering about. I hadn't considered people would link Oil and Food to inflation with that, and it's clear that experts know inflation isn't happening when I could figure that out.
But still the problem remains that outside the realm of experts, there's huge, nonsensical talk of inflation.
I appreciate the tip about long term mortages. I'll offer that to the next time someone tries to chew my ear off about looming inflation, and see if they're willing to put their money where their mouth is.
People link oil and food to inflation because gasoline and groceries are things that people buy on a weekly basis. They see these prices frequently enough so that they notice the changes in them. However economists exclude oil and food because the prices of these things are volatile for reasons that have nothing to do with other economic trends. So core inflation excludes energy and food. Why are they volatile outside other economic trends? Oil has as much to do with politics as economics. Prices are up in part right now because of rebel activity in Nigeria, international sanctions against Iran, the Arab Spring, which has Libya out of action, persistent problems with stabilizing Iraq, and other factors. Not because there are oil shortages on the markets. Food prices go up and down with the weather and if political issues somewhere take a lot of food production off the market. And also with oil prices. However, that said, oil prices are an input in all other production in the developed world. So persistent high oil prices are a driver of higher prices for everything else.
As for why so many people are fearing inflation now, at least as a subset on the internet, I think there's a lot of politics driving that as well. The extremism that conservatism has got into in the US (which includes the bulk of people that will tell you they are libertarians) is being driven as much as anything by an active campaign. Perhaps not with deliberate coordination, but just think how common it has become for all the people on the right to suddenly be making not just the same points, but the same arguments. Having people parroting the party line has become inescapable. And there are several reasons that the party line is harping on inflation. The Fed is semi-aggressively (only semi, don't let them fool you) pushing money as the answer to the Great Recession. That's the tool they've got. But the opponents would rather the economy is weak, because that would be better for getting rid of Obama. It doesn't help that Rick Perry makes semi-open threats against Bernanke. So anything that is helping the economy they oppose. Another factor is the extent to which the right has fallen in line with "the rich are better, we must all sacrifice to serve them". That's Supply Side Economics, but it's also deregulation, ending the "death tax", and protecting existing wealth at the expense of the creation of wealth in all other regards as well. Ron Paul will tell you that inflation has made the dollar worth 0.1% of what it was or something like that over the course of a century. Which, I don't know the exact number, I'd have to look it up, is not entirely wrong. Except that it completely misses the point: The point being that purchasing power has expanded far faster than that. But to Paul, and many who believe in him, they only see the "theft" of wealth in that inflation, and not the creation of wealth that was the made possible by not keeping money too tight. And I think a lot of the problem now is pure reactionaryism. Everything needs to be rolled back to some "better time" in the minds of an awful lot of people now. And so you get the old school monetarism as a belief because the old ways just must be better than the new ways.
All of that I think is feeding the fears of inflation on the side of the most conservative and least knowledgeable.
I need to take the time to read all of this. You may find it interesting. http://www.theatlantic.com/magazine/archive/2012/04/the-villain/8901/
As for why so many people are fearing inflation now, at least as a subset on the internet, I think there's a lot of politics driving that as well. The extremism that conservatism has got into in the US (which includes the bulk of people that will tell you they are libertarians) is being driven as much as anything by an active campaign. Perhaps not with deliberate coordination, but just think how common it has become for all the people on the right to suddenly be making not just the same points, but the same arguments. Having people parroting the party line has become inescapable. And there are several reasons that the party line is harping on inflation. The Fed is semi-aggressively (only semi, don't let them fool you) pushing money as the answer to the Great Recession. That's the tool they've got. But the opponents would rather the economy is weak, because that would be better for getting rid of Obama. It doesn't help that Rick Perry makes semi-open threats against Bernanke. So anything that is helping the economy they oppose. Another factor is the extent to which the right has fallen in line with "the rich are better, we must all sacrifice to serve them". That's Supply Side Economics, but it's also deregulation, ending the "death tax", and protecting existing wealth at the expense of the creation of wealth in all other regards as well. Ron Paul will tell you that inflation has made the dollar worth 0.1% of what it was or something like that over the course of a century. Which, I don't know the exact number, I'd have to look it up, is not entirely wrong. Except that it completely misses the point: The point being that purchasing power has expanded far faster than that. But to Paul, and many who believe in him, they only see the "theft" of wealth in that inflation, and not the creation of wealth that was the made possible by not keeping money too tight. And I think a lot of the problem now is pure reactionaryism. Everything needs to be rolled back to some "better time" in the minds of an awful lot of people now. And so you get the old school monetarism as a belief because the old ways just must be better than the new ways.
All of that I think is feeding the fears of inflation on the side of the most conservative and least knowledgeable.
I need to take the time to read all of this. You may find it interesting. http://www.theatlantic.com/magazine/archive/2012/04/the-villain/8901/
EnglishEdward
Deity
Are US banks really offering fixed rates loans for 30 years at 2%-3%?
With excellent credit, I see advertised rates of 4% or so. https://www.wellsfargo.com/mortgage/rates
Which tells you they are expecting inflation of under 3%. Probably under 2%.
http://www.csmonitor.com/Business/Paper-Economy/2012/0419/Mortgage-rates-fall-below-4-percent.-Again
This is quite important, because consumers often have a very poor perspective on inflation. The core inflation metric used relies on long-term contract prices for commodities over the spot prices (and the noisy data it introduces) you see in the supermarket.
What I find interesting is the research on the new inflation indices--using the averaged price of several commodities daily and comparing how it tracks with the traditional index. Basically, it takes the opposite tack and embraces all the noise to see how it compares with the long-term trend. Do you know of any good articles on this?
Paging Integral...
Not me, no. I'm not really following current developments in the theory that closely.
