USA inflation in 2015

[jaichind]

One interesting thing I noticed (for a few months now) is that economists projection of USA 2015 CPI is around 1% while swap traders that trade inflation swaps seems to project USA 2015 CPI will be around -0.1%.  We will see who is right.  But there is a very large gap which indicates a high level of uncertainty with respect to what the impact of lower energy prices will have on overall price levels.  Even among economists the SD of the predictions seems to be quiet large with a good segment actually coming in with numbers similar to that of swap traders.  I am keeping my fingers crossed for lower inflation (my preference) and hope that the swap traders are correct.  We will see.

[Sbane]

Would lower inflation due to lower gas prices be a bad thing though, except for a few industries? If anything, more industries will be able to pass through more of their cost as their spending on transportation would go down.

[True Federalist (진정한 연방 주의자)]

Would lower inflation due to lower gas prices be a bad thing though, except for a few industries? If anything, more industries will be able to pass through more of their cost as their spending on transportation would go down.

The difficulty would be if it led to general deflation thruout the economy and not lower inflation.  Deflation can lead to a vicious circle that kills employment as people put off purchases because the money they can save by deferring until later is worth more to them than the gratification of owning something now rather than later.

[Sbane]

Would lower inflation due to lower gas prices be a bad thing though, except for a few industries? If anything, more industries will be able to pass through more of their cost as their spending on transportation would go down.

The difficulty would be if it led to general deflation thruout the economy and not lower inflation.  Deflation can lead to a vicious circle that kills employment as people put off purchases because the money they can save by deferring until later is worth more to them than the gratification of owning something now rather than later.

Since the economy is improving and taking into account what the Fed has already done, I think that is highly unlikely. Lower gas prices will help many people who have not been sharing in the recovery, and will finally be able to make a few discretionary purchases they have been putting off for forever.

[jaichind]

Energy prices affects all sorts of retail prices since it impacts the cost of transport.  And yes, it will affect the overall inflation expectations which is what the inflation swaps traders expect and what I hope.  My hope for the Fed is that their target should be 0% inflation and not 2% (not that they will get there in the next couple of years.)

[jaichind]

Looks like swap traders and economists are beginning to converge to around 0.4% to 0.5% CPI for 2015. My ideal inflation is around 0% year in year out but I will take this.

[Antonio the Sixth]

My ideal inflation is around 0% year in year out but I will take this.

Really? I think a 2-3% inflation is actually healthy for economic expansion.

[Small Business Owner of Any Repute]

My ideal inflation is around 0% year in year out but I will take this.

Really? I think a 2-3% inflation is actually healthy for economic expansion.

I'd like somewhere around 2% too. Small amounts of inflation have positive effects for those in large amounts of debt -- like new homeowners.

[jaichind]

As I mentioned before, the inflation swap market and the economist forecasts have converged to around 0.4%-0.5% CPI.  Of course there is still a gap for 2015 and 2016 CPI.  The swap traders have them around 1.8% while the economist forecasts have them around 2.2%.  I guess if the 2015 CPI projections is any guide they will also converge to somewhere in the middle which would be around 2%.

[Indy Texas]

My ideal inflation is around 0% year in year out but I will take this.

Really? I think a 2-3% inflation is actually healthy for economic expansion.

It's healthy for the economy as a whole.

But jaichind is a sociopathic One Percenter who may have structured his portfolio in such a way that nonexistent inflation or slight disinflation would be ideal for him. And everyone else can just go to hell.

[Deus Naturae]

My ideal inflation is around 0% year in year out but I will take this.

Really? I think a 2-3% inflation is actually healthy for economic expansion.

It's healthy for the economy as a whole.

But jaichind is a sociopathic One Percenter who may have structured his portfolio in such a way that nonexistent inflation or slight disinflation would be ideal for him. And everyone else can just go to hell.

Low inflation benefits savers, pensioners, etc and depending on the cause it can also benefit consumers. You may not consider it ideal (though the idea that there is a specific "healthy" rate or range of inflation is flawed) but your suggestion that low inflation constitutes screwing over everyone besides the 1% is absurd.

[True Federalist (진정한 연방 주의자)]

Low inflation benefits savers only if interest rates remain static.  Otherwise what is important to savers is the differential between interest rates and inflation rates and that differential tends to be independent of inflation.  If there is a relation it's probably inversely related.  When inflation is low, central banks tend to set the differential low to encourage spending rather than saving and when it is high, central banks tend to set the differential high to encourage saving rather than spending.

[Landslide Lyndon]

Real inflation hasn't occurred yet because banks are not lending..

Wow! I think we have a future Nobel prize recipient among us.

[jaichind]

It's healthy for the economy as a whole.

But jaichind is a sociopathic One Percenter who may have structured his portfolio in such a way that nonexistent inflation or slight disinflation would be ideal for him. And everyone else can just go to hell.

Sorry for late response.  Actually my portfolio is very much structured in a way to benefit from high inflation.  This is because even though myself and my DW are in very high paying jobs, we both are way overpaid relative to our competence.  Phase one defense against that risk is that our management does not discover this and they have not yet in either case.  Once they do figure this out, they will not fire us as we are both valuable in our respective megacorps.  What they will do is keep our pay increase to a nominal 1%-2% a year.  Here is where inflation comes in.  If inflation is 0%-1% we are in good shape as our goal is merely persevering our current compensation in real terms.  If inflation is 4%-5% this will represent a decrease in our income.  In fact that is what took place in the 1970s inflation.  It was a great opportunity for enterprises to decrease compensation in real terms but keeping some small nominal increase every year.  So given this risk our portfolio is structured to hedge against high inflation of the 4%+ variety.  In fact overall, our portfolio has under-performed in 2014 and 2015 mostly because of that reason since inflation has come in lower than expected in that period.  I am not complaining, I wanted a certain point in the investment trade-off curve and I got what I bargained for.

That out of the way I am for low or zero inflation mostly alone the lines of the Friedman rule

http://en.wikipedia.org/wiki/Friedman_rule

[jaichind]

Looks like inflation expectations in 2015 has now fallen to somewhere around 0.3%.  YOY it seems it will be 0% for the first 3 quarters followed by around 1.2% in Q4.  If Yellen has a target of 2% inflation, current inflation swaps indicate that it will take 12 years to get to an overall average of 2% during that period.  Same swap curve also indicate long term inflation to be around 2.2%-2.3% which is a good deal lower than the 3% rule of thumb for retirement planning professionals typically use. 

[AggregateDemand]

Really? I think a 2-3% inflation is actually healthy for economic expansion.

This argument was settled in the 1970s. The only benefit of inflation at this point is helping America de-leverage. And why would a good little socialist like you want to undermine the real wages of workers, which is how inflation lifts employment (temporarily).

[© tweed]

barring increases in taxes on high incomes, inheritances, capital gains, and corporate taxes, the only solution is for a maverick Fed to bump it up to 8 - 10%.  Hell, even that hardly helps those carrying the $1.3T in student loan debt and the $900B in credit card debt, but it would help to get mortgages (still by far the largest source of private debt of course) off of the table and would essentially cancel out the % of Washington's budget dedicated to debt service.

[jaichind]

Feb CPI YOY came in at 0% which is a bit more than the expected -0.1%.  Still we are looking at around 0.3% or 0.4% for all of 2015.  What I find interesting is that Jan 2015 Chain CPI came in at -0.6% YOY and Feb 2015 Chain CPI came in at -0.5% YOY.  Usually Chain CPI comes in at around 0.2% less than CPI.  That gap has opened to more like 0.5%.  if this trends continues it seems to indicate a wide level of churn of terms of prices shifts between different products.  This also means that what people experience as "their" CPI will deviate more from each other.  I noticed that over the years that CPI tends to overstate my spending cost price increase.  My budget cost increase tend to match that of Chain CPI than CPI. 

[t_host1]

This is the plan:

 * LEGISLATURE: Pay for regular legislators would rise from $15,869 to $39,400 and to $45,000 for House speaker and Senate president. The 145 percent increase is supposed to be accompanied, legislative leaders have promised, by an end to a $14,400 expense account that has been used by some as a pay supplement paid in the form of flat monthly payments to spouses' LLCs. The commission dictates pay but may only make recommendations on expenses. Legislative leaders have indicated no plans to cut the per diem payments and mileage reimbursements (at a rate much higher than state employees) when they get the pay raise.

 * GOVERNOR: Would go from $79,132 to $130,000, an increase of 64 percent.

 * LT. GOVERNOR: Would stay at $42,315.

 * ATTORNEY GENERAL: Would go from $73,132 to $130,000, an increase of 77 percent

 * SECRETARY OF STATE: Would go from $54,848 to $90,000, an increase of 64 percent

 * AUDITOR, TREASURER AND LAND COMMISSIONER: All make $54,848, they'd all be moved to $85,000, an increase of 55 percent.

 * DISTRICT JUDGES: From $125,950 to $140,000, up 11 percent

 * CIRCUIT JUDGES: From $140,372. to $160,000, up 14 percent.

 * COURT OF APPEALS: From $144,982 to $161,500, up 11 percent. The chief judge, $147,286. to $164,000, also up 11 percent.

 * SUPREME COURT: From $149,589 to $166,500, up 11 percent. The chief justice,from $161,601 to $180,000, up 11 percent.

Our mayor who hides under the (I) label has given himself and his regime a similar 145% increase in pay and benefits. Blames, because, the other mayors are doing it.  

Posted by: Antonio V

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You should be excided about this.

Posted by: jaichind

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Your class certification is growing - inflating.

[Ebsy]

Fiscal conservatives at work.

[Antonio the Sixth]

Posted by: Antonio V

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You should be excided about this.

I am always excited about your posts.

[jaichind]

April CPI YOY came in at -0.2% which is the expected value.  For the entire year I think we are looking at around 0.35%  April Chain CPI -0.6% so the trend of a larger gap between Chained CPI and CPI continues.  Historically the gap tends to be around 0.2% but now it seems more like 0.4% which again argues for a larger variation in price increases.  As I mentioned before I totally believe the Chained CPI number as my own household personal expenditure CPI as I measure it is also around the Chained CPI number if not even more negative (like -1.0%).  

So the result of the economists and derivative traders battle/gap on 2015 on CPI expectations at the end of last year seems to end in a tie leaning the derivative traders favor as economists expected 1% and derivatives traders expected -0.1%.

[jaichind]

Looking at inflation swaps, if Yellen's goal is 2% inflation, one has to go out to 10 years before the inflation over the entire period reaches 2%.   Over the next 5 years inflation will average 1.85% as per inflation swaps.

[AggregateDemand]

Fiscal conservatives Energy markets at work.

[Landslide Lyndon]

Really? I think a 2-3% inflation is actually healthy for economic expansion.

This argument was settled in the 1970s. The only benefit of inflation at this point is helping America de-leverage. And why would a good little socialist like you want to undermine the real wages of workers, which is how inflation lifts employment (temporarily).

jao?