Ask MetaFilter questions tagged with inflation

Deflated by inflation

Anonymous — Mon, 26 Oct 2009 14:05:50 -0800

[Economics101Filter] How is it that the cost of living can go up, but salaries stay the same? Economics n00b questions inside. I've been away from the States for about 10 years. I come back, and am naturally shocked by how much more expensive everything has become. (FWIW, I live in NYC.) For instance, a diner meal for me was always under $10; now, breakfast is easily $15.

I was lucky enough to be able to land a job right away in my old sector. I was shocked a second time when I saw that salaries, as well as vendor costs, have stayed _exactly_ the same. (E.g., the average project/account manager's salary is around 50K - precisely the level I was at as a 3-year "veteran" when I left 10 yrs ago.)

Question: how does this work, exactly? Are people just living shittier lives? Eating out less (but this is New York!) Is this true across different sectors? Or is it just endemic to my sector? Will it eventually balance out? Is it just a sign of the times? Please enlighten this economics n00b!

(Anonymous because I feel too stupid asking these questions, and also because I don't want to announce my salary level to the entire world.)

Protecting against USD devaluation.

ZenMasterThis — Fri, 16 Oct 2009 06:26:22 -0800

Good ways for a US citizen to protect their long-term savings against US dollar devaluation? Bailed on the S&P 500 index September 16, 2008. Currently parked in US dollar-denominated money markets and treasury funds. Concerned about inflation and/or devaluation.

What are the effects of high inflation and high interest rates on an economy?

thewalrus — Sat, 04 Apr 2009 01:12:56 -0800

Economicsfilter: How do mortgages work in developing countries with high rates of inflation and high interest rates? For example, Pakistan has a 20% inflation rate and the average fixed term prime residential mortgage for people with good credit is priced at 17%. What are the effects of this on a market? Can anyone point me to economics texts or real world examples of the results of the following:

USD:PKR exchange has gone from 1:60 to 1:81 in less than one year.
Inflation rate steady at 18 to 22% per year.
Minimum mortgage costs for residential consumers in the range of 16.5%+

The Pakistan central bank sets a rate which results in a KIBOR (Karachi Interbank Offered Rate) of approximately 15%. The various big name banks in Pakistan mark this up a couple of percent and sell residential mortgages on 10, 15 or 20 year amortization terms for around 16.5 to 18.0%. These are not "sub prime" type rates but are for people who can put 20-25% down, with good credit scores and job references, the Pakistani equivalent of a non-jumbo Prime mortgage.

This obviously makes the purchase of an average 3-bedroom flat quite a bit more expensive than in the US or Canada, where mortgages for anything would be under 8%.

How did this work in Argentina when the currency dropped drastically against the US dollar? I know of people who got into the Argentine market at exactly the right time with a USD exchange (or Euros, or GBP, or whatever) and were able to buy up property at amazing prices. Were interest rates similarly high in Argentina during the same period?

Does a high inflation rate somewhat offset the effect of having a mortgage with a 17% fixed interest rate? If the mortgage contract is fixed at a certain payment, but the inflation continues, a theoretical Rs125,000 monthly payment will continue to get less expensive as time goes on...

Fire-and-Forget Investment Advice

anotherpanacea — Thu, 26 Mar 2009 05:34:24 -0800

Seeking fire-and-forget asset class investment advice for retirement: TIPS? Global Equities Index/Wilshire 5000? I know this is mildly controversial, but it seems like the 'common sense' approach has changed lately from "stocks for the long run" to "risk = loss." See especially here. My wife and I are about 35-40 years from retirement. My wife may retire earlier (25-30 years) if she can get away with it. We're both professionals who would like to minimize our attention to the markets so we can focus on our careers.

1. We can and will hire an investment advisor: this question is research for that meeting.
2. I'm currently feeling less secure in stocks as an asset class than I did five years ago. Even if this was a market bottom, I'm worried that stocks may not do so well in the middle-to-long term after all this deprecation of the asset class and the US's newfound skepticism of Wall Street. I don't mind volatility, but the bond/stock return on investment profile seems to be different than it was for the last 50 years.
3. I've been thinking a little about Zvi Bodie's Worry-Free Investment advice. (Treasury Inflation Protected Securities plus Social Security to protect standard of living.) It feels horribly pessimistic, but maybe that's the right way to be about retirement? Also, I worry that Social Security may be risky as well. Hell, saving for retirement assumes we're not going to die of cancer or in a plane crash, right? Shouldn't it be a little optimistic?

Inflation forever?

thekiltedwonder — Wed, 25 Mar 2009 12:17:18 -0800

[EconomicsFilter] Deflation is evil... or so everyone in government and main stream media says. The government has an obvious conflict of interest in this instance (inflation is essentially a hidden tax) and I'm unimpressed with the main stream media's coverage of monetary policy. What's the real deal? I have the idea that without deflation the monetary system is out of whack. It seems like inflation and deflation should balance out to a degree, but I don't know where to even start reading on this.

So, is deflation really always bad or are they not looking at the whole picture? In what kind of situations would deflation be a useful thing? Are there any good books out there on monetary theory that aren't totally anti-deflation?

How can the Fed Destroy Money It Created?

Pastabagel — Thu, 19 Mar 2009 07:41:35 -0800

[MonetaryPolicyFilter] In relation to the Fed's huge injection of money yesterday, please explain to me how, if at all, the Federal Reserve can destroy money on its balance sheet in a way that offsets the inflation that normally would result. The Fed's announcement yesterday that is it going to flood the economy with dollars would, in normal circumstances, be horrifically inflationary. But these are not normal normal circumstances. My questions are:

1) Why isn't this inflationary? To what extent have deflationary factors stemming from the credit crisis not yet worked their way into the economy such that they will offset what inflation results?

2) Explain Federal Reserve accounting to me. I sort of understand that the Fed can create this $1 trillion from basically thin air, but can it destroy money just as easily as it creates it?

3) Because the Fed is buying debt and debt-related instruments, can the Fed take the principal and interest payments it receives from these debtors (e.g. the U.S Treasury), and destroy that money just as easily as it created that money? In other words, when Treasury makes interest payments to the Fed on the bonds the Fed bought, can the Fed simply take that money and strike or "disappear" it from it's balance sheet forever?

4) If the Fed can do what is described in (3), is that the mechanism the Fed intends to use to avoid inflation that would normally result from such a huge injection of money? Has the Fed said anything about what it intends to do with the interest payments it receives?

5) Any resources related to Federal Reserve accounting or explanations of how its balance sheet works would be greatly appreciated.

I'm looking for accurate financial answers here, not lunacy or chatfilter. Thanks in advance for your help.

Do inflation cancel my loan interest?

delosic — Mon, 09 Mar 2009 11:12:22 -0800

Will my student loan interest rate and the rate of inflation cancel one another out? Thanks to law school, I currently have about 60k in student loans. About 43k of that is locked in at 2.625% The remaining amount is locked in at 4.5%.

The long-term average inflation rate is 3.42% and, by the decade, hasn't dropped below 2.6% since the 1960s.

My question: does the inflation rate paired with my interest rate mean that I am effectively paying 1% on part of my loan and actually making 1% on the larger chuck? Logically, this seems to make sense and, following that, there is no harm and possibly even some benefit to paying these things off as slowly as possible.

Of course, I could be completely wrong and I can't find any Internet site or online calculator to back me up. Can the hive help?

Betting on Inflation

Wallzatcha — Tue, 10 Feb 2009 14:54:08 -0800

What are some investment strategies that would protect against and profit from (hyper)inflation? Specifically, I'm looking for info on a strategy to short T-Bonds that would not expose me to an insane amount of risk.
Other ideas are welcome as well.

Swiss bank accounts 101, or something different?

xanthippe — Tue, 07 Oct 2008 01:56:54 -0800

Where should I keep my money (to protect it from the US economy)? I'm American and it's in US$, but I don't live there and don't have any good reason to keep it there. I don't have that much, but am about to receive an inheritance, which is why this is an issue. Let's say that about half of what I receive will be in either cash or liquid assets, and half will be in Beneficial IRAs (the amounts are significant to me, but probably wouldn't make an international financial planner/accountant blink).

We all know about the US economy. The relative value of the dollar is decreasing, we can count on some inflation, the stock market, etc. etc. I plan on either investing or saving most of my money, but I am unlikely to ever use it in the US (I'm actually thinking about buying a flat in Europe as an investment right now). I may use a small chunk of it for some traveling/living expenses in the near future, and would generally prefer to have all of it secure but accessible and earning some income.

I realize that selling securities/investments/etc. that are part of the portfolios these assets consist of (some of the liquid assets and some of the IRA) will lock in my losses now; however, I'm also concerned that, even if the value recovers over time, the long-term depreciation of the dollar and the effect of inflation may negate any rebound. Is there any real advantage to not moving these assets out of the US (i.e. out of US banks, the US investment market, etc.) right away?

If I do move my money abroad, how should I actually do this? What are the logistics? And where to: Swiss bank account? Investments? What currency should I go with? I may have the option to invest the assets of the Beneficial IRA in foreign markets; should I think about this, or just cash them out, take the penalty, and run with the cash? If I can invest the contents of the IRA internationally, does that really preserve it from the US market?

I currently live, work and have a bank account in Oman; the local currency (as in most GCC states) is pegged to the US dollar. There has been lots of talk about unpegging the currencies, or re-pegging them to the Euro (Kuwait already unpegged theirs). I'm no economist, but things seem pretty stable locally, and it seems to me that if I exchanged all my dollars for Omani rials while they are still pegged - i.e. the value of the dollar has not decreased against the rial as it has against every other world currency that is not pegged to it - that I could stand to benefit immensely from this transaction by either maintaining the value of my money in rials if the currencies are unpegged while the dollar drops, or even seeing it increase for the same reason. Is this foolish or a good opportunity?

I don't have a long-term commitment to Oman, however - it's just where I happen to be living right now. I don't have a long-term commitment to any place, and specifically not to the US (despite my citizenship). I'm essentially a nomad (though I may well stay where I am forever - only time will tell). So the real question is, for the long-term, where should I make my "financial home" - where should I maintain my savings and investments not knowing where I will be living for the foreseeable future? How can I educate myself about this?

I don't know what to ask more specifically because I have never had to deal with finances in excess of a few thousand dollars before, so any advice as to where to start and how to prepare myself for this kind of decision-making will be appreciated. I need to 1) protect my money from the US economy (maintain as much of its value as possible regardless of where it is invested/what currency it is denominated in); 2) make money if possible by investing/earning interest; 3) ensure that I am not vulnerable to taxation/residency or citizenship requirements for any country I keep my accounts in/maintain my investments from.

Solving the hyper-inflation problem in Zimbabwe

dcrocha — Tue, 16 Sep 2008 19:45:41 -0800

What some possible solutions for the humongous inflation affecting Zimbabwe's economy?

The Price of Nuts Drives Me Nuts

Xurando — Tue, 16 Sep 2008 15:23:40 -0800

Anyone know why walnuts are so expensive right now? I went to my local healthy store today and non-organic walnuts are now $9.50 a pound. Are speculators involved? I could have sworn six months ago the price was under $5.00.

What options are there for a low-risk hedge against inflation if I believe that Treasury Inflation Protected Securities (TIPS) aren't working?

diogenes — Mon, 07 Jul 2008 05:49:01 -0800

What options are there for a low-risk hedge against inflation if I believe that Treasury Inflation Protected Securities (TIPS) aren't working? I use an asset allocation strategy in my investment portfolio, and it calls for 15% in TIPS. The inflation premium for TIPS is based on the consumer price index, which is vastly understating inflation right now:

Bloomberg Article

The linked article suggests replacing TIPS with "derivatives tied to inflation expectations" and "corporate and agency bonds." I have no idea how to invest in derivatives, and corporate and agency bonds aren't low risk. It also isn't clear to me how they are an inflation hedge.

What do you think of those options? Are there any other options you would suggest?

Grocery Shrink Ray and Inflation

punkfloyd — Thu, 03 Jul 2008 08:13:19 -0800

When inflation is measured, do economists take into account the shrinking size/quantity/volume of consumer products? Like when Pampers stay the same price, but each box contains fewer diapers thanks to the Grocery Shrink Ray.

Inflation Hits Parmigiano Reggiano; Film At Eleven

Robert Angelo — Fri, 13 Jun 2008 16:41:57 -0800

Is there an American-made product comparable to parmigiano reggiano? I went to the supermarket recently and found that the parmigiano reggiano had gone up from $11.99/pound to $14.99 just since the last time I bought. I imagine this is caused by the falling dollar and the rising cost of transport. I'm looking for a less expensive alternative that still has that distinctive taste, but I'm not having much luck.

American-made "parmesan" cheese typically doesn't seem to have the same tang and sharpness, if those are the right words. They seem tasteless compared to the genuine parmigiano.

I searched, and found it online for $11.99, but the shipping cost would more than wipe out my savings. So I'm looking for an alternative.

Is there some other less expensive cheese that has a similar taste? Or is there a particular brand or variety that I need to look for other than plain-bland-American-parmesan?

My next step is to buy both the Italian and the American products, then shred them and mix them, but I don't really want to go there. Help me find an alternative.

A year ago, gas was 2.70/gallon

Anonymous — Thu, 29 May 2008 13:20:43 -0800

My salary increase is less than inflation. I'm making less than the previous year for two years in a row now. How can I bring this up to my employer? Has anyone been successful in getting an emergency cost of living increase. I've cut out extras, decreased driving, and eating less food whether I go out or go grocery shopping. I'm starting to have problems meeting my bills. I am meticulous about where my money goes, but I just don't have enough of it anymore. Please assume changing jobs is not an option at the moment.

Accuracy (or lack thereof) in the yen-to-dollar rate.

Gordion Knott — Fri, 18 Apr 2008 12:45:43 -0800

Is the Land of the Rising Sun still expensive? Expats (recent and current) and erstwhile tourists, chime in. In American dollars, can Japan still be regarded as an "expensive country?"

You're probably thinking, "At 103.88 yen to the greenback?? You've gotta be kidding." Ten years ago, this argument may have been viable. But this article paints an entirely different picture. The gist of the author's claim is that, while American consumer prices have undergone moderate inflation for the past 13 years, Japan's prices have been flat. Adjusted for inflation, the "correct" yen to dollar rate should be 73 to the dollar (based on a former valuation of 100 yen to the dollar in 1995.)

But the only way to get a handle on this question is rote, product-by-product comparisons. Okay, I know that certain items--like luxury import cars, or cups of coffee in Tokyo--are still expensive due to inefficient import markets and high rental costs. But I'm more interested in the big picture--the price of living, working, and getting around Japan every day. Based on this metric, and a lot of gut feeling, does Japan strike you as pricier than the United States? What's more expensive; what's less expensive?

If you were working at the Bank of Japan, and were granted awesome superpowers allowing you to rectify the yen-to-dollar rate so that it reflected the cost of living in Japan and the US, what would you peg it at?

Dollars for Moldovanians!

greytape — Sat, 29 Dec 2007 09:02:19 -0800

Why don't small countries use the dollar or the euro in place of their own currency? So I'm the President of Moldovania, a small, poor, corrupt country located somewhere in Africa/Latin America/Central Asia. We have trouble with inflation and would like to make international business easier, so I hit upon the idea of scrapping the national currency and using another major currency in its place.
Why do my economic advisors tell me this is a stupid idea? Is it because this would piss off the US/EU, and be in some way illegal, or would the move simply be suicidal in terms of abandoning control of my own economy? Has it ever been tried?

Wait, this was only 30 santims last week!

mdonley — Thu, 13 Dec 2007 03:41:18 -0800

How do I, alone, financially cope with high inflation and an overheated economy? I live in Latvia, where inflation this year was over 13% and GDP grew 11%. Here's an article from this week with more info on the economy here, which might prove useful to answerers.

I make a good-enough-for-now local wage, and I have a free apartment thanks to my job, but the prices of things keep going up while my monthly salary is static. I have no pension, investments, or huge savings to worry about - just my monthly paychecks in a current/checking account. I also have a checking account with a credit union back in the US, where I'm from.

Food costs, for example, have risen about 20% this year, which is a pretty significant increase. Riding the bus, which I rely on to get to work, will increase in price by 25% on January 1. Anything imported - which in a country this size is everything from razor blades to blenders to socks - costs the earth.

So, what can I do to lessen the impact personally? I've already been doing small things, like shopping at local markets to avoid the high prices for imported vegetables, for example. Do I stock up on commodities like dry goods now and prepare a survivalist bunker? Do I change my bank account denomination to euros instead of Latvian lats in case there's a devaluation? Spend less? Spend more?

Thanks.

a) HTML annotation via footnote/link back; b) 19th-century exchange/inflation-adjusted rates

DevilsAdvocate — Fri, 09 Nov 2007 08:45:08 -0800

Posted for sushiwiththejury: I have to annotate some texts from the 19th century. The final product must be an HTML-only webpage. I have two major issues: 1. I'm working through the texts from start to finish, i.e, when I come across a word/proper noun/etc to annotate, I do so and move on (by annotate I mean link to a footnote/web resource). For every word/text that I annotate, I insert an anchor (to linkback) and a link to the resource.

The problem with this: updating the anchors later on will be a major headache, because I'm positive I'll come up with many more links as I go through multiple readings of the texts.

Is there a simpler solution?

2. Is there a resource for converting various 19th century European/American/African currencies to current inflation-adjusted values?

I've seen some of the annotation software out there, and it isn't what I want.

I'm on Ubuntu using Mozilla Composer, could use Windows if needed.

(via)

Thick bloke asks worlds hardest question on macroeconomics

complience — Wed, 21 Mar 2007 10:43:20 -0800

Interest rates and Inflation, does anyone actually understand it? I hold a degree in Business, I have read the Wealth of nations by Adam Smith, but I still don't have the faintest clue how interests and inflation really works.

Being someone who believes in freemarkets I suspect its due to mindless interference by government, but if someone could explain to me how it all works i would appreciate it, cos its been bugging me since highschool.

Mainly if someone could tell me how interest rates are actually set that would help, I know in england, interest rates are set by the bank of england. I don't understand this because if their a bank, they want the highest interest rate possible for their customers, so they are bias.

So my questions are:

1.) How do they actually enforce what they decide? sure they might say that the interest rate will be 5%, but how do they make the markets follow that?

2.) Why print money? for reasons other than replacing notes that get worn out.. If you don't print extra money you don't get inflation, so why would you want to?

3.) What would happen if they didn't set interest rates and didn't print extra money?

Do stocks track inflation?

cschneid — Wed, 24 Jan 2007 16:59:49 -0800

Do stocks naturally track inflation? My idea is that over time, if inflation continues, you can expect stocks to go up at least as fast as inflation on average. The basis for me thinking this is that as inflation goes up, consumers pay higher prices for everything. That means businesses are pulling in higher revenues.

At the point businesses are making more per year, the stock for that company should go up (wild assumption, probably accurate for market as a whole).

So basically the question is why should I be concerned about inflation's effects on investments, since even if it gets higher, stocks will just rise to match.

NOTE: This post ignores most crazy situations like hyper inflation, or having the US taken over by the North Koreans or whatever.

20 bucks a day

Marla Singer — Sun, 27 Aug 2006 15:48:14 -0800

How much does $98 in 1948 dollars (US) equal in 2006 dollars? That was the cost of a five-day hospital stay when my grandmother gave birth to my mother. More generally, is there any resource on the net that will translate "(x) many (year1) dollars" to "(y) many (year2) dollars"?

Is there a clearinghouse for price information by region in the U.S.?

croutonsupafreak — Tue, 23 May 2006 16:37:53 -0800

I want to compare the prices of common consumer commodities over time within a specific region of the U.S. Is there any clearinghouse for this information? I'm specifically interested in Southwest Washington state, but the greater Portland metro area or the Pacific Northwest would work too. I'd like to be able to see how much a gallon of milk cost in 1996 and 1986, how much a pint of vegetable oil cost, etc.

Then I can go to the store and see how much these items cost today, and see how their prices have changed relative to overall inflation.

Ideally this information would be free or inexpensive (a few cents per page). I'm happy to go to the library or the book store, but I don't know what to look for.

Dollars on sale, what should we do?

dy — Tue, 09 May 2006 10:40:30 -0800

There have been numerous articles lately that the US dollar will lose its value a big time pretty soon, given the fact of our huge trade deficit and over spending. check this article If the US dollar will be on sale soon, I'm wondering if I should still contribute $ to my 401K for retirement. I'm no where near retirement age. But what's the point of saving for retirement, while the value of the saving is going down, faster than inflation? What would you do otherwise for your retirement?

Is law school a safe bet?

T.D. Strange — Wed, 03 May 2006 17:36:24 -0800

Is now as good a time as any to assume massive debt to attend law school? Ive been accepted to a Top-20 law school and have everything in front of me ready to go in the mail and seal the deal. I just cant bring myself to send it off knowing that Ill be committing to 100k+ in debt in the face of rising intrest rates and inflation, plus who knows what else with the current crazy economy situation.

But my current job is dead-end fast food, and I graduated with a useless history degree from a bottom-feeder state university.

The legal career itself is not an issue, I have several paths to relative happiness depending on how law school plays out, and Im not THAT worrried about hating being a lawyer. (ok, maybe a little worried)

Is it a fairly safe bet to mortage the next 20 years of my life to enter an already crowded, competative field? Would waiting a year just make it a worse prospect?