The motivation for 2%/year is that when inflation is lower, businesses and consumers tend to hoard more cash, instead of spending or investing it, reducing economic activity, and when inflation is higher, it tends to become self-reinforcing and can spiral out of control: Businesses raise prices and employees demand higher pay to keep up with expected rising costs. Deflation (prices decreasing every year) is undesirable, because it forces businesses and consumers to spend and invest less, but no one ever wants to earn less (e.g., employees don't like pay cuts), so deflation tends to shrink economic activity even more, and in the worst case, can induce a depression, with businesses spending and investing less because consumers are spending less, and consumers, in turn, spending less because businesses are spending and investing less. I'm of course oversimplifying, to keep things short.
> The motivation for 2%/year is that when inflation is lower, businesses and consumers tend to hoard more cash, instead of spending or investing it, reducing economic activity
That’s what they say. In reality, inflation is a permanent tax on those who earn money through labor. Every greenback they print makes 90% of us a little poorer, and conversely makes the capital holders richer.
Popular economists should be thought of as a priestly class employed to enforce this order with explanations like the one you gave above. Defending a system that has resulted in an ever increasing wealth gap and the proliferation of businesses who optimize for accumulating capital is indefensible.
There are other systems (https://en.m.wikipedia.org/wiki/Social_credit). The economy should serve the people, not the elites. It’s hard to read a lot of economic discussion when the system is so fundamentally flawed. It’s not workable as is.
Further, inflation helps people in debt because past-dollars-depreciated loan values are paid off with current/future-wage-inflation-adjusted salaries.
Also, without inflation the rich could sit on literal cash (Scrouge McDuck style) and have it hold value (or gain value with deflation), which is not a good thing:
> No currency should be able to buy the same basket of goods over very long timespans through hoarding. If you want to retain the purchasing power of your money, it should participate in society via investment.
We should not downvote a post just because we may disagree with it. That doesn't foster curiosity and discussion.
It's clear that continual inflation makes us poorer (unless we can also obtain pay rises). To me it's also clear that having no inflation (or indeed, deflation) would disincentivise investment. So I'm in favour of targeting a minimal inflation rate.
If there are other economic systems that would give both growth and better distribution of the proceeds of it, I'm all ears. I couldn't really understand the social credit link that was posted or how that might work.
> We should not downvote a post just because we may disagree with it.
There is nothing to suggest it was downvoted because of disagreement. We have no idea why it was downvoted. But the most likely explanation is that a user with poor dexterity accidentally pressed the button. There is no logical reason for why someone would purposefully exert the effort to press a button that doesn't do anything other than maybe change the font color. And one will employ a once and done CSS override to change the color if they really don't like the default choice for some reason.
This is honestly quite easy to fumble on mobile, the arrows together are smaller than any of my fingertips (iPhone 16 pro, Safari), so it takes a bit of effort to be precise.
Inflation is running at an annualised 4.8%. The 2.9% number is backward looking.
Sure monthly inflation is more volatile, but the direction of travel is up, and that running average of 2.9% will be increasing slowly as it incorporates the recent higher prints.
Edit: the seasonally adjusted change is 0.4% actually, with the monthly change 0.3%
This MoM increase was higher than about 70% of previous changes on the same interval. It's not so extreme that we can reasonably infer from it a looming disaster. Looking at the 7 month change (year to date), 63% of the time you'd see a higher increase than this. The "direction of travel is up", but that's almost always the case.
You concede that monthly inflation is volatile but then proceed to assume it is has grown uniformly and speculate that it will continue to grow uniformly? Umm...
FED is caught between a rock and a hard place, in a double bind.
Because of jobs data, it will 100% cut interest rates in the next 2-3 FED meetings with inflation clearly showing an upwards trend.
US could print money for over a decade because of China exporting deflation to it and the world, now that China is an enemy, it's up for a rude awakening.
Monetary policies matter, the Dollar will suffer great debasement (it already is).
Imagine how many dollars are in supply around the world, and now the world is quitting the dollar.
There'll be too many dollars for too little demand. Fasten your seatbelts...
The country will become industrialized for the wrong reasons -- by becoming poorer.
>The country will become industrialized for the wrong reasons -- by becoming poorer.
Trump is a populist. That is the goal. The elite will get hammered and the bottom will be pulled up. The country will be net poorer, but the bottom will be higher than it was before. At least that's how the plan is sold on paper.
I can understand that, but both the elite and the bottom will be pulled down with the policy.
As I've mentioned, industrialization will happen benefiting jobs for blue collars, but you'll have lots of inflation.
And inflation hurts a lot the poor, as they have little to zero discretionary income. It's like a sales tax, it affects the poor more than the rich, proportional to how much they have available to spend.
A country with lots of factories can't afford suburbs, F150s, houses (instead of small condos).
I know this because I live in Germany, and we do have factories, but the life you can afford working in one of them is much more humble than a construction worker in the US can already right now.
Americans will need to learn to live on cramped spaces and stuff that doesn't make sense, as they'll really hate it.
There's no way the US government will have money to maintain all that suburban infrastructure, huge defense expenses without being high in the value chain.
Trump is a populist in rhetoric only. I don't think his actions demonstrate he is a populist via policy. His excuses might be his rhetoric but his actions don't match.
The market implied rate (from swaps/forwards curves) for the following period is something like 27bps cut, so they say:
- 27 Is bigger than 25, so 0 cuts is 0%
- attribute 2/25bps likelihood to 50bps cut
- the remainder is left to 25bps cut
The reality is that there's a non-zero probability to unchanged, and a non-zero probability of 75bps+ cut etc etc. However this information would probably be in swaption prices and too complicated for anyone like the CME or media to make sense of. But at least with the way people talk about it they get to feel like they're making sense of the world.
You're right - I'm so used to looking at the probabilities waterfall diagram where there's always some percent for status quo I glanced right over it not being there.
In the time since I originally posted that the 400-425 basis point level has dipped another 2%, with that amount going towards a 50 basis point cut. Very muddy waters indeed.
Powell has been adamant about fighting inflation so I struggle to understand how the market gives a zero percent chance of status quo.
The tech sector labor bubble started popping last year. I don’t think we’ve hit bottom yet. Stocks are at an all time high riding the AI bubble but I think that too will pop despite the soft landing certain tech leaders will hope for.
We already had a soft landing last year right? That referred to coming out of the pandemic inflation without recession.
This year is tariffs, trade wars, uncertainty, AI, labor markets, mass firings, mass deportations. Seems like we’re into a new phase of potential stagflation.
>Will the cut really help pull the labor market up?
The capitalists don't care about the labor market as much as they do the stock market. In Trump's crazy Tilt-a-Whirl Policy and Tariff Generator (TM), what business would invest in expansion beyond what is necessary to grease the palms that need greasing? Way too much uncertainty. Time for stock buybacks.
>what business would invest in expansion beyond what is necessary to grease the palms that need greasing? Way too much uncertainty. Time for stock buybacks.
AI and AI related companies are the opposite of this.
AI is not going to be able to grow geometrically forever. OpenAI and Oracle just signed a $300 billion contract. OpenAI doesn't have $300 billion. Oracle doesn't have enough chips on hand nor enough cash to buy them in order to fulfill these obligations. Based on RPO, Oracle is estimating that their cloud revenues will grow from roughly $10 billion now to $144 billion by 2030. That's insane, and yet it was enough to send their stock price up 25%.
You're right, as far as I can tell, which will help further wreck the labor market and juice the stocks for the capitalists.
AI companies are an existential threat to those who don't control the AIs. All of the "good AI" scenarios that the AIcolytes espouse assume we have bent AI to our whims permanently.
Interestingly treasury yields are down on this news, whereas on paper you would expect the opposite. Equities are up, on paper you would expect a toss-up (lower rate cut pushing down, inflation pushing up). Gold is down slightly.
All this suggests these numbers, while being inflationary, are better then anticipated.
- if inflation picks up again it will have to be controlled
- going by 1970s experience it may be that an engineered recession is required to bring inflation down
- recession fears is risk-off
- risk-off means go into bonds and out of stocks
But yeah, inflation is a double edged sword on bonds. To some extent higher inflation expectations should mean that yields on bonds should go up to provide a consistent real return.
I've heard a few economists interviewed about the estimated impact of tariffs, an argument is that tariffs should lead to higher prices for US consumers, but as a one-time price increase, not a sustained level of price inflation.
That said, it's curious that this CPI news release highlighted "shelter" as a driver:
> The index for shelter rose 0.4 percent in August and was the largest factor in the all items monthly increase.
The US may import a lot of things... but probably not shelter. Wonder how much of rent inflation is driven by fixed rate mortgages from the zirp era needing to be refinanced at today's higher mortgage rates.
> The US may import a lot of things... but probably not shelter.
Housing requires construction materials, tools, and fixtures. Tariffs increase the cost of all of these, including domestically produced materials due to the second order effects.
It also requires human labor, which isn't impacted by tariffs directly, but may be impacted by other government actions in the US. Such as the ongoing high profile crackdown on illegal immigrant labor.
Look at the actual deportation numbers. It’s barely on track to meet deportation rates from a decade ago.
Don’t believe the political rhetoric. They’re making a big show and behaving poorly with the masks and other abuses, but they’re not actually doing abnormally high deportations.
Note that any large country will have a steady flow of deportations due to basic enforcement of immigration laws.
Deportation numbers can be highly misleading because of changes in how border interactions were recorded. There have been changes at various times to count as a deportation turning someone back at the border, or to count it as a refusal of entry.
Deporting 100 people working at a factory has a different economic impact than deporting 100 people at the moment they were trying to cross the border.
The goal for them is to scare immigrants out of the country, make a spectacle of deporting 10 and hope another 20 get scared and self-deport, and another 100 decide not to try and illegally enter.
I agree! But the US only adds about 1% new dwellings each year.
So I'd naively expect that 99% dwellings are existing housing stock and so might not to be sensitive to increased construction costs, because they've already been constructed.
I was wondering if BLS might use a model of estimated replacement cost in their CPI estimate, incorporating construction costs, but from a quick skim read it doesn't sound like they do that.
For estimating rental costs, they ask people how much rent they've paid this month:
> “What was your total rental payment for this month for this unit? Include any extra charges for garage or parking facilities, but do not include direct payments by local, state or federal agencies.”
+/- a lot of stuff about weighting that I didn't follow.
I heard that too, and it kinda makes sense, but what I also heard is that this one time price increase may not come all at once but drawn out over a longer period because some industries will eat the tariffs longer than others.
So instead of a massive inflation bump in one month you may get a sustained inflation rise over 6-12 months for example, which from the consumers POV probably looks just like higher inflation overall
> I've heard a few economists interviewed about the estimated impact of tariffs, an argument is that tariffs should lead to higher prices for US consumers, but as a one-time price increase, not a sustained level of price inflation.
That assums tariffs are consistent. How consistent has the administration been on tariff rates?
There have been talks of collusion/price-fixing/monopoly abuse on rents in the US, with a single company (I don't remember the name) providing services (including picking prices) to a large majority of landlords.
The company accused of being involved in collusion is RealPage, they have a local market analytics platform which shares rental information between landlords.
I think, all things being equal, higher home prices should lead to higher rents, since at the margin people on the verge of buying a home would be more likely to choose to keep renting when prices are higher, thus increasing demand for rental units.
I have a theory about why rents are rising faster than everything else: all those companies that bought up houses for cash are finally trying to make real money off them.
And they’ll keep doing it, since calling that out isn’t politically beneficial.
This is interesting to see for me because my local housing market(which was once one of the hottest in the US) looks to be on the decline. Houses are on market longer, prices are dropping and sellers are making lots of concessions.
> Rents would go down because deportation of illegals will reduce demand
The number of people deported is negligible. Around 200,000 people.
Despite all the news and drama, this number isn’t actually very different than normal. Any large country will have a steady stream of deportations if they enforce immigration laws. It has been like this for a long time.
Don’t believe the news and political rhetoric. Look at numbers. Do no trust any political claims without looking at the numbers.
> - Rents would go down because deportation of illegals will reduce demand
This was indeed extremely naive. There are not enough people in the US illegally to be a significant factor in housing demand. I'd suggest no longer getting information from whatever source lead you to believe this.
The "deportation of illegals" cannot reduce rents unless you think that undocumented workers are competing with Americans to pay $3k/mo rents in major cities, instead of living in RVs or cramming into small rooms.
It can increase rents because immigrants build houses and do mental jobs like cleaning.
> Could this be driven by the push to return to the office?
A little. People still want to live in desirable areas for reasons other than work.
You cannot reduce rent period. Inflation is permanent typically, you can slow the rate of increase but prices don’t go back. Even massive building projects like the yimby’s lobby for can’t move the needle on housing costs according to economists who study the issue.
If you are a renter in Silicon Valley you are absolutely competing with non-citizens who are paying 3k for 1 and 2 bedroom apartments. That’s why so many locals who were born there are now homeless or have had to leave. I can tell you the streets and neighborhoods where it’s almost 100% new (non-legal and low skill) residents. The rents in those neighborhoods are very much in the 2000-3000 range. Section is likely a factor but I don’t know that non-fully legal residents get section 8. It certainly wouldn’t surprise me if they did.
I meant “undocumented workers” but didn’t want to offend people and don’t know that these “undocumented” people are actual workers. The phrase “undocumented worker” is, if not absurd newspeak, at these very least extremely imprecise: what documents, what work?
> Rents would go down because deportation of illegals will reduce demand
Genuinely curious because I've never heard someone state this quite so credulously. How many people do you think are in the country illegally, that they're moving the housing market in a substantial way? In my experience seasonal farm workers (both with status and without) are usually housed in what are essentially dorms. These buildings are borderline illegal from a building perspective and not housing supply you would compete for.
Who are the millions of undocumented people renting a 2000/month 2 bedroom 1 bath condo?
Rents i naively think will follow new builds (low) and investor activity (high, and increasing). I expect any high ish demand area to see continued raising rents until they either build enough and / or kick out investors (but then, its far more complex compared to home purchases).
> an argument is that tariffs should lead to higher prices for US consumers
At the same time, though, prices can never rise higher than the consumer is willing to pay. All else equal that ultimately needs to be true, but there are many variables that do not need to remain equal, so it is not a foregone conclusion.
The 2022 food crisis offered pretty good motivation for consumers to pay more — people were truly worried about going hungry there for a while, albeit thankfully that concern didn't last long. I'm not sure tariffs offer the same kind of motivation. I expect there is a strong "Haha. No. I'm not paying more for this arbitrary reason that can be (and probably will be) reversed on a whim." sentiment out there right now.
No. Can't happen. Saying "I will sell you this widget for no less than one billion dollars!" doesn't establish a price. Price is not determined until a voluntary transition takes place. And a voluntary transaction fundamentally cannot take place without a buyer willing to pay the transacted price.
As we saw in 2022, fear of starvation is a pretty strong motivator to see consumers wanting to pay more to secure their spot in line. A random dude who likes to draw nude art for his friend saying everyone should pay more because of, uh, reasons... Not so much. That's not to say that sentiment cannot change, but without strong motivation there is no reason for it to happen any time soon.
No. I am talking about price. Price measures what you are giving up to receive value.
> price is definitely set before the transaction takes place.
No. You're likely thinking of an offer. Offers are made before the transaction takes place. Offers are spoken of in terms of the price the seller (or buyer) hopes to see, but it is not yet set. Negotiation can still occur at this stage, as can rejection.
Vendors with a lot of traffic are able to gain a pretty good handle on what consumers are willing to pay, so often, for all intents and purposes, the first offer and price end up being equivalent. Perhaps that is what you are thinking of?
Regardless, CPI looks at what consumers are actually buying. No matter how you want to define price in some sort of vacuum, price with respect to CPI can only increase if the buyers are willing.
> No. I am talking about price. Price measures what you are giving up to receive value.
but you said "Price is not determined until a voluntary transition takes place"
so does it happen before or after the "transition" takes place? id say price is set before, market value is what actually someone paid for it and comes after
> so does it happen before or after the "transition" takes place?
As the quote you offered says, it is measured after. I suppose theoretically in some kind of bending of space and time it could be measured during the exact instant it is created, but as we return back to reality... It certainly cannot be measured before. One cannot measure that which does not exist.
> market value is what actually someone paid for it and comes after
Value is, let's say, intrinsic. Whereas price is the measurement of it. To use an analogy, it is like the difference between distance and length.
> id say price is set before
While you are certainly welcome to make up any old random definition on the spot, given that we're talking about price within the context of CPI we know it is not "set before". CPI measurement is taken in hindsight, after consumers have already made their purchases. The values it gathers are post-sale.
again, the US cpi concept of price is the same as the UK one. They look at price, not transaction value you absolute numbnuts. what was all this crap about price in respect to CPI again? or were you thinking something different to what you said again?
Quote from https://www.bls.gov/cpi/questions-and-answers.htm
BLS data collectors visit (in person, on the web, or using apps) or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. We record the prices of about 80,000 items each month, representing a scientifically selected sample of the prices paid by consumers for goods and services purchased.
During each call or visit, the data collector collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, a 64-ounce container has been replaced by a 59-ounce container) of the good or service since the last time prices were collected, a new item is selected or the quality change in the current item is recorded.
> representing a scientifically selected sample of the prices paid by consumers for goods and services purchased.
Exactly. Goods and services purchased — not goods and services left unsold because the seller wanted more than buyers were willing to pay. You cannot measure that which does not exist.
Nope. Your misinterpretation may have lead to you to believe that, but intent supersedes interpretation. Which you no doubt understand given that you came back to ask for clarification given the apparent discrepancy. That would have been completely pointless otherwise.
> notice you didnt say gave, you said giving. There is a price before the "transaction"
I'm pretty sure it said "transition", not "transaction". Regardless, while it is thoughtful of you to point out what lead to your misinterpretation, we already cleared this up in a previous comment. What are you trying to add here?
> Market Value is determined in this offer/sell kind of fashion precisely because it ISNT intrinsic.
The value was always there. We just don't know what it is until we create an environment that allows us to measure it.
> If you swap price with market value
You'll have to talk to the government agencies. I don't pick the terminology used around CPI. I am not sure where you got the idea that it is up to me? And I'm especially unsure of why you'd want it to be up to me given that you recognize that I am not the clearest of communicators.
2% was the target over the long haul (not 3%) -- BUT it is a dual mandate to keep unemployment to a minimum as well. This is considered on the high end of that part of the inflation mandate, and as another comment stated -- if it is persistent, it will be seen as a negative.
Compared to the past 12-24 months, 2.9% doesn't seem to be particularly worse than previous months. E.g. it was even higher at 3% at the beginning of the year and it has been at 2.7% for the past few months.
Might not be at the 2% target, but at least looking at the graph, 2.9% isn't making me panic. Maybe the panic is warranted, I don't know.
Edit: Although maybe it does get more worrying if the hypothesis is that reducing rates will result in upward pressure on inflation. That could be worrisome.
Oh, it's definitely not, and panic is definitely not called for.
I think that's why they feel they have the leeway to lower interest rates to combat weaker job numbers. I think the concern is that we'll paint ourselves into a corner and end up with interest rates persistently at double (or worse) the target.
Energy raw materials decreasing, complexity of grid management capital and operation due to renewables intermittency increasing energy costs for consumers. Germany is ahead on these cost burdens.
I got downvoted for asking this - but let me ask again:
The key driver for inflation seems to rents (technically listed as "shelter"). Shelter has a large weight in the CPI basket, and its 12-month increase was 3.6% (comparing to 2.9%).
Am I wrong here in reading the data? If I’m wrong please correct me. I assume the downvote is because I’m not correct.
Those markets are very supply constrained. Despite a few recent piecemeal reforms, it's still very hard to build new housing (and it takes time to build more, with things like construction costs also becoming more expensive recently).
When supply is constrained, anything that increases demand - like return-to-office mandates finally bringing back workers who left for other states during the pandemic, or a boom in AI investment causing headcount and salary growth in a small sector that's very geographically concentrated in a single rent market - will greatly increase the price.
Lack of construction is likely the problem. High financing costs, expensive construction material (a lot of it is imported, like Canadian wood) and disappearing construction workers is probably all contributing.
> expensive construction material (a lot of it is imported, like Canadian wood)
Im sorry but the single justification for the richest country on the planet still building houses out of wood was that it was cheap and abundant. Now I find theyre importing at increased cost.... so tell me again why you all live in wooden sheds?
The Fed's inflation target is a long-term stable 2% annual increase in prices of personal consumption expenditures (PCE):
https://www.federalreserve.gov/economy-at-a-glance-inflation...
The motivation for 2%/year is that when inflation is lower, businesses and consumers tend to hoard more cash, instead of spending or investing it, reducing economic activity, and when inflation is higher, it tends to become self-reinforcing and can spiral out of control: Businesses raise prices and employees demand higher pay to keep up with expected rising costs. Deflation (prices decreasing every year) is undesirable, because it forces businesses and consumers to spend and invest less, but no one ever wants to earn less (e.g., employees don't like pay cuts), so deflation tends to shrink economic activity even more, and in the worst case, can induce a depression, with businesses spending and investing less because consumers are spending less, and consumers, in turn, spending less because businesses are spending and investing less. I'm of course oversimplifying, to keep things short.
Inflation remains above target, but thankfully, as of now, it doesn't appear to be self-reinforcing. I mean, I hope it isn't: https://news.ycombinator.com/item?id=45182111
> The motivation for 2%/year is that when inflation is lower, businesses and consumers tend to hoard more cash, instead of spending or investing it, reducing economic activity
That’s what they say. In reality, inflation is a permanent tax on those who earn money through labor. Every greenback they print makes 90% of us a little poorer, and conversely makes the capital holders richer.
Popular economists should be thought of as a priestly class employed to enforce this order with explanations like the one you gave above. Defending a system that has resulted in an ever increasing wealth gap and the proliferation of businesses who optimize for accumulating capital is indefensible.
There are other systems (https://en.m.wikipedia.org/wiki/Social_credit). The economy should serve the people, not the elites. It’s hard to read a lot of economic discussion when the system is so fundamentally flawed. It’s not workable as is.
> Every greenback they print makes 90% of us a little poorer, and conversely makes the capital holders richer.
Who is "they"? No, really: how do you think "money" is actually created? Because it's not central banks like the Fed that does it:
* https://www.bankofengland.co.uk/explainers/how-is-money-crea...
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
Further, inflation helps people in debt because past-dollars-depreciated loan values are paid off with current/future-wage-inflation-adjusted salaries.
Also, without inflation the rich could sit on literal cash (Scrouge McDuck style) and have it hold value (or gain value with deflation), which is not a good thing:
> No currency should be able to buy the same basket of goods over very long timespans through hoarding. If you want to retain the purchasing power of your money, it should participate in society via investment.
* Nick Maggiulli, https://twitter.com/dollarsanddata/status/159265180975079833...
We should not downvote a post just because we may disagree with it. That doesn't foster curiosity and discussion.
It's clear that continual inflation makes us poorer (unless we can also obtain pay rises). To me it's also clear that having no inflation (or indeed, deflation) would disincentivise investment. So I'm in favour of targeting a minimal inflation rate.
If there are other economic systems that would give both growth and better distribution of the proceeds of it, I'm all ears. I couldn't really understand the social credit link that was posted or how that might work.
> We should not downvote a post just because we may disagree with it.
There is nothing to suggest it was downvoted because of disagreement. We have no idea why it was downvoted. But the most likely explanation is that a user with poor dexterity accidentally pressed the button. There is no logical reason for why someone would purposefully exert the effort to press a button that doesn't do anything other than maybe change the font color. And one will employ a once and done CSS override to change the color if they really don't like the default choice for some reason.
It had multiple downvotes; a single one doesn't fade it out that much. I see nothing in the post that warrants that.
Anyway - don't want to argue about that really. I would prefer to discuss the economic points raised.
> It had multiple downvotes
Well, the HN has been around for quite some time now and the user base is getting older. Dexterity doesn't get better in old age.
> I would prefer to discuss the economic points raised.
Go nuts! Nothing stopping you but yourself.
This is honestly quite easy to fumble on mobile, the arrows together are smaller than any of my fingertips (iPhone 16 pro, Safari), so it takes a bit of effort to be precise.
12*0.4% is 4.8%
Inflation is running at an annualised 4.8%. The 2.9% number is backward looking.
Sure monthly inflation is more volatile, but the direction of travel is up, and that running average of 2.9% will be increasing slowly as it incorporates the recent higher prints.
Edit: the seasonally adjusted change is 0.4% actually, with the monthly change 0.3%
Aren't you slightly undercounting? If inflation compounds, 0.4% inflation a month would be 1.004^12 = 4.9%.
Yes you're right
This MoM increase was higher than about 70% of previous changes on the same interval. It's not so extreme that we can reasonably infer from it a looming disaster. Looking at the 7 month change (year to date), 63% of the time you'd see a higher increase than this. The "direction of travel is up", but that's almost always the case.
You concede that monthly inflation is volatile but then proceed to assume it is has grown uniformly and speculate that it will continue to grow uniformly? Umm...
The point is that the annual number is often rather confusing from a reporting perspective.
And that an annual number is diluted and will only feed in slowly over time.
If we knew inflation was permanently at 5% from now on, a blend with 2% for 11 months and 5% for 1 month, is not informative.
Pointless observation.
They said: "12*0.4% is 4.8%. Inflation is running at an annualised 4.8%."
This is patently wrong.
Because it's 1.04^12?
Or are you addressing some other flaw?
FED is caught between a rock and a hard place, in a double bind.
Because of jobs data, it will 100% cut interest rates in the next 2-3 FED meetings with inflation clearly showing an upwards trend.
US could print money for over a decade because of China exporting deflation to it and the world, now that China is an enemy, it's up for a rude awakening.
Monetary policies matter, the Dollar will suffer great debasement (it already is).
Imagine how many dollars are in supply around the world, and now the world is quitting the dollar.
There'll be too many dollars for too little demand. Fasten your seatbelts...
The country will become industrialized for the wrong reasons -- by becoming poorer.
>The country will become industrialized for the wrong reasons -- by becoming poorer.
Trump is a populist. That is the goal. The elite will get hammered and the bottom will be pulled up. The country will be net poorer, but the bottom will be higher than it was before. At least that's how the plan is sold on paper.
I can understand that, but both the elite and the bottom will be pulled down with the policy.
As I've mentioned, industrialization will happen benefiting jobs for blue collars, but you'll have lots of inflation.
And inflation hurts a lot the poor, as they have little to zero discretionary income. It's like a sales tax, it affects the poor more than the rich, proportional to how much they have available to spend.
A country with lots of factories can't afford suburbs, F150s, houses (instead of small condos).
I know this because I live in Germany, and we do have factories, but the life you can afford working in one of them is much more humble than a construction worker in the US can already right now.
Americans will need to learn to live on cramped spaces and stuff that doesn't make sense, as they'll really hate it.
There's no way the US government will have money to maintain all that suburban infrastructure, huge defense expenses without being high in the value chain.
Trump is a populist in rhetoric only. I don't think his actions demonstrate he is a populist via policy. His excuses might be his rhetoric but his actions don't match.
https://en.wikipedia.org/wiki/Right-wing_populism
Populism is a spectrum (a horseshoe in many regards too), it's not just Bernie Sanders.
100% odds the Fed cuts but inflation seems entrenched. Will the cut really help pull the labor market up? Tourism is down, AI is up, etc.
90% expected probability of a cut at the moment, down from 96% a week ago. A surprise no-cut would send a shock to the market IMO.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...
How these things are calculated is dumb:
The market implied rate (from swaps/forwards curves) for the following period is something like 27bps cut, so they say:
- 27 Is bigger than 25, so 0 cuts is 0%
- attribute 2/25bps likelihood to 50bps cut
- the remainder is left to 25bps cut
The reality is that there's a non-zero probability to unchanged, and a non-zero probability of 75bps+ cut etc etc. However this information would probably be in swaption prices and too complicated for anyone like the CME or media to make sense of. But at least with the way people talk about it they get to feel like they're making sense of the world.
Great point - I never looked into the specific calculation but this makes complete sense as you explain it. Thanks.
That’s 100% is it not? There’s 0% for current and then a split between the two potential cut amounts.
You're right - I'm so used to looking at the probabilities waterfall diagram where there's always some percent for status quo I glanced right over it not being there.
In the time since I originally posted that the 400-425 basis point level has dipped another 2%, with that amount going towards a 50 basis point cut. Very muddy waters indeed.
Powell has been adamant about fighting inflation so I struggle to understand how the market gives a zero percent chance of status quo.
It got me initially as well!
I’m with you on Powell but I feel like he’s tired of fighting Trump so he’ll throw a cut just to get everyone off his back a bit.
Would be funny if the FOMC postponed voting until after the courts make a decision on the Cook "dismissal".
Polymarket puts a cut at 98% likely currently: https://polymarket.com/event/fed-decision-in-september?tid=1...
Wow. Let me buy no Change.
Unemployment pretty much guarantees the cut. Inflation is in the backseat.
The tech sector labor bubble started popping last year. I don’t think we’ve hit bottom yet. Stocks are at an all time high riding the AI bubble but I think that too will pop despite the soft landing certain tech leaders will hope for.
We already had a soft landing last year right? That referred to coming out of the pandemic inflation without recession.
This year is tariffs, trade wars, uncertainty, AI, labor markets, mass firings, mass deportations. Seems like we’re into a new phase of potential stagflation.
[dead]
>Will the cut really help pull the labor market up?
The capitalists don't care about the labor market as much as they do the stock market. In Trump's crazy Tilt-a-Whirl Policy and Tariff Generator (TM), what business would invest in expansion beyond what is necessary to grease the palms that need greasing? Way too much uncertainty. Time for stock buybacks.
>what business would invest in expansion beyond what is necessary to grease the palms that need greasing? Way too much uncertainty. Time for stock buybacks.
AI and AI related companies are the opposite of this.
AI is not going to be able to grow geometrically forever. OpenAI and Oracle just signed a $300 billion contract. OpenAI doesn't have $300 billion. Oracle doesn't have enough chips on hand nor enough cash to buy them in order to fulfill these obligations. Based on RPO, Oracle is estimating that their cloud revenues will grow from roughly $10 billion now to $144 billion by 2030. That's insane, and yet it was enough to send their stock price up 25%.
ORCX exists …
I was very tempted by long dated puts on this when the intro-day high of +40% was reached…
You're right, as far as I can tell, which will help further wreck the labor market and juice the stocks for the capitalists.
AI companies are an existential threat to those who don't control the AIs. All of the "good AI" scenarios that the AIcolytes espouse assume we have bent AI to our whims permanently.
Interestingly treasury yields are down on this news, whereas on paper you would expect the opposite. Equities are up, on paper you would expect a toss-up (lower rate cut pushing down, inflation pushing up). Gold is down slightly.
All this suggests these numbers, while being inflationary, are better then anticipated.
What is probably going on is the following:
- if inflation picks up again it will have to be controlled
- going by 1970s experience it may be that an engineered recession is required to bring inflation down
- recession fears is risk-off
- risk-off means go into bonds and out of stocks
But yeah, inflation is a double edged sword on bonds. To some extent higher inflation expectations should mean that yields on bonds should go up to provide a consistent real return.
You are correct that this is confusing… one of these markets, broadly speaking, is wrong.
I think the bond market is betting on no rate cut and we are seeing early entrants into a larger flight to safety.
I've heard a few economists interviewed about the estimated impact of tariffs, an argument is that tariffs should lead to higher prices for US consumers, but as a one-time price increase, not a sustained level of price inflation.
That said, it's curious that this CPI news release highlighted "shelter" as a driver:
> The index for shelter rose 0.4 percent in August and was the largest factor in the all items monthly increase.
The US may import a lot of things... but probably not shelter. Wonder how much of rent inflation is driven by fixed rate mortgages from the zirp era needing to be refinanced at today's higher mortgage rates.
> The US may import a lot of things... but probably not shelter.
Housing requires construction materials, tools, and fixtures. Tariffs increase the cost of all of these, including domestically produced materials due to the second order effects.
It also requires human labor, which isn't impacted by tariffs directly, but may be impacted by other government actions in the US. Such as the ongoing high profile crackdown on illegal immigrant labor.
Look at the actual deportation numbers. It’s barely on track to meet deportation rates from a decade ago.
Don’t believe the political rhetoric. They’re making a big show and behaving poorly with the masks and other abuses, but they’re not actually doing abnormally high deportations.
Note that any large country will have a steady flow of deportations due to basic enforcement of immigration laws.
Deportation numbers can be highly misleading because of changes in how border interactions were recorded. There have been changes at various times to count as a deportation turning someone back at the border, or to count it as a refusal of entry.
Deporting 100 people working at a factory has a different economic impact than deporting 100 people at the moment they were trying to cross the border.
The goal for them is to scare immigrants out of the country, make a spectacle of deporting 10 and hope another 20 get scared and self-deport, and another 100 decide not to try and illegally enter.
How is that working out so far?
Looking at the border numbers, very successfully
Crackdown != deportations. If workers stay away from job sites, the labor is off the market even if they don’t leave the country.
> It also requires human labor, which isn't impacted by tariffs directly, but may be impacted by other government actions in the US.
If people think prices will go up they will insist on bigger raises. It's why expectations can be as important as what 'actually' happens:
* https://en.wikipedia.org/wiki/Wage–price_spiral
Do they have power to insist on bigger raises?
> Do they have power to insist on bigger raises?
Depends on the "they". These folks seem to have:
* https://en.wikipedia.org/wiki/2024_United_States_port_strike
I agree! But the US only adds about 1% new dwellings each year.
So I'd naively expect that 99% dwellings are existing housing stock and so might not to be sensitive to increased construction costs, because they've already been constructed.
I was wondering if BLS might use a model of estimated replacement cost in their CPI estimate, incorporating construction costs, but from a quick skim read it doesn't sound like they do that.
For estimating rental costs, they ask people how much rent they've paid this month:
> “What was your total rental payment for this month for this unit? Include any extra charges for garage or parking facilities, but do not include direct payments by local, state or federal agencies.”
+/- a lot of stuff about weighting that I didn't follow.
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
>Housing requires construction materials
ie wood
But house prices did not increase.
According to Redfin, the median home sale price was up 1.2% YoY in July 2025. [1]
[1] https://www.redfin.com/us-housing-market
I heard that too, and it kinda makes sense, but what I also heard is that this one time price increase may not come all at once but drawn out over a longer period because some industries will eat the tariffs longer than others.
So instead of a massive inflation bump in one month you may get a sustained inflation rise over 6-12 months for example, which from the consumers POV probably looks just like higher inflation overall
> I've heard a few economists interviewed about the estimated impact of tariffs, an argument is that tariffs should lead to higher prices for US consumers, but as a one-time price increase, not a sustained level of price inflation.
That assums tariffs are consistent. How consistent has the administration been on tariff rates?
There have been talks of collusion/price-fixing/monopoly abuse on rents in the US, with a single company (I don't remember the name) providing services (including picking prices) to a large majority of landlords.
Could this be related?
The company accused of being involved in collusion is RealPage, they have a local market analytics platform which shares rental information between landlords.
https://www.justice.gov/archives/opa/pr/justice-department-s...
House prices actually have nothing to do with CPI. "Shelter" is calculated using "Owners Equivalent Rent": https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
I think, all things being equal, higher home prices should lead to higher rents, since at the margin people on the verge of buying a home would be more likely to choose to keep renting when prices are higher, thus increasing demand for rental units.
I have a theory about why rents are rising faster than everything else: all those companies that bought up houses for cash are finally trying to make real money off them.
And they’ll keep doing it, since calling that out isn’t politically beneficial.
This is interesting to see for me because my local housing market(which was once one of the hottest in the US) looks to be on the decline. Houses are on market longer, prices are dropping and sellers are making lots of concessions.
My naive expectation was:
- Rents would go down because deportation of illegals will reduce demand
- Prices of goods would skyrocket because of tariffs
But instead, rents went way up.
Could this be driven by the push to return to the office?
> Rents would go down because deportation of illegals will reduce demand
The number of people deported is negligible. Around 200,000 people.
Despite all the news and drama, this number isn’t actually very different than normal. Any large country will have a steady stream of deportations if they enforce immigration laws. It has been like this for a long time.
Don’t believe the news and political rhetoric. Look at numbers. Do no trust any political claims without looking at the numbers.
As far as I can tell from a distance (I live in Europe), it seems to be more violent than usual, though. Is that correct?
They are trying to make a big show of it with the masks and big public events, yes. It’s all political drama and it’s very sad that it’s like this.
> My naive expectation was:
> - Rents would go down because deportation of illegals will reduce demand
This was indeed extremely naive. There are not enough people in the US illegally to be a significant factor in housing demand. I'd suggest no longer getting information from whatever source lead you to believe this.
The "deportation of illegals" cannot reduce rents unless you think that undocumented workers are competing with Americans to pay $3k/mo rents in major cities, instead of living in RVs or cramming into small rooms.
It can increase rents because immigrants build houses and do mental jobs like cleaning.
> Could this be driven by the push to return to the office?
A little. People still want to live in desirable areas for reasons other than work.
You cannot reduce rent period. Inflation is permanent typically, you can slow the rate of increase but prices don’t go back. Even massive building projects like the yimby’s lobby for can’t move the needle on housing costs according to economists who study the issue.
If you are a renter in Silicon Valley you are absolutely competing with non-citizens who are paying 3k for 1 and 2 bedroom apartments. That’s why so many locals who were born there are now homeless or have had to leave. I can tell you the streets and neighborhoods where it’s almost 100% new (non-legal and low skill) residents. The rents in those neighborhoods are very much in the 2000-3000 range. Section is likely a factor but I don’t know that non-fully legal residents get section 8. It certainly wouldn’t surprise me if they did.
"non-citizens" and "undocumented workers" don't even come close to forming a circle in a Venn diagram.
I meant “undocumented workers” but didn’t want to offend people and don’t know that these “undocumented” people are actual workers. The phrase “undocumented worker” is, if not absurd newspeak, at these very least extremely imprecise: what documents, what work?
Edit: here’s a thread on one such place, very much in the good, expensive side of town. (Studios go for about 3k in Campbell last I checked.) https://www.reddit.com/r/SanJose/comments/17acwq4/is_cadilla...
Many, though perhaps not most, of the non-citizens there are non-workers, unless you consider drug dealing gang members workers.
They do have a stellar carniceria though, and it’s fairly safe during the day if you avoid eye contact with men and don’t wear certain colors.
> Rents would go down because deportation of illegals will reduce demand
Genuinely curious because I've never heard someone state this quite so credulously. How many people do you think are in the country illegally, that they're moving the housing market in a substantial way? In my experience seasonal farm workers (both with status and without) are usually housed in what are essentially dorms. These buildings are borderline illegal from a building perspective and not housing supply you would compete for.
Who are the millions of undocumented people renting a 2000/month 2 bedroom 1 bath condo?
> How many people do you think are in the country illegally
Pew research said 14 million in 2023: https://www.pewresearch.org/race-and-ethnicity/2025/08/21/u-...
> Rents would go down because deportation of illegals will reduce demand
The fact that anyone would think this could possibly be true is an indicator of how strong the propaganda machine is.
Rents i naively think will follow new builds (low) and investor activity (high, and increasing). I expect any high ish demand area to see continued raising rents until they either build enough and / or kick out investors (but then, its far more complex compared to home purchases).
> an argument is that tariffs should lead to higher prices for US consumers
At the same time, though, prices can never rise higher than the consumer is willing to pay. All else equal that ultimately needs to be true, but there are many variables that do not need to remain equal, so it is not a foregone conclusion.
The 2022 food crisis offered pretty good motivation for consumers to pay more — people were truly worried about going hungry there for a while, albeit thankfully that concern didn't last long. I'm not sure tariffs offer the same kind of motivation. I expect there is a strong "Haha. No. I'm not paying more for this arbitrary reason that can be (and probably will be) reversed on a whim." sentiment out there right now.
> At the same time, though, prices can never rise higher than the consumer is willing to pay.
ahhh, the naivety of youth. not only can they, they have.
No. Can't happen. Saying "I will sell you this widget for no less than one billion dollars!" doesn't establish a price. Price is not determined until a voluntary transition takes place. And a voluntary transaction fundamentally cannot take place without a buyer willing to pay the transacted price.
As we saw in 2022, fear of starvation is a pretty strong motivator to see consumers wanting to pay more to secure their spot in line. A random dude who likes to draw nude art for his friend saying everyone should pay more because of, uh, reasons... Not so much. That's not to say that sentiment cannot change, but without strong motivation there is no reason for it to happen any time soon.
> Price is not determined until a voluntary transition takes place
youre talking about market value. price is definitely set before the transaction takes place. you can set the price at whatever you like.
> youre talking about market value.
No. I am talking about price. Price measures what you are giving up to receive value.
> price is definitely set before the transaction takes place.
No. You're likely thinking of an offer. Offers are made before the transaction takes place. Offers are spoken of in terms of the price the seller (or buyer) hopes to see, but it is not yet set. Negotiation can still occur at this stage, as can rejection.
Vendors with a lot of traffic are able to gain a pretty good handle on what consumers are willing to pay, so often, for all intents and purposes, the first offer and price end up being equivalent. Perhaps that is what you are thinking of?
Regardless, CPI looks at what consumers are actually buying. No matter how you want to define price in some sort of vacuum, price with respect to CPI can only increase if the buyers are willing.
> No. I am talking about price. Price measures what you are giving up to receive value.
but you said "Price is not determined until a voluntary transition takes place"
so does it happen before or after the "transition" takes place? id say price is set before, market value is what actually someone paid for it and comes after
> so does it happen before or after the "transition" takes place?
As the quote you offered says, it is measured after. I suppose theoretically in some kind of bending of space and time it could be measured during the exact instant it is created, but as we return back to reality... It certainly cannot be measured before. One cannot measure that which does not exist.
> market value is what actually someone paid for it and comes after
Value is, let's say, intrinsic. Whereas price is the measurement of it. To use an analogy, it is like the difference between distance and length.
> id say price is set before
While you are certainly welcome to make up any old random definition on the spot, given that we're talking about price within the context of CPI we know it is not "set before". CPI measurement is taken in hindsight, after consumers have already made their purchases. The values it gathers are post-sale.
>but intent supersedes interpretation
so dont worry about what i wrote, whats important was what i was thinking? fair enough
If market value is the instrinsic value, how could two separate markets get different prices for the same asset?
edit: https://www.ons.gov.uk/economy/inflationandpriceindices/meth...
methodology states it is based on prices quoted
> If market value is the instrinsic value, how could two separate markets get different prices for the same asset?
Much like, returning to our analogy, how the same distance can be different depending on the observer's frame of reference.
> methodology states it is based on prices quoted
And now read the rest. For "consumer goods and services purchased".
again, the US cpi concept of price is the same as the UK one. They look at price, not transaction value you absolute numbnuts. what was all this crap about price in respect to CPI again? or were you thinking something different to what you said again?
Quote from https://www.bls.gov/cpi/questions-and-answers.htm BLS data collectors visit (in person, on the web, or using apps) or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. We record the prices of about 80,000 items each month, representing a scientifically selected sample of the prices paid by consumers for goods and services purchased. During each call or visit, the data collector collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, a 64-ounce container has been replaced by a 59-ounce container) of the good or service since the last time prices were collected, a new item is selected or the quality change in the current item is recorded.
> representing a scientifically selected sample of the prices paid by consumers for goods and services purchased.
Exactly. Goods and services purchased — not goods and services left unsold because the seller wanted more than buyers were willing to pay. You cannot measure that which does not exist.
>As the quote you offered says, it is measured after.
i was quoting you... but you have tried to have it both ways. you said....
> Price measures what you are giving up to receive value.
notice you didnt say gave, you said giving. There is a price before the "transaction"
> Price is not determined until a voluntary transition takes place
But we had a price before we made the purchase??? If you swap price with market value in the second quote youre completely right.
Market Value is determined in this offer/sell kind of fashion precisely because it ISNT intrinsic.
> but you have tried to have it both ways
Nope. Your misinterpretation may have lead to you to believe that, but intent supersedes interpretation. Which you no doubt understand given that you came back to ask for clarification given the apparent discrepancy. That would have been completely pointless otherwise.
> notice you didnt say gave, you said giving. There is a price before the "transaction"
I'm pretty sure it said "transition", not "transaction". Regardless, while it is thoughtful of you to point out what lead to your misinterpretation, we already cleared this up in a previous comment. What are you trying to add here?
> Market Value is determined in this offer/sell kind of fashion precisely because it ISNT intrinsic.
The value was always there. We just don't know what it is until we create an environment that allows us to measure it.
> If you swap price with market value
You'll have to talk to the government agencies. I don't pick the terminology used around CPI. I am not sure where you got the idea that it is up to me? And I'm especially unsure of why you'd want it to be up to me given that you recognize that I am not the clearest of communicators.
What is the target rate?
Was under the impression that 2-3% is the target. Less than that is bad. More than that, also bad.
2% was the target over the long haul (not 3%) -- BUT it is a dual mandate to keep unemployment to a minimum as well. This is considered on the high end of that part of the inflation mandate, and as another comment stated -- if it is persistent, it will be seen as a negative.
Compared to the past 12-24 months, 2.9% doesn't seem to be particularly worse than previous months. E.g. it was even higher at 3% at the beginning of the year and it has been at 2.7% for the past few months.
Might not be at the 2% target, but at least looking at the graph, 2.9% isn't making me panic. Maybe the panic is warranted, I don't know.
https://www.cnbc.com/2025/09/11/consumer-prices-rose-at-annu...
Edit: Although maybe it does get more worrying if the hypothesis is that reducing rates will result in upward pressure on inflation. That could be worrisome.
Oh, it's definitely not, and panic is definitely not called for.
I think that's why they feel they have the leeway to lower interest rates to combat weaker job numbers. I think the concern is that we'll paint ourselves into a corner and end up with interest rates persistently at double (or worse) the target.
The target is 2 percent. Persistent 3 percent inflation is a whole different planet.
Ferenginar, after they abandoned the latinum standard.
I am not an economist but would guess that three feels quite different from two.
Energy raw materials decreasing, complexity of grid management capital and operation due to renewables intermittency increasing energy costs for consumers. Germany is ahead on these cost burdens.
Does this mean the rates will fall ?
I got downvoted for asking this - but let me ask again:
The key driver for inflation seems to rents (technically listed as "shelter"). Shelter has a large weight in the CPI basket, and its 12-month increase was 3.6% (comparing to 2.9%).
Am I wrong here in reading the data? If I’m wrong please correct me. I assume the downvote is because I’m not correct.
Federal outlays +8%. DOGE was a scam and you all fell for it.
> DOGE was a scam and you all fell for it.
Who is this "you" that you talk about?
There were many folks talking about all the 'saving money' was just a veneer; a sampling:
* http://archive.is/https://www.theatlantic.com/politics/archi...
* https://www.epi.org/blog/doge-is-not-worth-engaging-you-cant...
* https://www.msnbc.com/katy-tur/watch/doge-isn-t-about-money-...
Even the libertarian Cato Institute:
* https://www.cato.org/blog/six-ways-understand-doge-predict-i...
The hypothesis of an 'ideological purge' was fairly common.
Musk was vocally against the increased federal spending.
And yet he did not meaningfully reduce government spending with DOGE at all. He did pilfer a copy of the SSA database, though.
And managed to neuter agencies regulating his companies
I don't think that was his intention, or that he feigned anger at the outcome.
If you look at the numbers, the key driver is rents (technically listed as "shelter").
Shelter has a large weight in the CPI basket, and its 12-month increase was 3.6% (comparing to 2.9%)
Rents in San Francisco (and LA) are skyrocketing. And that cannot be easily explained.
Not sure what’s causing this. What do you think?
Those markets are very supply constrained. Despite a few recent piecemeal reforms, it's still very hard to build new housing (and it takes time to build more, with things like construction costs also becoming more expensive recently).
When supply is constrained, anything that increases demand - like return-to-office mandates finally bringing back workers who left for other states during the pandemic, or a boom in AI investment causing headcount and salary growth in a small sector that's very geographically concentrated in a single rent market - will greatly increase the price.
Lack of construction is likely the problem. High financing costs, expensive construction material (a lot of it is imported, like Canadian wood) and disappearing construction workers is probably all contributing.
But house prices did not increase.
According to Redfin, the median home sale price was up 1.2% YoY in July 2025. [1]
[1] https://www.redfin.com/us-housing-market
Shelter prices roll into CPI over 12 months.
> expensive construction material (a lot of it is imported, like Canadian wood)
Im sorry but the single justification for the richest country on the planet still building houses out of wood was that it was cheap and abundant. Now I find theyre importing at increased cost.... so tell me again why you all live in wooden sheds?