The low inflation mystery


#19

Fifteen years go I was paying twice as much for 0.5 Mbps as I do today for 240 Mbps, a nearly thousand-fold improvement.


#20

reuters.com/article/us-usa- … SKBN1D225C

More of the same


#21

McWilliams on Why Ireland’s growing economy isn’t making you richer


#22

It appears that DMW can see that we’re returning to a way of life that existed before the industrial revolution, one where a small number of people owned everything and the vast majority owned nothing! Static wages, cheap mass produced goods (mostly by automated systems using only a few workers), asset inflation etc. All these are rapidly pulling the assets of value out of reach of the majority of people

If it wasn’t for the diversions that modern technology provide in the form of cheap & instant entertainment, there could have already been an uprising!

Maybe it’s time to revisit the idea of a universal income.


#23

Is the problem with such a universal income, following DMcW’s point, that it would have to be truly universal – payable in Galway, Gujarat and Guangdong? Otherwise how do you increase costs without driving production elsewhere? I also wonder if there is scope for improving basic fairness before we resort to a universal income. Get rid of zero hours contracts and various other schemes that favour employers at the expense of employees. The industrial revolution eventually lifted living conditions because the working class eventually become a vast new market for the fruits of their own increased productivity. But only after exploitative conditions were eradicated through labour movements and activism. I could never be accused of being a left winger, but perhaps the needle has swung too far in the interests of free markets.


#24

I agree with you in many places the needle is too far over - the US, where the fruits go to the already rich, the UK which has embraced the gig economy well beyond casual work. It seems the uber-capitalists of Ireland agree too, as they’ve been effectively banned - rte.ie/news/2017/0921/90662 … contracts/ though there is a game of whack-a-mole and more to do.


#25

#26

Wow crazy statistics, it’s a society changing thing too


#27

Consumer Price Index, December 2017

cso.ie/en/releasesandpublica … ember2017/

% monthly change -0.1%
% annual change +0.4%

Private Rents (table 7)
% monthly change +0.8%
% annual change +6.1%

Local Authority Rents (table 7)
% monthly change -0.4%
% annual change +5.5%


#28

Sounds like a few million Germans aren’t buying into the low inflation narrative now.

German industrial workers widen strikes in wage dispute

reuters.com/article/us-germany-wages/german-industrial-workers-widen-strikes-in-wage-dispute-idUSKBN1EX0RL


#29

It’s happening here too - in the IT industry - obviously the Ts&Cs in the IT industry (what do you mean you didn’t read them) mean that you can’t strike - but I see the rates (Salary and Contract) in the folks that I work for and with rising rapidly - it’s still pretty much the same at the bottom - the 35 to 50k end but above that they are up between 10 and 15% to attract qualified people and at those kind of increases they are having to hand them to existing staff as well. Couple of companies that have tried to downplay bonus expectations are also getting grumblings of discontent from existing staff as they were kind of sold them as a sop to compensate the better rates of the new entrants.

I believe the construction industry is getting the same kinds of pressures in some areas - fit out, electricians, plumbers seem to be able to ask what they want - a lot of jobs are nearing completion but slowed/stalled for lack of labour - this puts completion bonuses/penalties into the picture and pushes the price up. I was talking to a site security manager - he said there are groups of lads from Eastern Europe that rent houses down in Wicklow, Carlow, Wexford - drive up at 5 in the morning - start at 7 and finish at 3:30 or 4. His site at least is accommodating that just to get stuff finished.


#30

cnbc.com/2018/02/16/universal-basic-income-proposal-for-everyone-under-55-to-get-14000.html


#31

The received wisdom is that QE has increased the inequality between rich and poor. But the Bank of England are now claiming that it has reduced inequality compared to a “no QE” scenario.


#32

The headline is a bit of a stretch for an article that contains the quote from the original study:

So the headline could have been “Quantitative Easing increased wealth inequality between upper and lower deciles by £347,000 which corresponds to a proportional decrease” :smiley:

The subheading of the article “Researchers say rise in house prices benefited lower and middle income families more” is also highly questionable if you take into consideration the long term effects on lower and middle income earners when house prices rise disproportionately to wage rates.


#33

Some FT readers think this is an April’s Fool joke but the report itself is fully researched and worth a read:
bankofengland.co.uk/-/media … F10DB65600

QE boosted the wealth of asset-holders but it also had macro-economic effects that benefitted labour. The wealth effect obviously increases inequality but the reduction in unemployment helped poorer sections of society. Older generations benefitted from the wealth effects but the younger age-groups got job opportunities. The report claims that

Of course the game isn’t over yet or, as the Report says:

The report makes the key point about housing wealth that is so often overlooked in Ireland:


#34

smh.com.au/business/the-eco … 4zm36.html


#35

Just a stream of random semi-linked thoughts:

What I don’t get is that all this “threat” of inflation coming back hasn’t moved the price of Gold.

Also, the general thinking and hence the title of this thread is “The Low inflation Mystery” its a mystery because people thought the QE and monetary expansion would push up inflation, but we have had 10 years of low or no inflation despite massive monetary expansion.

Does that mean the flip side is also true that Quantitive Tightening will cause inflation?

I don’t know.

I do think that full employment, will cause wage inflation and I’m seeing it already where I work. The US also appears near full employment and a lot of US companies are reporting commodity and supply price rises, so I’m pretty sure that inflation is coming. So what happens next.

The Fed raises rates until the stock market pops triggering the next bear market. The US sneezes and everyone else catches a cold.

Back to my original question. With all of the obvious signals for higher inflation coming down the line then why is gold not trending up but the yield on the US 10 yr Bonds is?

The next question. If you do think that inflation will make a comeback over the next few years then what are the best investments to inflation protect your pension?


#36

Some good questions and I’ve tried to think about your last one over the years…
Im betting on property in areas that will benefit from high commodity prices.
E.g. parts of Australia.
It will obviously have the benefit of leverage.


#37

People who do that kind of speculation have moved to bitcoin. You need to remember that gold is a haven for speculators rather than a hedge against inflation.

It did cause inflation - house prices and rents have increased. But these don’t figure in our inflation figures for some reason - and yet just ask the people you work with what is the biggest part of their monthly spend. All the QE went to the wealthy - the wealthy protect their wealth by buying property when it is at or below the long term curve. They haven’t been buying it for a while - they’re selling it to suckers now.

It is - we will now be told to curb our excessive demands less we damage the “fragile recovery” i.e. lest we start taking some of the money that “rightly” belongs to the people who “get up early in the morning”

Yep - that’s next

There is probably nothing you can do - If you are not incredibly wealthy anything that you can think of to protect your money will be of little use. The Government will take it from you to help out the rich the next time they run into a problem. Between the banks (64bn) and apple (32bn) and the rest of the MNCs (probably another 20bn) the taxpayers are owed about 20k per man, woman and child for bailing out the rich over the last decade - and still they want to vote for political parties that believe this is the way to run an economy.

My best bet is to wait until the next crash - make sure you are in cash just before it - then pump it into ETFs. Timing is everything and if you don’t have insider knowledge you probably won’t get the timing right, and if you get it right the government will take it off you and give it straight back to the rich. Either that or be a drug dealer - just make sure you are properly armed.


#38

Good luck trying to time the market for the next crash. The one following the dotcom boom happened in a series of mini-crashes. Yes, the NASDAQ got a hammering in March 2000 but the wider stock market slide didn’t bottom out until the end of 2002. The was plenty of opportunity for the value investor to get caught by the short and curlies.

The dotcom boom was also an era of low inflation and low unemployment, so today’s low inflation mystery is not unprecedented. The US Fed faced a similar situation of an economy that seemed to be overheating in spite of low inflation. It tried to apply the brakes for a soft landing with half a dozen rate increases in twelve months, but the wheels came off the trolley anyway. Then it did a handbrake turn on rates in the face of the stock market crash(es) and 9/11, setting the scene for the run up to the GFC. But regardless of all this, inflation in the US, UK and Germany has not been above 5% since a period of a few months in 1990-91 and before that since the early 80s. So maybe inflation is not the most likely problem in the near term.