# Near term Inflation or No Inflation?



## milhouse (Nov 16, 2016)

Scott Barlow's opener in his daily round-up in the G&M today puts a spotlight on Credit Suisse's Andrew Garwaite forecasting some inflation pressure in the near future, which wouldn't be great for those nearing (including me) or in retirement from a savings and investment perspective. The case for, is based on expectations of central banks allowing inflation to run higher while employment recovers from the pandemic, minimum wage hikes, and de-globalization efforts. In additional, the resulting higher bond yields would put downward pressure on dividend equity prices, with hopefully their yields untouched. The suggested inflation fighting asset classes are stuff like raw materials and gold. 

The counter argument, is that we will likely see low demand, prices, and correspondingly yields, low for a long time due to secular trends, like aging demographics.


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## james4beach (Nov 15, 2012)

milhouse said:


> Credit Suisse's Andrew Garwaite forecasting some inflation pressure in the near future


I think it's very difficult to forecast this with all the unknowns about how the economy is shaping up. There is no precedent for the situation we're in right now. There hasn't been an economic contraction this sharp in recent history, and there also has not been central bank stimulus this aggressive ever before in history.

I would argue that no economist or analyst can really model or forecast the current situation. I could guess at this too but it's kind of a pointless exercise.

Any time central banks are accommodative (as they are right now) analysts always point out the inflation risk. They are correct, but they say this every time the central banks print money. So this was a fear we heard about in 2002-2003, and again since 2009, and also a fear in Japan for 30 years. But there wasn't any inflation in any of these cases.

Maybe this time it will play out differently and actually spark inflation. Who knows?

This is why I really like the diversified portfolios like Permanent Portfolio and All Weather. These allocations (including some gold) are designed to respond reasonably well whether you get inflation or deflation.


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## james4beach (Nov 15, 2012)

By the way, I find these financial articles entertaining, but they're pretty useless in practice. Same as CNBC. Videos like this are fun to watch (this is Shiller forecasting deflation) but not useful.

In the G&M article, Scott Barlow writes:



> It’s too soon to prepare now, *but the time may come when investors will need to switch to inflation fighting asset classes* like raw materials and gold, in what would represent an uncomfortably major change from the successful investing strategies of the past decades.


Uh, yeah, ok Scott. I'll just hang around until I get the memo that it's time to _switch_ into inflation fighting assets. Please remember to notify me! Or maybe the G&M will run a headline when it's time?

Can you imagine anything so silly?

I actually like watching and reading these kinds of things for pure entertainment, sometimes along with an evening drink.

Gundlach is another fun one. Here's one of his interviews on youtube.

I think the characters from the investment banks are a bit more dangerous, because one could almost think they are legitimate forecasts. In reality, none of them have any clue what's going to happen.


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## MrMatt (Dec 21, 2011)

Governments around the world are handing out free money, and spending like crazy.
We're going to have either.
1. Massive debt.
2. Inflation.

I can't imagine anyone is going to hike taxes enough to pay for COVID19.


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## james4beach (Nov 15, 2012)

New inflation figures get released on Wednesday. The most recent reading was 0.1% inflation rate for 12 months. Just a hair away from deflation.



https://www.cbc.ca/news/business/why-inflation-doesn-t-feel-low-and-what-you-can-do-about-it-don-pittis-1.5721240



In BC, the maximum allowable rent increase was just set at 1.4% and in Ontario it likely will be 0%, so housing inflation will remain very low for renters. Looking good! As far as I can tell, food at both the grocery stores, and at restaurants, has a stable price versus what I (roughly) recall several months ago.

From my standpoint, my two major costs (food & shelter) are currently very stable. My "health" costs have gone up, but that's because I'm choosing to buy more healthcare and cleaning-related stuff, so I'm not sure that counts as inflation.

The Bank of Canada also has a survey on how you feel inflation is affecting you. It's open until the end of this month:





Let's talk inflation


“At the Bank of Canada, we are committed to accountability and transparency in everything we do. The actions we take and how well we do our work affects the lives of every Canadian. Good planning starts with good listening—and we want to hear from you. I hope you take this opportunity to let us...




letstalkinflation.ca.engagementhq.com


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## james4beach (Nov 15, 2012)

The latest inflation number was released today, and came in lower than expected. The inflation rate is still 0.1%









Inflation Stays Near Zero in Canada, Keeping Pressure Off Rates


Inflation remained subdued in Canada as the nation’s economy emerges from the aftermath of the pandemic.




www.bloomberg.com





That means that if you're getting a 0.2% annual return in something, you've got a positive real return.


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## agent99 (Sep 11, 2013)

Might be worthwhile reading this to get a better understanding of the different ways inflation is measured and quoted.









Inflation Indicators


The Bank of Canada is the nation’s central bank. We are not a commercial bank and do not offer banking services to the public. Rather, we have responsibilities for Canada’s monetary policy, bank notes, financial system, and funds management. Our principal role, as defined in the Bank of Canada...




www.bankofcanada.ca


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## Rusty O'Toole (Feb 1, 2012)

Inflation is much higher than the official figures. Anyone who buys anything knows things cost more than they did a year ago, or 5 or 10 years ago, and by a lot more than .1%.
With all the money printing and quantitative easing dumped into the system over the last 12 years I don't know why we don't have hyperinflation now, except that the money has not gone to Main Street, it has gone to Wall Street and the big banks where it inflated the stock market and the price of exotic sports cars, Caribbean islands and Picassos. And of course China where there economy has been booming for years.
Furthermore everyone knows interest rates are artificially suppressed by governments and central banks around the world. It's not even a secret, it has been on the front page of every financial web site for years.


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## agent99 (Sep 11, 2013)

Rusty O'Toole said:


> Inflation is much higher than the official figures. Anyone who buys anything knows things cost more than they did a year ago, or 5 or 10 years ago, and by a lot more than .1%.


Yes, good luck to those who think they are getting a positive real return on their bonds or gics because the CPI was currently quoted at 0.1%


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## Gator13 (Jan 5, 2020)

Rusty O'Toole said:


> Inflation is much higher than the official figures. Anyone who buys anything knows things cost more than they did a year ago, or 5 or 10 years ago, and by a lot more than .1%.





agent99 said:


> Yes, good luck to those who think they are getting a positive real return on their bonds or gics because the CPI was currently quoted at 0.1%


Completely agree. Hydro bill up, water bill up, grocery bill up, insurance up, property taxes are up.........


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## milhouse (Nov 16, 2016)

Most of my core expenses, similar to Gator13's list, are definitely more expensive. Prices may be down for fuel and travel but we're driving less now since we're working from home and doing next to no travel. 

From a monetary policy perspective, it looks like the Fed is going keep rates low until 2023 while focusing on employment and letting inflation go above 2%. I suspect the BoC is going to follow similar suit and policy.


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## james4beach (Nov 15, 2012)

My core expenses are not up, and I moved to an apartment at a rent that's lower than typical prices in the area. So for me that's a housing price deflation thanks to covid. But these anecdotes don't really matter. You either have to methodically track your total expenses under 'stable' patterns, or refer to the professionals who do this, i.e.





__





Consumer Price Index by product group, monthly, percentage change, not seasonally adjusted, Canada, provinces, Whitehorse, Yellowknife and Iqaluit


Monthly indexes and percentage changes for major components and special aggregates of the Consumer Price Index (CPI), not seasonally adjusted, for Canada, provinces, Whitehorse, Yellowknife and Iqaluit. Data are presented for the corresponding month of the previous year, the previous month and...




www150.statcan.gc.ca





I don't have any reason to distrust the inflation figures. I once was skeptical of published inflation, but then I measured my own experience in a controlled way, and found that it matched the statistics pretty well.

In my experience, people have a tendency to complain about prices going up. People have been complaining endlessly about gas prices for as long as I can remember, and yet gas/fuel has been going down. Notice that you don't see or hear people regularly cheering about cheaper gas.

Even on this forum, threads pop up when gas is up strongly, but that never happens when gas drops. This shows the bias in how people think about price increases/decreases.

The all-items CPI which includes gas is only up 0.1% in the last year. Excluding gasoline, it's up 0.6% which isn't much different.


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## Gator13 (Jan 5, 2020)

I have faithfully tracked our monthly expenses for quite a number of years. Our routines have remained stable (i.e. same house, 2 people in the house, consistent patterns, etc) and have watched our core expenses increase.Have a look at the following article. I am not an economist, but it is food for thought. 





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Are The Posted Inflation Rates A Lie? - Forbes Wealth Blog


Every year the BoC releases a report stating the annual inflation rate. The reports seem to stay constant, but are the reprorted infation rates a lie?




forbeswealthblog.ca


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## fireseeker (Jul 24, 2017)

Gator13 said:


> I have faithfully tracked our monthly expenses for quite a number of years. Our routines have remained stable (i.e. same house, 2 people in the house, consistent patterns, etc) and have watched our core expenses increase.Have a look at the following article. I am not an economist, but it is food for thought.
> 
> 
> 
> ...


I don't know whether inflation is under-reported or accurately reported.

I do know that the blog post comes from a father and son financial services office in Carberry, Man.

They cite an anecdotal story about one American's measurement of the cost of burritos from a local food truck (a writer who asks readers to "_send coins, stamps or quatloos via mail" to a P.O. box_"), plus the cost of attending the University of Hawaii.

There is no additional evidence provided, except to say that "high inflation items" like food, shelter and electricity should be given more weight than low inflation items like tech, clothing and commodities. There is no indication of how those items are currently weighted, how they ought to be weighted and what price changes have been observed in those items over time.

The blog post closes with the assertion that "it's time to hold our government accountable. Especially to raise CPP, OAS, and other social security payments to account for the actual rate of inflation, not just the reported 2%. "

My takeaway is that I will not visit the burrito truck, I will not mail quatloos and I will not be hiring these advisers to invest my money.


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## nathan79 (Feb 21, 2011)

Restaurants are up for sure. I noticed it when I started going again in July after not going during COVID. I'd say about 5-7%.

McDonald's McDoubles and Junior Chickens are both now $3 according to someone on Reddit.

Gas is down, but most household stuff seems to be up... groceries, utilities, insurance (just ask condo owners), cable packages, lumber and other renovation supplies are all up.


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## james4beach (Nov 15, 2012)

The idea that inflation reporting and CPI "are a lie" has been a long time theme among certain segments, like libertarians, gold bugs, and various groups that distrust the government. You will frequently hear this story at places like Zero Hedge and gold blogs. These are also the places that have (consistently) given some of the worst investment advice imaginable.

And I write that as someone who invests in gold by the way.

Over the years, I've learned that these people are usually letting ideology and a weird distrust for government get in the way, and tend to make poor investment / capital allocation decisions. I am open minded to the argument that inflation is under reported, but I just haven't seen evidence of it.

And remember, the Bank of Canada *wants* to see inflation. Having 0.1% inflation makes them look like failures who are unable to carry out their role -- inept, ineffective, useless. So the BoC has a motivation to report higher inflation, not lower inflation.


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## nathan79 (Feb 21, 2011)

I don't necessarily distrust the CPI, I just feel that a lot of what they're measuring isn't entirely relevant to me.


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## james4beach (Nov 15, 2012)

nathan79 said:


> I don't necessarily distrust the CPI, I just feel that a lot of what they're measuring isn't entirely relevant to me.


Valid criticism but a lot of what you just described isn't relevant to me either. Home renos only matter to people who are renovating their home (should be an infrequent/rare event even for home owners), condo insurance doesn't affect me, etc.

They try to sample various generic things and take an average. Individual experiences will definitely vary.


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## agent99 (Sep 11, 2013)

Quoting an older G&M article some of which still seems relevant:
*The central bank, and economists in general, aren’t looking at inflation for the same reasons the average Joe is. *

Not sure if this is behind Paywall: The logic and lunacy of calculating the inflation rate

First paragraphs:



> What is Canada’s inflation rate? That depends which inflation rate you’re talking about. And why you’re asking.
> 
> Consider what will happen on Friday, when Statistics Canada releases its consumer price index (CPI) figures for May. Economists anticipate that the overall year-over-year price change in the index – what we commonly call Canada’s “inflation rate” – will be 0.8 per cent.
> 
> ...


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## nathan79 (Feb 21, 2011)

Well, I agree with you there. Not all of it is directly relevant to me, at least not currently (some things may become relevant in the future). I did recently buy some 2X10's to redo my mom's back steps (the old ones were rotten), and couldn't help noticing how expensive lumber has become. Sometimes I also buy lumber just to build something.


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## james4beach (Nov 15, 2012)

nathan79 said:


> Well, I agree with you there. Not all of it is directly relevant to me, at least not currently (some things may become relevant in the future). I did recently buy some 2X10's to redo my mom's back steps (the old ones were rotten), and couldn't help noticing how expensive lumber has become. Sometimes I also buy lumber just to build something.


Fair enough. It's hard to get a representative sample based on different patterns from everyone.

I just stayed in a hotel. It was about half the price as normal I also spent the last few days driving around, which was quite cheap both on gas and the rental car. So for this batch of spending, the annual change is:

hotel -50%
gas -10%
car rental -20%


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## james4beach (Nov 15, 2012)

Mr. Market is now acting like he doesn't believe much inflation is coming. This is based on seeing

stocks down
commodities down
US dollar is up
bonds are up
But who knows. Should be an interesting few months!


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## andrewf (Mar 1, 2010)

I actually think we might see some inflation, but consumption patterns are changing so drastically I don't know what it might actually mean. Things that are still available might cost more due to reduced capacity (hair cuts, restaurants, etc.) while spending on vacations dries up.


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## milhouse (Nov 16, 2016)

andrewf said:


> I actually think we might see some inflation, but consumption patterns are changing so drastically I don't know what it might actually mean. Things that are still available might cost more due to reduced capacity (hair cuts, restaurants, etc.) while spending on vacations dries up.


Anecdotally, I'm seeing those places (haircuts and restaurants) I frequent bump up prices a few dollars. My haircut guy bumped up his price by $2 and was mentioning how he's hurting cuz it's not very busy. Normally, I'd have to wait up to an hour to get a haircut on the weekend. My most recent haircut, it was a 5 minute wait for him to finish up his previous customer.


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## kcowan (Jul 1, 2010)

I got back from Mexico on August 1st after quarantine. Haircut had increased from $22 to $32! So next time shopped around and got one for $20 in the neighbourhood. So officially, my cost dropped by $2 according to how inflation is calculated.

Food costs have gone up across the board. Diesel is the cheapest ever. No savings on insurance (ICBC). Air travel had increased from $750 to $1650 for our return from Mexico. I have the feeling that our personal inflation is up.


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## james4beach (Nov 15, 2012)

Here is the Bank of Jamaica with a song about inflation-targeting. Everyone do the "low inflation dance".


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