Inflationary crisis?

According to the US census, estimated monthly sales have gone up ten percent in dollars between 2010 November and 2011 November.  Have living standards gone up?  Clearly living standards are falling.  Total physical volume of goods shipped by rail has been falling over the past year, consistent with the general experience of falling living standards.  Can anyone explain what is going on?  This looks to me like slightly worse than ten percent year on year inflation, which is the inflation rate at which a significant risk of panicked flight from paper money sets in.  Am I misreading these numbers in some silly way?

There is a lot of ruin in a nation.  I have been predicting that we will probably not see hyperinflationary collapse for several years.  I find this data surprising and confusing. Either we are booming, or we are inflating, and it does not feel like we are booming.

10 Responses to “Inflationary crisis?”

  1. Red says:

    We’ve invented, or rather the Japanese first invented a new phenomenon: Assets deflation congruent with necessity inflation. There’s no where to flee with your money because there are no assets actually increasing in value because people have less and less money to spend on the big ticket items. The inflation on the necessities is produced by more and more interest being paid on bigger and bigger debts. This is what happens you don’t allow debts to be defaulted on. We are living though poverty inflation where everyone is made poorer just to keep the ponzi going for a few more years.

  2. spandrell says:

    Red, please, I want the data on food inflation in Japan.

    • red says:

      I don’t have any data on it. I’m just reporting what the Japanese themselves say about it. What they may be describing is really wage deflation while food prices and energy prices continue to stay at high levels thus increasing how much of the average salary people have to spend on the pay towards the basics.

      Googling around it appears food items are around 30-60% higher in japan than America and around double what food items cost in 2006.

  3. Bill says:

    Truck tonnage is up a fair amount over that same period, so it’s not a general slowdown in shipments. Tonnage rose 6% Nov/Nov.

    Manufacturing sales is broken down by industry here. The increase is concentrated in cars, construction equipment, and what you might call “near commodities,” like fabricated metals, petroleum products, etc. The last is presumably just price increases in the commodity inputs getting passed through. Cars and equipment is probably something else.

    Here is the index of industrial production data—this is adjusted for price changes. It shows annual increases of about 3% overall and about 10% for business equipment.

    Finally, here is probably the most relevant price series for these purposes, the PPI. It rose about 6% from Nov 10 to Nov 11. So, 3% higher production plus 6% higher prices gives 9% higher revenues.

    These indexes are calculated by different agencies for different purposes, so it’s almost surely not exactly right to compare them this way, but one has to know much more than I do about them to know how to reconcile them properly. It seems likely that 3% increase in production and 6% increase in prices is the answer to your question of where the 10% increase in sales comes from though.

    Durable goods like cars and construction equipment more or less have to bounce eventually. People and businesses cut back on capital expenditures near the start of recessions. Eventually, though, you stop putting off buying the new minivan or excavator.

    So, it looks to me as if the standard story is basically right. The economy is growing slowly, inflation is picking up, but none of the growth is showing up in employment. It’s all showing up in profits instead.

    As for hyperinflation, a lot still depends on what the Fed is going to be able to do with its portfolio of questionable assets. If they someday manage to sell those assets for something close to what they paid, then, in the end, money supply won’t have gone up that much and hyperinflation is unlikely. If the assets turn out to be worthless, then there is a pile of money sitting in banks which the Fed has no way to soak back up and hyperinflation is more likely.

    • jim says:

      So, 3% higher production plus 6% higher prices gives 9% higher revenues.

      That is consistent with the truck tonnage, plus rail declining in importance. Make it seven percent inflation, three percent growth, and the numbers make sense. I find three percent growth surprising, but the truck numbers support it, though the rail numbers do not.

      So, it looks to me as if the standard story is basically right. The economy is growing slowly, inflation is picking up, but none of the growth is showing up in employment. It’s all showing up in profits instead.

      Six or seven percent is alarmingly high, but poses no imminent threat of hyperinflation. It is, however, the sort of number which suggests it is time to hit the brakes. Large negative real interest rates, high inflation and massive deficit, is bound to result in massive crisis. Negative real interest rates are never a good idea.

      High profits should induce businessmen to hire, but, of course, due to regime uncertainty, they don’t.

      • Bill says:

        High profits should induce businessmen to hire, but, of course, due to regime uncertainty, they don’t.

        Yes, that’s my preferred explanation, too.

  4. Handle says:

    A decent metric of “living standards” is “Real GDP per capita”. The St Louis fed publishes this as one of their data series here.

    While the data is not updated as soon or frequently as I would like, (and would be distorted by any disagreements you may have with the inflation figures – some people prefer to use the inflation-less-shelter correction), it’s still a good relative indicator of the average purchasing power.

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