Hip, hip, hooray! The CPI is up more than expected, led by a huge 1.1% month-over-month surge in medical care supplies.
Medical care services jumped 0.9%, and shelter jumped 0.3%.
This will not help the economy. And it will subtract from consumer spending other than Obamacare and rent, but economists are cheering.
CPI-U All Urban Consumers
Real World Happiness
- Food at home -1.9%
- Energy -9.2%
- Gasoline -17.3%
- Fuel Oil -12.8%
- Electricity -.07%
- Used cars -4.0%
Unreal World Happiness
- Food Away From Home +2.8%
- Medical Care Commodities +4.5%
- Shelter +3.4%
- Transportation Services +3.1%
- Medical Care Services +5.1%
Keynesian Theory vs. Practice
Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite.
If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.
Reality Check Questions
- If price of food drops will people stop eating?
- If the price of gasoline drops will people stop driving?
- If price of airline tickets drop will people stop flying?
- If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
- If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
- If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
- Will people delay medical procedures in expectation of falling prices?
- If deflation theory is accurate, why are there huge lines at stores when prices drop the most?
Bonus Question
If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?
Crazy Thinking
Anyone who thinks soaring Obamacare and rent is a good thing and will help the economy is crazy.
By the way, pay particular attention to the price of new and used cars. I expect a price plunge in those categories as people will have less discretionary spending thanks to a rise in Obamacare premiums and rent.
Related Articles
- Retail Sales Unexpectedly Dip 0.3% – Weakness Not Contained to Autos
- Collision Course: Motor Vehicle Production +0.5%, Motor Vehicle Sales -4.4% Year-Over-Year
Mini-Stagflation
Won’t that be fun?
By the way, Keynes thought a recession and inflation at the same time could not happen. Somehow Keynesian idiocy managed to survive anyway.
Mike “Mish” Shedlock
Healthcare and rent are the worst: Health and space are not produced, so the spending on them is in fact a tax: it decreases discretionary purchases, but the money doesn’t flow into production, because, as was already indicated, health and space are not made — and the extra spending on health and space does not produce more of them.
With business investment and productivity falling off a cliff and globalisation beginning to go into reverse, it’s going to be a lot worse than “mini” stagflation.
I’ve said a few times the end result of these Fed QE, ZIRP, NIRP etc would be stagflation. They’ve already screwed savers with ZIRP, now it’s time for the inflation pincer. A word to the wise,spend now before negative interest rates and inflation consume your savings, be a team player, spend, go in debt, help your fellow man.
You got it backasswards.
Monetary policy of ZIRP/NIRP/QE is disinflationary … deflationary when asset bubbles burst (we’re at onset).
Not until j6p gets more $$s in his pocket there will be no sustained inflation … including rents / health care. Slackening demand will force drop (the cure for high prices is even higher prices) … and loan delinquencies inching up … leading to credit spigot to tighten.
Instead of spending … folks will save (the smarter ones have / will deleverage) … if they have anything left after monthly expenses.
US Govt debt never has to be repaid, can be produced in infinite quantity, costs virtually zero to service, and has caused generally no inflation this cycle.
So, why not, as Ray Dalio suggests, print up a few hundred million $1, 000 checks and send them to every man, woman and child? Only to the bottom 49% who would, spend them, of course.
This worked in Alaska. Until recently.
2008 saw the tax rebate … nothing more than a tiny kick of the can.
Or, are you talking of a continuous chain of checks? … in which everyone quits their job and sit around and stare at the mailbox waiting for the next check?
The tax rebate sent the banks in a tizzy.
“Oh no! People are using the 300 bucks to pay down credit cards! Our Tier 1 assets are shrinking!!!! We need a bailout!!”
You mean, like, just print the “money” and send everyone a check.
And then use the same “money” to pay our foreign creditors.
LOL.
I’m sure they (our foreign creditors) won’t have any problem with that, and will keep right on lending us money ($600 billion a year).
Real estate keeps going up so what will happen is there will be a building boom in the outer burbs that will be overdone and later prices will collapse. Medical costs are a different issue in that much of the costs are to a handful of insanely overpriced drugs that are patent protected. Cheaper to get addicted to heroin than to need chemo. I suspect sooner or later there will be a medical cost revolt where people refuse to pay.
Anecdotally, a significant chunk of rent, hence real estate price increases, is due to people piling layers thick to small apartments.
An effect of the Fed’s and government/legal establishment’s successful robbing of the many in the hinterlands, for the benefit of a few well connecteds who generally live in financial centers/cities, is that more and more jobs are being transferred to said cities as well.
Instead of producing food, cars, machinery and whatever else Americans used to do for work, more and more are now stuck rendering menial service to those on the Fed’s indirect payroll. Changing bedsheets for lawyers, cleaning up after banksters, making coffee for public sector unionistas, cooking for politicians, giving blowjobs to Bill Clinton and General Patraeus…… That’s what progressive America is all about, after all.
And since blowjobs are hard to perform across state lines, those armies of freshly minted menial servants are stuck looking for space in San Francisco, DC and New York. Where, of course, noone is building any space. Since then, those on the receiving end of the blowjobs would complain about lowejing mai poppeti vaijues. Which is sin worse than murder in progressive dystopias. So, rents are going up as desperate menial servants are piling themselves ever higher in tiny, cockroach infested shoeboxes under freeways. Where they get to sit around cheering on how great their gommiment is, and how baaad it would be if they they didn’t get to go to some silly booth and put a slip with Dear Leader’s name on it in a box every couple of years….
Another housing bubble will burst in the near future
Mish,
You’re wrong because you are not looking at the right time horizon. Suppose you have a functioning computer but want a faster one. And suppose the price of computers is going down 5% per month, every month, and that is likely to continue as far as the eye can see. Are you going to rush out and buy a new one now, when in 120 days you can get it for 20% cheaper? I’m not. I’m driving that old one as long as I can. That’s exactly what Keynes saw in the Great Depression.
Now suppose computers are going up 5%/month. I’m buying as fast as I can. That’s exactly what drove record auto sales in the late ’70s. This isn’t made up stuff. It’s observation of real events. Your last item fits in line. People show up at sales today because they know the price is going up tomorrow.
It’s the time frame that counts. Though inflation in rent and healthcare does no one any good.
It’s the time frame that counts. Though inflation in rent and healthcare does no one any good.
except doctors & landlords.I guess millennials are moving out of parents basements if rents are going up!
4 months isn’t much of a wait. If the price keep dropping, why not wait 4 years from now when it will be even cheaper than 4 months from now?
Oh, you don’t want to wait THAT long. Which is what Mish said. Would you delay opening a business for four months because you know you can save money on computers if you delay? Of course not.
A car dealer already knows that people may put off the purchase of a Ford Focus for a few months to see if the price goes down a few hundred bucks (generally when the next model year arrives) whereas they also know people aren’t putting off the purchase of a Lamborghini because the price might drop a few hundred bucks next month. Two cars, two completely different market behaviors.
In other words, computer sellers already account for how their particular market behaves but economists live in a world of simplistic models that are so far off of how the real world works (not all sectors of the economy follow the same model) that their predictions and advice are useless.
“Now suppose computers are going up 5%/month. I’m buying as fast as I can. That’s exactly what drove record auto sales in the late ’70s. This isn’t made up stuff. It’s observation of real events.”
Really?
Baby boomers hitting 20’s and early 30’s had nothing to do with new vehicle sales in late 70’s?
Anyways, your 5% increase a month is a STRAW MAN.
We’re going to have deflation (as measured by CPI), alright … but it will be < 1% per annum variety. And no one is going to wait a year to save a percent or two. They'll spend as the norm.
Purpose is to keep sheepish consumer under control, or to get the picture, keep the frog in a pan of slowly boiling water .
See Japanese economy history.
It is just how servant can be the crowd by voting to standard political parties. Need for political revolution is obvious.
Lucky Americans will get Trump sooner than we’ll get Marine Lepen (I preferthe female than the male 😉 )
The Fed better get with the program and start buying and burning crops, purchasing a new car for every .gov employee and new immigrant, and handing out full Obamacare premium rebates to all. Also, it needs to get it’s Pentagon division to get some more wars going to pump up the MIC and GDP.
Anyway we look at it, they have an electronic printing press, and aren’t afraid to use it.
I have X dollars to spend every month. If prices:
go down, I spend X dollars to buy N items
go up, I spend X dollars to buy M < N items
Which is better for the economy?
I have X dollars to spend every month. If prices:
go down, I spend X dollars to buy N items
go up, I spend X dollars to buy M < N items
Which is better for the economy?
Why doesn’t my comment show up? Is there a moderator, or is something else wrong?
Inflation is confiscation. Bankers come up with endless excuses to confiscate the people’s stuff, and stick it in banker pockets.
and wages keep going down or staying the same……whopie
Note that it is at a certain moment that makes you buy a product service:
– the pressure for the need for it: if getting sicker by the day hardly noone , you will wait
– the pressure of price change: a steady monthly -5% or +5% won’t make you change your mind once you have money to buy since you have the need…
– the evolution of your income change (when above poverty level): if you get steady pay raise, you forecast to spend more but as usual. If you feel you get more buying power, you feel greater and greater inclination to buy way more.
This explains the economic cycles.
It is all about acceleration/deceleration of parameters, not the change in itself.
Pingback: The Fed and the Everything Bubble snbchf.com