The 70s/80s was mostly energy related inflation which trickled down into many other aspects of the economy without as much regard to wage growth. Gas and the production of things requires significant amounts of oil which was increasing gangbusters which drove lots of other things along.
I’m not sure the housing inflation has the same direct pressure on everything else that energy inflation did…
In the UK (today) we had massive energy inflation (Ukraine) and housing inflation. That then filtered down to very high services inflation (still at 5%)
There was some energy inflation in the US but you largely kept it contained.
As a person who bought their first house in '82, with a 14% mortgage…I can assure you housing costs were a big driver of inflation. Getting that first piece of RE was a struggle. And the San Francisco market was ferocious back then.
Did you not have a mortgage interest deduction back in the 80s?
Ummm, that was the tax code, yes. But lord knows, the mortgage check had to clear the bank. And that same Lord knows I wasn’t anywhere near the top tax bracket. The deduction didn’t make the rate 5%… do the maths.
Sure but when you are limited to 30% of your gross income as a mortgage payment a 14% mortgage doesn’t leave as much for the principle. I knew people who would submit W-4’s with 15 deductions listed even though they only had 2-4 kids because that basically meant there would be no taxes deducted from their paychecks and they didn’t have to pay taxes at the end of the year. But you still have to have the income to cover the payment.
My recollection is we had inflation in the late 1960s. They pushed it down (Whip Inflation Now), but then the oil embargo hit. That was a loss of real purchasing power for Americans. The Fed “accommodated” the oil price spike with additional money. But, the inflation kicked off wage increases (some unions still had formal COLA provisions, non-union employers needed to keep up) and we got a wage-price spiral. And, oil kept going up.
The Fed was unwilling to create a recession to stop that. Volcker is the great central bankers’ hero because he was willing to create a recession with 10% unemployment. That killed the wage pressure. It also slowed oil imports and OPEC was sufficiently shaky that oil prices came down.
I may have gotten things a little wrong. I was 10 in 1973 but that was when I started watching the evening national news broadcast in earnest. I watched it earlier and remember having nightmares from the Vietnam war reporting.
By the time I graduated HS in '81 I was a full on news and political junky.
Because it’s also Kamala Harris’s fault (personally) that UK’s inflation is high, duh! [/red font]
I think in the U.S. food is up quite a bit too. Seems like every trip to the grocery store I am absolutely shocked at how much stuff costs. And that hits the lower classes harder than the rest.
There is a chart that shows prices across major categories since 2015. I was thinking that the basket of groceries I normally purchase does not seem like it has gone up “a lot.” That does seem at least somewhat supported in that I don’t buy a lot of beef or pre-packaged foods which are the worst hit categories. But that also ties in to the food quality thread a bit - the categories that have shot up include a lot of the stuff you find at Dollar General. I can see how that probably really hurts in rural areas.
Looks like the effect of Ukraine have subsided for electricity prices in UK.
Some of this may be due to the rise of renewables - energy production (of which electricity is a subset) went from 10.7% renewables in 2014 to 40.6% in 2024.
We have a weird way of pricing energy in the UK using standing charges and unit charges, that make it very difficult for energy prices to come down. When a company fails or people don’t pay their energy debts, those costs are loaded up into the standing charges (so everybody that uses energy ends up paying for it).
Pre-Ukraine capped unit cost for an average household was £1,100-£1,200/year. Post-Ukraine it is now £1,717 (just announced for October, and was £1,568 in July)
Thats still 40-50% higher and there is little sign of the prices coming back down to what they were in 2019. This is also for the residential energy market (it has a cap on unit costs). The commercial market for businesses does not have a cap, so the prices are much higher (these higher energy prices then filter down to consumers as higher prices). This is a driver of our current 5% services inflation (energy, rent, labour).
The main problem with food in the US is that you have groups controlling vast amounts of your food supply due to consolidation over the last 20 years, so they can raise prices without major revenue problems.
The graph below show just how high profit margins have gone vs long-term averages pre-pandemic. They are now attenuating because they have reached the point a material amount of their customers cannot afford them (so sales way down and revenue impacted).
Eighth straight month of Canadian YOY inflation under 3% and August 2024 comes in at 2.0%. Unemployment continues to climb here: time for even more aggressive rate-cutting but we don’t want to get too far ahead of the US Fed.
At least the BoC is talking about it now.
Fed just cut 50bps from the base rate
Dollar is going to start weakening a bit now relative to GBP, EUR, and JPY
Too early to say about CAN if they also cut rates (which I do think is in the cards as unemployment has spiked quite a bit)
September YOY inflation comes in at 1.6%. Surely the BOC will drop interest rates by 0.5% this month bringing the bank rate cuts to 1.25% so far. Canadian dollar will weaken versus the US dollar but so be it.
Bank of Canada reduces its interest rate by 0.5% today. Total reductions in the past few months are 1.25%, dropping the central bank rate to 3.75% from 5%. Another 1.25% drop by early 2025 would be welcomed by renewing mortgage holders.
What is the explanation?
