Archive for the ‘inflation’ Category

Biden takes another victory lap.

December 15, 2022

Says his economic policies tamed inflation.
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I guess it’s not as bad as when he declared inflation was down to zero, but…

According to WaPo: “Biden is now seeking to reframe the economic narrative ahead of announcing his own reelection plans early next year”.

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It’s cringe worthy when Joe declares that he’s got inflation under control.

Yep, the year over year rate of change has dropped from over 8% down to the mid 7s, but that’s hardly an end to the inflationary pressures that everybody is feeling.

The number to focus on is 13.8% … that’s how much prices have gone up since Biden was inaugurated.

image

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Diving into the numbers:

> When Biden was inaugurated, the CPI was 262.2 … in November, it was 298.3 … that’s a 13.8% increase over Biden’s 22-month term … on an annualized basis, that’s a 7.1% APR

> In comparison: When Trump was inaugurated, the CPI was 243.6 … when he left office in Jan. 2021, it was 262.2 … that’s a 7.6% increase over Trump’s 4-year term … on an annualized basis, that’s a 1.9% APR

> Cutting the numbers a different way: From Trump’s inauguration date to Nov. 2022 (almost 6 years), the CPI increased 21.3% … 1/3 of the increase occurred during Trump’s run (at a 1.85% APR, which is roughly what the Fed targets for the U.S. long term rate) … and 2/3s of the increase has hit during Biden’s reign (2 years at a 7.1% APR)

image

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Think about this:

> If inflation had continued at Trump’s APR ( a 1.85% APR), the CPI would be about 270 today … we’d be seeing prices about 10% lower than they are today.

===========

Ask yourself a variant of Ronald Reagan’s “cut to the chase” question:

Is your pantry, wallet, IRA, 401K or 529s better off today than they were 22 months ago?

Posted in Economics, inflation | Leave a Comment »

Why does inflation feels so much worse than 8%?

October 14, 2022

Since Biden was inaugurated consumer prices have increased by over 13% … more in key consumer categories
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Following the stats communications principle of “bite sizing” large numbers into smaller (less alarming) ones, Biden likes to focus on month to month price changes.

Along the same vein, the BLS and media norm is to focus on year-over-year percentage increases.

For example, the latest CPI increase is reported at 8.2%

But, when we go to a store or a gas station, prices seem so much worse.

Why is that?

Simple answer: the headlines aren’t reporting the most relevant numbers — price levels and their change from a meaningful starting point.

A more complicated statistical answer has to do with the “miracle of compounding” … which in the case of prices, is more like the “disastrous effect of compounding”

Case in point: this week, the BLS reported that, in Sept. 2022, the CPI increased 8.2% from Sept. 2021.

Let’s set a different comparative point — namely, January 2021 — when Trump turned over the WH keys to Biden…

in January 2021, the CPI was 261.6 … in Sept. 2022, it was 296.8 … that’s an increase of 13.1% …  which is 1.6 times 8.1% (i.e. 60% higher)

That’s what people are feeling … not the year ago comparison … since the year ago number already has some jaw-dropping inflation baked in.

In stats-speak, this is the “lapping principle” 

And, as the chart below shows, the price tag pain is worse for the most relevant home budget items.

For example, since Biden’s inauguration…

  • Food at Home is up 17.7%
  • Gas is up 58.6%
  • Electricity is up 23.3%
  • Natural gas is up 51.8%
  • Used cars are up 36.2%
  • Housing costs are up almost 10%
  • Air fares are up 41.8%

click table  to enlarge
image

The red  numbers above show what consumers are feeling … not “just” the 8.2%.

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Chart notes:

  1. Columns (a) and (b) are from the published BLS reports for January 2021 and September 2022
  2. Column (c) “Point to Point % Increase” is the % increase from Jan.2021 to Sept. 2022
  3. Column (d) “Compound Annual Rate” is the   is the annualized percentage increase from Jan. 2021 to Sept. 2022
  4. Column (e) is the percentage change from Sept. 2021 to Sept. 2022

Again, IMHO, column (c) “Point to Point % Increase” from Jan.2021 to Sept. 2022 are the numbers that we should all be focusing on.

Posted in Bidenomics, inflation | Leave a Comment »

Inflation: The micro view…

September 16, 2022

Topline: Overall CPI up 8.3% …  there’s devil in the details … and a couple of bright spots.
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Here are some of the essentials that we all face day-to-day:

> Food at home is up 13.5% … food at employee sites is up 23.7% <= another arrow in the quiver of employees who want to keep working from home

> Gasoline may be down about a buck from the mid-summer peak price ($5 per gallon) … but they’re still up $1.66 (68%) from Biden’s inauguration day ($2.42) and up 26% from a year ago. Source

> Electricity is up almost 15% from a year ago … as we head to the winter heating season.

> Housing is up 6% from a year ago. This is a component worth watching as appreciated values get reelected in lease renewal rental rates.

> New vehicles (cars & trucks) are up 10.1% … used cars are up 7.8% … motor vehicle repair costs are up over 10% … and, oh yeah, the average EV now costs over $60,000

> Vet services (and pet food) are up over 10%

OUCH!

image

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On the bright (err, “not so dreary”) side:

> Heathcare inflation has been relatively tame (up about 5%) … with “physician service” prices essentially flat year to year.

image

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And, a few more not-so-bad inflation trends that are underappreciated:

> Underwear, alcoholic beverages and cable TV are only up about 3% year to year.

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Bottom line: if you want to mitigate inflationary pressures, the formula is obvious:  watch more cable TV, in your underwear, while slammin’ your favorite adult beverage.

If that doesn’t work, find some solace knowing eventually the inflationary pain will (pardon the pun) die away;

>Funeral services are only going up 2.6%.

image

Yipes!

Posted in Bidenomics, inflation | Leave a Comment »

Inflation: The macro view…

September 15, 2022

Bottom line: Sorry, Joe, it’s not zero!
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Here’s the big picture:

image

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Diving into the numbers:

> When Biden was inaugurated, the CPI was 262.2 … in August, it was 295.6 … that’s a 12.7% increase over Biden’s 20 month term … on an annualized basis, that’s a 7.22% APR

> In comparison: When Trump was inaugurated, the CPI was 243.6 … when he left office in Jan. 2021, it was 262.2 … that’s a 7.6% increase over Trump’s 4 year term … on an annualized basis, that’s a 1.85% APR

> Cutting the numbers a different way: From Trump’s inauguration to Aug. 2022, the CPI increased 21.3% … 1/3 of the increase occurred during Trump’s run (at 1.85% APR , which the Fed targets for the U.S. long term rate) … and 2/3s of the increase has hit during Biden’s reign (at a 7.22% APR)

image

=============

Think about this:

> If inflation had continued at Trump’s APR 1.85% APR), the CPI would be about 270 today … we’d be seeing prices about 10% lower than they are today.

===========

Ask yourself a variant of Ronald Reagan’s “cut to the chase” question:

Are your pantry, wallet, IRA, 401K, 529s better off today than they were 20 months ago?

Posted in Bidenomics, inflation | Leave a Comment »

Reality bites!

September 14, 2022

This may be the picture that memorializes the Biden presidency.

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If only CNN had also included an insert that read “Inflation 8.3%”

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P.S. Note the network: CNN … which switched away from Biden’s “Malarkey Moment” soon after the split-screen aired.

Posted in Bidenomics, inflation | Leave a Comment »

About Joe’s “Zero Inflation”…

August 24, 2022

Have you glanced at your electrical bill recently?

During Trump’s time in office, electricity prices were flat.

Not so under Biden’s …

In the past year alone, electricity prices have gone up 15.7%

In stats-speak, that’s a number statistically different from zero.

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Source: FRED and HFS analysis

Close coal-fueled electricity plants, stiff arm nuclear and that’s bound to happen. … especially with price of natural gas — the main electricity fuel — sky-rocketing.

image
Source

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And, let’s not forget about gas prices!

Posted in Bidenomics, inflation | Leave a Comment »

Mission Accomplished: Joe says “Zero inflation in July”…

August 15, 2022

My wife (and I) disrespectfully disagree!
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Last week, Biden declared victory over inflation and headed off to Kiawah Island for some vacation (away from the hustle & bustle of Rehoboth Beach).

His inflation claim is based on the overall CPI being unchanged from June to July.

That’s true … but, shall we say, both premature and misleading.

First, it ignores the fact that the  “all items” price level is up 8.5% year-over-year … and 12.5% since Biden took office.

And, while gas prices fell in July, they’re still up 44% versus year ago.

Most telling, and most aggravating to my wife (& me), is what’s happening at the grocery store.

The “food at home” price index is up 13.1% versus last year … its June to July change was 1.4% … which annualizes to over 18%.

Biden’s focus on a 1 month change is statistically silly, but let’s play his numbers game and look at the grocery staples that most people buy (chart below).

Let’s look at some June to July price changes (when Biden says there was no inflation)

  • Potatoes went up 4.6% in July …  71.5% APR
  • Eggs (which have increased 38% since last year) went up 4.3% in July …  65.7% APR
  • Bread went up 2.8% in July …  39.3% APR
  • Baby Food went up 2.1% in July …  28.3% APR
  • Breakfast Cereal went up 2.0% in July …  26.8% APR

You get the picture…

image
Source: FRED CPI

OK, that’s Biden’s way of looking at the numbers.

Let’s re-sort the chart by year-over-year price increases (which are statistically more representative.

A couple of “staple” examples.

  • Eggs are up 38% vs 2021 … and the trend is bad (based on the June to July increase)
  • Bread & potatoes have increased about 13.5% year-over-year … and their June to July increases were high.

image

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Sorry, Joe, this “inflation thing isn’t under control quite yet.

These items hit most families and the pain is both conspicuous and constant…

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P.S. Meats (total) are “only” up 7.2% since last year … and their annualized rate based on the June to July numbers is “only“ 5.9%.

So, you can’t pin it on “Big Meat” ….

Posted in Bidenomics, inflation | Leave a Comment »

WaPo: $369 billion won’t do much to control the climate.

August 9, 2022

… or curb inflation, for that matter.
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The Dems massive Inflation Reduction & Climate Control Bill is getting backlash … even from the left!

Let’s start with the Inflation Reduction malarkey.

“More than 200 economists wrote a letter to Senator Schumer detailing how this bill will not reduce inflation, nor reduce the deficit.” Source

“Several nonpartisan experts believe it’ll have no noticeable downward pressure on prices — including the Congressional Budget Office (“negligible at best”), the Bipartisan Policy Center (“small impacts one way or the other”), and the Penn Wharton Budget Model (“statistically indistinguishable from zero”).” Source

And, my favorite:

image

Even Mark Zandi — Moody’s Analytics chief economist and Biden’s go-to flack — says that the bill will have near-zero impact on inflation.

Why? Corporations will pass through tax increases to consumers, oil prices will stay high (or increase) and drug price controls won’t kick in until “mid decade””.

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And, about climate control…

Specifically, the electric car incentives that are headlined to shave $7,500 off a high-priced EV.

In WaPo’s own words:

“An entire supply chain of rare minerals, semiconductors, batteries and financing has to fall into place before Americans give up their combustion engines.”

Here’s the big rub…

“American consumers can only claim the full $7,500 credit for an all-electric engine if their manufacturers displace Chinese batteries by 2024 and minerals from China or other countries lacking free-trade agreements — a threshold that automakers are warning could be impossible to meet.” Source

For the record:

60–80 % of EV batteries’ mineral ingredients are controlled by China which currently produces 76 % of the world’s lithium-ion batteries, while the U.S. produces only 8 %.

Despite ambitious plans to scale up, the U.S. and Europe together will likely account for only about a quarter of total global production of EV component minerals by 2030. Source

English translation: Expect to pay full price if you want to impress your friends with a climate-cooling EV.

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So, I guess we’ll have to count on windmills circling Nantucket and dotting the Jersey coastline.

When that happens, I’ll start taking the climate-controllers seriously…

Posted in Climate Control, Global Warming - Climate Change, inflation | 1 Comment »

Biden: “Don’t blame me, blame the Pandemic and Putin”

June 3, 2022

“And, by the way, it’s a global problem, not just a U.S. problem.”
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That’s the gist of Team Biden’s “message” as it is stumping hard this week to let Americans know that Joe’s economic plan is working splendidly …. and that any perceptions of a bad economy are simply that: “perceptions”.

In a prior post, we channeled an analysis done by the the San Francisco Fed (FRBSF) that concluded:

In 2021, a relatively “normal” level of inflation (around 2%) was evident   in the major OECD countries — Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden, and the UK, but…

During the same period, inflation was more rampant in the U.S.  Specifically:

During the 1st 3 quarters of 2021, U.S. core CPI grew from below 2% to 4.7%.

In contrast, the OECD average increased at a more gradual rate from around 1% to 2.2% (over the same period).

image_thumb[2]

That clever analysis by the FRBSF demonstrates that:

In the 1st 3 quarters of 2021, about 80% of the U.S. core inflation rate increase is statistically attributable to factors specific to the U.S. That is, only about 20% is attributable to globally common pandemic effects.

We ended the prior post with a question…

So, what are those specific factors?

=============

Well, the FRBSF analysts took a statistical whack at that question, too.

Their underlying analytical logic focused on fiscal stimulus programs in the U.S. and the OECD countries:

One way to get a read on this tangle of support programs is to directly measure disposable personal income in each country.

This measures the amount individuals have left to spend or save after paying taxes and receiving government transfer payments.

It is a relatively comparable measure across countries that incorporates the overall magnitude of net pandemic transfers

And, the answer is…

image

Real disposable personal income for the OECD countries increased only moderately during the pandemic (2020 & 2021).

But, there are 2 obvious spikes in the amount of disposable income that Americans “enjoyed” during that same period:

Specifically, the two peaks in U.S. disposable personal income reflect the CARES Act, signed into law (by President Trump) on March 27, 2020 … and the American Rescue Plan (ARP) Act, signed (by Biden) in March 2021.

Both Acts resulted in an unprecedented injection of direct assistance with a relatively short duration.

==============

OK, let’s overlay the above 2 charts…

image

The visually obvious conclusions that can be drawn:

1. The Trump era stimulus (CARES Act) appears to have been absorbed by the economy … with transfer payments (e.g. stimulus checks) largely offsetting lost wages … hence little impact on inflation in 2020.

2. But, the Biden ARP stimulus (passed with no GOP votes) appears to have literally broken the inflationary camel’s back … by infusing an unnecessary (and excessive) level transfer payments in the U.S. economic system … igniting a rampant surge in inflation (that was not comparably realized in OECD countries).

And, keep in mind, that this analysis was pre-Putin’s Ukraine invasion.

=============

Bottom line: Sorry, Joe …  your excessive stimulus program — coupled with your war on domestic oil & gas production — account for the lion’s share of our current inflation woes.

Man-up and fix the problem!

Posted in Bidenomics, inflation | Leave a Comment »

Biden: “Inflation is a global problem!”

June 2, 2022

“Don’t blame me, blame the Pandemic and Putin”
=============

OK, I paraphrased the 2nd quote a bit, but that’s the gist of Team Biden’s “message” as it is stumping hard this week to let Americans know that Joe’s economic plan is working splendidly …. and that any perceptions of a bad economy are simply that: “perceptions”.

Today, let’s look at the Biden’s lead assertion … that inflation isn’t isolated to the U.S. … it’s a worldwide problem.

He implies — and sometimes says — that’s proof positive that his policies have nothing to do with the problem.

Really?

True, inflation is evident in the major OECD countries — Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden, and the UK — but there’s a “but” … and it’s a big “but”.

The economic research group at the San Francisco Fed (FRBSF) recently published an analysis that concluded:

Before the pandemic, U.S. core CPI inflation remained, on average, about 1 percentage point above the OECD sample average.

Early in 2021, however, U.S. inflation increasingly diverged from the other countries.

U.S. core CPI grew from below 2% to  4.7% (in Q3, 2021).

In contrast, the OECD average increased at a more gradual rate from around 1% to 2.2% (over the same period).

image

First, a couple of technical points:

  • For data comparability, the FRBSF analysis focuses on the core CPI … which excludes energy and food.
  • Restricted by the timing of data availability, the FRBSF analysis only runs through the 3rd quarter of 2021 … all before Putin’s invasion of Ukraine.
  • Since 2021-Q3, the year-over-year core CPI has increased from 4.7% to 6.2% … and, including food & energy, the year-over-year inflation number is over 8%

Those points notwithstanding, the FRBSF analysis is quite revealing.

  • During 2019, pre-pandemic, the core inflation rate hovered around 2% in the U.S.
  • In 2020,  the U.S. core inflation rate actually dropped to about 1.5% … lower than the pre-pandemic rate.
  • Post-Biden’s inauguration in early 2021, the U.S. core inflation rate increased from 1.5% to 4.7% in Q3, 2021 … an increase of 3.2 percentage points.
  • During that same period, the average OECD core inflation rate increased from 1.5% to 2.2% … an increase of .7 of a percentage point.

Bottom line: Given a U.S. core inflation rate of 4.7% … and using the 2.2% OECD average as a baseline for “global inflation” …  only about 20% of the U.S. core inflation rate increase since early 2021 is statistically attributable to common global inflation pressures (.7 percentage points divided by 3.2 percentage points equals 21.8%).

Said differently, about 80% of the U.S. core inflation rate increase since early 2021 is statistically attributable to factors specific to the U.S.

Sorry, Joe.

============

Next up: So, what are those specific factors?

Posted in Bidenomics, inflation | Leave a Comment »

Biden: “Don’t blame me, blame the Pandemic and Putin”

May 18, 2022

“And, by the way, it’s a global problem, not just a U.S. problem.”
=============

In a prior post, we channeled an analysis done by the the San Francisco Fed (FRBSF) that concluded:

In 2021, a relatively “normal” level of inflation (around 2%) was evident   in the major OECD countries — Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden, and the UK, but…

During the same period, inflation was more rampant in the U.S.  Specifically:

During the 1st 3 quarters of 2021, U.S. core CPI grew from below 2% to 4.7%.

In contrast, the OECD average increased at a more gradual rate from around 1% to 2.2% (over the same period).

image_thumb[2]

That clever analysis by the FRBSF demonstrates that:

In the 1st 3 quarters of 2021, about 80% of the U.S. core inflation rate increase is statistically attributable to factors specific to the U.S. That is, only about 20% is attributable to globally common pandemic effects.

We ended the prior post with a question…

So, what are those specific factors?

=============

Well, the FRBSF analysts took a statistical whack at that question, too.

Their underlying analytical logic focused on fiscal stimulus programs in the U.S. and the OECD countries:

One way to get a read on this tangle of support programs is to directly measure disposable personal income in each country.

This measures the amount individuals have left to spend or save after paying taxes and receiving government transfer payments.

It is a relatively comparable measure across countries that incorporates the overall magnitude of net pandemic transfers

And, the answer is…

image

Real disposable personal income for the OECD countries increased only moderately during the pandemic (2020 & 2021).

But, there are 2 obvious spikes in the amount of disposable income that Americans “enjoyed” during that same period:

Specifically, the two peaks in U.S. disposable personal income reflect the CARES Act, signed into law (by President Trump) on March 27, 2020 … and the American Rescue Plan (ARP) Act, signed (by Biden) in March 2021.

Both Acts resulted in an unprecedented injection of direct assistance with a relatively short duration.

==============

OK, let’s overlay the above 2 charts…

image

The visually obvious conclusions that can be drawn:

1. The Trump era stimulus (CARES Act) appears to have been absorbed by the economy … with transfer payments (e.g. stimulus checks) largely offsetting lost wages … hence little impact on inflation in 2020.

2. But, the Biden ARP stimulus (passed with no GOP votes) appears to have literally broken the inflationary camel’s back … by infusing an unnecessary (and excessive) level transfer payments in the U.S. economic system … igniting a rampant surge in inflation (that was not comparably realized in OECD countries).

And, keep in mind, that this analysis was pre-Putin’s Ukraine invasion.

=============

Bottom line: Sorry, Joe …  your excessive stimulus program — coupled with your war on domestic oil & gas production — account for the lion’s share of our current inflation woes.

Man-up and fix the problem!

Posted in Bidenomics, inflation | Leave a Comment »

Biden: “Inflation is a global problem!”

May 16, 2022

“Don’t blame me, blame the Pandemic and Putin”
=============

OK, I paraphrased the 2nd quote a bit, but that’s the gist of his inflation speech last week.

Today, let’s look at the Biden’s lead assertion … that inflation isn’t isolated to the U.S. … it’s a worldwide problem.

He implies — and sometimes says — that’s proof positive that his policies have nothing to do with the problem.

Really?

True, inflation is evident in the major OECD countries — Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden, and the UK — but there’s a “but” … and it’s a big “but”.

The economic research group at the San Francisco Fed (FRBSF) recently published an analysis that concluded:

Before the pandemic, U.S. core CPI inflation remained, on average, about 1 percentage point above the OECD sample average.

Early in 2021, however, U.S. inflation increasingly diverged from the other countries.

U.S. core CPI grew from below 2% to  4.7% (in Q3, 2021).

In contrast, the OECD average increased at a more gradual rate from around 1% to 2.2% (over the same period).

image

First, a couple of technical points:

  • For data comparability, the FRBSF analysis focuses on the core CPI … which excludes energy and food.
  • Restricted by the timing of data availability, the FRBSF analysis only runs through the 3rd quarter of 2021 … all before Putin’s invasion of Ukraine.
  • Since 2021-Q3, the year-over-year core CPI has increased from 4.7% to 6.2% … and, including food & energy, the year-over-year inflation number is over 8%

Those points notwithstanding, the FRBSF analysis is quite revealing.

  • During 2019, pre-pandemic, the core inflation rate hovered around 2% in the U.S.
  • In 2020,  the U.S. core inflation rate actually dropped to about 1.5% … lower than the pre-pandemic rate.
  • Post-Biden’s inauguration in early 2021, the U.S. core inflation rate increased from 1.5% to 4.7% in Q3, 2021 … an increase of 3.2 percentage points.
  • During that same period, the average OECD core inflation rate increased from 1.5% to 2.2% … an increase of .7 of a percentage point.

Bottom line: Given a U.S. core inflation rate of 4.7% … and using the 2.2% OECD average as a baseline for “global inflation” …  only about 20% of the U.S. core inflation rate increase since early 2021 is statistically attributable to common global inflation pressures (.7 percentage points divided by 3.2 percentage points equals 21.8%).

Said differently, about 80% of the U.S. core inflation rate increase since early 2021 is statistically attributable to factors specific to the U.S.

Sorry, Joe.

============

Next up: So, what are those specific factors?

Posted in Bidenomics, inflation | Leave a Comment »

More: Gas tax “holiday” is a dumb idea…

February 24, 2022

What about the budget impact?
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Following on to yesterday’s post…

Team Biden has floated the idea of waiving the 18.4-cents-a-gallon federal tax on gasoline through the end of the year.

Bloomberg’s assessment: A gas tax holiday would do nothing to fight inflation but would do lasting harm to the federal budget.

Yesterday we drilled down on the inflation effect, concluding that:

Based on common sense behavioral economics, temporarily waiving the gas tax is a play “at the margins” that is likely to have a minimal effect in curbing inflation at the pumps.

Today, let’s look at the budget effect…

================

Again, building on the Bloomberg headline…

Keep in mind that revenue from the gas tax ostensibly goes into the Highway Trust Fund, which is the primary way the U.S. pays for repairing and maintaining highways

It is estimated that suspending the tax through the end of 2022 (as the proposed Dem-sponsored bill envisions) would cost about $20 billion).

Hmm.

Didn’t the Feds recently pass a bipartisan infrastructure bill intended, in part, to repair roads & bridges?

Specifically, $110 billion was earmarked and split roughly 50-50 for roads & bridges.

For details,see: What  is in the bipartisan infrastructure bill?

So, jacking $20 billion from the highways budget is the equivalent of cutting the infrastructure bill’s commitment to roads by about 40%.

So much for the commitment to infrastructure rebuilding.

They’re not trying to snooker us again, are they?

Posted in Bidenomics, Gas Prices, inflation | 1 Comment »

Bloomberg: Gas tax “holiday” is a dumb idea…

February 23, 2022

Prices at the pump have already soared and will go even higher given the Russia-Ukraine mess (and Biden’s anti-oil policies).
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But, not to worry …

To offset the pump price increases, Team Biden is trying to get Saudi Arabia, Russia and Iran to supply more oil.

Well, maybe strike Russia from that list now.

And, they’re floating a gamechanger: Waiving the 18.4-cents-a-gallon federal tax on gasoline through the end of the year.

What’s the problem with doing that?

Bloomberg’s assessment: A gas tax holiday would do nothing to fight inflation but would do lasting harm to the federal budget.

Today, let’s drill down on the inflationary impact by considering the relevant “behavioral economics” — what are consumers likely to perceive and how are they’re likely to reacrt..

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Some Behavioral Economics

My take: Temporarily waiving the gas tax is a play “at the margins” that is likely to have a zero or negative effect in the market.

For openers, ask: What’s the impact of 18.4¢ per gallon on consumer’s wallets?

It is about 4.5% off a gallon of gas at current pump prices.

That’s sounds good.

But, it translates to about 2 bucks off at each pump stop … down from around $50 to just under $48.

Assume  a 16 gallon tank, refilled when it’s down to 1/4 of a tank: 75% x 16 = 12 gallons; 12 gal, x 18.4¢ = $2.20 … and assume gas at $4 per gallon at current market prices..

From a behavioral economics perspective, the driving number (<= pun intended) is the $48 … which is still a “piss-me-off” $20 per fill-up more than we were paying pre-Biden.

There’s little likelihood that consumers will start chanting; “Now you’re talking, Joe”.

So, let’s take another slant: What’s the annual impact on wallets?

Teaching point: In my pricing course, I professed that a way to “inflate” the appearance of a small number, simply multiply it by some number, e.g. go from cents per gallon,to dollars per fill-up to dollars per year.

Conversely, to make a big number seem small, simply “bite size it” by dividing it by some number, e.g. instead of $200, make it 4 easy-pay installments of $49.99 … or better yet: only pennies per day … way less than your monthly cable bill.

Let’s assume that an average person drives 12,000 miles each year.  At 20 MPG, that translates to 600 gallons per year.

At 18.4¢ per gallon, that’s a little over $100 in savings this year.

That’s barely enough to buy one of the two shoes in a new pair of Nike Lebron 19 basketball kicks.

The Nike LeBron 19 “Bred” to release this month at select retailers and Nike.com. The retail price tag is set at $200 USD. Source

Sure, we’d all rather get a “free” $100 from the government coffer (i.e. somebody else’s money), it doesn’t stack up as a life-style changing bonanza.

So, Joe, it may not buy you or your cronies  a lot of votes … or neutralize the perception that you haven’t got a clue.

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P.S. What if the above logic is wrong and people do sense that temporarily waiving the 18.4¢ per gallon gas tax is a meaningful price change?

What’s the likely outcome?

Based on past history, people are likely drive more and buy more gas … pushing the pump prices back up … possible negating the entire tax cut.

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To be continued…

Posted in Bidenomics, Gas Prices, inflation | 1 Comment »

Companies plan to keep raising prices…

October 26, 2021

P&G: “We have not seen any material reaction from consumers.” 
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That’s the conclusion from a WSJ survey of company execs and industry analysts…

A couple of my takeways…

> Companies are quickly passing along cost increases … with many “adding a little extra” to “get healthy” after the lockdowns.

Example: “Last week, P&G  announced a third round of price increases and told investors to expect profitability to accelerate as the year progresses.”

> The pandemic has left many (most?)  consumers “cash heavy” since they haven’t been traveling, dining out and, in some cases, not paying their rent …  so, many have banked their government stimulus checks.

Many consumers accumulated savings amid the pandemic and are benefiting from higher wages, leaving them with extra cash as the highly contagious Delta variant of the coronavirus keeps them home and lessens the appeal of dining out, staying in hotels and traveling by air.

> So, far, price increases have paid off as shoppers have continued buying — or even buying more to stock up in advance of likely future price increases or supply shortages  to big-name brands.

“We’re seeing price increases that are quite shocking, yet consumers have absorbed these prices without a dip in demand,” said Ben Reich, chief executive of Datasembly, which amasses granular pricing data on a range of consumer goods.

> But, some analysts caution that there’s a limit to how long and how high companies can keep jacking up prices.

As some of the stimulus fades and more price increases kick in, consumers will become increasingly pinched by inflation.

Pricing is going to be more of an issue for consumers, limiting companies’ pricing power.

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Bottom line: Expect prices to keep going up for awhile.

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Inflation: More about the lumber price shock…

July 20, 2021

Yesterday, we pointed out that In June, year-over-year inflation reached a 13-year high.

Today, let’s drill down on my personal inflation benchmark: lumber prices:

Loyal readers might remember that a couple of weeks ago, I whined about sky-rocketed lumber prices.

See Ouch: I just paid $3,700 for $1,200 of lumber …

Since then, lumber prices have “corrected” somewhat … down about 60% from the peak … but still 50% higher than a year ago.

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That doesn’t lessen the pocketbook sting from my completed project, but it gives me some hope for my next lumber-intensive project: re-planking my retirement home’s dock.

For that project, I’ll be buying lots of #2 prime pressure-treated boards measuring 2 in. x 8 in. x 8 ft.

That’s my personal inflation pain point these days.

Not that long ago, I used to pay about $5 per board.

A couple of weeks ago, Home Depot was charging a whopping $17.98.

Last week the price dropped to $12.99 … a 27% price drop.

This week, the price is down to $10.99 … another 15% price-shaving.

That’s still double what I used to pay … but the price is heading in the right direction!

That is, unless Bidenomics strikes again…

And, as many news sources are reporting, that’s not a far-fetched worry:

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Yipes.

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“In June, year-over-year inflation reached a 13-year high.”

July 19, 2021

That’s the mega-takeaway from the most recent gov’t report.
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June’s 5.4% follows May’s 5% and April’s 4% 

Press Secretary Psaki says, based on the administration’s arithmetic, we shouldn’t worry. She noted that  she and Biden — the ever sharp shoppers — paid 16 cents less for their July 4th BBQs.

For the rest of us, in real terms, the inflation shock means that our paychecks are in only buying about 95% of what they did a year ago … and, excluding our new contributions and  stock market gains, the “real” value of our IRA is shrinking at a 5.4% annual rate.

Ouch…

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Joe says: “What inflation?”

June 14, 2021

The government reported CPI went up 5% in May.

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Source: WaPo

Though Biden and his team of free-spenders are sanguine, ordinary folks are starting to notice.

Let’s look at a couple of benchmarks…

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Gasoline

Key consumer benchmark: gasoline prices … they’re up a whopping 47% in the past year.

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Housing

Zillow says that the price of a typical mid-tier existing home is up 13.2% over the past year … and is projected to go up another 14% this year … for a combined impact of almost 30%.

The price of new homes is skyrocketing …  in part, because of the almost quadrupling of lumber prices.

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According to CNBC the surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home … which translates to about $15 per square foot … just for lumber!

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Food

The measured CPI for food rose “only” 2.2% in the government calculation.

Many (most?) consumers scoff at the 2.2% number … and benchmark their high volume staples (e.g milk, diapers) or personal favorites.

For example, a Homa family benchmark is the price of an Arby roast beef sandwich.

Not that long ago, Arby would regularly promote the sandwiches at 5 for $5.

Earlier this year, Arby’s went to 5 for $10.

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Now, my price scouts report that an Arby’s roast beef sandwich regularly costs $4 …and the special is 2 for $6  … at $3 a sandwich, that’s up 50% from earlier this year, and triple the price from the good old days.

Ouch.

This inflation thing is getting personal….

Posted in Economics, inflation | 1 Comment »

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