Producer Price Index Rises More Than Forecast

Sigh. I wonder if being disingenous can be considered an art form? That graph is raw dollars. Sure balances are up.. as are wages, and savings, and 401ks, and the price of eggs. So when you look at credit card payments to disposable income the level is at historical norms and delinquencies are low. Why do you guys always ignore the actual data?

 

The PPI is an index. So is the CPI and many others used in Macro. In micro this economy is fueled by the individual consumer. They are seeing their daily costs go up. That is why people are upset. I work with them daily. The stock markets going up are as they were intended to be (speculation and a hope for return). So that being said - investors think the market is good. The fundamentals are very good (has nothing to do with our current Pres and really with any past CIC). People you meet every day just know they are having a hard time paying bills.

 

That is not really how the split between micro and macro works. The index is an average consumer basket. That means that while some consumers will see larger increases, others will see smaller increases, depending on their individual basket. The index shows what happens to the average consumer with the average basket.

The reason why you don't hear about that is because people are biased in how they perceive price changes in a number of ways. For example, let's say that I do this experiment: one group sees no price changes. The other group sees a large price increase for one object (let's say a $2.00 increase for a grocery item) and then sees a corresponding drop of $0.02 for 100 other objects that they buy for every one object with the price increase. Neither are told about these price changes directly (just shown the new price). Over the sample, the second person will be more likely to feel like prices increase than the first despite the fact that, in theory, they should be the same. That has to do with Prospect Theory and the fact that people generally frame a price increase as a loss and a decrease as a gain (and losses are weighted heavier than gains). Now add in political and media biases and this get hyper charged, such that a whole population becomes convinced that the index far underestimates their price changes.

 

This is true, but also measured inflation takes into account things like standard of living and substitution effects. Every year cars have more and more technology and can do more, which increase the cost. That is a rise in standard of living. That isn’t inflation. Also if good x goes up and good y goes down, and they are considered substitutes, people buy less of good X and more of good y. But people only focus on the price of good x.

 

Agreed but still looking at it in a macro level.

 

One other thing that I never fully grasped is rising home prices will cause CPI increases, but you can have lags, sometimes even many years.

we have been experiencing house price increases for more than a decade. Ultimately house prices will cause rents and equivalent rates to rise which causes cpi inflation as they are substituted. But the wildcard is interest rates. If lower rates accompany the increased house prices, mortgage payments will stay steady or maybe even go down, and rental rates are going to be correlated to mortgage payments. However, eventually interest rates will stop going down and probably back up, which will flow through to mortgage and rental rates, and that is also delayed as cpi rents lag new rents. An additional lag is most mortgages are fixed and it may be many years before the house sells and is remortgaged.

Also you would normally think that higher interest rates cause home prices to fall, but actually not so much as people don’t sell and supply dried up. Homeowners locked into low interest mortgages exasperates that effect.

You have the perverse sequence of events: higher CPI leads to higher fed interest rates, which leads to higher mortgage rates, which leads to higher rents, which leads to higher cpi inflation as rents and equivalents are more than 1/3 of CPI. Eventually interest rates will stabilize or go down, and the process unwinds, again with significant lags.

 

Hey City… when will the Dow hit 40,000?

 

Glad you asked.

 

This will be interesting to watch over the balance of Q2 and into the summer .... likely creating more upward pressure on rates - ie higher for longer.

China dumps $74 billion of U.S. debt in just 7 months (finbold.com)

China dumps largest amount of US Treasury and Agency Debt in history (finbold.com)

With economic relations between China and the United States continuing to raise investor interest, China has deviated from historical norms by offloading one of the largest amounts of US Treasury and agency debt.

Particularly, in the first quarter of 2024, China offloaded a record-breaking $53.3 billion of U.S. Treasuries and agency bonds.

Notably, China, traditionally a major holder of US debt, reduced its Treasury holdings by $22 billion during the first three months of 2024, while the remainder of the offloaded assets comprised agency bonds, according to data provided by Bloomberg on May 16.

 

You make some good points.

What fascinates me is that people are having a hard time paying their bills......and so many of them choose to vote for a political party that doesn't care if they have health care, and whose only economic "policy" is to cut taxes for corporations and the rich.

Fascinating times.

 

Complaints up thread: This week Red Baron at $4.99 but Coke holding at $5.25. This week they are doing Bellatoria frozen pizza at $3.70. Seems reasonable.

BTW store brand coke is $3.99 and pretty good if you ask me. That’s what I usually get.

 

Walmart, Target and Amazon slashing prices. Doesn't do anything for me, but has to be good for many.

https://www.cnbc.com/2024/05/22/target-walmart-mcdonalds-price-cuts-deals.html