Why the Disconnect: Population vs Pros, part II
As per our earlier discussion: We know health care costs have skyrocketed, that education costs are through the roof, and that Housing doubled over 7 years and has since fallen modestly from those levels (about 15-20%).
Then there are the commodities: Let's look at a few data points, to see who is less in touch with reality: The gloomy populace, or its Economists:
>
Goldman Sachs Commodity Index (1978-2008)
via MRCI
>
One-Year-Ahead Inflation Forecasts, Survey of Professional Forecasters
(1970 - 2008)
Source: Philidelphia Fed
~~~
On an unrelated note, the latest version of Excel for Mac is stripping the dates from the second chart -- I fixed it, but I have no idea how -- any suggestions ?
Here is the Philly Fed file Download inflation.xlsx:
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Monday, June 30, 2008 | 01:00 PM | Permalink
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Comments
Try not making it 3-D (it looks a little canted, as though you were trying that).
Posted by: lahke | Jun 30, 2008 1:11:49 PM
1. re Mac Excel, there was an update out a week or so ago (6/24) for Office 2004, also for Office 2008
2. Economist joke seen elsewhere in the blogsphere: Economist and another guy stranded on a desert island, no food for several days. They come upon a few cans of unopened Beans&Franks. Other guy says "Let's look for a sharp rock", Economist says "Let us assume a can opener".
Posted by: anon | Jun 30, 2008 1:16:34 PM
How can it be that the GSCI has exploded by a factor of five since 2001, in one of the more prominent inflationary episodes of the past century ... while core PCE, according to the New York Fed, has never risen above a 2.5% y-o-y increase since 2001?
I'm sorry, but that don't compute. Core PCE is broke, and can't be fixed. I am hereby unceremoniously chucking it into history's dustbin. In the absence of any objections posted here, the august poobahs of the FOMC will be presumed to concur.
Posted by: Jim Haygood | Jun 30, 2008 1:28:51 PM
Please recall the "jiggering" of said GSCI in August of '06 and what that ultimately did for the wholesale gasoline markets-just in time for the elections IMO.
I seem to recall that they have since sold off the rights to it and no longer really retain much control of it......just a pretty name attached to it is all.
Does paint an interesting picture when compared with the bottom chart.....one must consider the source however.....
Ciao
MS
Posted by: michael schumacher | Jun 30, 2008 1:29:02 PM
We (the Populace) are so gloomy because in addition to everything that's been discussed - wars, jobs disappearing, global price pressures, etc. -- MANY OF US ARE ONE, SHORT HOSPITAL STAY FROM DISASTER.
You get downsized from a good paying job with decent benefits to less so with less so. You take a 10-20% pay cut, but your healthcare costs go up, because the benefits aren't as robust, if there at all. Add to that less job security. Plus almost all of the costs of necessities are going up.
With little job security, if you get sick for a week in a hospital, you could be crushed because most of us now have 80/20 splits on their insurance - if they have insurance. And laid off to boot.
The "Professionals" just need to get a clue about some of this stuff. Perhaps if they swapped their six-figure (or even high 5-figure) salary with the typical American's for a year, they may gain a better understanding of statistics, inflation, and sentiment.
To get a little more on topic -- I wonder if credit is being destroyed fast enough to pop what looks like a terrific commodities bubble?
Posted by: Gary | Jun 30, 2008 1:42:50 PM
Let's be honest..the only thing the Fed will pay attention to is our collective paychecks. If those start to grow, interest rates go higher. They're really hoping they stay flat or down, theoretically pinching consumers, and starving inflation out. Because of the widespread use of credit cards, this may take a while. Sort of depressing.
Posted by: SteveC | Jun 30, 2008 1:42:55 PM
Barry, do you know if the one-year ahead forecast of core or total inflation?
Also do you have any thoughts on Bill Gross' comments today that we need to double the budget deficit (to $1 Trillion, say it like Dr. Evil) in order to ward off a mean recession?
Posted by: don | Jun 30, 2008 1:43:55 PM
older windows excel (might help)
right-click on chart -> Source Data SERIES tab - make sure Category (X) axis labels is linked to dates data.
or
right-click on chart -> Chart Options AXES tab - make sure Category (X) axis box is checked.
then, right-click on the x axis and tweak fonts, numbers, until you get the look you want.
Why diffent right-clicks appear/disappear on the chart has always been mysterious to me.
Posted by: mark mchugh | Jun 30, 2008 1:45:33 PM
Anyone who thinks the worst is over should take a look at the Bank of International Settlement's latest report
http://www.bis.org/publ/arpdf/ar2008e.htm
"The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point... It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."
Ambrose Evans Pritchard has a nice summary here http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/30/ccbis130.xml
Posted by: Anonymouse | Jun 30, 2008 2:16:39 PM
Just fired up MS AutoUpdate for my Mac Office 2008 - 12.1.1 runs to 153MB - hopefully will fix your problem - if not, remind us out here and we'll crowd-swarm it....
Posted by: fatbear | Jun 30, 2008 2:18:15 PM
And the question is whether the big spike in commodities is a "bubble" or if it represents a secular change based on the fact that rapidly growing world demand is finally hitting up against the finitude of earthly resources. If the latter, then the old models of "inflation" will not cut it. Need to go to new thinking in earnest - can the collective psyche wake up to this? Can collective action create a reasoned framework for channeling economic evolution to a successful adaptation to this new reality?
Posted by: Mind | Jun 30, 2008 2:21:18 PM
OT: $15 takeunder rumor on LEH making the rounds. Barry's call looking good!
Posted by: anon | Jun 30, 2008 2:22:36 PM
what is the demographic of people they survey for these? Where do they live? What is the age range? Is it really representative of the country?
I'm not aware of the process. I have never been surveyed.
Posted by: ben | Jun 30, 2008 2:35:52 PM
Update complete for MS Office 2008 Mac -
Just set up a new chart, from a spreadsheet with dates in Col A and data in Col B - after selecting Cols for proper usage in chart, then went to Formatting Palette
under Chart Options you will find Axes - there will be a few buttons there - the first two "Primary Vertical Axis" and "Primary Horizontal Axis") should be selected - if not, select them - both axes showed up correctly
I have not looked to see how to set this up as a Default, but I'm sure our friends at MS have made that easy to find....
Posted by: fatbear | Jun 30, 2008 2:38:22 PM
If a family has income after taxes and mortgage of $30K, a 3% difference in inflation amounts to $900 after a year. Given that household expenses are pretty lumpy ($900 is a car repair or a new TV) how can a family measure with any precision the "real" CPI?
Further, people don't buy a car, TV, refrigerator, water heater, etc. every year, so how closely are they really calculating the annual percent rise in those prices and adjusting for the proportion of their income? (ignoring the fact that most of those items are falling in price rather than rising).
In the midst of those challenges, they are assaulted daily by news of gas and food price rises. And the things that have risen the most are the things they purchase weekly - the items that are stable or falling are purchased less frequently. This makes it way too easy to not see the forest for the trees.
Against all this I don't think consumer polls have a fighting chance against the economists.
Posted by: SteveW | Jun 30, 2008 2:51:05 PM
****UPDATED MAC EXCEL INFO****
And just tried it on Phila Fed file - on Chart Formatting Pallette, go to Chart Data - select Edit - you'll see that X axis is a named series, but that the named series (date or dates, don't remember which) isn't defined properly, which is why the lower left label reads as "date(s)" on the chart
If you select Col A (the dates list) for the X Axis Label, the chart reads with dates in the label area - at my size (roughly 8" wide) the dates series goes to every other year (1970, 1972, etc.)
Hope this helps
fatbear
Posted by: fatbear | Jun 30, 2008 2:52:18 PM
Over the next two years, Bernanke is going to have to create millions of new “inflation fighters”, i.e., unemployed workers.
Posted by: DL | Jun 30, 2008 2:52:48 PM
Some of this is just getting silly. Who's got a firmer grip on reality, someone who believes (based on years of study) that the BLS is basically right about consumer prices, or someone who uses the Goldman Sachs Commodity Index as a proxy for consumer inflation? I can't remember the last time I bought a ton of copper.
Fact is, commodity prices are a very small part of most consumer goods; wages are a much bigger factor, so are profits, marketing, packaging, etc. For instance, the recent doubling of corn prices has driven the price of the corn in a box of corn flakes from 5 cents to 10 cents.
It is misleading to extrapolate increases in futures prices or producer prices to the prices consumers pay. In most cases, futures prices and producer prices are much more volatile than consumer prices are.
The only real exception to this is energy It's one of the few commodities consumers purchase in any volume.
What's driving consumers crazy isn't the Goldman Sachs Commodity Index (which they don't care one whit about), but their own paycheck, which isn't going up as fast as prices are.
The corn flakes might only cost 5 cents more, but their paycheck only went up 1 cent. That's why we have horrendous consumer sentiment readings. And it's also why the Fed isn't worried so much about inflation: Inflation can't really take off unless wages do. Without higher wages, consumers will just have to adjust to higher prices by buying less stuff, or less good stuff.
We don't have an inflation problem: We have a problem with falling standards of living, which I think is a much bigger deal.
Posted by: Rex | Jun 30, 2008 2:57:53 PM
It sounds like you're saying the commodities are behaving normally and the economists are in denial. Perhaps its the commodities that are way out of whack and they shall be the next to revert to the mean.
Marc
Posted by: Marc | Jun 30, 2008 3:10:57 PM
Yikes. That commodity chart is, like, the most frightening thing I've seen in a long time. I think the best trade might be to stay the hell away from that market, long or short.
Irrational exuberance, oh, why oh why won't you leave us alone?
Posted by: Melancholy Korean | Jun 30, 2008 3:22:26 PM
The Republicans decided to crush inflation by eliminating the wage part of the wage price spiral, by crushing the power of labor. That was back in the 1980's, and it's their most successful social policy. Now the mainstream hack economists profess to be shocked, shocked as to why productivity and wage increases are no longer coupled. They profess to be shocked, shocked as to the increasing debt burden and elimination of savings for American consumers.
For heaven's sake, get real, grow up, & take responsibility for what you chose to do. This economy didn't emerge by accident. It was by design, and more specifically, by Republican design.
Posted by: lark | Jun 30, 2008 3:32:21 PM
Unrelated to this post...
Anyone know why it's Amanda Drury hosting 'Street Signs' in the U.S. today? I did always love watching her on CNBC Asia. She seems so much more dignified and less of a cheerleader than the Erins and Marias of the world...
Posted by: HCF | Jun 30, 2008 3:44:11 PM
Inflation is comprised of wage inflation, property increases, food, energy, medicine, and other components.
Wages are the largest component and they have been stagnant for years.
Property prices, both commercial and residential, are declining thereby removing a source of inflation (actually contributing to deflation)
Food and energy prices as we know are increased at a great rate - but it is highly doubtful they will continue at this pace - a year from now, I doubt that oil would be at $290, etc..
Medical inflation also showed the slowest rate of growth in years
As a surgeon, I can tell you that I am getting paid less for each procedure, surgery, and visit compared to last year from all payers
So overall inflation is still tame except in some very highly publicised areas.
Thanks
Armen Kassabian
Posted by: Armen Kassabian | Jun 30, 2008 3:50:55 PM
Credit crisis? Not on my CC. I forgot to pay the last bill (~$100.00) and besides the late fee charge ($30.00; bastards) they increased the limit by $11,000.00 !! I'm amused and scared... what are they thinking? I should cash out and load on put options on them...
Posted by: mhm | Jun 30, 2008 4:04:57 PM
Armen Kassabian beat me to it. Barry, I love you man, but that is the most disengenious pairing of charts I've ever seen from you.
If every single unit of currency on the entire planet was spent on absolutely nothing but commodities, then we'd have inflation to match the commodities prices. But commodities are only a small part of the universe of things that are exchanged for currency.
Big ticket items are plunging in price right now. So are other assets. Bank lending is cratering. Money is disappearing. Inflation, by definition, is an increase in the money supply - do you see money being created right now?
It's about deflation, folks. Commodity prices are a head fake.
Posted by: E | Jun 30, 2008 4:16:36 PM
