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Where did the inflation go?

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guest-sswaesi

If I acknowledge inflation then I can not tell everyone I am an astute investor in stocks and real estate. Please do not tell me that loose monetary policy and my access to credit are the reasons I feel wealthier. I want it to be my intellect. I only hope millennials do not pass laws to take it from me. Just because these monetary policies did not give them a chance to accumulate assets as well does not mean they will pass tax laws to take my wealth from me. Or does it? I'm glad some people still make things.

rewt66

Why is the stock market so high? It's partly because inflation is so low.
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Say bonds are yielding 10%. Here's a nice, stable dividend stock that pays $1 a year. That stock is worth $10 (assuming that the company itself isn't growing or contracting), because that gives the buyer the same rate of return that the bond would give.
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Now inflation drops, and bonds are yielding 4%. The stock is now worth $25, because that's what it would cost to buy the same return with the bond.
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Yes, I know, this analysis is too simplistic. There's future expectations at play, both with the bond and the stock. There's perception of risk, and institutional demand, and all kinds of stuff. Nevertheless, the dynamic I described really does happen - stable stocks at least to some degree track with the reciprocal of the bond interest rates, which tracks with the inflation rate.
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Note that this mechanism has nothing to do with low inflation being good for business. It may in fact help their bottom line. But that's a different, additional mechanism.

Vinny56

The duality of inflation is in its buying power. Leverage of interest rates breaks down if elasticity of interest rates at executive level of Reserve Bank unable to drive change in economy with interest rates. Bringing indian RBI governer as an example. His administration raised 25 basis point or .25% interest to curb inflation. Pure textbook operating procedure which also included quantatitive easing. Inflation ought to be tamed. The decision in the interest of the PEOPLE his administration served. Instead the action raised commodity prices by 500% driving PEOPLE into poverty or bankruptcy in a poor country. Add Rs.10000000000000 non performing assets.to the mess. Something amiss. He lost is office and tenure eventually before three years term.
US economy faced the worst inflation known in 80-82, 12% inflation when 25 basis points ought to do work. Some blame this on international oil shocks or oil embargo which broke the elasticity of checks and balances.
Inflation a MUST for growing and vibrant economy. Japanese lost this elasticity in 1990 driving to near zero interest rates. Instead the banks borrowed to store unit of currency. Reversed economy. Who is driving growth. India went into near bankruptcy mortgaging its gold to borrow liquidity.
Interest rates a delicate science in a large economy such as US Japan or India. Purchasing power key key for an economy to grow. Binging Venezula as an example. Has largest oil reserves yet at the brink of near sovereign money crisis. Pure sine wave imbalances in trade, supply and demand add to the MESS. What is 1000% inflation of Boliver when the actual value of Boliver around 10 boliver to one US dollar. Beta coefficient of soverign currency completely out of wack. Forget stock market.
Growing asset prices an esoteric subject. Tie it with interest rates, inflation and wages in a large economy. Enough to drive Decison Making Units looking like high school chimps with degrees from Cambridge or Harvard.
Great Recession literally drove people into poverty. Something bad really bad out there claims Trump administration. Really? Buffonery at its best.
This is NOT science fiction. It is happening.
Open to comments or insults.

RationalisticThinker

Greetings,

of course we have inflation, namely asset price inflation in stocks and real estate, as other readers have already pointed out. For example in many of the significant cities in Germany, real estate such as a 100m2, 4-room flat for a family with two kids has been rising in price by about 8-10% per year over the last three years, with no end in sight.

Regarding wages: Here e.g. are statistics that Randstad, who own one of the biggest IT freelancer portals in Germany, published in October 2017. Their year-on-year price comparison for freelancer rates was:
2013->2014: +1.3%
2014->2015: +0.6%
2015->2016: +3.7%
2016->2017: +7.7%

Freelancer rates react quicker to market changes, wages should trail them a bit. In any case my personal guess is that a wage-price spiral is around the corner. People and organisations, even central banks, seem to assume that the current anomalous zero/near zero interest rate regime is stable over the long term. It is not.

Rationally yours,
RT

Houshu

Where have all inflation gone? long time passing.
Where have all inflation gone? a long long time ago.
Where have all inflation gone? gone to trade deficit, everyone...

MrR.Fox

'Too much money chasing too few goods' ... that's the classical characterization of inflation.
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There certainly is too much money ... and there certainly is not too few goods - not even one single industry that is pressing against capacity restraints. That's because the money isn't chasing goods - it's chasing assets ... and that's where the inflation is - and that's not an accident; it's the whole purpose of QE.
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It has to do with who's been given the 'too much money' by the CBs that created too much money.

teacup775

Aint it great that the little guy must continually sacrifice for the betterment of the landed gentry. We have a system where something good for the average worker (who has seen decades of wage stagnation) must be crushed.

Sina63

Aside from stagnated salaries, I think years of cheap money has encouraged more and more investment in raw material extraction which resulted in cheap raw material today. Sooner or later, the riskier investments go bust, raw material prices explode, and we will see the impact. It's just a matter of time!

WT Economist

Asset price inflation. Take a look at Bitcoin.
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Holders of assets, who tend to be older and richer, are in favor. They just want to avoid wage inflation for younger workers.
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Those younger workers, if they strain and save, will be buying stocks, bonds, and houses at inflated prices as a result of federal policy. Further impoverishing themselves so those older can take more cruises, and those richer have more money to shift to off-shore havens.
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https://larrylittlefield.wordpress.com/2017/12/09/fannies-mae-and-freddi...
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Just between 2014 and the third quarter of 2017, according to the National Association of Realtors, the median existing home sales price increased by 21.6%. The median wage? Probably a third of that, at most.

Langosta in reply to WT Economist

This is one reason why people my age (a little sky of 60) are skeptical of globalization. The purpose of globalization is to enrich the fatcats by beating down the wages of employees with excessive imports and excessive immigration. Older people, who are more likely to make money from assets than wages, should favor globalization and immigration for that reason. A lot of older people to favor globalization and immigration for those reasons. However, the majority who voted for Brexit and Trump do not.
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By removing our industrial jobs out of the country, we have narrowed opportunities for the young. They are piling into a few expensive cities and driving the cost of living up faster than their wages can possibly increase. In slower-growing parts of the country, houses are practically being given away. The elderly homeowners are passing away, and there is nobody who wants to buy their houses, other than landlords who will buy them for next to nothing and rent them out to people on welfare.
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The old folks, who do not depend on jobs for income, have more opportunities to buy properties in less crowded areas that have not inflated as much. Bottom line is that I have never seen globalization and immigration as being friendly to young people, but they mostly advocate for it, so that is what they get.

Petey Pablo

Remember when all the "smart" conservatives predicted Obama's stimulus package would lead to hyperinflation?
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Coming Next Year: Obama's Inflation
By Dick Morris | Thursday, 05 Mar 2009
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"...But one day, this recession, despite Obama's best efforts, will end and things will begin to look up again. Then we can expect all of this money to come out of its parking space and get back on the highway of commerce. All at once. The inevitable result will be double-digit hyperinflation...The point of this gloom and doom is that all this pain is entirely preventable. It will be caused by Obama's excessive spending and trillion-dollar-plus deficits. This spending, of questionable utility in overcoming this recession/depression, is so far out of line with what the economy can handle that it will do more harm than good when the inflation hits."