PeakTrader.com

[administrator]

PeakTrader said...

Morganovich says: "both imports and exports in the US are up over 11% in price from a year ago.

that's 3.25 tn of the economy right there. add in the similar goods that we consume at home and you're easily at 1/3 of gdp.

1/3 x 11% = 3.6% inflation for the economy as a whole right there."

It should be noted, the dollar depreciated roughly 10% over the past year, which makes imports more expensive and exports cheaper.

So, it's a wash, i.e. the rise in import prices were offset by the rise in export prices, except we imported more than exported, e.g. $500 billion trade deficit, which is a little over 3% of GDP (in a $15 trillion economy).

Of course, much or most of the import price rise was from commodities.

Also, I may add, I say it's a wash, because, as you say, prices rose 11% (from imports) and income rose 11% (from exports).

U.S. trade deficit grew 33 pct in 2010
February 11, 2011

The United States ran a trade deficit of $497.8 billion in 2010, an increase of 32.8 percent over the previous year.

At $40.58 billion, the December 2010 trade deficit was in line...Excluding petroleum imports, the December 2010 deficit would have been $15.3 billion.

The U.S. trade deficit with China rose 20.3 percent last year to $273.06 billion, accounting for 43 percent of the overall gap between exports and imports.

So, Morganovich, if I trade you $1 for $1, and next year I trade you $1.11 for $1.11, did my inflation rate really go up (or my purchasing power really go down)?

--------

morganovich said...

"So, Morganovich, if I trade you $1 for $1, and next year I trade you $1.11 for $1.11, did my inflation rate really go up (or my purchasing power really go down)?"

peak-

you are missing the point. exports do not cause deflation (in fact they tend to cause inflation by making commodities scarcer at home). your whole mathematical assumption here is wrong. the "wash" you claim would only be relevant to trade balance, not domestic prices.

if we export corn, and corn is up 20% in price, what do you think happened to the price of corn that we consumed here? it's a global market. the domestic prices for items we export are going to be similar to those of the ones we sell abroad.

that is how i am using it as a gauge for domestic inflation.

(and btw, exports were up 9% and imports up 12.5, that 11 is an average)

------

PeakTrader said...

Morganovich, you're making the assumptions that high export and import prices suggest the real inflation rate is understated and are a larger part of the economy.

However, international trade has a small net effect on the general price level, in part, because:

1. The U.S. may export a high inflationary good, e.g. food, and import another high inflationary good, e.g. oil, and international trade is a relatively small part of the economy.

2. The high inflation goods, e.g. raw materials and energy, are a small part of input costs.

The PPI has a more powerful effect on consumer prices than export and import prices:

Producer Prices Remain a Worry for Manufacturers
June 14, 2011

"Producer prices are up 7.2 percent year-over-year, with businesses continuing to cite rising energy and raw material costs as a major concern.

Over the last year, producer prices for manufactured goods have increased 8.9 percent.

The falling prices for energy and food will help to ease a tension that has squeezed both consumers and businesses over the past few months.

With that said, manufacturers continue to experience growth in raw material prices, and the buildup in these costs is a major challenge that is squeezing their profits."

--------

morganovich said...

peak-

you are still missing this.

you are thinking in terms of trade balance, not inflation.

food exports from the US were up 30% year to year.

that means that our own food prices were up the same.

we didn't only mark up the exports.

your whole reasoning is flawed.

if you get paid 10% more and prices go up 10%, that is 10% inflation, not zero.

i'm using import and export prices because they are a better data series that CPI. they are better documented and they are not subjected to all the BLS's adjustments.

the price of our food went up every bit as much as that we exported, just like our capital equipment did etc.

the price of things we made here went up as much as those we imported as well. markets balance like that. it's not exact, but it tends to even out.

seriously, ask yourself this:

in what plausible scenario can out import prices be up 12.5%, or export prices be up 9%, and yet our domestic price level is only up 2%?

there is simply no way that is possible.

-------

PeakTrader said...

Morganovich says: "in what plausible scenario can out import prices be up 12.5%, or export prices be up 9%, and yet our domestic price level is only up 2%?"

Consumer prices can remain low from the following:

1. Wages or labor costs, which remain depressed, are about two-thirds of production costs.

2. Higher producer, export, or import prices can be offset by the high levels of profit and productivity.

Morganovich says "if you get paid 10% more and prices go up 10%, that is 10% inflation, not zero."

Technically, inflation went up, only because the money supply went up. However, purchasing power is unchanged, e.g. exchanging my good at twice the price for your good at twice the price.

--------

morganovich said...

"However, purchasing power is unchanged, e.g. exchanging my good at twice the price for your good at twice the price."

no. that is not true at all.

what if you had savings? that purchasing power would be down 10%.

you are describing terms of trade, not inflation.

consider ti this way:

your salary is $100k.

you buy goods and services every year = $100k.

those prices go up 10% and so does your salary. that leave that buying power unchanged.

but, if you have even $1 in a checking account, you lost buying power.

to look at it in national terms if the price of corn we sell and oil we buy are both up 30%, that may cancel out in terms of trade,
but it's still inflation. both cost more. income in the us is not up proportionally. our domestic oil and corn are up in price. our savings buy less of them as do our incomes.

you can't just cancel out imports and exports and claim no inflation.

we consumer much more food here than we export. that 30% inflation is happening in the US.

"1. Wages or labor costs, which remain depressed, are about two-thirds of production costs."

in manufacturing? not even close. you need to check your numbers. that is pure fiction and contrary to the arguments you guys are making about capital equipment driving productivity.

you are also wrong that wages are not up. they are not up a great deal, but they are up 2% year on year.

http://www.bls.gov/news.release/eci.nr0.htm

so, 2% wage increases, and 30% food cost hikes.

12.5% import cost hikes.

12.5% cost hikes in all the goods we import, but also produce here (cars, furniture, whatever)

9% hikes in the price of all the goods we export but also produce here (like food, or capital goods or medicine)

we are seeing a massive erosion of buying power here.

--------

PeakTrader said...

"you can't just cancel out imports and exports and claim no inflation."

If you trade something that's 9% more expensive for something that's 12% more expensive, your inflation rate isn't 9% or 12%.

"12.5% cost hikes in all the goods we import."

Petroleum is over 60% of imports, not over 60% of U.S. GDP.

"what if you had savings? that purchasing power would be down 10%."

If I exchanged my good for your cash and saved it (instead of trading my good), I'd lose if prices rise more than interest rates, or if my home currency appreciates (because I'd need more dollars for one unit of my currency).

To follow up on my statement: If you trade something that's 9% more expensive for something that's 12% more expensive, your inflation rate isn't 9% or 12%.

If $1 becomes $1.09 and import prices rise 12%, your inflation rate is effectively a little over 3%, or a deterioration in terms-of-trade.

------

VangelV said...

MP: "Based on the May PPI data for food, I think it's still hard to make a strong case for inflationary pressures building in the U.S. economy."

It is hard to make the case only if you do not drive, buy insurance, pay for tuition, health care, or eat. Those of us that do can see the inflation quite clearly.

-------

PeakTrader said...

VangelV says "It is hard to make the case only if you do not drive, buy insurance, pay for tuition, health care, or eat. Those of us that do can see the inflation quite clearly."

The only price rise I've seen over the past year is gasoline. My income has also gone up.

Housing, auto payments, food, insurance, health care co-payments, etc. have been unchanged or flat.

I know the state has been aggressive in raising and collecting taxes, and raising and imposing fines (in many ways).

I also know, many unemployed, who haven't found decent jobs, are suffering.

-------

VangelV said...

"The only price rise I've seen over the past year is gasoline. My income has also gone up."

You are telling me that you don't eat? Or that you did not notice the fact that your fruits, vegetables, grains, meat, etc., are all more expensive? Did your kids' tuition go down or stay flat? Most universities increased tuition by around 4 to 8 per cent. Health insurance costs were reported up by around 9% last year. Energy prices were up around 20%. The price of gold is up around 23% from this time last year and even after the correction silver is still up by 90%. Corn prices have almost doubled. Wheat prices were up around 75%. Cotton prices went up.

You may not notice the increases as much in the final product because companies are quite good at using packaging changes to hide the price increases. If you drop the size of a tin of tuna by 20% you do not have to show much of a price increase that will be noticed by consumers. If a loaf of bread has 23% less flour the slight price increase will not look as large to a consumer who has not noticed the change. If your jeans use a different weight cotton you can keep the price of the jeans the same without signalling to the customer that the price has gone up.

The days when China was able to push deflation into the US market have run their course. We have now entered a period during which the USD is vulnerable as are all fiat currencies and we see major increases for many essential goods and services even as prices for overbuilt housing keeps going lower. But rents are not heading lower. Insurance is not falling. Food and energy costs are not going down. Tuition is not falling. For those who live in the real world inflation is a serious problem. For the BLS statisticians it is hardly noticeable because they make little effort to see things as they are.

-------

PeakTrader said...

VangelV, one thing I've learn from women is to buy on sale, and I stock up when there are sales.

I've noticed prices have gone up and down, not just up.

To be quite honest, I've noticed nothing has gone up, that I buy, except gasoline.

And I buy fruits and vegetables, grains, can food, dried foods, meat & fish, etc., and my other living expenses haven't gone up.

Also, I may add, milk is still cheaper than gasoline.

To reply to some of your specific comments, the solid white can tuna is often on sale (and still very cheap, although perhaps in a smaller can), and I buy the new Oroweat sandwich thins, which I don't end up throwing away a lot of bread when it expires anymore.

I've completed school. Tuition was also going up when I was in school.

I noticed, perhaps it was a couple of years ago, there was a period, e.g. a few months, when there were fewer sales at supermarkets, but that hasn't been the case recently.