Price Inflation - News and Discussion

[Dotini]

The purpose of this thread is to post news, discussion, complaints, causes and consequences of current price inflation.

 

[AlexWilmot]

Weak growth rates and high inflation is currently leading a roll over to medium to long stagnation of growth rate and steady increase in inflation,

Policy makers need to act fast now but it’s a bit late, should be doing Quantitative tightening right now instead of Quantitative easing since December

 

[Dotini]

Weak growth rates and high inflation is currently leading a toll over to medium to long stagnation of growth rate and steady increase in inflation,

Policy makers need to act fast now but it’s a bit late, should be doing Quantitative tightening right now instead of Quantitative easing since December

It seems exactly like what is happening in the US right now. Are all world economies/currencies affected?

I'm getting concerned because I was planning on buying a new car this year.

 

[AlexWilmot]

It seems exactly like what is happening in the US right now. Are all world economies/currencies affected?

I'm getting concerned because I was planning on buying a new car this year.

I think component shortages are also impacting the price of vehicles so whether a new car right now is the right purchase only you can make that call,

I’m Uk based and think it’s crazy the price increase in gas and electricity fees while salaries of a 0.5% increase are being celebrated…

 

[opelgt1969]

Here in Bristol, Va/Tn you go to grocery store and item prices are priced wrong because they want the shelves to look full so they fill the shelves to make them full but leave price of whatever in place. Yet they still stick crap in the middle of isles so you can knock them over. Thanks COVID!

 

[Gerarghini]

Gettin' real tired of having to base my fast food purchases off of what coupons/apps I can use so I don't end up paying like $12 for freaking McDonald's

 

[MatskiMonk]

It's a bit of a nightmare to be honest.

As a small manufacturer already battling with the consequences and the direct effects of the pandemic, what we're seeing now is mind-boggling, certainly a case that demonstrates no bad how you think things are, they can always get worse. Material availability and lead times are getting worse and worse, what was weeks, then months, is now H1 or H2 of the year, that's about as accurate as it gets on some stuff. It's virtually impossible to plan for. Costs increae that might normally be 2-5% are 10-20%. Now, depending on the market sector this will have differing effects on final prices.. for us the normal 2-5% increases on one material, that goes into a our relatively small BOM's, normally doesn't manifest as much in our sales price - a tab that is picked up by the tax payer funded NHS. Currently 10%-20% across all materials will manifest as a solid 10% (ball park). On it's own, that might not be terrible, but allied to increase in other manufacturing costs, like the rise in energy costs (our last 3 months gas bill is 5 times the same period last year - granted some of this is increased consumption, but not 5 times!), and the rise in fuel prices, and import/export issues/costs, the costs of EVERYTHING is going up. That's before we get to labour costs. Our staff are facing increased costs at home, and seeing a net pay decrease - if we try and compensate for that, it all adds up (behind material supply, our biggest monthly cost is the wage bill).

Prices we charge that were set in 2019 and being re-evaluated now, have gone up by 40%, more in some cases and most suppliers are saying there will be further increases in coming months.

The materials we buy range from paper and cardboards in various grades, to a range of plastics from extrusions and films (PET's, PP's, PA's etc), to thermoforming materials (PVC) and other vinyls, rubber, acrylic and silicone adhesives, and silicone coatings - all generally integrated into one processed item. The reasons for increases in costs and limited supply have been immensely varied. Ranging from harsh winter in Texas, to Amazon using up all the card board, to strikes in Finland, to refinery fires in the middle east, and everything in between...

Lack of resources over the pandemic and pingdemic absolutely destroyed morale for those of us that worked all the way through it, and not only am I thinking about jacking it all in, but a lot of older people in the industry that I'm talking to are talking about early retirement because they're just ****ed off with dealing with everything.

 

[Eunos_Cosmo]

Weak growth rates and high inflation is currently leading a roll over to medium to long stagnation of growth rate and steady increase in inflation,

Policy makers need to act fast now but it’s a bit late, should be doing Quantitative tightening right now instead of Quantitative easing since December

Based on how much the US economy (really the world economy) is based on asset appreciation, I understand why the fed is being trigger shy on tightening.

 

[AlexWilmot]

Based on how much the US economy (really the world economy) is based on asset appreciation, I understand why the fed is being trigger shy on tightening.

Thankfully the US unemployment rate hasn’t gone up as much as inflation has otherwise the effects would of been greater by now,

Just wondering why the FED is buying back bonds right now “aggressively” as long term that’ll cause a greater crash but let’s see, the latest minutes just showed no concern about long term so I’m confident that the dollars going to take a hit and then in return affect other currencies,

Anyone buying Kruger rands now? 😂

 

[Liquid]

The fact that house prices have soared above inflation since whatever point in the past you choose (the 70s, the 80s, the 90s) is a major sore point with a lot of people. A significant section of the population in Britain who don't own a home feel that they will never own a home.

 

[MatskiMonk]

The fact that house prices have soared above inflation since whatever point in the past you choose (the 70s, the 80s, the 90s) is a major sore point with a lot of people. A significant section of the population in Britain who don't own a home feel that they will never own a home.

Yup...

Average age of first time buyers in the UK is now 33, add on typical mortgage duration of 25 years, that makes you 58 before the mortgage is paid off, and only a decade to start saving serious money for retirement.

 

[UKMikey]

View attachment 1114885

I was lucky enough to be able (with help from the bank of mum and dad) to get on the property ladder* in 1996 in the middle of what everyone I knew thought was a huge dip at the time. However, it seems to have turned out to just be a slight levelling off according to those ONS figures. I had no idea house prices had gone uphill so much since then. New buyers are in serious trouble.

(*of which I've perched steadfastly on the bottom rung to date)

 

[MatskiMonk]

I was lucky enough to be able to get on the ladder in 1996 in the middle of what I thought was a huge dip at the time but seems to have turned out to just be a slight levelling off according to the Statesman. I had no idea house prices had gone uphill so much since then. New buyers are in a lot of trouble.

I started my working life after leaving college in the late 90's. At which point I was earning about a third of the average wage then. Though as I've progressed through my career I've obviously earned more, I'm still only now (at 42) earning a little more than the national average... since the day I started work, the prospect of home ownership only seems to have gotten further and further away. Granted, other decisions around life and money probably haven't helped, but the situation is surely becoming more and more unsustainable for future generations.

 

[Danoff]

Average age of first time buyers in the UK is now 33, add on typical mortgage duration of 25 years, that makes you 58 before the mortgage is paid off, and only a decade to start saving serious money for retirement.

Do you get tax breaks for mortgage interest like we do in the US?

Unless interest rates are high, saving into your mortgage is not the greatest move. Leave the mortgage alone, well into retirement, and save for retirement outside of the mortgage. By the time retirement rolls around, inflation will have made that mortgage payment a joke.

Edit:

In an inflationary environment, debt is good. You pay back the debt with cheaper money than was borrowed.

 

[MatskiMonk]

Do you get tax breaks for mortgage interest like we do in the US?

I don't believe so, outside of special circumstances at least. I've certainly never heard anyone mention it, but, for example, if you're self-employed and work from home, I'd imagine there are deductions you can make on your self assessment tax return, and if it's a buy-to-let property there might be write-offs of some kind, but honestly, I don't know - I've never had a mortgage, and it's been a long time since I've had to fill in a tax return.

Unless interest rates are high, saving into your mortgage is not the greatest move. Leave the mortgage alone, well into retirement, and save for retirement outside of the mortgage. By the time retirement rolls around, inflation will have made that mortgage payment a joke.

Again, I don't really have enough experience to comment, however as I understand it, it's much harder to secure a mortgage in the first place if the term of the mortgage extends past retirement age, and I'm assuming a person has more disposable income once the mortgage is paid off, to invest in whatever they like --- I can see that the end of the mortgage term might not be that binary wealth wise, buy as someone who's likely to rent until the day I die, I have the perspective of someone whose cost of living is going to go up with inflation until that point, rather than tail off a lot as a mortgage value dwindles.

 

[Eunos_Cosmo]

Yup...

View attachment 1114885

Average age of first time buyers in the UK is now 33, add on typical mortgage duration of 25 years, that makes you 58 before the mortgage is paid off, and only a decade to start saving serious money for retirement.

I disagree with this premise, as @Danoff also mentioned. By the time you hit year 30 on a mortgage, even with moderate to low inflation, that payment is quite insignificant versus what your income is by then. This is supercharged in California because proposition 13 restricted annual increases of assessed value to an inflation factor, not to exceed 2% per year. So if inflation runs hotter than 2%, your relative tax bill goes down. (This is, IMO, the single biggest reason for very high property values here).

 

[UKMikey]

I got a tax break but it only applied to first time buyers and has since been abolished.

Mortgage interest relief at source - Wikipedia

en.wikipedia.org

 

[Roo]

Do you get tax breaks for mortgage interest like we do in the US?

I'm currently going through the mortgage application process, and throughout the research I did and speaking to a broker, I've not heard of any tax breaks for mortgage interest, so I'm assuming the answer to your question is no. The only tax break I will get is a higher threshold for stamp duty, which is a tax on the property purchase; normally it's £125k, but as a first-time buyer for me it's £300k. After the purchase is completed there's no tax breaks.

Unless interest rates are high, saving into your mortgage is not the greatest move. Leave the mortgage alone, well into retirement, and save for retirement outside of the mortgage. By the time retirement rolls around, inflation will have made that mortgage payment a joke.

I'm not sure I follow this*. Mortgage rates are always higher than savings interest. You can't save faster than the debt increases. I understand that a pound/dollar now will be worth about 60 pence/cents in 25 year's time, but the interest on the mortgage will counter that.

*Because whenever I feel the need to try to understand dyslexia, I read into finance.

 

[MatskiMonk]

I'm not sure I follow this*. Mortgage rates are always higher than savings interest. You can't save faster than the debt increases. I understand that a pound/dollar now will be worth about 60 pence/cents in 25 year's time, but the interest on the mortgage will counter that.

Again, I don't really understand it all either, but it appears to depend on the duration of the term the interest is fixed for.

 

[Danoff]

I'm currently going through the mortgage application process, and throughout the research I did and speaking to a broker, I've not heard of any tax breaks for mortgage interest, so I'm assuming the answer to your question is no. The only tax break I will get is a higher threshold for stamp duty, which is a tax on the property purchase; normally it's £125k, but as a first-time buyer for me it's £300k. After the purchase is completed there's no tax breaks.



I'm not sure I follow this*. Mortgage rates are always higher than savings interest. You can't save faster than the debt increases. I understand that a pound/dollar now will be worth about 60 pence/cents in 25 year's time, but the interest on the mortgage will counter that.

*Because whenever I feel the need to try to understand dyslexia, I read into finance.

Again, I don't really understand it all either, but it appears to depend on the duration of the term the interest is fixed for.

Pretty simple. Let's say you owe $100k. Let's say the interest rate on that $100k is 2%. So it costs you $2k per year in interest to hold that debt (this is not assuming any payments or mortgage term at this point, just a straight interest rate on debt that is held). So after one year, you owe $102k.

Now let's say that inflation is 7%. So your inflation adjusted debt after one year is 94.86k. By holding that debt, in terms of inflation-adjusted cost, the total debt decreased by over $5k despite the interest accrued. This continues each year. The balance of the debt is still $102k. But the inflation-adjusted balance is less than the original balance. In terms of total purchasing power, you just got paid to hold debt.

The reason for this is that inflation is outpacing the interest. In this instance, it's best to pay off the debt as slowly as the lender will allow and depending on what you do with the money, it may be advantageous to hold extra debt.

 

[Keef]

Pretty simple. Let's say you owe $100k. Let's say the interest rate on that $100k is 2%. So it costs you $2k per year in interest to hold that debt (this is not assuming any payments or mortgage term at this point, just a straight interest rate on debt that is held). So after one year, you owe $102k.

Now let's say that inflation is 7%. So your inflation adjusted debt after one year is 94.86k. By holding that debt, in terms of inflation-adjusted cost, the total debt decreased by over $5k despite the interest accrued. This continues each year. The balance of the debt is still $102k. But the inflation-adjusted balance is less than the original balance. In terms of total purchasing power, you just got paid to hold debt.

The reason for this is that inflation is outpacing the interest. In this instance, it's best to pay off the debt as slowly as the lender will allow and depending on what you do with the money, it may be advantageous to hold extra debt.

I'm getting the sense from a friend that people are becoming inclined, or at least being talked into, refinancing their homes with variable interest rates lately, because the variables are slightly lower right now and are locked in for like 5 years or whatever. Variable interest rate in almost any situation seems like gambling to me. Not a fan. I'd rather pay a little more right now to know exactly what it's going to cost me in the future. Put the risk on the lender, not on me.

 

[sirjim73]

Pretty simple. Let's say you owe $100k. Let's say the interest rate on that $100k is 2%. So it costs you $2k per year in interest to hold that debt (this is not assuming any payments or mortgage term at this point, just a straight interest rate on debt that is held). So after one year, you owe $102k.

Now let's say that inflation is 7%. So your inflation adjusted debt after one year is 94.86k. By holding that debt, in terms of inflation-adjusted cost, the total debt decreased by over $5k despite the interest accrued. This continues each year. The balance of the debt is still $102k. But the inflation-adjusted balance is less than the original balance. In terms of total purchasing power, you just got paid to hold debt.

The reason for this is that inflation is outpacing the interest. In this instance, it's best to pay off the debt as slowly as the lender will allow and depending on what you do with the money, it may be advantageous to hold extra debt.

Three risks that come to mind.

That calculation ignores what happens to your income and to other costs.
Mortgages are long term (25-30 years). There is a LOT that can happen in that timescale.

If your income does not outpace inflation, it will actually become HARDER to pay your mortgage as more of your net pay is needed to pay for food, fuel etc. As indeed is the case right now.

Or maybe you will have kids to pay for.
Or...

Secondly, you are assuming your income continues for 25 years without interruption. What happens if you are made redundant when you get to age 55 with 5 years left on your mortgage? As compared to the same scenario but you paid off the mortgage early?

Thirdly, the risk of negative equity (unpaid mortgage is in excess of the value of your property) increases.

My attitude is that you get the mortgage paid off early if you can, while the going is good. The world is full of people who assumed nothing major would change in 25 years and wish they hadn't.

 

[MatskiMonk]

The reason for this is that inflation is outpacing the interest. In this instance, it's best to pay off the debt as slowly as the lender will allow and depending on what you do with the money, it may be advantageous to hold extra debt.

In the context of the UK, people that were buying on the naughties were borrowing at interest rates well above inflation. When the GFC struck interest rates tanked to virtually zero, and never recovered, so yes, at the moment inflation is outpacing interest, but it's certainly not a given.

There's also the issue that in real terms, wage growth doesn't necessarily reflect inflation.

... and even these are just the stats. We might be at point where average national wage growth is 3.9%... but on a case by case basis, it's not going to be true for everyone. My basic pay hasn't changed in the best part of a decade, for instance.


The other point I alluded to was simply on the basis of a quick google search. It appears that in the US people commit to an interest rate for the full term of a mortgage, whereas here, we tend to sign up to short term offers - this may affect the real amount paid paid back I guess.

 

[Keef]

In the context of the UK, people that were buying on the naughties were borrowing at interest rates well above inflation. When the GFC struck interest rates tanked to virtually zero, and never recovered, so yes, at the moment inflation is outpacing interest, but it's certainly not a given.

View attachment 1116132


There's also the issue that in real terms, wage growth doesn't necessarily reflect inflation.

View attachment 1116131

... and even these are just the stats. We might be at point where average national wage growth is 3.9%... but on a case by case basis, it's not going to be true for everyone. My basic pay hasn't changed in the best part of a decade, for instance.


The other point I alluded to was simply on the basis of a quick google search. It appears that in the US people commit to an interest rate for the full term of a mortgage, whereas here, we tend to sign up to short term offers - this may affect the real amount paid paid back I guess.

Those don't even show the current trends. After 2008, American fed rates remained nearly zero for six years, and during Covid they once again dropped to nearly zero. Between 16 and 19 they rose quickly. Oddly, in Summer 19 they started dropping quickly again, months before anybody knew Covid would hit...

 

[MatskiMonk]

Those don't even show the current trends.

That doesn't really matter. @Danoff's example uses the assumption that inflation will always be higher than interest, and secondarily, that an individuals income will keep up with inflation. Here in the UK, that is not the case, sometimes it's true, sometimes it's not. When looking at a term of 25 years, what it's doing right now is perhaps less important.

 

[Danoff]

Three risks that come to mind.

That calculation ignores what happens to your income and to other costs.
Mortgages are long term (25-30 years). There is a LOT that can happen in that timescale.

If your income does not outpace inflation, it will actually become HARDER to pay your mortgage as more of your net pay is needed to pay for food, fuel etc. As indeed is the case right now.

That has nothing to do with the mortgage, and everything to do with inflation. That is the case regardless. In my scenario, perhaps you've saved some cash or invested and have a way to deal with those extra costs, whereas if you contribute extra to your mortgage, you'd need a heloc to tap those assets.

Or maybe you will have kids to pay for.
Or...

It's really not a rebuttal.

Secondly, you are assuming your income continues for 25 years without interruption. What happens if you are made redundant when you get to age 55 with 5 years left on your mortgage? As compared to the same scenario but you paid off the mortgage early?

Presumably you did something else intelligent with the money. None of this changes the underlying fact that if inflation outpaces interest, debt is favorable.

Thirdly, the risk of negative equity (unpaid mortgage is in excess of the value of your property) increases.

My attitude is that you get the mortgage paid off early if you can, while the going is good. The world is full of people who assumed nothing major would change in 25 years and wish they hadn't.

Your mortgage is a terrible investment when interest rates are low and inflation is high. Feel free to invest in that if you want, but it's not a good one. You're literally being paid not to.

In the context of the UK, people that were buying on the naughties were borrowing at interest rates well above inflation. When the GFC struck interest rates tanked to virtually zero, and never recovered, so yes, at the moment inflation is outpacing interest, but it's certainly not a given.

True, but if you obtain a 30 year fixed-rate mortgage at an interest rate that starts with a 2, it is essentially a given.

There's also the issue that in real terms, wage growth doesn't necessarily reflect inflation.

Perhaps in the short term. But on the term of mortgages, it will. More than that, you're not likely to be stationary in terms of wage during your entire career. So you're likely to outpace inflation just through your own personal growth as well.

The other point I alluded to was simply on the basis of a quick google search. It appears that in the US people commit to an interest rate for the full term of a mortgage, whereas here, we tend to sign up to short term offers - this may affect the real amount paid paid back I guess.

Fixing the interest rate for the short term, while allowing it to adjust in the long term, is a bet that you'll be moving, refinancing, or otherwise selling prior to any potential mortgage rate hikes. I've never been a fan, but there are reasons why it can be advantageous.

That doesn't really matter. @Danoff's example uses the assumption that inflation will always be higher than interest,

If your interest rate is fixed, and it's low, you can pretty much lock that in. Governments need some level of inflation to handle debt.

and secondarily, that an individuals income will keep up with inflation.

Nothing I wrote assumed that. But ultimately inflation, and other factors, does affect wages.

When looking at a term of 25 years, what it's doing right now is perhaps less important.

When looking at a term of 25 years, what the interest rate is now (or at a time of refinance or purchase) matters a great deal because you can get a fixed-rate mortgage. Inflation can be assumed to run positive over 25 years.

Edit:

For example, the house I'm in now has a mortgage sitting at 2.375% interest fixed for 30 years. Anyone want to bet on whether that beats inflation for 25 years? I'll be 70 when it's paid off, and I'll be laughing at it when I do.

 

[Joey D]

Interesting article on AP News:

Rents reach 'insane' levels across US with no end in sight

Rents have exploded across the country, causing many to fall behind on payments, dig deep into their savings or downsize to subpar units.

apnews.com

I honestly don't think rising rent is a consequence of inflation, it's an instigator of inflation. Many of these properties that are continuing to have their rents reach insane levels were bought decades ago, so it's not like they're trying to pay off increased construction costs or anything. Heck, my apartment was built in the 70s and never really updated all that much, yet I'm paying $2,000 a month for it. When I first moved in 5 years ago it was $1,300. What have I got for a $700 increase? Worse neighbors, management that won't do anything, no updates, and cheaper repairs that result in mismatched paint and flooring.

I wouldn't mind paying more in rent if it meant I was actually getting something in return, but I'm not.

The rent bubble is going to burst and it's going to result in people moving away from these areas that attracted all these jobs leaving a brain drain. I'm not sure how you fix it though, but allowing for better zoning and more high-density housing is certainly a start. Unfortunately, here in Salt Lake we have a bunch of rich boomers who don't want young people living near them and spoiling the view of the mountains. I'm sure it's like this in other places too.

 

[Eunos_Cosmo]

Interesting article on AP News:

Rents reach 'insane' levels across US with no end in sight

Rents have exploded across the country, causing many to fall behind on payments, dig deep into their savings or downsize to subpar units.

apnews.com

I honestly don't think rising rent is a consequence of inflation, it's an instigator of inflation. Many of these properties that are continuing to have their rents reach insane levels were bought decades ago, so it's not like they're trying to pay off increased construction costs or anything. Heck, my apartment was built in the 70s and never really updated all that much, yet I'm paying $2,000 a month for it. When I first moved in 5 years ago it was $1,300. What have I got for a $700 increase? Worse neighbors, management that won't do anything, no updates, and cheaper repairs that result in mismatched paint and flooring.

I wouldn't mind paying more in rent if it meant I was actually getting something in return, but I'm not.

The rent bubble is going to burst and it's going to result in people moving away from these areas that attracted all these jobs leaving a brain drain. I'm not sure how you fix it though, but allowing for better zoning and more high-density housing is certainly a start. Unfortunately, here in Salt Lake we have a bunch of rich boomers who don't want young people living near them and spoiling the view of the mountains. I'm sure it's like this in other places too.

The property-owning boomers have effectively locked down development across most developed areas in the US. Here in CA they have totally weaponized the environmental review process to lock everything up behind red tape. I work on a residential multi-family project that has been going through development hell for fifteen years.

It's hard for me to see a scenario where the US builds housing at an adequate rate. It will require a vast shift in power structures at every level. By that time, Gen Xers and Millenials who did manage to get into property aren't exactly going to be jumping at boosting supply...

 

[Roo]

True, but if you obtain a 30 year fixed-rate mortgage at an interest rate that starts with a 2

Ah, I see. Those aren't a thing here. There are a few fixed life-of-term mortgages (I only found 1 available to me), but the interest rates aren't favourable.

 

[Danoff]

Ah, I see. Those aren't a thing here. There are a few fixed life-of-term mortgages (I only found 1 available to me), but the interest rates aren't favourable.

These days in the US that's up above 3 percent. Looks like about 3.7%. Still below inflation.