Shelter Cost
The latest reading for the Zillow Index of US rents shows no letup in the worst bout of housing inflation in US history. Year on year, the average US rent rose 14%, according to the real estate website. Shelter cost accounts for a third of the US government’s Consumer Price Index. But the official numbers have lagged far behind private-sector surveys. Lagged data reporting means that today’s observed price increases will ratchet into faster CPI inflation months from now. This will put more pressure on the US Federal Reserve to tighten credit. That’s bad for stocks and may also be very bad for home prices and mortgage rates. Is the Federal Reserve already so far behind that a big correction is unavoidable? Perhaps.
There’s no let-up in inflation pressures in most of the available high-frequency data. Every cost from service businesses, used cars, and transport costs, along with shelter (“Nowhere to hide in US stock market,” Jan. 20, 2022) flash rapid inflation warnings. While some costs to businesses rose less quickly in December, oil prices hit a seven-year high recently. January inflation metrics may be worse as a result.
Lags explain part of the divergence of private and official measures of rent inflation. As leases roll over and are renewed, higher rents work their way through the economy. Changes in the Zillow Index foreshadow the change in the CPI shelter cost inflation rate with lags of up to eight months.
Inflation hasn’t crested. It hasn’t even decelerated. And the cycle of higher inflation, rising expectations of higher interest rates and Federal Reserve tightening will continue to weigh on stocks through the first half of this year – at least.
Credit- David Goldman at Asia Times
How Did We Get Here
Biden’s big bet: He can remake the economy without any negative side effects – Washington Post, April, 28 2021
Biden gambles that he can improve lives without unleashing years of inflation, slower growth and less incentive to work
That was the headline almost a year ago. We began sounding the alarm on inflation at that time. Biden pitched his plans for another $7 trillion in spending. To quote the Washing post – “without any negative side effects”
It’s an experiment that hadn’t been tested in the modern U.S. economy. Because it was moronic. Modern Monetary Theory says the government can spend unlimited amounts of money with no adverse consequences. Again, moronic. And completely disproved in less than 1 year. This mega spending extravaganza came after the $1.9 trillion that Congress passed in March 2021. With more than $1 trillion still unspent from prior relief, this $1.9 trillion was already unneeded.
The biggest concern against the spending plan was that the economy will overheat from so much stimulus. It would trigger rapid price increases that would make it difficult for middle-class families. But the federal government chose to avoid the concern and spend, spend, spend anyway in order to try to buy votes.
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Inflation Philosophy
“The philosophy behind the Biden administration is everyone can have more. We can have the cake and eat it too. There is no price to pay in terms of inflation, higher interest rates or slower growth,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University and a former bank executive. “If they are wrong, the price tag will be pretty high.”
- MSNBC – inflation is a good thing
- The Intercept – Inflation Is Good for You
- Washington Post – Inflation is highest in 40 years because people continue to spend a lot of time at home
- Biden said in July, “There’s nobody suggesting there’s unchecked inflation on the way.”
And they were absolutely and completely wrong in every way. The price tag for every American will indeed be pretty high for the foreseeable future.
National Public Radio reported that “between 2019 and 2021, the U.S. saw one of the biggest inflation rate increases in the world, behind only Brazil and Turkey.”
Add in the most recent so called infrastructure spending which will ensure inflation remains high for years. The Federal Reserve will need a number of interest rate increases to go with unwinding the nearly $9 trillion in cheap money it flooded into the economy in recent years. The question remains, will this possibly cause a 10,000 to 15,000 drop in the Dow and 5,000 to 8,000 drop in the NASDAQ along with a 15% to 25% decline in home prices as happened before? That is the biggest question in your mortgage, home, and financial planning in the next 2 years.