Friday, April 1, 2011

Inflation Mood

Fatboy sez that Wal-Mart is warning us to prepare for serious inflation.

The Billion Prices Project is showing a real-time trend in inflation in the USA that is also not encouraging. Let's just say the trend is becoming a bit relentless. March does not look to be bucking the trend.

As such, I am changing my short-term inflation mood to something decidedly more positive (as seen in the upper left hand corner of this blog).

I last set it to deflationary in November, 2009.

Here's what inflation has done since then.

Optimist Perspective

The CPI is up 2.4% over the past 15 months. That's fairly tame.

Pessimist Perspective

The CPI is up 2.5% over the past 8 months. That is decidedly less tame.

On the one hand, from a deflationary commentary perspective it appears that I have overstayed my welcome. The first 7 months were treating me very well but the party looks to be over.

On the other hand, it is good to be a pessimist. My long-term inflation protected treasuries and I-Bonds are riding the wave. I can't say that it is an enjoyable ride, but it beats the heck out of burying cash in one's backyard.

Further, investors have piled into the
30-year TIPS that I purchased back in February. I'm up about 10% on paper. 29 years and 10 months to go! That said, it doesn't really matter to me. I intend to hold until maturity. The term "prying them from my cold dead fingers" comes to mind.

And lastly, this simply shows my mood. My mood is subject to change. For example, there is serious risk that $107 oil is not sustainable and that deflation will once again enter the headlines when we least expect it. Who really knows for sure?


Stagflationary Mark said...

One more thought.

I made it to Costco today. I packed my car again.

It wasn't that I saw higher prices. I didn't. It was that the prices I did see looked even cheaper relative to the commodities I've been charting recently.

As a side note, I even bought some Hershey bars. Go figure.

I wonder where we are on the gold to Hershey candy bar ratio chart. Wouldn't that be interesting!

Troy said...

Wither wages???

no wage inflation, no inflation, just reallocation.

my main bit on the internet is making the argument that land values and rents can still fall quite a lot, since what gets bid up can be bid down, too.

Existing housing stock has a cost of production approaching $0!

My theory of economics -- ATCOR* -- tells me that we could double tax burdens and energy costs, and our** standard of living would not decline one iota.

* All Taxes Come Out of Rents
** ex-leechf-ck landlords

Anonymous said...

Wage inflation in China though...up another 20% in Shenzhen soon.

Wages inland soared too, so the idea that everyone could just move inland for cheaper wages disappeared.

Red A

Stagflationary Mark said...

Troy & Red A,

I think we could maintain our current standard of living if not for our unsustainable trade deficit.

In general, renters with dreams of home-ownership have been doing fairly well over the past few years though. They are seeing the price of something they want fall in price. That is more than offsetting the rise in the price of gasoline.

That said, I think a homeowner who has watched the price of his/her house fall has definitely seen a decline in the standard of living. That's especially true if that person is also part of the 9% unemployed and was planning to use home equity to fund future purchases.

AllanF said...

RE: wages

Transfer payments are also up. Food stamps are through the roof. Unemployment compensation supposedly is ending, but I don't believe it. Just today I saw Obama is suggesting "loans" to the unemployed to cover their mortgages. WTF? -- wrong on so many levels, that one.

Stagflationary Mark said...


Gas prices rise along with oil

The correlation here seems fairly strong. Who would have guessed?