What’s the REAL inflation rate?

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Forums › Finance and wealth management › What’s the REAL inflation rate?

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elpenguino

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#2720522 8-Jun-2021 08:52

Spiking prices against a backdrop of flat incomes = a real world pay drop.

At work, we were all told it was pay rises of zero percent in the middle of last year. We haven't had an announcement about this year yet.

Most of the posters in this thread are just like chimpanzees on MDMA, full of feelings of bonhomie, joy, and optimism. Fred99 8/4/21

Fred99

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#2720530 8-Jun-2021 09:31

elpenguino:

Spiking prices against a backdrop of flat incomes = a real world pay drop.

At work, we were all told it was pay rises of zero percent in the middle of last year. We haven't had an announcement about this year yet.

Pretty much. The GFC movie hadn't finished screening when the sequel GFC - C19 edition was released.

There's been "safe" high-returning investment in equities and property that were "too big to (let) fail" since 2008. So why the hell would you want to invest in anything "productive"?

halper86

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#2723779 10-Jun-2021 16:24

I struggle to understand why minimum wage is constantly getting increased. A basic circular flow diagram would tell you that this will have a flow on effect to other things - eg. the price of milk and bread - so why keep increasing it? Raising the minimum wage is rather counterproductive for the intent of extra money to afford to live. It adds costs to doing business, therefore passed onto the consumers.

I am not ignorant, or suggesting that wage increases should be frozen. But there is a fine line between keeping parallel to inflation and exacerbating inflation.

mattwnz

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#2723809 10-Jun-2021 17:26

Wages in some areas seem to have increased a lot in the last year. Someone I know getting a quote for building work was quoted $90 per hour for labour. Guessing this is a knock on effect of the housing crisis where builders are now in such high demand, they can charge what the market will pay, when supply is so limited.

halper86

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#2723832 10-Jun-2021 18:10

mattwnz:
Wages in some areas seem to have increased a lot in the last year. Someone I know getting a quote for building work was quoted $90 per hour for labour. Guessing this is a knock on effect of the housing crisis where builders are now in such high demand, they can charge what the market will pay, when supply is so limited.

That’s a bit different to minimum wage though, minimum wage has nothing to do with supply and demand.

Handle9

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#2723882 10-Jun-2021 18:27

halper86:

I struggle to understand why minimum wage is constantly getting increased. A basic circular flow diagram would tell you that this will have a flow on effect to other things - eg. the price of milk and bread - so why keep increasing it? Raising the minimum wage is rather counterproductive for the intent of extra money to afford to live. It adds costs to doing business, therefore passed onto the consumers.

I am not ignorant, or suggesting that wage increases should be frozen. But there is a fine line between keeping parallel to inflation and exacerbating inflation.

Most empirical evidence suggests that minimum wage increases, on their own, have very limited inflationary effects.

There are far more significant inflationary pressures at the moment than the minimum wage increase. There is a stacking effect of course but there would be significant inflation without the minimum wage increase.

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gzt

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#2723887 10-Jun-2021 18:48

mattwnz: Wages in some areas seem to have increased a lot in the last year. Someone I know getting a quote for building work was quoted $90 per hour for labour.

Imo and to some extent Ime very few builders/carpenters in New Zealand are on wages going back a long long time now. This applies to many parts of the economy. Apprentices do tend to be waged tho.

Fred99

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#2725114 11-Jun-2021 08:57

Inflation rate in May in the USA - 5%.

I get the feeling that commentary on what this means is divided - mainly on whether or not they believe more stimulus is justified. Few seem to believe that interest rates may start rising more quickly because of these inflation spikes.

Fred99

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#2725124 11-Jun-2021 09:20

halper86:

I struggle to understand why minimum wage is constantly getting increased.

If there was a further analysis of what he CPI increase meant to individuals, then if you did it based on income deciles, I'd be sure that the impact of inflation on people on low incomes would be much more severe than for people on median incomes. They'd be spending a much higher % of income on "essentials", and some of those essentials - housing costs in particular have been inflating for decades at rates that are multiples of the combined "CPI basket" figure. They'd also be far more vulnerable to usual volatility in items making up "the CPI basket".

Of course you could just ignore the impact of that, then either mop up the mess by increasing taxes to pay more welfare, or eventually watch social democracy crumble in front of your eyes.

Paul1977

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#2733840 24-Jun-2021 14:53

Sorry of this has already been linked and I didn't see it. Reserve bank inflation calculator that also supposedly measures the different types of inflation. E.g. housing, food, wages.

Most of the categories only have data up to Q4 2020 or Q1 2021.

https://www.rbnz.govt.nz/monetary-policy/inflation-calculator

nickb800

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#2733851 24-Jun-2021 15:10

Fred99:

Official inflation in the US is now 4.2%, but all I see is arguments between people (including economists) as to whether that's "true" inflation or "rebound" from C-19 deflation, the only thing close to consensus is agreement that it's going to take a while before we know what's going to happen.

NZ's CPI based on a basket of goods and services is a crude instrument.

All very good if you're enjoying lowered prices for venison and crayfish tails, not so good if your rent went up from $400 to $500 / week and you're trying to save a deposit for a house.

A basket of goods and services is the instrument for measuring CPI - it's what everyone does and has always done, so it's an apples-with-apples comparison over time within a country and across countries.

Prices are weighted based on consumer expenditure, so if venison and crayfish tails are counted in the CPI then they their price movements will be far less influential than beef mince. Rents are counted in the CPI. The cost of building a house is included, just not the cost of buying an existing house.

It's often easier to recall strong price rises (they stick in the mind - confirmation bias, I guess) than small increases, nil increases, or decreases. Thinking of things that have been flat or negative in the past year - retail power prices (lines companies dropped their rates as their cost of capital was cut), home internet access has been flat in nominal terms for a long time, fuel was soft for much of the past year (recent increases are mainly recovering lost ground), many public services were made free for a period after lockdown last year e.g. zoos/buses/pools

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Fred99

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#2733893 24-Jun-2021 16:45

nickb800:

A basket of goods and services is the instrument for measuring CPI - it's what everyone does and has always done, so it's an apples-with-apples comparison over time within a country and across countries.

Yes. but CPI is a crude "average of averages" way to measure "inflation" - hence monetary policy a crude way to deal with serious consequences of high inflation in "essential" sectors that are averaged out in the CPI basket.

Property the obvious anomaly at the moment, the cashflow effect of the price inflation to a homeowner since 2000 is nil, with the bonus of a substantial capital gain, and even if you'd only enjoyed average wage rises you'd be well ahead - as just about everything else in the basket has inflated at less than the rate of wage inflation and the general CPI rate.

Geektastic

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#2734115 25-Jun-2021 09:54

I met with our fencing contractor yesterday. We had a debate about which of two types of deer netting to use on the dog run he’s building for me.

One was $453 a roll and the other $520. The prices came from Farmlands two days prior to our meeting.

He and I concluded that the $520 version was better given the small cost differential. He rang Farmlands and ordered it on my account.

5 minutes later his phone rang. It was Farmlands: the price of that wire had gone up the week prior to $790!

We reverted to the $453 version which had not - yet - increased.

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