Wednesday, April 09, 2008

The Inflation Chronicles

The latest entry (the previous one is here). Based on what's happening out there, I may rename this category "Weimar Watch." The Fed continues to pump an extraordinary amount of liquidity into the financial system, which is why the dollar is still on its back and oil remains near all-time highs even in the teeth of a recession. The latter is an important tell, since this is usually one of the weakest times of the year for oil and gas prices. The Fed shows no signs of letting up, so wait till you see how much gas costs this summer. Because the Bear Stearns debacle created so much controversy, watch for the Fed to maintain or even increase its liquidity efforts in an attempt to effect a de facto bailout for Wall Street and obviate the need for another intervention. Remember, oil at $125 or $150 can be blamed on lots of things. An overt handout to Wall Street can't.

From readers, the consequences:
  • "Fun size" candy at newsstands in midtown NYC: last week -- $0.25/each, yesterday -- $0.50 each.

  • Here at work the vending machines now stock reduced-size Snickers and peanut M&Ms at the same price ($1.00) formerly charged for the larger sizes.

  • If you think the copper thieves in Las Vegas are bad, you should see what they are doing here in Wichita, KS. Stealing it from schools, parks, and stadiums, and sub-stations.

  • This past Saturday, I went to my hometown pizza joint, Sal's Pizza in Rockville Centre, NY. The owners wife was telling me that they're considering selling the place because they just can't make a profit anymore. (Which is a damn shame as it's the best pizza I've had hands down!) A bag of flour (not sure what size) that cost them $9 a bag this time last year now costs $36!! That's a 400% increase! She didn't even go into the cost increase in the price of mozzerella cheese or the gas prices for the ovens. The price of a pie there is now somewhere between $15-16 when last year it was $11-12. So even at that their prices aren't keeping up with the inflation of their costs. 400% inflation in price in a year's time is insane!!!

  • CostCutters haircut $11 -> $15.

  • Our housecleaning service (franchisee of national chain) raised their cleaning price from $78 to $88, citing fuel and other costs. Prices at the local bakery went up - muffins went from $1.75 to $2.25 - a couple of weeks ago. They cited increased costs of ingredients. Flights from our town in the Midwest to the East Coast are about $100 more than they were a year ago, and flights to the West Coast are $100-150 more.

  • Maybe I should try buying cheddar cheese in TJ. From 6.99 to 8.99 at Ralphs for the big package, in about 8 weeks. This mouse is not happy.

  • 770 mile round trip with a 30 mile per gallon vehicle - 80$ late February. 1100 mile round trip this weekend in a 30 mpg vehicle - $120.

  • I was in my local pizza joint in the Bronx when one of the employees burst in wild-eyed decrying the price of flour, which he said had gone up 70% in the last year.

  • Went to a restaurant the other day and over many of the items a sticker had been placed with the "new" price. Stickers with the "new" price was a feature of the seventies.

  • I recently (~ a year ago) helped a friend set up a restaurant then went off to teach for a semester and vacation for a few more. When I got back, I was stunned. We'd factored in a 5% increase in food prices due to the foreseeable increase from oil prices. This was not half enough; and he uses almost no flour. Beans, rice, locally grown produce, the local (FL) catch of the day and free range chickens - up 14% per annum.

  • The weekend before last, bought a 12 pack of Miller Lite: $9.99. Last night, went back to the gas station. Same 12 pack has a new sticker overlaying the old $10.99. Curious if a sober mob is more dangerous than a drunk one.

And from another reader, here's the March 26 newsletter of the Saint Paul United Methodist Church in Amarillo, Texas. Click on it to read the outlined paragraph:

Remember, the Fed and the White House need you to get used to all this. Habituation is crucial, so when you've been paying $3.50 at the pump for months and it "plunges" to $3.40 for a few weeks (right before an election, say) you'll feel grateful.

Keep posting or emailing me your reports from the field.


Blogger Spider said...

TCR, I know I've said this before, but thanks again for your blog!! It provides me with a little bit of sanity everyday.

You're a conservative, and I'm a diehard liberal, and I love that 1) agree with so much of what you write, and 2) learn so much from you.

Also a big thanks to all the people who comment here. I don't agree with you all all the time, but again I learn so much. And when I find myself agreeing, especially with someone whose a conservative or on the other side of the political spectrum as I, it gives me a sliver of hope.

And hope is a good thing, perhaps the best of things to quote Andy Dufresne.

At least when everything comes crashing down, we'll be able to hang out and say, "You saw this coming too? You're a TCR reader? No way!"

Now back to my ever increasing expensive cup of Folgers coffee...

4/09/2008 8:18 AM  
Anonymous Anonymous said...

I don't use much flour, but talking to my mom, she said she just paid $2.50 for a package of flour she paid $.99 for last time she bought it earlier in the year.

4/09/2008 9:22 AM  
Anonymous Anonymous said...

At the start of the year, a gallon of milk at my Grocery Store (Safeway) was around 3.50. It's now 5.76--eggs have gone up just about as much, by percent.

As the prices have remained the same at 7-11, I shop there. Whee!

4/09/2008 10:21 AM  
Anonymous Anonymous said...

I have a gas stove. That's the only thing I have to pay the gas company for. My gas bill comes every two months. Last time I got one it was for $21 and some change. The one I got today is for $45.

4/09/2008 11:28 AM  
Anonymous Anonymous said...

Even statistics are showing signs of inflation.

"A bag of flour (not sure what size) that cost them $9 a bag this time last year now costs $36!! That's a 400% increase!"

Last time I checked, $9 to $36 was a 300% gain.

4/09/2008 11:43 AM  
Anonymous Anonymous said...

One problem. The Feds liquid assets are about where they were last July 1. The Fed has added no cash money to the system at all. Despite the 4 month long orgy of declarations to the contrary.

They have swapped out around half of their good paper, Treasuries, for crappy paper, MBS's and the like, which are more liquid but it's ague able if that is actually adding liquidity in any traditional sense by that.

While tons of near money is being destoryed as debt collapses those lucky enough to get their money our are desperate for alternatives. One alternative is commodities. So like all bubbles, since they are rising and are the next big thing more money piles in, so up futher they go, in that familiar virtuous circle. Till it ends of course.


4/09/2008 8:06 PM  
Anonymous Anonymous said...

Of course you all know none of this is included in the "core inflation rate" and therefore doesn't count. lol

4/09/2008 8:27 PM  
Anonymous Anonymous said...

ahhhh the horrors of stagflation. The fed is in a bind. I almost feel sorry for them...except they are purely evil people so I don't.

How do you count assets that no longer have any value so your financial institutions don't appear to be bankrupt? Well first you have to be very smart. Then you have to attend many private schools and an Ivy League College. Then you can make use of your extensive vocabulary to print out dribble to obscure this fact to the sheeple.

4/09/2008 11:23 PM  
Anonymous Anonymous said...

This is probably a good time for a little distraction by the ruling class. Buckle your seat belts: we are about to have war with Iran.

4/10/2008 12:04 AM  
Anonymous Anonymous said...

The only ice cream worth eating, Breyers Vanilla, reduced their size again. It was 2 quarts, then 1.75, now I see in the store tonight it is 1.50. Price the same. I think the impression left is worse when an organization goes that route, rather than just increase the price. It's so sneaky. What really takes the cake, are the cereal manufacturers (i.e., Cheerios). They reduce the quantity, but keep the same old big yellow box. I suspect eventually they'll reduce the box in order to reduce costs further. But initially they need to fool the customer, much like you mention with gas prices and creating a new "setpoint" (Go up .50, come down a .25, repeat), and we aren't suppose to notice. Do wish cereal manufacturers would leave the electronic crap, oops games, out of our food. Nothing like having a little mercury, cadmium, chromium, lead, leaked onto your whole oat cereal.

I have a certain empathy for folks who eat cheese food, purple/blue/green drink which is basically dyed sugar water (Dave Chappelle has a good joke about poor kids and purple drink. Drink is not juice. Drink is taxed. Juice is not.), or some of the things they want us to believe are "real" food with nutritional value. They have either been told it is 100% real food or financially they can't afford real food. Chocolate isn't even safe. Last year the Chocolate Manufacturers Association was working the FDA. What we think is chocolate will be hydrogenated vegetable oil and milk substitutes, rather than cocoa butter and milk. Due to economic pressures, will the next corporate tactic be, corruption in food labeling? What do you do if the cost of real ingredients rise, call in the food chemists to manufacture stuff. Sometimes I wonder if we aren't headed for a Soylent Green diet.

With the rise in food, the basics, shouldn't we also see a rise in a state's accounting for food stamps and similar food programs? That should be a interesting number to look at the trend.

4/10/2008 1:12 AM  
Anonymous Anonymous said...

Yeah, the economy is really screwed, but the two road trips you cite don't reflect a very dramatic case of inflation.

1100 miles is about 42.86% more than 770 miles and $120 is exactly 50% more than $80. At this ratio, the approximate increase in the cost of traveling the same distance (770 miles) at the new rate is about $5.50 . Not chicken feed, but the kind of difference that can be caused in part by weather, road and traffic conditions.

4/10/2008 2:29 AM  
Anonymous Anonymous said...

Are the price increases a result of monetary inflation or a weaking of the dollar in our "global economy"? I'm not sure it makes much of a difference to the average American consumer anon. They may be confusing one for the other...but does it really matter? We still might see the Fed try to inflate its way out of this. How else are they going to get rid of all this debt? Maybe they can send everybody 5000 dollar tax rebates next year!!! Of course only to people who paid less than 5000 dollars in taxes. The pain felt by the Average American comes from not being able to use his home as an ATM machine anymore. The well has run dry so to speak. Our economy has been a mess for awhile but the housing price increases helped cover it up. The great question now is...what can Americans do to keep spending now that housing has blown up? The rest of the world is watching the FED closely. The dollar is in the crapper and money has flowed into commodities. Does the FED want to inflate? Ohhhh yes...will they? At some point is only a matter of when and how fast. IMO. What else are they going to do? Americans are not as patient as the Japanese.

4/10/2008 9:52 AM  
Anonymous Anonymous said...

So the nation has been on a 40 year march to minimize inflation and maximize productivity in order to scrap it all now? Hmmmm. Seems more like blood letting.

I recently read that the cost of production for 1 barrel of Saudi oil is $0.40; the market captures 99% of value of that commodity. What a monopoly! Where's the President who claimed he could just pick up the phone and call the House of Saud to relax production quotas and bring the prices down?

I'm working on a hypothesis that the weak dollar is at the heart of much of this inflation because commodities seek higher transaction yields on export vs. domestic. Here's a telling anecdote: last night I was working on a statistics project. My goal was to compare demand for ethanol with corn prices for 2007. Ethanol statistics are pretty easy to come by, but the corn statistics are closely guarded by COMEX. So I substituted euro/dollar exchange stats against ethanol demand. I found a loose correlation between the two on different regression slopes: both trending upward. But there are periodic diversions: when the euro spikes up, domestic ethanol demand falls at an inverse rate. With the euro/dollar exchange outpacing demand for ethanol in 2007, my gut tells me that pricing for the base commodity (corn) is inflating less as a result of ethanol demand and more as a result of dollar exchange rates.

For this we can thank 'Bubbles'.

4/10/2008 12:35 PM  
Anonymous Anonymous said...

At this point it seems the sack of flour in my pantry has out performed my stock portfolio in the last 6 months.

4/10/2008 7:49 PM  
Anonymous Anonymous said...

I may rename this category "Weimar Watch."

Stop that! You're scaring me!

4/11/2008 1:09 PM  
Anonymous Anonymous said...

A would put way more faith in that sack of flour than say ...Washington Mutual stock. How can people invest in the stock market when our financial institutions are a house of cards!!!

4/11/2008 1:31 PM  
Anonymous Anonymous said...

Last Year: Mrs. Smith's frozen apple pie cost $5.79 for a 37 oz pie at my local supermarket.

This Year: Same $5.79 price, but the box has shrunk and the pie is 27 oz - a whole ten ounces less!

A friend joked to me that this is how we'll solve the obesity problem in America - everyone will get smaller slices of pie.

4/11/2008 1:49 PM  
Anonymous Anonymous said...

Seeing more topics like this one: World Bank Warns of Food Price Crisis.

George Soros was on Charlie Rose show. He said that what we have is flight from cash (according to Soros there is no alternative to the dollar in the world), and a commodities bubble. Markets are all about bubbles. The government's job is to control the magnitude of those bubbles to reduce the negative impact on the backside.

Is Soros saying it is the big money folks causing the problem. That the price of food for example, is rising because big money folks are buying commodities like grain, wheat, dairy, etc. So inflation = bubble?

4/11/2008 6:55 PM  
Anonymous Anonymous said...

The government's job is to control the magnitude of those bubbles
Dude...what are you smoking? The Fed with the backing of the government is the cause of these so called bubbles. And what you are witnessing is not a bubble but a lack of confidence in US financial institutions, the fed, wall street, and the US federal government. The world is growing tired of being abused by our elites and new power structures are going to have to emerge before there is an end to this.

4/11/2008 9:20 PM  
Anonymous Anonymous said...

An Economy Built On Lies

Exactly...I love the part about the 1 million dollar fine and 30 years in jail. Exactly. Why did nobody believe the government? How come nobody even worried about it? How come nobody is being hauled off the jail and forced to pay million dollar fines? How come nobody in government even brings it up? A reasonably intelligent person can only come to one conclusion...our government endorsed it!

4/12/2008 8:49 AM  
Anonymous Anonymous said...

The police have asked the scrap metal dealers in Chicago to be on the lookout for plaques stolen from statues in Oz Park. Plaques from the Cowardly Lion statue went missing last week.

4/13/2008 12:24 PM  
Anonymous Anonymous said...

Being a good little yuppie, I do a fair bit of shopping at whole foods. They've really cut back on the samples recently, and there are a lot fewer vendors pushing new products in the store. Used to be 3 or 4 vendors on Saturdays in the local store, but there weren't any last weekend.

4/15/2008 1:40 AM  
Anonymous Anonymous said...

My wife and I have made a conscious effort to reduce the amount of electricity we use in our household. In March of '08 we cut our usage by 25% compared to March of '07. This resulted in only a 10% savings on our power bill. Think about that for a moment...

4/16/2008 9:53 AM  
Anonymous Anonymous said...

e. nonee moose:

Not so're going to find suppliers start penalizing people (with higher rates) if they use too little. Gotta keep those stockholders happy!

4/19/2008 7:30 PM  
Anonymous Anonymous said...

Wawa gas station in Thorndale, PA (regular gas):

4/14- $3.31
4/15- $3.33
4/16- $3.35
4/17- $3.37
4/18- $3.39
4/19- $3.43
4/20- $3.47
Today- ???- have to check later.

Inflation is totally out of control, IMO.

4/21/2008 4:53 PM  
Anonymous Anonymous said...

You're lucky... Gas has been above $3.50 in my area of Los Angeles for weeks. My closest station was selling regular unleaded for $3.999 a few days ago. I'd bet they've broke down and raised the price by at least the extra 1/10 cent by now.

Another station is selling auto diesel for $4.53. Diesel used to always be cheaper than gasoline here, but now it always costs at least a cent more. They blame this on the ultra-low sulfur requirements that took effect in 2006, but the price divergence didn't happen until late 2007. I wonder if they are really tuning the refineries to produce more gasoline and less diesel than before, in order to keep gasoline prices "reasonable" without having to add any real refinery capacity. I suppose they also want to discourage people from buying diesel vehicles, which are inherently more efficient.

If I were a trucker I would be mad as hell right now.

4/22/2008 9:12 AM  
Anonymous Anonymous said...

Store brand of corn and tortilla chips was: $1.47 now $2.17. At least they haven't shrunk the quantity --- yet.

PS: Nightline did a story on Costco. They limit the stuff on their shelves to only 4000 things, and they never sell anything over 14% over cost.

4/26/2008 12:11 PM  
Anonymous Anonymous said...

Noticed Smart Balance reduced size from 16 to 13 oz, but same price. This is after an increase from $1.49 to $2.39.

We know why food prices are going up, I think, but what's up with laundry detergent and toothpaste. Arm & Hammer was $2.89, now over $5. And Tom's of Maine toothpaste was $2.97 and also over $5.

An interesting trend with laundry detergent. I looked down the aisle to see what was available. Not too long ago, the shelves were loaded with powder detergents in boxes, then liquid in bottles, then big bottles, then huge bottles, now we are back to the smallest bottles yet. What's the marketing gimmick with that.

4/30/2008 12:08 AM  

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