Posted on 11/13/2021 11:12:00 AM PST by blam
It’s no secret that pandemic-related government policy is driving at least some of the inflation currently being experienced in the United States. Indeed, real disposable income per capita has deviated from a linear trend in a meaningful way since 2020. The recent “breakout” in real disposable income was on top of the (much smaller) juicing provided by the Tax Cuts and Jobs Act in 2018, so it’s fair to say households have been feeling flush for some time now. As we will get to shortly, flush households mean more consumer spending. More consumer spending drives prices higher, especially when supply is limited.
In this next chart we show the 1-year change in real disposable income per capita. In early 2020, it exceeded the highest level in the history of the dataset, and it continued making new highs through the early part of this year. If we just count the extra disposable income on a per capita since the pandemic started – that is, the cumulative amount of disposable income that exceeded the pre-covid trend – it amounts to about $10,500 per person.
Multiply this by the population of the country (about 330m), and we get to a figure of $3.5tn. It is thus no wonder inflation has accelerated to 30-year highs, especially when we consider shortages in the supply chain.
But, much of the inflation has already happened. The question now is when will it peak out? If we compare the 1-year percent change in real disposable income to CPI, we find that CPI lags changes in disposable Income by about 15 months, or 5 quarters. The good news (for inflation) is that disposable income stopped accelerating in March of 2021. The bad news is that this implies inflation will remain stubbornly hot through the first half of next year.
Of course, leads and lags between economic variables are unstable, so it’s quite possible that inflation could peak out before the second quarter of next year. The supply shock that is underway adds complexity and supports the “inflation for longer” story. Nevertheless, the 15 month lag between changes in disposable income and inflation may prove accurate. If we examine the last time the country dealt with an inflation spiral due in part to supply shortages (the 1965-1982 period) we do observe a fairly consistent lag of 15 months.
The only problem was that each cyclical peak in inflation also coincided with a recession.
Bkmk
“1965-1982 period) we do observe a fairly consistent lag of 15 months.”
Amateur hour mistake using cycle times from 40-60 years ago. Everything is significantly sped up today due to real time data in the feedback loops, something that was not available decades ago to the same degree. For example, stock market selloffs that took a week 40 years ago now takes hours.
Too much money chasing too few goods. At the same time that artificial scarcities are being caused by failure to address the supply chains for all kinds of consumer goods and services, the money supply is being augmented by having too much money and credit made available too cheaply.
Cash given merely for the sake of buying the allegiance of individuals, and not in exchange for good and valuable materials and services, is money squandered and its worth diminished. Gresham’s Law - bad money drives out good money.
Wealth lies in the effective conversion of raw materials into items of commerce, and the means of expressing that wealth is the capability of using energy to convert that supply of raw materials. Cheap energy equals the means of creating and distributing useful goods and services at reasonable and profitable prices. Take away the cheap energy, and prices rise disproportionately, resulting in displacements in the market and eventually scarcity.
“The cure for high prices is high prices.”
Single reasons: Biden/Harris
“It’s no secret that pandemic-related government policy is driving at least some of the inflation currently being experienced in the United States.”
It’s no secret Biden’s inept policies are driving all of the inflation currently being experienced in the United States.
There, fixed it
Oh now there you go again. Gettin’ all classic and edumacated on me! Ain’t no way inflation is gonna be here at if you drive up wages (give-away’s) by government checks, force gasoline and all transportation costs up and all manufacturing costs up, and all supplied materials costs up and all farming costs up with even more artificial energy price increases!
Besides, all ya gotta do is raise the minimum wage and increase what we pay the federal bureaucrats and federal “workers” - then it don’t matter what inflation is!
Your post is why offshoring and importing is so hideous. We need a tariffs so the USA can "effectively convert of raw materials into items of commerce" instead letting 3rd worlders do it for us.
Pandemic is just another arm of the dims criminal enterprize.
The other arms include:
Antifa
BLM
Public Education
Transgender bathrooms
The media
National elections
Mr. Good News.
Let’s go Brandon. Gas now 6.29 a gallon. Nearly 3 times what it was pre chomo Joe.
Sorry - You did not catch my sarchasm - That gaping whole between a liberal and the real world.
Have a nice day.
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