Stagflation?

[frogger]

That has been a concern of mine over the past year and I'm starting to think it may be upon us. What do you think?




Wholesale inflation rate soars
By MARTIN CRUTSINGER, AP Economics Writer
23 minutes ago


WASHINGTON - Inflation at the wholesale level soared in January, pushed higher by rising costs for food, energy and medicine. The monthly increase carried the annual inflation rate to its fastest jump in a quarter century.

The Labor Department said Tuesday that wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists had been expecting.

The January surge left wholesale prices rising by 7.5 percent over the past 12 months, the fastest pace in more than 26 years, since prices had risen at a 7.5 percent pace in the 12 months ending in October 1981.

The worse-than-expected performance was certain to capture attention at the Federal Reserve, which has chosen to combat a threatened recession by aggressively cutting interest rates in the belief that weaker economic growth will keep a lid on prices.

But the combination of rising inflation and weaker growth raises the threat of "stagflation," the economic malady that plagued the country through the 1970s, when a series of oil shocks left households battered by the twin problems of stagnant growth and rising inflation.

The 1 percent jump in wholesale prices followed a 0.3 percent decline in December and was the biggest one-month increase since a 2.6 percent increase in November. That gain had been driven by sharply higher energy costs.

The big jump in wholesale prices followed a report last week that consumer prices had risen by a worse-than-expected 0.4 percent, reflecting higher costs for food, energy and health care.

The wholesale report said that energy prices jumped 1.5 percent, as gasoline prices rose by 2.9 percent and the cost of home heating oil jumped by 8.5 percent.

Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply.

Core wholesale inflation, which excludes food and energy, posted a 0.4 percent increase, the biggest increase in 11 months. This gain was led by a 1.5 percent spike in the cost of prescription and non-prescription drugs.

The cost of book publishing was up 1.7 percent while the price of light trucks and passenger cars both rose by 0.3 percent.

Prices excluding food and energy are up 2.5 percent over the past 12 months, the fastest 12-month gain since a 2.5 percent rise in the 12 months ending in October.

[MRM]

The inflation we see now is nothing compared to what happens when the tax rebate checks start hitting. Maybe gold is the place to be now.

[Porsche-O-Phile]

Thank you Ben "there is no housing bubble" Bernanke for your enlightened and sage-like slashing of interest rates.

[onewhippedpuppy]

In a somewhat cruel irony, cutting the rates has only worsened the housing situation, as long-term mortgage rates are headed up. As I understand it, the interest rate cuts lower the appeal of bonds and weakens the dollar, which causes long-term rates to rise. So now the homeowners looking to escape their ARM could be easily looking at 6.5% or more for a 30 year fixed.

[the]

Wayne and the Gov't say there is no inflation!

[MRM]

A year ago that was true. Hasn't been true for at least 6 months.

[NICKG]

signs point to yes...

[frogger]

Originally Posted by MRM

The inflation we see now is nothing compared to what happens when the tax rebate checks start hitting. Maybe gold is the place to be now.

Is it already a bit too late?

[Porsche-O-Phile]

When my parents bought their house back in the 1980s I think the mortgage rate was something like 15%. That's where things are going. Couple that with pricing that's about 60% over where it should be, tons of exploding ARMs out there and nobody extending credit and you've got the "perfect storm" of housing crashes.

This is going to get much, much worse my friends. I've been saying this for months.

[island911]

It's energy stupid.

[turbo6bar]

Cleveland Fed Futures is showing a 65-70% probability of a 50 bp rate cut to 2.5%. Today, the dollar index hit a record low. That doesn't sound like a good combination.

[The Gaijin]

"Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply."

Stop these ethanol rules and subsidies.

[Porsche-O-Phile]

Doom and gloom! Doom and gloom!

Go buy yourself a flat screen TV and an iPod and it'll make it all better!

Doom and gloom! Doom and gloom!

[The Gaijin]

Un-Super Size Me
By CAL THOMAS

If you believe big media, the economy is in trouble. If you worry about job layoffs and your inability to pay bills, you may be thinking about voting for Democrats this fall, which is the point of the negative press coverage. Every four years when a Republican is president, big press outlets carry stories about economic gloom and doom. But is it true? It depends on the standard you use.

Last week, the Washington Post carried a story that is a metaphor for what ails us. It was about a Maryland couple whose mortgage lender took back what remained of a $95,000 home equity line of credit. The lender explained that the couple's home had fallen in value and it did not want to shoulder the risk that they might owe more than the house was worth. The couple was using the equity line to pay preschool tuition for their twins.

A good financial adviser might have helped them avoid this predicament, but we are immediately led to the supposedly bottomless well of the federal government. Politicians, especially Hillary Clinton and Barack Obama, pledge to shoulder the responsibility of making sure that people whose mortgages are higher than they can reasonably afford and whose debts are larger than they should be get bailed out by the rest of us who made right financial decisions and practice living within our means. I know, this sounds cold, but only to those who live this way.

Lenders across the country are pulling the plug on equity lines and tightening credit after a lending spree to people for whom the housing market was their pot of gold.

Much of this economic "pain" is self-inflicted. Rather than purchasing homes they could not afford — or putting too much down, making them cash poor — they might have invested their equity in balanced mutual funds (the Dow Jones Industrial Average rose 11.59% over a 10-year period). Such a path could have avoided the tight spot in which many now find themselves.

Some of the lust for bigger and better is human nature, but a lot is the result of consumerism. The Timex watch is no longer enough. We now must have a Rolex, though both accurately tell time. The adequate low-end automobile is insufficient. We must trade up to a luxury car with numbers and letters on the rear that mean nothing, but convey "status." And the house we are living in, which would have been more than adequate for our parents and certainly our grandparents, must be upgraded to larger digs in order to impress, if not growing families, than enlarged egos.

When none of this brings the promised happiness and fulfillment, we turn to drink, or pills, or counselors, or divorce court and seek significance in new things and relationships on what quickly becomes a personal boulevard of broken dreams.

We can't say we haven't been warned about this endless pursuit of stuff. The writer of Ecclesiastes wrote, "Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income. … As goods increase, so do those who consume them. And what benefit are they to the owner except to feast his eyes on them?" (Ecclesiastes 5:10-11)

When wants and needs are confused, desires become entitlements and politicians are afraid to tell people what they need to hear. Instead they tell them what they want to hear. Anger and envy result, as well as frustration with a political system that was not designed to indulge its citizens in their lusts or subsidize their greed.

Who will tell us that unending and expanding prosperity with home values constantly rising and a citizenry always able to afford them is a fantasy that is bound to end in heartache for those who buy into it?

The economy isn't bad. We are bad for believing that more is better and the most is best. We have an abundance of things, but a deficit of character. The economy is a false god, a golden calf. When this false god doesn't deliver, we complain to politicians who are happy to accept our faith in them to give us what we want — if we will only pledge to them our allegiance at election time.

[NICKG]

i am putting my flat screen check into my savings or paying a credit card or 3 off

[hytem]

It's all about the "surge" in energy prices. That affects everything that is transported by truck--which is most things these days. We are a petroleum intensive country--by design during the Eisenhower years. They dismantled all the railroad and public transportation system that was electric-powered--replaced by trucks, buses and airplanes.

Funny how this word "surge" is used by the media these days to characterize a lot of things. That may be Bush's biggest accomplishment. LOL. Nice to know the Green Zone in Baghdad is safe for jogging again.

[The Gaijin]

Originally Posted by hytem

It's all about the "surge" in energy prices. That affects everything that is transported by truck--which is most things these days. We are a petroleum intensive country--by design during the Eisenhower years. They dismantled all the railroad and public transportation system that was electric-powered--replaced by trucks, buses and airplanes.

I think that whole LA trolly story is a load of urban myth. LA had a much smaller population back in the day and it was less spread out. But then again, LA might be better off considering what it was like and what it has turned into. People love their cars. They even talk about them (and other stuff) on blogs..

There is still plenty or rail traffic in this country, including my subway.. Not to mention barge traffic and intercoastal shipping.

And since the last oil shock in the '70s - we use half as much oil per $ of GNP.

By design or not - with the rise in oil prices, we will use less of it. It just takes time..

[frogger]

Throw in the huge deficit spending of our government and huge trade imbalance, too. Top it with a housing bust, credit crisis and a loss of consumer confidence. It's getting ugly.

[Porsche-O-Phile]

http://www.usc.edu/libraries/archives/la/historic/redcars/

http://www.monorails.org/tmspages/LA1963.html

The current dependence of L.A. on autos is most certainly deliberate.

[MRM]

Part of that myth about tearing up electric rail tracks to make way for cars and buses is true. In Minneapolis they had an extensive street car network that could take you all the way from Lake Minnetonka (extreme southwest of the metro area) to White Bear Lake (extreme northeast) as late as the 60s. The city fathers decided to scrap the street cars in favor of buses when the fleet was old and needed to be replaced or upgraded. They needed to deal with the track left behind. They could have paved over them or they could tear them up and pave over them. There was no advantage to tearing up the old tracks and it was vastly more expensive but they did it anyway, specifically to make sure there was no turning back on the streetcar to bus transition. Now the Twin Cities are trying to build light rail. If they had not ripped up the tracks they could have been dug out, fixed and reused at a fraction of the cost to lay new light rail - which is the same size as the old street car tracks. The population of the Twin Cities has grown in 40 years but the population still lives mostly inside the span of the old streetcar tracks.