r/Economics • u/magenta_placenta • 19d ago
White House More Than Doubles Its Inflation Forecast in New Update
https://www.wsj.com/articles/white-house-more-than-doubles-its-inflation-forecast-in-new-update-1163008569584
u/Mrpettit 19d ago
“We think this trajectory is very much consistent with the inflation outlook we’ve been discussing pretty much since we got here,” one official said on a call with reporters.
Then why have their estimates been off?
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u/Lightweightecon 19d ago
Executive budgets notoriously wear rose-tinted glasses for the forecasts.
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u/TyrannoROARus 19d ago
"If we don't report inflation it doesn't exist."
A lot of people negotiate raises based on the BLS reported inflation (CPI), but if you rent you almost certainly experience more than ~3% average they tell you.
If you bought a used car you have experienced inflation.
Negotiate your raise based on your ACTUAL cost of living adjustments, not what the BLS is saying because they don't want to start a panic or alert people to how low their purchasing power has become
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u/marzenmangler 18d ago
Because part of inflation is perception. If prices rose for a month or three then decreased in the past, and no one noticed, then a new inflation floor was never established.
Information is much more widely available now and the news cycle is 24/7 so consumer expectations swing faster and more wildly than ever.
Based on the information available, most of the increases seem to be due to supply chain disruption which will level off. A lot of that is due to just in time supply chains which are going to take time to level.
But I also think that information availability is causing groupthink in corporations in the same way it is causing groupthink in consumers. Being ever more aware of short term profits has sharpened the appetite for those short term profits to a fever pitch, and there has never been more information available to so many corporations about so many industries as there is today.
General Mills is doing shrinkflation due to short term supply chain disruption? Watch it spread and spread fast. Corporate sentiment also swings faster and more wildly than ever.
Increased information has increased the agility of supply chains and the hunger for short terms profits, all the while increasing the fragility of that supply chain. It seems like even short term transitory inflation is causing consumers to pay the price. I’m curious what the eventual backlash will look like.
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u/[deleted] 18d ago
According to economists like Emi Nakamura, more than likely inflation is entirely perception and prices rise when people panic buy expecting prices to rise.
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u/BeaverWink 18d ago
It's still going to average out to 2% annual. We'd need 5% annual for 2-3 years before our average annual goes about 2% for the last decade.
We could see 5% for 2022 and still be in expected territory. But it should be back to 2% by 2023. If not then we worry.
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u/[deleted] 18d ago
Because their estimates are based off everyone else’s and they’ve been off as well? It’s not hard.
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u/IsNowReallyTheTime 19d ago
It’s interesting that this basic article is on all the right leaning or just straight up right wing sites. But this is how the left is explaining it:
Obviously both sides are going to spin away, that’s not the issue (here, it is an issue). The issue is there’s no middle. It’s either light at the end of the tunnel or the sky is falling, no middle ground. It can’t be both extremes…so what’s the actual state of things? Ebbing but not fast? Not ebbing? Rate increase, no?
Need to understand when critical parts of the supply chain are going to get healthy…but it’s lost in all this political bullshit.
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u/swiftessence 19d ago
I've heard many economists say inflation is a catch-22 thing. Where if people think there's going to be inflation, people's behaviors then contribute to inflation by their social and economic behaviors.
My theory is the government tries it's best to downplay inflation to both make things look better while they're in charge and to get people to not push the inflation cycle more. It's almost like if you keep denying it is happening, the theory is that it will be less severe in the near future.
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u/quiethandle 18d ago
It's the same with deflation, right? When people are afraid of deflation they tend to save money rather than spend it. This causes prices to drop even further, compounding the problem.
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u/arazok 19d ago
Well considering its doubled from an estimate provided only 3 months ago, and the "signs of leveling off" is a very slight decrease in the rate from last month, my vote is that theae fuckers have no idea how this will play out and anyone saying it's going "just as expected" is full of shit
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u/Kevcky 19d ago
Objective journalism doesn’t sell. One of the reasons you don’t see middle ground articles about polarising topics
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u/lolokinx 18d ago edited 18d ago
I feel like with the rise of Twitter and likes, the cost of the needed education journalism is more about a lifestyle and networking opportunity for well off former children instead of people who actually dig trough the mud to find truth.
Add to that the postmodern approach of lived reality, moralizing or everything and a deep cultural divide very few journalists are aware or even care about their self selecting bias.
To report the truth nowadays can mean u loose job, friends and family because it might not fit the narrowing Overton window of ur reality. So it’s very easy to go with ur colleagues and tweet hottopic1 as the brave activist u aspire to be
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u/GammaGargoyle 19d ago
Well, the numbers don't lie. Eventually people will need to come to terms with the impact of economic stimulus on the demand side and that there is such a thing as too much demand, too quickly.
Are we going to go into 2023 still talking about the supply chain? Semiconductor fabs have been running at full capacity almost the entire time. The supply chain is not some mythological thing that cannot be seen or quantified. People choose to ignore the numbers.
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u/Bobby_Marks2 18d ago
Supply chains are complicated things. There are still parts of them, for example imported goods coming into the largest US trade port in the Pacific, that are worse now than they have been at any other time since the pandemic began.
The supply chains will be disrupted for years to come because of what has already happened. It’s just a ripple effect that hasn’t made its way through the system completely.
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u/kylco 18d ago
It was treated as a mythological thing by a lot of businesses. A mystic god where shipping was cheap and everything arrived exactly when it was needed and not a second before, by the majesty of attentive and overworked logisticians and underpaid shipper, warehouse, and trucker workers.
All the slack in a massive global system of moving things around got shocked multiple times by COVID on the production side, the Ever Given, demand surges and congestion at ports, and demand changes across industries (toilet paper, construction-grade wood supplies).
I'm not a logistician but anyone who didn't see the risk in pressing all the resilience out of a system was choosing not to see it or should be let nowhere near the levers of power.
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u/yaosio 19d ago
Business Insider is the left? Since when? Are they calling for the means of production to be owned and operated by the working class?
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u/IsNowReallyTheTime 19d ago
They’re moderate more than anything but it all starts to look left when one side is unified, and competitive to see who can declare everyone else leftist.
It’s an example, maybe not the best I admit. But it made my point so I went with it. I don’t like post raw story or daily dot or whatever just as much as Fox etc.
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u/Jacobmc1 19d ago
Which side is unified? I tend to see a wide range of different viewpoints from both left and right leaning articles.
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u/IsNowReallyTheTime 19d ago
I think, personal opinion, the right wing media is more unified in their messaging.
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u/RomneysBainer 19d ago
As FDR said, "there's many ways to walk forward, but only one way of standing still."
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u/heckler5000 18d ago
Republicans have the advantage of having a narrow platform, many litmus tests, and basically focus on a few issues.
Democrats have so many issues that it divides itself constantly. Even when some issues are prioritized, they are easily divided and conquered.
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u/ajt9000 19d ago
Ya know, most left wing people are not communists...
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u/prozacrefugee 19d ago
Neoliberal but cool with gay people is simply not leftist
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u/MysticalNarbwhal 18d ago
Left wing doesn't mean leftist.
Does that makes sense? No, it doesn't, but that doesn't change that it's a societal norm for "Neoliberal but cool with gay people" people to be seen as left-wing.
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u/ajt9000 18d ago
Sure, I'm not really sure what you're talking about but the left wing also encompasses a lot more groups than just leftists
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u/prozacrefugee 18d ago
“Welcome to US politics, we got both kinds, rainbow neoliberals and religious fundamentalist neoliberals!”
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u/Wreck_Chords 19d ago
Well, what do you think? I certainly don’t have a good outlook on it. My bacon has gone from 5.99 to 7.99. I started budgeting last month as I don’t expect this to get better and I want to track how badly my spending rises.
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u/IsNowReallyTheTime 19d ago
Plywood was $78 a sheet, it was down to $38…so I’m, yay?
This is a supply chain problem, with a bunch of other shit thrown on top but the root is that. I don’t do logistics, I don’t know how the lag works itself out.
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u/Wreck_Chords 19d ago
Oh for sure, but you can’t deny the amount of money being spent has nothing to do with all this?
I take the “middle-ground ohhhh FUCK” stance on this. Left says it’s supply chain, Right says it’s all the money printing. I say it’s both and they’re both gonna run us all into the ground lol. It’s not looking good. I just hope it all holds off until my household is dual-income in about a year! If not, like I said, ohhhhhh F—- lol
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u/GhostReddit 19d ago
It's both, more money being thrown at a supply problem (fewer goods) means prices have nowhere to go but up, but either of them alone also contribute to prices going up.
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u/IsNowReallyTheTime 19d ago
The money printing and all that is a valid economic concern, but Ford has a couple hundred thousand trucks waiting on computer chips, there’s some weird lag in foam for beds and stuff because that factory had covid issues. The supply isn’t there, the demand is and probably increased because everyone was/is bored.
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u/korinth86 19d ago
Anyone relying on supply from china is facing massive shipping delays and price increases.
The cost of a container from china to US has gone from like $3k to $15k. It's just insane.
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u/InvestingBig 19d ago
Yeah, but all that is a supply / demand mismatch. The left keeps telling us they can just keep printing and stimulating. Hell, today JPow said it was "too dangerous to remove stimulus". Yet, what is the point of "stimulating" demand when there is no supply? That just means high prices and excessive corporate profits. In fact, you can look at the huge corporate profits Biden is giving talk about the president of the 1%!!!: https://fred.stlouisfed.org/series/CP/
This is clearly a political failure of the biden administration. I am not saying he caused it. Certainly not. The inflation was caused by the stimulus passed in 2020. But, he is failing by not responding to it and instead is ignoring it and turning something that affects the lower class into some type of political war "republicans only care about inflation when democrats are in power".
You know who always cares about inflatino? The lower class
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u/IsNowReallyTheTime 19d ago
Everyone, as in the planet, is dealing with inflation. I was just reading an article about food scarcity in Russia that combined with rising prices is putting a large chuck of the population at risk. So to my point about politics muddying this…it isn’t an America only problem so maybe not lay it all on the dude who’s been in office eight months.
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u/InvestingBig 19d ago
It IS an american problem because America's inflation is 2x higher than other areas that correlated with US inflation prior. For example Europe, australia, and japan. So while there is "global" inflation which maybe about 2% (about europes inflation rate) there is also the uniquely American inflation that is 2.8% in addition. So 2% due to global factors, 2.8% due to uniquely american factors to give us a combined 4.8%.
The question is what are the policies causing America to have double the inflation than it's peers?
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u/Wreck_Chords 19d ago
Yeah that’s definitely a huge issue as well. Is it still as big of a concern these days? I feel like over the last month I’ve seen a few sparse articles start to come out saying companies are finally tapping other resources and that some of the supply is beginning to finally arrive.
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u/Takingcare757 19d ago
Yes it’s an issue because even if import policies have changed, you still can’t shove all that backlog through a port at one time or put all those trucks on the road at once.
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u/idkmanijdk 19d ago
2 years to dual income for me :( please let this all wait until then lol
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u/Wreck_Chords 19d ago
Good luck, we’re both so close! My lady is in nursing school; it’s been tough with a 1 year old but I’m so pumped and ready for afterward.
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u/idkmanijdk 19d ago
Lol I’ve got a 1 year old too but my wife is in radiography school. We’re almost there. Couldn’t be more ready
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u/HennyDthorough 18d ago
Who stays homes with the kids?
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u/idkmanijdk 18d ago
My wife
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u/HennyDthorough 18d ago
I mean after you both have jobs. Is she remote?
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u/idkmanijdk 18d ago
Oh the little dude will be in daycare. I can work from home periodically and I’m looking to switch to a company that has a permanent remote or hybrid situation, but I’m not as of right now. She’s going into healthcare.
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u/Wreck_Chords 19d ago
To add to your point, though, it ain’t all doom and gloom. My crypto says hellllll yeahhhh lol.
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u/fathervice 19d ago
Bacon is not the yardstick for the US economy. Meat processors are struggling to hire, struggling with covid. Growing operations are going to be paying more and more for water and are facing backlash at local levels from residents that don't want ponds of pig shit in their county.
Those are just a few reasons contributing to increased meat costs.
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u/lelarentaka 19d ago
You say bacon is not the yardstick for the economy, then gave a full paragraph on how systemic issues in the economy are reflected in the price of the bacon.
Let me try. A thermometer doesn't measure the temperature in the room. The mercury in the bulb expands and contracts as it's density changes over the day, thus changing the meniscus level in the column.
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u/Wreck_Chords 19d ago
It’s the yard stick of my household’s economy 😂 nah lol I know but it’s a usual staple so it’s just an example. There’s so many issues contributing to that hike in that price you can’t explain it all in one easy post lmao.
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u/aesu 18d ago
That's not the left. Leftist take would be something like regulatory capture has led to such concentration of wealth that capital has become overvalued relative to its natural rate of profit, creating a crisis, where capitalists have to engage in a deeper cycle of regulatory capture, rent seeking and money printing, to produce a profit.
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u/June1994 19d ago
Obviously both sides are going to spin away, that’s not the issue (here, it is an issue). The issue is there’s no middle. It’s either light at the end of the tunnel or the sky is falling, no middle ground. It can’t be both extremes…so what’s the actual state of things? Ebbing but not fast? Not ebbing? Rate increase, no?
Balance fallacy at work gentlemen.
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u/Meandmystudy 19d ago
but it's lost in all this political bullshit.
That's why right and left are arbitrary terms. We are either center right or right wing/far right in our government. Our response to each issue might be right or center right depending on who is in office, but the general explanation of why things go on gets explained by two parties who only want something different to say each time.
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u/TenderfootGungi 19d ago
WSJ went downhill when Fox owner Murdock bought them out. They still have lots of data, but there are far better places to get business news now.
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u/hfy_addicted 19d ago
Or you could just look at CPI on a two-year stack and realize it's pretty much inline with long-term averages.
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u/belovedkid 18d ago
BUT I WANNA BE WORRIED AND ANGRY ABOUT SOMETHING TODAY MAN
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u/hfy_addicted 18d ago
Anyone looking at any performance metrics y/y are missing the point. Even comparing to 2019 doesn't make sense without some smoothing of the data. Imagine one of those water blobs that launches people into the air and subsequently into a lake... When someone jumps into it, it creates a massive depression and amplifies the far end, but the total air inside the blob is unchanged. The economy is the blob.
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u/hi_and_fuck_you 19d ago
Both sides are right. We're going to have insane inflation which will then "transitory" into a destitute FUTURE "economy".
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u/jz187 19d ago
People that think inflation is a problem got it backwards. Inflation is the solution ... to the massive government debt problem.
This was always how it was going to end. Massive government debt is never paid back, the end is always either default or inflation.
10 years of 5% annual inflation with 10 year government bonds yielding 1% will go a long way toward inflating away the massive debt built up over the past 20 years.
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u/Starphysics 19d ago edited 18d ago
Annoying how many times I have to say this on an econ sub but: monetarily sovereign governments cannot unwillingly default on debt. It has to be a self-sabotage from an incompetent gov. eg congress not raising debt ceiling, which I just don’t ever see happening.
There’s also a third option, which also helps deal with inflation: taxation!
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u/RogueJello 18d ago
Annoying how many times I have to say this on an econ sub but: sovereign governments cannot unwillingly default on debt.
This is not entirely true. The sovereign government also needs to have control over it's own money, and have it's debt denominated in that currency. It been rare for the US for a while, but we did issue some bonds in the 70s backed by Swiss Francs. I know a lot of more inflation prone places have been forced to move to US dollars, which they obvious cannot print.
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u/Starphysics 18d ago
That was just a typo. I mean monetary sovereignty yes.
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u/prozacrefugee 18d ago
Sure, but the US has never lost monetary sovereignty- by being the reserve currency we’re the opposite.
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u/jz187 18d ago
Sure, but the US has never lost monetary sovereignty
For most of US history, the US was on a gold standard. You can't print gold.
The period of US history where the US controls a global reserve currency not backed by something it can't print is only 50 years out of 245. The idea that this short phase of US history will be the norm is very short sighted.
The dominant global reserve asset will in the long run revert to something that governments cannot unilaterally create out of thin air.
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u/prozacrefugee 18d ago
Sorry, I thought given the context it was obvious I was talking post Breton Woods.
However in the 19th century it's not like the US' money supply was stable due to gold - between the massive money printing by smaller banks after the Jacksonian destruction of the Bank, and large fluctuations in supply with gold rushes, you saw massive changes and panics due to them.
> The dominant global reserve asset will in the long run revert to something that governments cannot unilaterally create out of thin air.
I mean, there's simply no indications of this. The world has been pretty much off the gold standard for most of a century, and the predictions of the gold bugs have always proved wrong. Currencies that governments don't control (like the Euro) have actually shown to have more problems.
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u/graham0025 19d ago
not if we keep spending faster than we are inflating. which we are
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u/UndeadWolf222 18d ago
Has anyone in this sub ever looked at or understand debt-to-GDP ratio?
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u/ElectrikDonuts 19d ago
I agree and have been leveraging up on property. It seems like the best bet against inflation. Especially with low rates.
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u/leifygreenz 19d ago
Or any leverage at these rates! When you take inflation into account you are being paid to borrow. My only concern is that I live in Canada and property has become our stock market lol
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u/jz187 18d ago
I live in Canada too. Real estate ownership is THE dividing line between the haves and have nots. The rate of real estate appreciation dwarfs any plausible rate of saving from paychecks.
I think the future of Canada is to become more like an Asian country, with Asian price/income ratios for real estate. Acquisition of real estate will become a multi-generational family project. In China, it takes 3 generations of savings to become home owners. This may very well be the future of Canada.
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u/leifygreenz 18d ago
Totally the direction we're going in. In China people invest in real estate because they don't really have an alternative way to invest money (their stock market is an illusion).
I read that Chinese citizens have to own property within a city in order to be able to receive any municipal services. Most importantly being able to send their kids to school. So a lot of people moving to a city are forced to decide between buying real estate or leaving their kids behind in the countryside. This uses your kids in order to increase demand! wtf?
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u/PerseusCommunist 19d ago edited 18d ago
The price for abandoning the Global South. The West is reaping what it has sowed after centuries. Financial markets mean nothing if there is no means of production nor material realties.
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u/MonolithSolutions 19d ago
Seems like worrisome news to me. They forecast it low. Comes in high. Then they say it will stabilize and put out another low forecast for next year. See how long that sticks.
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u/cleepboywonder 18d ago
The government isn’t a passive observer in this process. Its not like they say, oh our estimates have it leveling off, we’ll check in next year. Rates will be going up (FED is not the Biden admin but Treasury and FED seem to be on the same page) that will probably cut the inflation rate significantly.
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u/Alpha3031 18d ago
I seriously doubt the FOMC will increase rates in September or November. That would heavily impact their ability to manage market expectations in the future, and they've committed to targeting moderately high inflation for some time yet.
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u/naren_pradhan 19d ago
The enormous stimulus, the quantitative easing and shoved down interest rates, the government did it all assuming that the financial effects of the pandemic would blow over by early summer. Granted, many of the initial lockdown mandates have been lifted. However, it looks like the supply chain disruptions have gone into hysteresis, where the people that once made up the infrastructure have either left it permanently or are finding it hard to come back due to forgotten skills. If the resulting inflation creates a compounding effect where low consumer sentiment leads to reduced spending and more businesses have to shrink or close down, we might be in for a very rough time ahead.
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u/coleman57 19d ago
people that once made up the infrastructure have either left it permanently or are finding it hard to come back due to forgotten skills.
What kinds of tasks are we talking about here, that folks can't do 'em after a year off?
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u/spartan1008 19d ago
none, shipping ports are shutting down worldwide due to covid, its entirely supply side inflation up to now, so low interest rates, stimulus payments and quotative easing have had little if any impact either so this guy is blowing hot air.
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u/Fibocrypto 19d ago edited 19d ago
The headline :
Administration expects consumer prices to rise 4.8% in the fourth quarter from a year earlier, lifts projections for growth this year What was the inflation number in the 4 th quarter of 2020 . I think it’s a play on statistics which is nothing new fir politicians . The quick search I did . Copy and paste - in short the headline is a bit of truth and half truth —- non event in my mind ——- Consumer price index up 4.2 percent from April 2020 to April 2021 May 19, 2021
The Consumer Price Index for All Urban Consumers increased 4.2 percent over the 12 months from April 2020 to April 2021. The index rose 2.6 percent for the year ending March 2021. The 4.2 percent increase in April is the largest increase over a 12-month period since a 4.9-percent increase for the year ending September 2008. Over the longer period from January 2020 (before the COVID-19 pandemic) to April 2021, consumer prices increased 3.5 percent.
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u/Lightweightecon 19d ago
I think this is a loaded headline. While yes the forecast doubled from 2.1% to 4.8%, the impact is not as high as one’s emotional response to the word “doubling.”
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u/notsure2515 19d ago
I mean if you generally knew what the inflation rate is then you would also have an idea how much they meant by using a word that perfectly describes the facts.
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u/InvestingBig 19d ago
How is losing 5% of the value of your savings / income not worrisome?
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u/Lightweightecon 19d ago
Because rising wages will eat into that 5% (in aggregate; your mileage may vary).
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u/InvestingBig 19d ago
Except wages are not rising at 5%
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u/Lightweightecon 19d ago
Hence why I said “eat into”. Because yes, not rising as fast as inflation measures at this time.
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u/Captain_Nemo_2012 19d ago
Have you done any grocery shopping lately? Prices are up. Products are in short supply. Supply chain is messed up. Corporations repackaging their products at smaller size, but keeping the prices the same or higher. All is well in the economy.