fed fighting inflation

[beerbaron]

It think Heineken is now brewed by Molson (in Canada) while in 1991 it was imported. Big difference on the business model.

 

 

[mpauls]

On the other side, Phil Fisher used to talk about factors typically overlooked such as price decreases due to technology, innovation, R&D, and product life-cycles.  For instance, the cost of a computer today vs 10 years ago.  This doesn't exactly offset other increases, but a relevant point none-the-less.

[ERICOPOLY]

It think Heineken is now brewed by Molson (in Canada) while in 1991 it was imported. Big difference on the business model.

 

 

 

 

All their beer is cheap though.  I think the price of a six pack Coors is also roughly unchanged after 18 years.  

 

Newer "specialty" beers are pretty much the same price too, if not cheaper.

 

That website ShadowStats.scom suggests that a $5 sixpack of Budweiser ought to be about $25 bucks right now.

 

http://www.shadowstats.com/inflation_calculator?amount1=5&y1=1991&m1=8&y2=2009&m2=8&calc=Find+Out

 

There must be something special about the beer market that is holding inflation down.

 

$25!  Come on, not even close.

 

 

[beerbaron]

Yes, I'm the one telling them to stay down. After all I'm the BeerBaron.

 

BeerBaron

[louisdog]

It think Heineken is now brewed by Molson (in Canada) while in 1991 it was imported. Big difference on the business model.

 

 

 

Although a lot of "imported" beers are brewed in Canada and then shipped to the US (Harp for example).  Heineken is not one of them, it still comes over on a boat.

[Guest Broxburnboy]

When it comes to alcoholic beverages, the end price reflects government tax policy more than any other input cost.

I can buy a six pack of Corona in Mexico for less than 5 bucks CDN.. the same six pack in Alberta is about 11 bucks (I think, since I don't buy Corona in Alberta). I can buy a bottle of Tequila Sauza there for less than 10 bucks CDN, although it costs 35 here.

Amongst our Snowbird friends in Mexico, we have adopted wine as a currency for trade amongst us (even though it is subject to sudden deflation through consumption).  The standard is a bottle of Concha Y Toro Cab/Merlot blend available at Costco for 270 pesos per six pack (about 4.00 CDN each). In Canada the same bottle would cost about 11 bucks. The difference is mostly tax.

During times of inflation and/or depression governments are loathe to jack up luxury taxes on beer and cigarettes, and often lower them, in order to forestall a taxpayer revolt or working man's revolution.  Retail booze is probably not a good standard for which to measure inflation.

[ERICOPOLY]

ShadowStats suggests 4x rise in prices since 1991.  (I can't tell the exact number because they only supply a bar chart, not a number).

 

A baseline 4wd Chevrolet Suburban cost about $20k ($18,540 MSRP) in 1991 and I paid $34k for a brand new 2008 Chevrolet Suburban LT2 from a local dealership in 2008.  The MSRP was $48k but this was not the baseline model.  The LT2 is practically fully loaded.  It did not come close to the $80k or $100k that ShadowStats CPI would suggest.  The quality today is much higher than in 1991.  This is a luxury car now, compared to the trim and features of the 1991 car.  The baseline MSRP of the 2009 4wd model is $43,215 (133% price increase but higher quality, more features).

 

BMW:

1991 535i  $42,900 MSRP

2009 535i  $47,010 MSRP  (it is a better car too)

 

I worked at Round Table Pizza in High School.  In 1991 it cost about $18-$20 for an extra-large King Arthur Supreme pizza.  Today it's $27.50 for the same pizza.  Not even double.  Same pizza.

 

Beer is not double.  Pizza is not double.  Cars might have doubled.

 

I paid $380 for a Sage 490LL fly rod in 1994.  Today they are about $700 for the similar top line of rods, and they are still manufactured at the same plant right here in Bainbridge Island, WA.  The quality is better on the new rods too.

 

Median house prices have certainly not quadrupled since 1991.  The median price for a new house in 1991 was $117,900.  Today, it is about $200,000.  Not even double!

http://www.census.gov/const/uspricemon.pdf

 

There are a lot of prices that are nowhere near 4x that ShadowStats suggests.  Mostly, I see these 50%-100% price increases.  But I can't find anything that's gone up 4x.  

 

Not even gasoline!  Gas today is roughly twice what it was in 1991 -- maybe up 150% (despite rising global demand, peak oil, and other explanations for a long term trend up even without monetary inflation):

http://www.randomuseless.info/gasprice/gasprice.html

 

So what the hell is he measuring?  I can't find things that cost 4x as much, so there might be some things that John Williams is counting that are up at least 10x or 20x in order to bring up the average to 4x.  

[bookie71]

For about 25 years our firm had 3 tax returns that were part of the "cost of living" index.  Several years (4-5) they redid the COLA formula and dropped the tax returns.  I'm not sure why, but at that time the lady I had dealt with at the Dept of Labor in Washington D.C. told me that they felt times had changed and the items that made up the index had changed.

I'm not sure if this answers any of the above questions, but the calculation has changed.  We had replaced a CPA who had retired.

[Guest kawikaho]

Car prices seem to be pretty stable, but I think that has more to do with competition than inflationary pressures.  Food has definitely gone up in the past 10 years.  That and energy seems to me the biggest increases.  Also rent is much higher too.  My grocery bills are, pound for pound, twice as much as it was 10 years ago.  Gas is 3x what it was 10 years ago.  I just checked the rents at apts I used to live at and those are up nearly 50% since not even more than 5 years ago.  Health care in the States is out of control.  That has gone up ridiculous amounts in prices in the past 20 years.

 

 

[Guest Broxburnboy]

ShadowStats suggests 4x rise in prices since 1991.  (I can't tell the exact number because they only supply a bar chart, not a number).

 

A baseline 4wd Chevrolet Suburban cost about $20k ($18,540 MSRP) in 1991 and I paid $34k for a brand new 2008 Chevrolet Suburban LT2 from a local dealership in 2008.  The MSRP was $48k but this was not the baseline model.  The LT2 is practically fully loaded.  It did not come close to the $80k or $100k that ShadowStats CPI would suggest.  The quality today is much higher than in 1991.  This is a luxury car now, compared to the trim and features of the 1991 car.  The baseline MSRP of the 2009 4wd model is $43,215 (133% price increase but higher quality, more features).

 

BMW:

1991 535i  $42,900 MSRP

2009 535i  $47,010 MSRP  (it is a better car too)

 

I worked at Round Table Pizza in High School.  In 1991 it cost about $18-$20 for an extra-large King Arthur Supreme pizza.  Today it's $27.50 for the same pizza.  Not even double.  Same pizza.

 

Beer is not double.  Pizza is not double.  Cars might have doubled.

 

I paid $380 for a Sage 490LL fly rod in 1994.  Today they are about $700 for the similar top line of rods, and they are still manufactured at the same plant right here in Bainbridge Island, WA.  The quality is better on the new rods too.

 

Median house prices have certainly not quadrupled since 1991.  The median price for a new house in 1991 was $117,900.  Today, it is about $200,000.  Not even double!

http://www.census.gov/const/uspricemon.pdf

 

There are a lot of prices that are nowhere near 4x that ShadowStats suggests.  Mostly, I see these 50%-100% price increases.  But I can't find anything that's gone up 4x.  

 

Not even gasoline!  Gas today is roughly twice what it was in 1991 -- maybe up 150% (despite rising global demand, peak oil, and other explanations for a long term trend up even without monetary inflation):

http://www.randomuseless.info/gasprice/gasprice.html

 

So what the hell is he measuring?  I can't find things that cost 4x as much, so there might be some things that John Williams is counting that are up at least 10x or 20x in order to bring up the average to 4x.  

 

You need to understand what the BLS CPI is and is not...

 

As inflation became a problem in the US, there arose a need to index Social Security (and other) government payments in order that that the recipients future payouts have the same as the purchasing power when they paid their premiums.

 

The BLS came up with a basket of typical and necessary consumer articles which reflect the day to day cost of living for a theoretical "median" consumer and began tracking the price increases. You can find the breakdown of the basket at any website devoted to the subject.

Shadowstats (and others) have noticed that the BLS changed the composition of the basket during the Clinton years and that those changes understated the CPI in comparison tto the basket of original components. They continue to monitor the prices of the original basket components and report it as their pre Clinton CPI.

The CPI does not claim to track  prices of assets, like homes and cars or prices of restaurant meals (like pizza). Neither does shadowstats.

The CPI is NOT a measure of asset inflation, goods and services inflation (other than those services included in the basket) and all comparisons are really apples to orange comparisons and are mostly fruitless.

 

In the same vein you might want to read the following article which attempts to clarify how you can have asset price deflation at the same time as a rise in the cost of living. It is a preamble to a sales pitch, but makes some very good points:

 

http://danielamerman.com/Video/Jargon.htm

 

[ERICOPOLY]

You need to understand what the BLS CPI is and is not...

 

As inflation became a problem in the US, there arose a need to index Social Security (and other) government payments in order that that the recipients future payouts have the same as the purchasing power when they paid their premiums.

 

Agree with that.  It's purpose is to track what it really costs to live as compared to when they paid their premiums.

 

But suppose you paid your premiums in 1991.  Where is the 4x inflation?

 

What exactly do you buy outside of eating at restaurants, drinking beer, buying soda, filling your car with gas, buying a car, buying your house.  What is up 4x?  What????  I tried to include the major purchases like houses and cars, and that only made prices seem low relative to 4x.

 

 

Fine, let's talk merely of services, not assets.

 

Pizza is not an asset, neither is beer, neither is soda, neither is toilet paper.

 

In 1991 a haircut at Supercuts was $8.  Is it $32 today?  Not even close, it's about $13-$15, depending on location.  The BLS CPI predicts it would cost $14.75, while the pre-Clinton CPI says about $32.

 

There was a popular gameshow with a buzzline "You could be the next contestant on The Price is Right!".  Who is winning this game so far?  The pre-Clinton CPI or the new CPI?

 

 

 

[Guest Broxburnboy]

The BLS CPI predicts it would cost $14.75, while the pre-Clinton CPI says about $32.

 

 

The BLS CPI predicts nothing! it is not a predictive tool for anything other than future Social Security premiums and payments!

 

... It is a HISTORIC measure of price of a basket of specific consumer goods and services for a specific purpose.

 

It is probably not a good tool to use for any other purpose or comparison!

 

 

[ERICOPOLY]

The BLS CPI predicts it would cost $14.75, while the pre-Clinton CPI says about $32.

 

The BLS CPI predicts nothing! it is not a predictive tool for anything other than future Social Security premiums and payments!

 

... It is a HISTORIC measure of price of a basket of specific consumer goods and services for a specific purpose.

 

It is probably not a good tool to use for any other purpose or comparison!

 

I was looking at it from the point of view of, if we were in 1991, which would be a better predictor of the future cost of living.  Other people might call this "backtesting", I called it "predict" and you are probably correct that I wasn't semantically accurate.

 

Regardless, after backtesting it has been a more accurate measure of price increases than pre-Clinton -- unless you have a basket of important prices that suggests otherwise?

 

[Guest Broxburnboy]

 

Regardless, after backtesting it has been a more accurate measure of price increases than pre-Clinton -- unless you have a basket of important prices that suggests otherwise?

 

 

It is not meant to be a measure of general price increases outside of the prices of the specific basket!

If you want to use it as such do it at your own peril.... and expect to see the discrepancies in other rates of price change such as the ones you have specified. I would hazard a guess that the further you stray from a typical everyday consumer product, the greater the discrepancies you will find in the 2 rates of price increases. If you can draw any conclusion from such comparison let us know!

 

If you want to audit the accuracy of Shadowstats keeping of historical records, you may want to start with a list of the basket's components  and their weighting in the BLS CPI and the Pre CLinton CPI, and do your own research and calculations.

 

[ERICOPOLY]

 

Regardless, after backtesting it has been a more accurate measure of price increases than pre-Clinton -- unless you have a basket of important prices that suggests otherwise?

 

 

It is not meant to be a measure of general price increases outside of the prices of the specific basket!

 

 

Alright then, end of story.  ShadowStats says nothing about the general trend of inflation, only a specific basket.

 

It is not a means of suggesting that the BLS numbers are wrong, only that they measure different things.

 

And from what I can tell, the BLS numbers more accurately reflect consumer price inflation and that is exactly what whey told John Williams (who makes money selling his numbers, regardless of their usefulness today).

 

[ragnarisapirate]

ok, so, I will throw this out, to stir up the pot (props for alerting me to the link go to Joe Koster)

 

http://www.zerohedge.com/sites/default/files/hayman.pdf

 

quite frankly, I find it pretty terrifying.

[SharperDingaan]

 

Ragnar

 

Keep in mind that the US has effectively allready lost its reserve currency status. Were that not the case there would be no discussion about it at all - versus a discussion (G20, Oil States, etc) on what the replacement should be. It would seem that it'll be a 'basket of currencies', the USD will be part of that basket, & that the fed intends to transfer its execess treasury holdings (versus sell them) to whatever the new authority is.

 

US M1 is so high because its compensating for the lack of money velocity (i.e: lending relative to prior years). But the reality is that its less 'fear of lending', & more not enough 'truly qualified borrowers'. If M1 weren't increased, GDP would take a material hit - which implies that the US has been well above the 40% hyper-inflation tipping point for some time.

 

The good news is that as it gets harder to ignore the reality, however unpleasant, the sooner we get to working on the mitigation.

 

SD

[Guest Broxburnboy]

 

Ragnar

 

Keep in mind that the US has effectively allready lost its reserve currency status. Were that not the case there would be no discussion about it at all - versus a discussion (G20, Oil States, etc) on what the replacement should be. It would seem that it'll be a 'basket of currencies', the USD will be part of that basket, & that the fed intends to transfer its execess treasury holdings (versus sell them) to whatever the new authority is.

 

SD

 

Yes, in retrospect this US dollar bear trend probably started at about the time of the dot.com bust and subsequent monetary reinflation attempts. It has been disguised somewhat because the housing bubble ate up the new liquidity (which was malinvested in consumer spending). The collapse of the housing bubble and subsequent collapse of the related bond market only confirmed the underlying reality.

Record real unemployment is one of the results.

 

It is only now that retail investors, led by various fund managers, in the US are starting to hedge the consequences of the USD decline.

There is a possibility of a rush to gold and silver investments, but potential investors should be aware that there has already been a substantial run up in these prices (starting in 2006) , and that the central banks who are responsible for the weakness in USD, are also the main long holders of gold.

One possible way to "mop up" excess liquidity is to foster a bull market in gold... such a market will probably be very volatile, the ideal

trading ground for those who hold a virtually monopoly on traded gold.

My point here is ..proceed with caution and avoid panic buying and selling (good advice at any time),  the main price moves may be behind us.

 

[SmallCap]

Short article about the fed encouraging inflation, Nothing really exceptional about the article it just states what I have been thinking about the government wanting inflation.

 

http://finance.yahoo.com/tech-ticker/pray-for-inflation----it%27s-our-only-hope-464142.html?tickers=^dji,^gspc,spy,dia,udn,tip&sec=topStories&pos=9&asset=&ccode=