Capitol Hill Blue Forums Political Issues Finance, the economy & Economics What is inflation, anyway?

So does the public. They read the news, get triggered by it, and go on Facebook to talk about it. Things like celebrity marriages and divorces and trials take precedence over news of substance.

What is inflation, anyway?

I'll tell you what f*cken inflation is! Have you bought a box of Nabisco Graham crackers lately?

S'Mores are no longer delectable squares but clumsy ill-balanced rectangles from which oozing hot melted marshmallow might fall off and blister your knee.

Shrinkflation...

Still a good source of whole grains and fiber, but shrunken and at a far higher price, forcing common Americans to resort to generic "gram crackers" made from bleached white flour and sugar.

Yes, the government invested vast amounts of money on things during the pandemic, but that is not what caused inflation. The cause, instead, was the recovery. Infrastructure spending does not cause inflation.

There are two primary drivers of current inflation - increased demand, because more people have money to spend on "things" (as we are currently at "full employment"), and reduced supply - primarily the after effect of supply-chain disruption (including the war in Ukraine). That's it, and we are going to be living with this for awhile.

Gross price-gouging is driving up inflation. "ExxonMobil, the country's largest oil company, reported its net profit more than doubled to $5.5 billion from a year earlier. That was even after booking a $3.4 billion charge from exiting its operations in Russia. Meanwhile, Chevron reported its highest quarterly profit in nearly a decade, while Shell posted its highest earnings ever."

Meanwhile, they are not increasing production substantially - dragging their feet to increase prices. "Oil companies are increasing production, but they are doing so measuredly, given the pressure they are under from investors and given that they are constrained by supply chain and staffing challenges." The good times are rolling for Big Oil. 3 things to know about their surging profits The good times are rolling for Big Oil. 3 things to know about their surging profits (NPR)

Broadening the picture, food prices are tied to fuel prices and scarcity. Russia and Ukraine are significant producers and exporters of several commodities including wheat, corn, sunflower oil, and fertilizer. "Beginning in February 2022, already elevated global wheat prices surged in the wake of the conflict between Russia and Ukraine, who together accounted for 28 percent of all wheat exports in marketing year 2020/21." Meanwhile, "Throughout the current marketing year (2021/22), tight supplies have been forecast for key exporting countries including Argentina, Australia, Canada, the European Union, Kazakhstan, Russia, Ukraine, and the United States. Collectively for these countries, ending stocks are projected at the lowest level since the 2013/14 marketing year." U.S. wheat prices surge in wake of Russia-Ukraine conflictt (USDA)

Then there is real estate. "2022 has been difficult for those trying to afford a home. In January, home prices were rising fast, but at least mortgage rates were near record lows, offering some comfort for those trying to afford a home.

That’s no longer the case. Mortgage rates have quickly raced toward 6%, rising two whole percentage points since the start of the year. And at the same time, home prices have kept going up, although the rate of increase has started to slow a little bit." ... "The median sales price for an existing home in May was $407,600, up 14.8% from a year earlier, according to data from the National Association of Realtors (NAR). Home prices are rising dramatically, but the pace has slowed a little bit in recent months. Sales prices were around 20% higher year-over-year earlier in the year."

"The supply of available homes is down, due to fewer people choosing to move out of existing homes and the underbuilding of new houses in the past decade. “We have not been keeping pace with the demand for homeownership for a decade now,” says Clare Losey, assistant research economist with the Texas Real Estate Research Center at Texas A&M University.

Demand is higher because of demographic shifts – millennials are in their prime homebuying years – and the rise of remote work is allowing more people to move further from jobs and city centers." Waiting For Home Prices to Drop? ‘You’ll Likely Be Waiting for a Long Time,’ Experts Say (TIME)

When I started this thread I was thinking very broadly about the subject - as in why does inflation exist?

I remember being taught in grade school that Capitalism depended upon continued growth, and that modest inflation was good and desirable. Even though I don’t claim to have had stellar critical thinking skills back then, I do recall wondering how inflation and growth could go on forever without a problem. I think the subject in class came up in connection to the huge inflation suffered by Nazi Germany - the mental picture I associate with this early Capitalism propaganda is a wheelbarrow full of cash being used to buy a loaf of bread., and that somehow proved Capitalism was superior to whatever system it was that created the wheelbarrow/loaf scenario.

Using just one product for an example, when I started driving about 50 years ago, gas cost me $0.279 per gallon. In 2020 it was around $2.79 - an increase of 10X. That period of time includes a wide range of political control and world events.

My hypothesis is that Capitalism is a root cause of inflation - my grade school teacher was right about that, but probably not so right about it being healthy. Thoughts, anybody?

During that time the U.S. population also grew from 205 million to 330 million, fyi. I don’t have an opinion formed as to what effect that might have. It seems that if the supply of money was fixed then more people would have less individually - but would that affect the intrinsic value of things?.

The Weimar Republic is the Germany, you're talking about.

And the correct mental image is of them burning money because it was cheaper than buying coal with it. It was pre-Nazi Germany in the throes of the Great Depression and saddled with the debt of WWI. Somehow Hitler pulled them out of that mess and dragged them right into WW2.

If you're looking for somebody to expound on the ills of capitalism then I'm you man. Capitalism has spun out of control. Society is spinning out of control with it.

You can see it everywhere, it's like a runaway diesel engine. Not much you can do but watch and wait for it to blow.

As far as inflation? It'll come back under control. This time.

Joe Biden is bragging right now that he is single-handedly bringing down fuel prices for the good of all Americans. Even though presidents don't control the price of gas he has seized control and done it...Huzzah huzzah huzzah! It'll be under $4 by election day.

It's a matter of supply and demand. Supplies got interrupted, and demand rose. Prices jumped. Sh*t got complicated everywhere after covid and f*cking Putin had to choose a time like this to start a war in Europe?

Capitalism can't breed enough workers to exploit, to fill the demand that it has created, to maintain the growth that it needs, to support the Billionaire class in the manner to which they are accustomed.

The concepts of "profit" and "interest" are also inflationary factors. Any time product or service sells for more than it cost (its intrinsic value), then prices go up. Charging rents on money (debt) increases dollar values without increasing intrinsic value.

Some services also don't create any intrinsic value, like healthcare (particularly end-of-life), insurance, and 'trading' stocks.

I think of inflation like a game of musical chairs or hot potato. The economy goes round and round, everyone adding their piece to inflation process - wages, scarcity, profit-taking - and trying not to be the last one in line when it stops.

I think that is exactly why capitalism is dependent upon endless growth and inflation, just like my grade school teacher taught. The problem is that the Achilles heel is normalized up front so that no one questions it.

Growth is good! Greed is good! Everyone deserves to make a 'profit'...

But why is the price of gas and food so goddam high! Damn Biden.

But why is the price of gas and food so goddam high!

Because growth is good! Greed is good! Everyone deserves to make a 'profit'...

I paid $4.16 a gallon yesterday. A year ago it was $3.13.

>Charging rents on money (debt) increases dollar values without increasing intrinsic value.

That's a bit simplistic. Having some money right now is worth a lot more than having it years from now, Even without inflation, reasonable interest makes sense. Just look at Middle Ages Europe: The Catholic Church said all interest was usury, so no Christians would invest in anything. The great cathedrals were built ONLY because Jews could lend money for interest. They financed all progress for 1000 years.

The high cost of gas is almost entirely because Big Oil can charge whatever people are willing to pay. Their profits are sky-high right now. Since the cost of everything depends on the cost of the energy needed to produce or transport it, that drives inflation across the board. I think they (and all their investors) are terrified that more and more people are putting up solar panels and buying electric cars. Then there is the prospect of fossil fuels being outlawed as more carbon in the atmosphere gets more damaging. So they can see the handwriting on the wall. They have a limited opportunity to makes the maximum amount of money before their income goes away. Some of them are investing in solar farms, so they can maintain the same economic model without oil. If we would come up with a small, safe, standardized, and mass-produced nuclear reactor design and build spent fuel reprocessing infrastructure, I bet they would shift over to building and running them and stop with the fossil fuels quickly.