Cents and Sensibility: the Inflation Guy Podcast

The Inflation Guy is often asked about the Chapwood Index, which is a non-governmental inflation index that is billed as a “true cost of living index, unlike CPI.” In what ways does this index achieve that goal, and where does it fall short? This episode also serves as another illustration of how the Inflation Guy can go off the rails even when given a simple assignment. Which is better, Chapwood or CPI? See what the Inflation Guy has to say about the matter. Notes: Price Stats (neé Billion Prices Project) https://www.pricestats.com/inflation-series?chart=1837 - an independent (but no longer free) inflation index that the Inflation Guy likes better than the Chapwood Index. Blog article: “Eighth-Grade Math vs Shadowstats” https://inflationguy.blog/2021/05/25/eighth-grade-math-vs-shadowstats/ Podcast callbacks: “Ep. 7: Rents and Sensibility” https://inflationguy.podbean.com/e/ep-7-rents-and-sensibility/ “Ep. 4: The Making of an Inflation Indedx” https://inflationguy.podbean.com/e/inflation-guy-podcast-episode-4-the-making-of-an-inflation-index

The Inflation Guy shows a bit more focus in this episode of the podcast, aiming his comments squarely at endowment CIOs and the OCIOs that serve them. He discussed 5 simple ways that an endowment can improve its inflation-protection allocation. Take the test! If you're already doing all five, you are in the 99th percentile. But if you're not - it's fixable! NOTES: “TIPS, the Dual Duration, and the Pension Plan,” Laurence B. Siegel & M. Barton Waring: https://www.tandfonline.com/doi/abs/10.2469/faj.v60.n5.2656 “TIPS, the Triple Duration, and the OPEB Liability: Hedging Medical Care Inflation in OPEB Plans”, Michael Ashton, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1838545

In this episode, the Inflation Guy confronts the question of "Greedflation." What is it, and is it real? Is inflation all the fault of smelly capitalists? And what is the difference between the consumer's greed, wanting to pay less, and the company's greed, wanting you to pay more? Corporate margins are expanding, along with higher inflation. Does that constitute prima facie evidence of greedflation? The Inflation Guy tackles this too, despite completely butchering the pronunciation of "prima facie." He also mentions the Illuminati. Really, you can't miss this episode.   NOTES Good article: Are greedy corporations causing inflation? The Economist https://www.economist.com/finance-and-economics/2023/04/30/are-greedy-corporations-causing-inflation?giftId=21b1b229-c3bf-4371-bf72-4fd9291cac04 Good book: The Bigness Complex: Industry, Labor, & Government in the American Economy, Walter Adams and James W Brock. https://amzn.to/3NGnmtw Good Movie: “Everything Everywhere All At Once” https://amzn.to/3NjNOrD Good blog post: “Enough with Interest Rats Already” https://inflationguy.blog/2023/06/21/enough-with-interest-rates-already/

In this, the monthly analysis of the CPI report, the Inflation Guy homes in on a couple of reasons that core inflation is staying high, despite widespread forecasts that it should be decelerating more quickly: Rents are still rising at about 6% per year, even though many economists have convinced themselves that rents should decline (despite higher costs for landlords, higher incomes for customers, and higher prices of a substitute), and Wages are still rising at about 6% per year, which tends to lend persistence to core services ex-rents (so-called "Supercore"). There are some positive signs in the data, but even as inflation declines slowly on base effects there are few signs that core inflation is dropping below the 5% or so level it has been around for the last few years. A Fed on hold seems appropriate. Reference: "How Much Do Labor Costs Drive Inflation", Economic Letter, San Francisco Federal Reserve

In this episode, the Inflation Guy answers a question he is often asked: what makes a good trader? In listing what he thinks the four main attributes of a good trader are, he demonstrates one of them here by asking the question, "How could I be wrong?" and discusses how he would structure a position based on that assumption. So, if you tuned in this week as one of the people thinking 'this guy is sooo wrong,' then this is the episode for you! References in this episode: "What if We’re Thinking About Inflation All Wrong?", The New Yorker, June 6, 2023 "Bad Idea of the Year - Wage and Price Controls", Inflation Guy Podcast Ep. 37, August 22, 2022 "CPI Swaps Improving? Not as Significant as You Think", Inflation Guy Blog, June 7, 2023      

The Fed, along with most global central banks, considers 2% (or in that neighborhood) to be the definition of "price stability" that it aims for. Except that in the Fed's case, that 2% is on PCE (not CPI), and they only aim to hit that as an average over some (unstated) period of time. However, even that is proving to be...somewhat difficult, leading to "murmurs" in some quarters that the Fed should change its target to 3% rather than 2%. For example, see this article in Reuters from May 24th: https://www.reuters.com/markets/us/murmurs-grow-within-fed-about-tweaking-2-target-once-inflation-recedes-2023-05-24/  In this episode, the Inflation Guy reviews the history of the 2% target, including how it's sort of a squishy target...which the Fed doesn't really have the power to hit anyway. The Inflation Guy goes a little nuts with the analogies but you will get the point. Tune in for the trivia question; stay for the history lesson! Please like, subscribe, and refer!

This week, the Inflation Guy brings another special guest on the set. Andy Fately is a veteran of more than 40 years in the foreign exchange markets, trading spot, forwards and options as well as running businesses for major US and international commercial and investment banks.  He is known as the FX Poet (https://fxpoetry.com/about-2/), but really focused on creating solutions for risk managers for problems as they arise. Andy and the Inflation Guy tackle the question that naturally follows from headlines like these from earlier this year (links take you to the story): Russia embracing the Chinese yuan for much of its global trade Saudi Arabia considering invoicing oil exports to China in yuan France buying gas from China in yuan Brazil and China agreeing to ditch the dollar for bilateral trade BRICS countries planning to develop a new reserve currency Kenya promising to ditch the dollar for oil purchases ASEAN members discussing dropping the dollar for cross-border payments India settling some trade in rupees Should US citizens, or dollar-users in general, be concerned that the sun may be setting on the US Dollar? How would this happen, and is it likely to happen? Andy Fately and the Inflation Guy combine their knowledge (which, to be fair, mostly belongs to Andy) and push back a bit on the 'bear porn' disaster cases by walking through the actual mechanics that would be involved in a de-dollarization. Like, subscribe, comment!

The Inflation Guy addresses this month's CPI report, which showed an above-expectations Core CPI number (by a little). However, the internals of the report were not too bad, and according to the Inflation Guy today's data turns out to be a really good one supporting the timing of the Federal Reserve Board's pivot from active-tightening to steady-policy. The months ahead, though, still are unlikely to deliver what the market is pricing in, setting up a denouement for later in the year. For today, however, sing a new song unto the 'Board!

The M2 measure of the money supply has declined 4% from its peak 8 months ago - the largest decline since M2 has been measured starting in 1959. On the other hand, the Velocity of M2 has risen 8%, tying the largest increase in history. Which of these two titanic monetary tides will prevail? Does the decline in money presage the beginning of a deflationary debacle (at least for the stock market)? The Inflation Guy takes on this question and untangles the truth for you. Plus, he added a trivia question. So, there's that.

In this episode, the Inflation Guy again tilts at windmills by ranting about recent comments by Bank of England Chief Economist Huw Pill to the effect that the reason inflation is remaining high is because normal people are not accepting that they are worse off, and therefore insist on arguing for higher wages rather than "taking their share" of the pain. Wow, he gets animated in this one. It's only Episode 63. What is the Inflation Guy going to be like when we get to Episode 100?