Structural or transitional? -Large picture

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Everyone seems to be right “temporary.“Part of the reason is the way people Experience time nowadays. Maybe it would be helpful to rebuild this in a different way using a less time method.

Consider this question: The price increase is “Structural” Part of the economy? Are they permanent fixtures, part of the outlook for the cost of goods and services in the next decade or more? If we are to fire”temporary,“So, by definition, we must treat inflation as “Structural.

I have not seen this in most of the biggest price increases-they are not a permanent part of the economy. This is because – warn: Lead! — The main price drivers in the past three years have been Technology-induced deflationThe recent inflation drivers seem to be pandemic/reopening/supply chain driven, so they are not structural.

Consider some recent larger components Record CPI:

Cars (new and used): One of the biggest drivers of price increases is the automotive industry, although they only account for 7.8% of total consumption (new cars = 3.83%; used cars = 3.29%). From March 2020 to August 2021, used car and truck prices rose by 43.3%, while new car prices rose by 11.7%, while the US inflation rate was 7.3% (currently 6.2%). This is obviously a reopening problem caused by semiconductor supply problems, rather than structural changes in car prices.

There are signs that this situation has peaked and is fading: Ford’s CEO says the semiconductor shortage is Improved but will continue into next year (September); Volkswagen CEO says we have The “worst case” of a chip shortage (October); Toyota announced plans to start production in Japan Normal operation for the first time in seven months (November). Last week, Morgan Stanley research pointed out that Malaysian chip production has resumed full-scale production; they expect car production (and chip-intensive users such as cloud data center servers) Improve in the near future.

The above is why car prices should start to normalize in the first or second quarter of 2022. This is the difference between temporary inflation and structural inflation.

Shelter: One of the largest components of inflation data is housing, which accounts for 41.7% of the CPI. This includes self-owned houses and rental houses. To complicate matters, there are more than 95 million self-owned homes in the United States, of which about two-thirds are self-occupied. Of these, about 6 million change hands each year.

This is a complex aspect of CPI: housing has been The number of houses built is small In the years following the financial crisis; during the COVID-19 lockdown, a large number of urban residents searched for alternatives to cramped apartments, which angered it.

And the so-called demise of the city is not only an exaggeration, it is So wrong. Renters have Back to the city A large number of them are appearing, and the rent prices that we see sharply reduced in 2020 are returning to normal or higher. Part of the reason for the sharp increase in rents is the year-on-year unfavorable year-on-year comparison with the pandemic’s low rents (and the suspension of evictions). This may resolve itself in the next few quarters.

Those are temporary Part of the Shelter pricing, but other aspects of the house price are indeed Structural: Consider the construction of new houses and changes in state and local regulations to prevent higher density land use.The good news is that the new housing units under construction are now in Highest level since 1974; We should not be Neighborhoodism soon.

salary: The main driver of wage increases is the second half, especially Lower quartile. This is the place of compensation Decades behind it is … now Catch up. As pointed out yesterday, Median real wage There was no change from 1979 to 2014; the actual minimum wage in 2015 was the same as in 1949.

What is happening at the bottom of the wage scale is a massive reduction in wages that have been deflationary in nature for decades. I expect these growth will be sticky, but the annualized earnings will slow down.Therefore, treat the second half of the salary as Great reset.

We do have a limited supply of labor, partly because Reduce immigration, Early retirement, Workers leave a dead end, Lack of childcare services and Covid death. This is partly the cause of the increase in wages.

vitality: It has risen by about 30% in the past year; this component is 7.3% of the CPI.Some of these are supply-driven, but there is a lot of crossover within energy: prices fell after the 2008-09 crisis; this reduced the incentives for capital-intensive hydraulic fracturing, which helped Restrict supply. We will see some signs More hydraulic fracturing in 2022.

The structural part is the transition from carbon energy to green energy. This social preference helps reduce the price of alternative energy sources. Solar, wind, and geothermal energy are still relatively small in total energy consumption, but they are rising. Moreover, they are a technology, not a commodity-based energy. They may cause deflation, not inflation.

Goods and Services: Finally, consider the balance between purchased goods (38.7%) and consumed services (61.3%): As our chart shows, it is not the service economy that drives price increases, but the commodity part of the equation. CPI commodities have risen by more than 8%, and CPI services have returned to their pre-epidemic levels-prices have risen by about 3%.

This is an important factor in the inflation discussion.

Why?Part of the reason is the changes that occurred during the pandemic lockdown, which is a move For goods with Away from service. As an economy, we suddenly started buying food through Instacart/Amazon instead of going out to eat; we bought Peletons and gym memberships; we bought big-screen TVs instead of going to the movies; we bought cars and Winnebagos instead of go on holiday.

In each case, you purchased the physical product instead of using the service—and the quantity purchased far exceeded the quantity normally purchased. This is the opposite of the trend before the pandemic. The frustration of the supply chain under heavy pressure is not surprising.


Prices have risen in many regions. The question is whether the annualized growth rate will remain high or fall back to normal levels from these highs. I suspect that we have achieved two-thirds through price resets, many of which will prove to be sticky, but it is unlikely to continue at these higher rates of change.

Low-end wages will not return to pre-pandemic levels, but second-hand car and gasoline prices will; as more new buildings provide online supply and more people sell existing homes, the “ideal” single-family Housing prices may disappear. Rents in many places have returned to pre-Covid levels, but the supply shock may be the conversion of over-built office space to residential use.

Many of the current prices we see are “new normal”, but most of the current annualized growth rates are not.

How do we experience time, the inflationary version (November 10, 2021)

How everyone miscalculates housing needs (July 29, 2021)

Deflation, interrupted by the spasm of inflation (June 11, 2021)

Elvis (your waiter) left the building (July 9, 2021)

Inflation reset (June 1, 2021)

Change the balance of power? (April 16, 2021)


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