October 2021 Inflation | Page 5 | General financial discussion | Discussion forum

NOONE knows esp the economists and the central banks whether inflation is really transitory or not. Central banks are "hoping" its transitory, so they can wait it out before raising rates too quickly, and risk tipping the delicate balancing act of aiding the recovery from the pandemic.

One thing I do learn after being a financial professional for a long time, central bank policy are never correct, which is a polite way of saying "always wrong".
If the policy makers are right even half the time, there will not be inflation nor recession cycles. Arent they suppose to put in the "right" policy so there is "soft landing" and "prolong growth without inflation" ? And in the past 50 years or more, there is just a repeat of growth/recession cycle, with rates rising/falling AFTER the fact.
Will they get it right this time, I will bet against it.

High inflation is indeed a problem. Low inflation is an economic necessity.

In the absence of enough productivity growth to increase GDP, the question is what is the right amount to keep GDP moving in a positive direction and thus enough job growth to match population (work force) increases. Japan is an example of what NOT to be.

When I retired, my long term assumption was 3% CPI increases. That meant costs doubling every 14 years (rule of 72). In a 30 year retirement, that would mean costs 4 times what it was at the beginning of my retirement. I can't say my standard of living has suffered any in almost 16 years of retirement so far. My DB pension is worth less but asset inflation in capital and real estate markets has more than made up for it. For the time being, there is no reason to be alarmed.

AltaRed said

When I retired, my long term assumption was 3% CPI increases. That meant costs doubling every 14 years (rule of 72). In a 30 year retirement, that would mean costs 4 times what it was at the beginning of my retirement.   

Well my rule of 72 would have costs doubling every 24 years, not every 14 years. So just over double during your 30 year retirement.

Loonie said
Most retirees are not in your privileged situation, AltaRed (or mine for that matter), let alone everyone else. And THAT is the problem that Vatox keeps pointing to. You can't just go on about economic theories and GDP and so on without recognizing these realities.

I'm not suffering from inflation either, but that's not relevant.
It's imperative to use a wider lens both to understand the issues and to understand one's own situation and vulnerabilities, but I am tired of repeating myself.  

The majority (not all) of the middle class has the same opportunities as the rest of society to stay in sync with, or ahead, of inflation, both in employment remuneration and in their investment/retirement accounts. If they are not doing so, they are not looking out for themselves. I am tired of 'woe is me' too.

A 60/40 TSX/Cdn bond balanced portfolio returned over 6% annually for the period 2000-2020 per http://www.ndir.com/cgi-bin/do.....de_adv.cgi Mix it up a bit with equal Cdn/US holdings and it is about the same. That is the gold standard reference point in investment accounts provided by any one of many mutual fund and ETF products from a wide variety of financial institutions. Inflation has been nowhere near 6% annually for the past 20 years.

My point being it does not matter if one makes $35k per year or $100k per year or has $100k in financial assets or $1000k in financial assets. A balanced fund does not differentiate between $100k or $1000k, nor does COLA wage growth on $15/hr or $50/hr, or CPP+OAS for that matter. It's all relative.

AltaRed said
High inflation is indeed a problem. Low inflation is an economic necessity.

Absolutely, thats exactly the reason why 1-3% is the target inflation, not 0%.
If the GDP can grow at ~2% each year, even if its 100% due to inflation, it IS a good thing.

Vatox said
I too would say it’s their own fault for choosing to live the way they do, but, unfortunately, we will all feel some suffering if the common good isn’t maintained. It’s a serious multiplier effect when large amounts of the population have hard times. If people stop or slow down purchases of some goods or services, it can cause others to lose jobs or wages and it keeps funnelling through the economy.  

That has nothing to do with the angst of YOY inflation numbers the past 6 months or so - the point of this thread. Current high rates is primarily catch up for the lack of inflation in 2020 where people did very well with government largesse and lack of cost increases in 2020. If they blew it all on online shopping, buying real estate, and opening millions of discount brokerage accounts, rather than decreasing personal debt, society cannot be held responsible for poor judgement. Statistics in both USA and Canada, however, show that far fewer people were below the poverty line in 2020 and 2021 to date because of taxpayer generosity. It seems to me a large part of our society thus benefited positively in a financial sense overall.

What is really happening now is many people are now being weaned off the taxpayer teat and don't want to face the pre-pandemic world again. Guess what? Employment in Canada now exceeds 2019 pre-pandemic levels with the huge rush of new jobs being filled now that pandemic benefits have essentially ceased. Is that a surprise? McDonalds has 'for hire' signs outside their restaurants advertising $17.50/hr starting wage. Over a million job vacancies posted with offering wages up. Doesn't seem to be an income problem to me.

The short answer is taxpayer largesse positioned a good part of our society to be in a better position leading into the post-pandemic recovery than they were going into it. The country is now back to work.

Current YOY inflation numbers are likely mostly a reality check for the time being. Whether there is a structural problem or not will become more apparent come Spring/Summer 2022. We may well get 4-6 interest rate increases next year to tackle structural inflation if that appears to the case. It is simply too early to cry wolf.

Wanted to add to the above but editing feature disappears far too fast. If YOY inflation numbers do not ease off by late winter, I think it is pretty certain central banks will raise overnight interest rates to tackle inflation rates. Speculation is 4-6 raises possible in 2022.

If so, that will translate into 100-150 basis points in increases and likely a corresponding increase in HISA rates, and some increases in 1-3 year GIC rates. Maybe half that amount in 5 year rates. Just what all the HISA/GIC rate chasers in this forum want to boost their subsequent interest income by 50% or so, do they not?

It's pretty hard to project going forward based on the extraordinary circumstances we've been in and that we're (hopefully) transitioning out of, i.e. the numbers of the last 20 months or so are going to be wonky for various reasons indicated here already. But I don't believe it's good fiscal policy to tailor it to those who are profligate (no matter how large that group is), rather aim it at those who are productive, who create wealth, because that's ultimately what sustains prosperity for all of us.

And I wouldn't want to give the message to young people that those of us who are having prosperous retirements have done so via "privilege" (certainly not true in my case, or in those I engage with), it's far more empowering to realize anyone can do it with hard work (for decades, no breaks), smart career choices (e.g. complete training aimed at high-pay jobs), and good lifetime spending, savings and investment habits.