Posts filed under “Inflation”

Manhattan Rentals (Inflation Adjusted)

Jonathan Miller of Matrix RE released a rental study of Manhattan real estate:

Last week we released our rental study and the consensus was that the rental market was strong, better than the sales market (and expensive). So I thought I’d present the past 20 years and look at some of the peaks. When adjusted for inflation, the perspective of when peak was actually changes quite a bit.

Curbed has argued Manhattan rents are rising, but as Jonathan points out, that is before you account for inflation. Back out CPI price increases, and you end up with a different view of NYC rental prices. As Jonathan notes, “adjusted for inflation – we have a long we to go before we see actual peak numbers.”


click for larger graphic

Category: Digital Media, Inflation, Real Estate

Fade the Inflation Hysteria: Gipper Edition

As I believe there is a tremendous amount of revisionist history going on surrounding the Reagan era as it relates to economic and fiscal policy, I’ve begun to research available online archives, including the The American Presidency Project.  One never knows what one will find upon diving into a research project, but surprises are always…Read More

Category: Inflation, Taxes and Policy

Sick Minds

Frederick Sheehan is the co-author of Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve. His new book, Panderer for Power: The True Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, was published by McGraw-Hill in November 2009. He was Director of Asset Allocation Services at John Hancock…Read More

Category: Inflation, Really, really bad calls, Think Tank

To Find the Answers, Look Beyond Economics . . .

“AFTER more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don’t know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention — the ups and downs of the business cycle — is where I find myself…Read More

Category: Economy, Inflation, Psychology, Taxes and Policy

Short Memories (Fade the Inflation Hysteria, II)

Flashback to June 2008 (only three short years ago): Headline CPI was running very close to 5.0 percent.  The Fed funds rate was at 2.0 percent.  Brent crude was $132/barrel.  The Fed’s June 2008 minutes mentioned the word “inflation” 110 times (“deflation” and “disinflation” combined:  zero), and also contained this caveat (emphasis mine): With increased…Read More

Category: Contrary Indicators, Cycles, Data Analysis, Economy, Federal Reserve, Inflation

Yardeni: Is the Fed Your Friend? It Depends . . .

Dr. Ed Yardeni eloquently delivers our Quote of the Day on inflation, jobs, and the Fed: “The Fed is still your friend if you are invested in cyclical stocks , commodities, and foreign currencies. If you eat food and run your car on gasoline, the Fed will continue to hurt you. If you are looking…Read More

Category: Economy, Employment, Federal Reserve, Inflation

Why Technology Price Drops Are Not Proof of Deflation

Plummeting prices of LCD screens, via this month’s Wired. > With everyone so focused on Inflation, I (naturally) want to discuss Deflation. Or rather, the lack of it in Technology prices. Instead, lets  look at the Recency Effect and the life cycles of new tech products. Technology poses a special challenge to the hordes of…Read More

Category: Inflation, Markets, Really, really bad calls, Technology

Comparing Prices: 2011 vs 2010

Inflation is sure to be part of the discussion at the press conference with Chairman Bernanke today, which gives us yet another excuse to look at some chart porn. Have a gander at the first graphic — its from the NYT, whose graphic department is usually pretty awesome: > The original click for larger graphic…Read More

Category: Digital Media, Financial Press, Inflation

The “Miracle” of Compound Inflation

The “Miracle” of Compound Inflation
John Mauldin
April 21, 2011


What the CBO Assumes
Scylla and Charybdis – The Federal Reserve and the FDIC
La Jolla, Toronto, and Cleveland

Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world.” And compounding is indeed the topic of this week’s shorter than usual letter, but compounding not of interest but of inflation. As you might expect, I am giving a great deal of thought as to how we get out of our current financial dilemma of too much debt and deficits that are far too high. While I will use US data for our illustration, the principles are the same for any country.

Let’s start with a few graphs from the St. Louis Fed database (a true treasure trove of numbers). First, let’s look at nominal GDP over the last 11 years, from the beginning of 2000. The data only goes through the third quarter of last year, so sometime this year it is quite likely that GDP will top $15 trillion.

So, the economy has grown by roughly 50%, right? Give or take, that’s close to 4% growth (back of the napkin calculation). And in dollar terms that is correct. But what if we took out all the growth that was due to inflation? The economy would only have grown to $12.5 trillion. And in fact, “real” or inflation-adjusted GDP growth was just 1.9% on an annualized basis for the last decade, the lowest growth rate since the ’30s. What cost on average $1,000 in 2000 is now $1,250.

Now, to see this in an interesting graph, the Fed has real GDP based on 2005 dollars. You can see that we are about back to where we were in 2008, prior to the crisis, and growing well below trend. But if we adjust for inflation, growth has not been close to what it was in nominal terms.

Now let’s run through a few “what-if” scenarios. What if the next 11 years look more or less like the last, with 4% nominal GDP growth? That would mean that in 2022 nominal GDP would be 50% larger than now, right at $22.5 trillion. But that is with only 2% inflation.

What if inflation were 4%, with the same growth? Then nominal GDP would be $30 trillion! What a roaring economy, except that gas would $8 a gallon (assuming current levels of supply and demand). In essence, you would need $2 to buy what $1 buys today. Don’t even ask about health-care costs. If your pay/income did not double, you would be in much worse shape in terms of lifestyle. That is the insidious nature of inflation.

Read More

Category: Inflation, Think Tank

Breaking Down CPI vs Prior Inflation Cycles

Very interesting set of charts looking at Consumer Prices from The Chart Store. Over the course of 12 post WW2 business cycles, the following shows the periods of  Inflation. Two things worth noting: The current cycle versus the composite of all prior cycles is relatively modest. This suggest that inflation is currently tame. However, as…Read More

Category: Consumer Spending, Inflation