It was soon after my first MegaCorp pension check arrived in the mailbox that the latest CPI report was released with the most price inflation we’ve seen in more than a decade.
My new pension payment is fixed – no cost of living adjustment – so I immediately had visions of it being quickly consumed by this monetary beast that has been lying in wait since the 1980s.
Fed Commissioner Powell’s proactive appearance on 60 Minutes did little to calm my nerves. He curiously called the coming inflation “transitory”, which I think means temporary, without the benefit of ever going back down again.
I was concerned enough to look into the inflation by item to see what was happening and thought I would share it here …
There are a lot of big numbers in the 12-month annualized column on the far right. There is also no shortage of reasons for them to be way up.
Food prices could be up because of ‘away from home’ (restaurants) demand is returning after the pandemic. Energy prices (petroleum & natural gas) because of the pipeline hacking on the East Coast. And, car prices because of the world wide microchip shortage.
All of these seem temporary until I think about the other, long-term drivers, that could be at okay: the audaciously large stimulus checks people have received (debt-financed), rising state minimum wage laws, and increased regulation on automobiles & energy.
Unfortunately, I can think of as many reasons that these price spikes are likely permanent and will grow – as they would be “transitory”. I’m guessing the May report (due in about 3 weeks) won’t settle the questions – it will take a bit longer into summer before we see where we are headed.
What do you think “transitory” means in the context of these inflation numbers?
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MrFireStation 
Transitory means “temporary,” “not persistent.”. In terms of inflation I can see the brief period of time whereby the prices of goods and services increase by a lot as the supply and demand get back into balance. If it is truly transitory inflation it should be short-lived and prices will come down. I don’t see prices dropping all the way, there is some regular inflation that is here to stay.
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I hope you are right, it looks like you have to go back to the last recession (2009) to find a period with real deflation to offset a preceding period of high inflation. Hopefully prices will get a big of dampening in the next 90 days.
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My uncle told me that in the early 70s he bought his first house and could barely sleep because he was worried about inflation. By the end of the 70s, his car payments were more than his house payment.
I think the trigger for that round of inflation was fully removing the USA off the remaining portion of the gold standard. The trigger this time is massive deficit spending with no end in site.
You too will someday have a car payment that is more than your house payment.
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Yes – mInflation hit 12.3% in December of 1974. I was too young for that, but remember the 14.8% in March 1980. My parents bought a house that fall that had a 16% mortgage interest rate. Thankfully, they bought well-used cars and avoided having a car payment at all! https://www.usinflationcalculator.com/inflation/historical-inflation-rates/
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Even better I remember one of my 1st investments was a CD at the local bank in the early 80s, 11.9%!
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Would be nice if you could sit on that for 10 or 20 years!
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Inflation numbers are interesting. I have many friends that continue to complain about gas prices. I remind them how in 1990 gas dipped below $1 per gallon briefly. I was earning $35,000 at that time and my vehicle got 10mpg. Today in California, gas prices are $4 per gallon, my pension is 3 times my former salary, but here is the kicker…..my car gets 50mpg. Do I get bothered over the price of gas? Of course not, it takes much less work to pay for a 100mile drive today than it did thirty years ago.
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Good point! We are thinking of taking a driving trip soon and someone just asked me today if “higher gas prices would give me pause”. Even if gas prices are $1/gallon higher, that would only be $45 for a 15 hour trip. That wouldn’t buy you a half day at Disneyland.
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My dad took a new job and our family of 6 moved across the state in the summer of ’79 when I was a sophomore in high school. Unfortunately, high interest, low wages, feeding/clothing a family of 6, leveraged with debt… my parents had to file for bankruptcy in 1980, and moved twice, becoming renters instead of owners. Being the oldest of the 4 kids, I saw a lot of stress and felt the anxiety. Those unfortunate circumstances instilled an appreciation of finance and conservative living in me to this day that I have, I hope, instilled in my kids as well. However, when I look around, I see a lot of leveraging going on … adding swimming pools, home additions, buying up … I hope this is transitory or else we may witness a lot of pain similar to the late 70’s and early 80’s. However, all I keep hearing is, this time is different. Hmmm, is it?
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Sorry to hear that – tough situation to go through as a family when you were growing up. I’m old enough to remember that time too. May parents had to move for my Dad’s job and we ended up with a 16% mortgage rate that made things very difficult.
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Discuss Sunday at Jeff’s?
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Sure 👍🏻
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