Wednesday, May 02, 2012

Cleveland Fed Estimate of 10-Yr. Inflation: 1.47%

The Cleveland Fed reported back in mid-April that its latest estimate of 10-year expected inflation remains low, at only 1.47% for April, see chart above. In other words, the public currently expects the inflation rate to be less than 2% on average over the next decade.  Still no sign at all of any pending inflationary pressures according to this measure.


At 5/02/2012 1:31 PM, Blogger bart said...

That's an huge outlier.

Bloomberg 5 year inflation expectations are over 3%, U. Mich 1 year are about 4%, Bloomberg 1 year expectations are almost 6%, FIG 3 month is 4.2%.

Substantial stagflation has been alive & well for a decade.

At 5/02/2012 2:17 PM, Blogger Benjamin Cole said...

Oh no!!!! Inflation is running wild!!!!

I bought a hot dog yesterday...actually I bought two for $3 at der weinerschnitzel. And buying a house has never been cheaper, in relation to income.

And unit labor costs are falling.

But we are seeing hyper-inflation!!!!!

At 5/02/2012 2:51 PM, Blogger bart said...

Here's your solution Benjamin, if you need it after actually looking at the real facts (like Weinerschnitzel dogs used to be under $1 and were larger [did you leave your hedonics in your other pants?], unit labor costs do actually fall in a stagflation like now and the 70s, etc. etc.)

At 5/02/2012 3:40 PM, Blogger juandos said...

"...10-year expected inflation remains low, at only 1.47% for April"...

Is that inflation measure in real money or Bernanke Bucks?

At 5/02/2012 4:40 PM, Blogger PeakTrader said...

Anyone who believes Bart has to believe real GDP is contracting by a huge margin each year, because nominal growth = real growth and inflation.

Bill Gross
Jan 2007

Tom Keene: "...As you know, I'm a big fan of nominal GDP - this, folks, is real GDP plus inflation. It's the 'animal spirits' that's out there. You say be careful, Bill Gross.

It looks real good to me, Bill. I see 6% year-over-year nominal. You say that's going to end?"

Bill Gross: "I think almost assuredly, because of oil prices. I'm not suggesting it end because of real growth going down. With oil prices doing what they're doing - if they hold in the $55 range - gosh, we're going to see CPI prints y-o-y over the next three or four months of 0.5% or 1.0% and that means nominal GDP is down in the 3% range."

"Ultimately, the inflation component affects the real growth component. To the extend that you have nominal GDP - in my forecast 3 to 3.5%, that's really not enough growth in terms of the economy itself to support asset prices at existing levels. And so, declining assets prices ultimately factor into eventually lower real growth. But that's not for mid-2007 but perhaps for later in the year."

Tom Keene: "When we look at six months of low nominal GDP, is that enough to link directly into the 'animal spirits" of the business investment component of GDP - the "animal spirits" of business men and women?"

Bill Gross: "Well sure it is. When you realize that the average cost of debt in the bond market - and therefore in the economy and this includes mortgages - it is about 5.5%. If you can only grow your wealth and service that debt at 3.5% rate, then that has serious implications.

When you go back to 1965, Merrill [Lynch] did this study - in terms of asset prices during periods of time when nominal growth grew less than 4%. Risk assets have been negative in terms of their appreciation and actually bonds have done pretty well.

The question becomes why hasn't that happened yet, and I think we're simply in a period of time where there are leads and lags that are much like the leads and lags of Federal Reserve policy.

At 5/02/2012 5:29 PM, Blogger bart said...

J said: Is that inflation measure in real money or Bernanke Bucks?

Be careful, PT will start attacking you too... ;-)

I'm glad someone believes in the BLS and the GDP deflator, which is around 1/2 the CPI-U... and I'm especially glad that no one has ever directly addressed the primary reason real inflation is so much higher than CPI-U - seniors on SS who lose purchasing power every year.

At 5/02/2012 7:48 PM, Blogger PeakTrader said...

Well, Juandos's article doesn't make much sense.

Exchanging less silver for gasoline today compared to three years ago doesn't mean gasoline prices fell.

It means silver prices rose faster than gasoline prices, the demand for silver has been greater than the demand for gasoline, saving increased relative to spending, there's less driving or more smaller vehicles, etc.

If Americans shifted to buying gasoline with silver instead of dollars, silver prices would fall and gasoline prices would rise only relative to silver prices, not from quantity of gasoline demanded.

At 5/02/2012 8:00 PM, Blogger PeakTrader said...

The article states: "It is not that the price of gas is more expensive; it is that your dollars are worth less."

The price of gasoline is more expensive, because demand for gasoline increased between 2009 and today, more than supply.

And dollars are worth less doesn't mean much, unless prices increase faster than income, i.e. real income falls.

At 5/02/2012 8:36 PM, Blogger PeakTrader said...

It's really quite amazing. The people who believe the Fed is "printing" too many dollars would make dollars worth less if they had their way, because real aggregate income would fall.

At 5/02/2012 10:08 PM, Blogger bart said... understanding of both inflation and deflation there PT. :(

At 5/03/2012 2:40 AM, Blogger PeakTrader said...

The Fed is not printing too many or too few dollars. It's printing enough dollars to maximize economic growth and maintain price stability.

Economic growth is too slow, because of inappropriate policies by the Administration and Congress, not the Fed, to deal with the downturn.

At 5/03/2012 8:27 AM, Blogger bart said...

The Fed is far from the only entity that can create money.

The top 5 central banks in the world are currently growing their balance sheet at over 20%/year. U.S. Federal debt is growing at about 10%/year ($1.3T). Z1 total credit and M3 are up about 4%/year.

Derivatives money creation is running at about 19%/year.

Velocity has leveled out and is moving up slowly, both US and world.

etc etc etc.

In Orwell-ese, price stability means inflation is running at 7-8% world wide.

At 5/03/2012 1:23 PM, Blogger morganovich said...

this measure is a joke.

it uses TIPS for comparison.

that creates several issues.

first off, it means you are measuring CPI expectations, not inflation expectations. nobody who is seriously worried about inflation would use CPI to protect themselves as that whole group feels cpi understates inflation.

second, both sides of this ratio are fiddled. the fed has been buying bonds hand over fist and that includes the thinner tips. this ratio has no basis in reality at all. the difference between 2 totally manipulated numbers is just a function of manipulation.

pretending that it is somehow a signal from the economy is pure cargo cult thinking.

At 5/03/2012 1:28 PM, Blogger morganovich said...


gdp is contracting in real terms if you use any sensible measure of inflation.

that's why payrolls growth cannot even keep up with population growth and the workforce participation rate fell under 64% in january and has not seen the upside of it since. those are 30 year lows.

if there was really a recovery, there would be jobs growth. you need to look at the number they have not adjusted and fiddled so heavily.

no recession from ww2 to 2000 took more that 12 months to get back to pre recession employment levels. here we are 3 years out and WF participation is still dropping and jobs have not even made a 40% recovery from trough. this is not growth. its recession stagflation being passed off as recovery by folks with a vested interest in making the numbers look better than they are.

the second slowest jobs recovery since ww2? the 2000-1 recession which was reportedly a very shallow one, but that took 2 years + to recover from in terms of jobs.

odd that the two recessions since the cpi methodology change had such slow jobs recovery. why, it's almost as if the growth they reported didn't really happen. curious, no?

At 5/03/2012 1:33 PM, Blogger morganovich said...

"The Fed is not printing too many or too few dollars. It's printing enough dollars to maximize economic growth and maintain price stability."

utter nonsnese.

m2 is growing 15%. if you think nominal is 6%, then why do we need m2 growth of 250% of that? and where is it all going? magically, all that money does not create inflation?

no. inflation is rampant. if you want to see unadjusted price levels, look at the export and import prices published by the census bureau. inflation there is double digit. oh, but magically everyhting we trade (and keep in mind that the prices of the same goods we consume here are moving the same way) are up double digits yet the overall economy is seeing inflation in the high 2%'s? that's not even mathematically possible unless every other good was dropping in price.

setting your scale to read 40 pounds lighter will not help you fit into your old pants, it just makes you wonder why you got diabetes.

At 5/03/2012 4:09 PM, Blogger PeakTrader said...

Morganovich, I've shown you about a hundred different ways why you're wrong. I think, you would've understood long ago if you knew something about economics.

For example, it makes no sense the economy contracted, while millions of net jobs were created, since the 2009 trough. Typically, jobs are lost in a contraction.

Also, firms aren't firing productive workers and hiring destructive workers to shrink the economy. It doesn't work that way.

They tend hire the best workers first and the worst workers last, or fire the worst workers first and fire the best workers last.

Moreover, jobs recovered more slowly after recent recessions, because more new jobs require higher skills (e.g. in the Information and Biotech Revolutions), which takes more time to acquire.

At 5/03/2012 4:13 PM, Blogger PeakTrader said...

Also, I may add, lending remains tight. See "excess reserves."

You're confusing a slow recovery-expansion with a contraction.

At 5/03/2012 4:34 PM, Blogger morganovich said...


you make that claim all the time, but it's as false now as it wever was. you have never, ever shown me that.

in fact, the facts are quite the opposite. i have shown you a dozen times that there was basically no growth from 2000-7 and such growth as there was was all debt funded.

sure, we picked up 5 million jobs from 2000-7, but that was greatly influenced by a debt fueled housing bubble. note that we lost them all again.

the current jobs level is about the same as 2000.

this seems to defeat your argument. if there has been so much growth, then why are payrolls right where they were 12 years ago?

population has certainly grown a great deal, but jobs, nope. no growth from 12 years ago. 132.8 vs 132.5. that's pretty much dead flat.

"lending remains tight" is not really true. that's a very myopic way to look at it and misses much of what is going on.

lending to the government is loose as can be. they are borrowing and spending a trillion dollars a year. that's 7% of the economy. what do you think happens when the fed buys treasuries?

lending to home buyers is not that different from the 90's, it just lacks the absurd excesses of the 2000-7 period.

lending to small biz is tight. no question about that, but lending to big biz is looser than any time i have ever seen. with treasuries this low, a AAA corp can issue incredibly cheap bonds.

so calling lending "tight" seems like taking one part of lending and pretending it is the whole.

the us economy is currently at stall speed at best, and quite likely actually contracting somewhat in real terms.

so, you have never answered my key question for you?

was inflation high in the 70s'?

if you use the current methodology for the 70's, inflation never even hits 5%. if you use that methodology, current inflation is 8%.

there is no consistent way to argue that inflation was high in the 70's and is low now. the underlying prices are moving the same way it's just that then they called it 8% and today they call it 3%.

so which is it?

was inflation in the 70's low or is it high now?

At 5/03/2012 4:41 PM, Blogger morganovich said...

"Moreover, jobs recovered more slowly after recent recessions, because more new jobs require higher skills (e.g. in the Information and Biotech Revolutions), which takes more time to acquire."

and your evidence for that is what? if intel fires and engineer then hires one back, why does anyone need new skills?

it's easier to hire now that ever. internet job postings and resume databases let workers and employers find one another far more easily than at any time in history. that should be making recovery easier, not harder as should the ability to telecommute.

it's not that jobs are hard to fill, it's that employers are not hiring and new companies are not being formed.

i agree with you that there are specific skill droughts in specialized areas, but that should really only be a systemic factor once you get back to previous jobs levels.

At 5/03/2012 4:43 PM, Blogger morganovich said...


the nature of the us economy did not change so much from 1992-2000 that jobs recoveries suddenly take 3-5 times longer than the previous average.

that's just way too big an change to try to attribute to 8 years of technology.

At 5/03/2012 4:59 PM, Blogger PeakTrader said...

Morganovich, I've shown all your statements are wrong before and more than once.

So, I'll just reply to one of them.

You say: "there was basically no growth from 2000-7 and such growth as there was was all debt funded...sure, we picked up 5 million jobs from 2000-7."

In 2000, the economy peaked. Nasdaq was over 5,000 and the spectacular 18-year structural bull market ended.

We had a mild recession in 2001. It was so mild that annual per capita real GDP didn't fall (in 2001).

We had an economic expansion and cyclical bull market with full employment in the 2000s.

So, how can you say we had "no growth from 2000-7." I've shown you lots of data before that there was not only substantial real growth with an even steeper rise in living standards, but also assets increased much faster than liabilities (i.e. net wealth rose substantially). Obviously, you completely ignored it all.

At 5/03/2012 5:58 PM, Blogger bart said...

PT: it makes no sense the economy contracted, while millions of net jobs were created, since the 2009 trough

What you're missing is that those jobs don't pay as much - substantial differences. That's called recession and stagflation, etc. Also, we're still *very very* far from the peak in 2006.

PT: Also, I may add, lending remains tight.

Sheeesh!... so you approve of the kind of loose lending that helped create the housing bubble and the crash?!?!

And so what if it's tight, total credit is growing at about 3%/year. That's far from bad.

But the real bottom line continues to be that if actual facts and data and related chart proof don't fit your fixed ideas, you *always* reject or avoid them - like seniors on SS and their purchasing power, as well as the huge and widening gap between CPI share and GDP share of medical, and also the lack of reverse hedonics etc etc.

At 5/03/2012 6:02 PM, Blogger bart said...

morganovich: was inflation in the 70's low or is it high now?

Don't expect any answer, or an answer that actually addresses the basic issues.

One of the many items that is evidenced by him and his cognitive dissonance is that if there's an uncomfortable area, he avoids it consistently.

At 5/03/2012 8:48 PM, Blogger VangelV said...

Is this the same Fed that could not see the housing bubble in 2006?

At 5/20/2012 10:12 AM, Blogger jack said...

I bought a hot dog yesterday...actually I bought two for $3 at der weinerschnitzel. And buying a house has never been cheaper, in relation to income.

At 5/20/2012 10:05 PM, Blogger bart said...

I can still buy a burger for $1 at McDonalds, but it's far from the same burger as it was 10 or 20 years ago.

Mostly true on houses, but income trends show no sign of reversing their down trends.


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