Inflationary Risk Factors:
Mild inflation 2-3%
Transitory inflation (3-4%) lasting 2-6 quarters
Robust inflation 4-6%
Deflation (real) -1%
Dis-inflation 0-1%
Stagflation +6-8% + rapidly rising unemployment
Hyperinflation +10-20%
Those are my definitions of various 'Flations
1/
Mild inflation 2-3%
Transitory inflation (3-4%) lasting 2-6 quarters
Robust inflation 4-6%
Deflation (real) -1%
Dis-inflation 0-1%
Stagflation +6-8% + rapidly rising unemployment
Hyperinflation +10-20%
Those are my definitions of various 'Flations
1/
Inflation is in the news again, but not for the reasons you might believe.
It has little to do with nominal real inflation, less to do with actual real inflation, and nothing to with rates.
I suspect it I partly a political stunt. More on this below.
2/
It has little to do with nominal real inflation, less to do with actual real inflation, and nothing to with rates.
I suspect it I partly a political stunt. More on this below.
2/
I have been criticizing how BLS, Fed + Wall Street measure inflation for a long time.
The predictions about it have been consistently bad, often terrible.
ritholtz.com/inflation/
3/
The predictions about it have been consistently bad, often terrible.
ritholtz.com/inflation/
3/
Economists tend to undercount inflation when its rising, ignoring food and energy, because "Core"
They overcount it when its not rising.
In the pre-GFC 2000s I called this "Inflation Ex-Inflation." If we do not count that which is going up in price, there is no inflation!
4/
They overcount it when its not rising.
In the pre-GFC 2000s I called this "Inflation Ex-Inflation." If we do not count that which is going up in price, there is no inflation!
4/
We measure housing backwards:
Pre GFC, Rising house prices reduced demand for rentals, lowering Owners Equivalent Rent (OER), the home price model that lowered CPI as prices rose
Post GFC, falling home prices/rising rentals marked as disinflationary.
ritholtz.com/2005/05/how-ho…
5/
Pre GFC, Rising house prices reduced demand for rentals, lowering Owners Equivalent Rent (OER), the home price model that lowered CPI as prices rose
Post GFC, falling home prices/rising rentals marked as disinflationary.
ritholtz.com/2005/05/how-ho…
5/
It is not just inflation: We wildly undercount productivity IMO, we fail to fully capture GDP, we undercount the under-employed, etc.
It is not only economics: Finance does a poor job measuring intangibles like patents, processes, IP, etc.
6/
It is not only economics: Finance does a poor job measuring intangibles like patents, processes, IP, etc.
6/
Which leads me to the recent nonsense about inflation expectations. This is less a finance/economics argument than it is a political scare tactic.
The Inflationistas return was a back door attempt to thwart Biden's giant $1.9T Covid relief plan + any future stimulus plans.
7/
The Inflationistas return was a back door attempt to thwart Biden's giant $1.9T Covid relief plan + any future stimulus plans.
7/
The return of the Inflationistas is a back door attempt to thwart the giant $1.9T Covid relief plan and any future stimulus plans. The deficit argument failed, the pork claims went nowhere, so this is all they have. It failed, too
8/
8/
I was not a big fan of the $2 trillion 2017 TCJA, primarily because a pro-cyclical stimulus was unnecessary.
Note those tax cuts, which mostly went to the top 30%, did not cause inflation. And that was during a hot economy that was getting hotter.
9/
Note those tax cuts, which mostly went to the top 30%, did not cause inflation. And that was during a hot economy that was getting hotter.
9/
3rd Covid Rescue plan goes primarily to the lower 60%, who tend to spend whatever free cash flow comes their way.
We already have supply issue and spot shortages, which can send prices higher. Hence, why I expect transitory inflation as that $1.9T gets spent.
10/
We already have supply issue and spot shortages, which can send prices higher. Hence, why I expect transitory inflation as that $1.9T gets spent.
10/
Employment is still deep in a contraction. The massive underemployment issue from the GFC is still with us, made worse by Covid. This plan will do those folks good.
In 2022, political opponents will use inflation fears as their defense, but we know today its bullshit.
11/
In 2022, political opponents will use inflation fears as their defense, but we know today its bullshit.
11/
I'm curious if same nonsense gets trotted out for the Infrastructure bill -- we can fund a long overdue massive rebuild with cheap 50 year bonds (4%?) bring America's highways, bridges, tunnels, airports, electrical grid into 21C.
Or Green New Deal
ritholtz.com/infrastructure/
12/
Or Green New Deal
ritholtz.com/infrastructure/
12/
Look at who is warning about inflation: Its many of the same crowd who warned the Fed about about hyper inflation in 2010.
How'd that turn out?
ritholtz.com/2010/11/dubiou…
13/
How'd that turn out?
ritholtz.com/2010/11/dubiou…
13/
I suspect the hyper-inflationists were wrong because of their priors - they simply could not escape their ideology, a belief that inflation was always and everywhere a monetary phenomena.
I believe they were - more or less - honestly wrong
14/
I believe they were - more or less - honestly wrong
14/
Today's inflation fear-mongers are not motivated by rising prices.
They need a defense for an already popular program - before the 1st check is even printed. This is what happens when you lack of a valid belief system, and do not believe in governing.
15/
They need a defense for an already popular program - before the 1st check is even printed. This is what happens when you lack of a valid belief system, and do not believe in governing.
15/
We will know over the next 12-24 months how far inflation will rise, how short / long it will last + whether it a big problem - just by watching employment and wages.
The inflationistas will howl about everything else. Just ignore them
END
The inflationistas will howl about everything else. Just ignore them
END
Arggh, Tweetstorm typo!
Nominal or Real inflation, not "nominal real inflation,"
Nominal or Real inflation, not "nominal real inflation,"
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