Inflation/stagflation Thread

Finance
1913

“Literally Gas Lighting”: The Hilarious Reason For Today’s PPI Miss: Seasonally Adjusted Gas Prices

Looking at the core number (excluding food and energy), we find that according to the BLS, the only reason PPI was even positive in March is because of services, where the biggest source of upside was the “index for securities brokerage, dealing, investment advice, and related services, which rose 3.1 percent.” In other words, everyone was rushing to open a brokerage account so they can trade Jeo Boden or some other shitcoin.

But what about what really increased in March, which as we have shown previously, was gas prices which rose just over 6% based on, well, how much the average gas price rose across the US in March!

Here things get hilarious, because according to the BLS in March, while PPI Services rose by 0.3%, prices for final demand goods was actually negative, dropping by 0.1% MoM.

And then, reading a little further into the BLS press release we find this surprise: "the decline is attributable to the index for final demand energy, which moved down 1.6 percent."

Which then brings us to the absolute punchline, because in the very next sentence, Biden’s Bureau of Gaslighting Services writes that "leading the March decline in the index for final demand goods, prices for gasoline decreased 3.6 percent."

Hold on a second, didn’t we just show that gas prices - actual, real gas prices, which everyone across the country has to pay - rose by 6% in March?

Yes we did, but what we didn’t anticipate is the amount of BS Biden’s henchmen are willing to shove down our throats. And indeed, to understand how gasoline could possibly drop by 3.6% in a month where it rose over 6% we have to look at the category description, where we find the little trick beloved by propaganda ministries everywhere: "seasonally adjusted."

1 Like
1914

That is the biggest farce that kills the whole calculation. I dont understand why the season is relevant in the least - either prices went up or they didnt. If it’s a seasonal spike, the price still went up, and will come back down at some point as well.

1915

I don’t know, maybe it’s because they’re looking for long-term trends, not regular and expected short-term fluctuations? Just a thought.

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1916

Appropriately cynical take on inflation

also, in the latest installment of We Hate Russia, we’re banning them selling various base metals on western exchanges.

https://www.reuters.com/world/us/us-takes-action-targeting-russian-aluminum-copper-nickel-2024-04-12/

  • US IMPOSES SANCTIONS ON USE OF RUSSIAN METALS ON EXCHANGES
  • US ANNOUNCES RESTRICTIONS ON RUSSIAN COPPER, ALUMINUM, NICKEL

I have this sneaking suspicion many things are made out of copper and nickel, so we’ll get even more inflation. Looks like this is impacting markets.

  • ALUMINUM, NICKEL, AND COPPER PRICES SURGE ON LME FOLLOWING US AND UK SANCTIONS
  • ALUMINUM JUMPS MORE THAN 6% AFTER SANCTIONS ON RUSSIAN METAL
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1917

Powell has bad news - higher for longer.

  • FED’S POWELL: RECENT DATA SHOW LACK OF FURTHER PROGRESS ON INFLATION.
  • FED’S POWELL: LABOR MARKET MOVING INTO BETTER BALANCE EVEN AMIDST ONGOING STRENGTH.
  • FED’S POWELL: TWELVE MONTH CORE PCE INFLATION WAS LITTLE CHANGED IN MARCH ACCORDING TO ESTIMATES.
  • POWELL: FED TOOK A CAUTIOUS APPROACH TO NOT OVERREACT TO DECLINES LAST YEAR, RECENT DATA HAVE NOT GIVEN GREATER CONFIDENCE
  • POWELL: RESTRICTIVE POLICY NEEDS FURTHER TIME TO WORK
  • FED’S POWELL: IF HIGHER INFLATION PERSISTS THE FED CAN MAINTAIN CURRENT RATE AS LONG AS NEEDED.
  • POWELL: WILL LIKELY TAKE LONGER FOR CONFIDENCE ON INFLATION
  • FED’S POWELL: IT IS APPROPRIATE TO LET POLICY TAKE FURTHER TIME TO WORK.
  • POWELL SAID FIRM INFLATION LAST QUARTER HAS INTRODUCED NEW UNCERTAINTY OVER WHEN AND WHETHER THE FED WILL BE ABLE TO LOWER RATES LATER THIS YEAR
  • FED’S POWELL: THE CURRENT SITUATION IS NOT THE STANDARD CASE OF INFLATION DRIVEN BY OVERHEATED DEMAND.

As in caused by too much government printing / handouts, rather than an economy doing very well and driving up prices since everyone’s getting rich. Maybe we should cut back on $T spending blowouts beyond our budget? Nah, how do you get re-elected on that. Speaking of re-election…

Election year panicking might be setting in. Time to dump the last of our Strategic Re-election Reserve since there’s no reason we’d want a buffer against Middle East uncertainty these days.

  • U.S. WANTS TO ENSURE AFFORDABLE GASOLINE, WHITE HOUSE SENIOR ADVISER JOHN PODESTA NOTED ABOUT POTENTIAL SPR OIL RELEASES
  • SENIOR WHITE HOUSE ADVISOR: US COULD RELEASE MORE SPR OIL TO KEEP GAS PRICES LOW
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1918

Meantime, the regime is strong arming Ukraine not to bomb the Russian oil refineries and Israel, not to bomb the Iranian oil refineries.

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1919

Okay, I’m missing something. The refineries are mainly for local markets. Part of Iran’s problem is (used to be and I assume still is) that the refineries can’t keep up with local demand. Thus they must import gasoline, while exporting crude. How does it hurt us if Russia and Iran must import refined petroleum products? We’re exporters of those products.

1920

Our lack of fiscal responsibility by our leaders is one of the main drivers of inflationary government spending, debt fueled and continuing even in “good times” rather than used as a stabilizing force during a recession.

after the roughly $6 trillion in COVID emergency spending—and unlike the Obama administration post–Great Recession—the Biden administration has not acknowledged the need for austerity. Debt-service costs are going through the roof, with interest payments growing to $1 trillion a year and eclipsing defense and Medicare spending, yet the administration shows no notable willingness to course correct. In fact, as McArdle notes, “President Biden isn’t talking about fiscal sanity; he’s talking about massive child-care subsidies” and about more student debt forgiveness.

The fear is that eroding fiscal norms will change investors’ expectations about being repaid for government debt, something that comes with just about every bad economic consequence one can imagine.

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1921

We may be exporters, but we dont/cant export that much. There isnt that much excess refining capacity.

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1922

Problem is that the guidelines for fiscal responsibility - like this article points out - have always been informal. Personal accountability and moral values used to be sufficient to keep politicians aligned with this duty of fiscal responsibility. Thanks to general erosion in ethical and moral standards, informal guidelines are clearly no longer sufficient.

Left to informal rules and perverse incentives (it’ll be someone else’s mess to clean up, let me get re-elected first), there’s always a good excuse for overspending, not increasing revenues enough, and not closing tax compliance gaps because it’s unpopular and gets you voted out in favor of someone who will promise to overspend and under-collect.

Sadly voters are too stupid to punish politicians for it because deficits and debt are always a delayed time-bomb. Watch this in action with student loans or credit card debt where people sign up for debt they later on discover they have no way to pay. As a result, when was the last time any candidate had a realistic detailed deficit reduction proposal on their platform, or heck even platforms that’d guarantee balanced budgets?

As things are, it’s not gonna fix itself. Politicians only care about staying in office. So we need to implement laws codifying ineligibility for office based on whether Congress and POTUS oversaw budget deficits over their previous term. Or at the very least have iron-clad rules for disqualifying laws and government actions that cannot pay for themselves based on non-partisan CBO scoring. But such laws are also not gonna happen since politicians are not gonna vote for laws that’d endanger their careers even at the benefit of the country’s future prosperity. Look at the attempts at introducing term limits in Congress…

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1923

Following up on the inflation impacts from those Russian metal bans, this morning we get this anti-China move you’d think was Trump:

  • BIDEN URGES HIGHER LEVIES IN REVIEW OF SECTION 301 TARIFFS
  • BIDEN CALLS FOR TRIPLING OF TARIFFS ON CHINESE STEEL, ALUMINIUM
  • BIDEN’S PROPOSED HIGHER TARIFFS WOULD APPLY TO MORE THAN $1 BILLION ON STEEL AND ALUMINUM PRODUCTS FROM CHINA
1924

Uncle Joe (no offense to the original, capable, semi-more evil one) has to try to keep the union vote, which used to be almost as solid Democrat as the black vote.

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1925

Another example where the price of Our Democracy, er re-election, er gasoline, is worth fighting inflation and selling out our children’s future to the Climate Emergency.

  • EPA WAIVER TEMPORARILY EXEMPTS E15 GASOLINE FROM AIR RULES

“Under President Biden’s leadership, EPA is taking action to protect Americans from fuel supply challenges resulting from ongoing conflict overseas by ensuring consumers have more choices at the pump,” said Administrator Michael S. Regan. “Allowing E15 sales during the summer driving season will increase fuel supply, while supporting American farmers, strengthening our nation’s energy security, and providing relief to drivers across the country.”

Biden did this the last two summers also. I forget what the EPA was in charge of protecting, but apparently its not the environment (or maybe this whole ethanol thing is a grift for farmer votes, I forget).

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1926

I’m so confused. How does more choices help anything when they’re all coming from the same supply anyways?

Remember, virtually all US gasoline contains 10% ethenol already, and E15 gas is blended with “between 10.5% and 15% ethenol”. So it only expands supply by a small fraction of a fraction of total supply.

All this really accomplishes is squeezing the supply options for everyone who wants the least ethenol possible in their fuel.

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1927

Well it’s still expanding the supply slightly. Considering E15 is suitable for cars manufactured after 2001 (I assume that’s the vast majority of the automobile park at this stage), it’s still a benefit, albeit not a very large one.

But to me, that’d also be about the only thing (short of releasing more from the strategic reserve which I’d rather not do) that the government can really do to impact gas prices. Ramping up production unilaterally is not gonna work since we’ve seen other oil producing countries simply lower their outputs in response to our extra production anyway.

Or what would you rather have the government do about meaningfully lowering gas prices? Subsidies that’ll increase budget deficits?

1928

The cure for high prices is high prices. Let people who can’t afford it make different choices, like use public transportation or get voters to approve more refineries or whatever to meet the demand imbalance.

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1929

That works although can hurt the economy in the process. But why keep prices high if you can do something to reduce them, even if only slightly, and the cost of doing so is minimal?

1930

The disappointing GDP number together with the persistent elevated core CPI is definitely not promising for future rate cuts. Some commentary I liked:

Maybe the GDP miss was just noise, and that inflation will simply cease to matter once the sun rises on our AI-driven future… But the combination of sluggish growth and persistent price pressures, when combined with rising unemployment, summons the memory of a demon from the ancient world: stagflation.

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Is POW-ell thinking about Volcker? And that history may be summoning him to repeat Tall Paul’s feat and slay the dragon of inflation? That to him falls the great task of ignoring the politicians, the voters, Wall Street, et al., and making the hard decisions needed to “save the economy”? In an election year, no less. One wonders. In the meantime, it’s higher for longer – and even longer, it seems – and for all we know it’s gonna be even higher?

Although maybe in this modern day and age, it’s Bitcoin instead of gold? Hard to say, since it feels to me that Bitcoin is a risk asset and will fall if the market crashes into a recession. So maybe gold it is (and commodities like oil too if you’d like to bet on some Middle East instability thrown in too).

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1931

Although it should not be correlated with US equities, the R2 of BTC vs S&P 500 definitely indicates a strong correlation over the last 10 years. Maybe it’s just a happy coincidence of long bull market trend and ascendancy of BTC as a store of value. But I think the gold bet has proven to be safer historically.

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1932

This was quite a good, if longer article on a number of topics but mostly inflation and asset class returns. For example, gold suffers from inflation (more gets mined and into circulation), but that’s only 1-2%/year compared to a much higher inflation rate so you still do better than holding cash/dollars if you want to preserve purchasing power.

The types of investments that worked well during the past four decades are less likely to work quite as well over the next four decades. The virtuous cycle of ever-lower interest rates, ever-higher private debt levels, and ever-higher equity valuations, is likely getting past its prime, and is at risk of rolling over into a vicious cycle in the other direction.

And in that shifting environment, it’s important to remember that most investments are bad. The majority of unlevered businesses are not strong enough to produce returns for passive investors that outperform T-bills or gold. The majority of unlevered real estate properties, after maintenance and operation and taxes are considered, also fail to outperform basic assets like gold.

So in that environment, from the perspective of a passive outside investor looking to deploy capital, it’s important to either seek out the businesses that have durable competitive advantages (network effects, powerful brands, intangible property, economies of scale, oligopoly participation, and so forth), or to be very sensitive to valuations when buying mediocre companies.

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