The Inflation Thread

Lower oil, gas and other commodity prices have helped to reduce the cost of living. Oil related transport costs also have come down. It led to lower cost of living and a lower inflation rate. With stagnant real wages, this fall in the cost of living is important for giving Western consumers more income to spend. In other words the fall in oil prices and commodity prices could lead to higher spending on other goods and services and add to real GDP. Some worried about the slide towards deflation and the fear of a ‘Japan style’ lost decade in Europe in 2015. Do you think there will be deflation?

http://www.nzherald.co.nz/world/news...ectid=11829757

Eurozone inflation falls back below target in March - World - NZ Herald ...

http://www.feedstuffs.com/news/fao-i...-decline-march

FAO index shows global food price decline in March

My entire portfolio is (and was) in commodities denominated in foreign exchange. I don't understand the reference to the 'fall' when commodity prices have recovered and are rallying. Anyone seeking to hedge against coming inflation should seek exposure to commodities.

http://www.reuters.com/article/us-gl...KBN1800V6?il=0

http://www.fao.org/worldfoodsituatio...ricesindex/en/

https://www.newsroom.co.nz/2017/07/18/39165/inflation

The mystery of the disappearing inflation

Quote:

---

Originally Posted by MARKETWINNER

https://www.newsroom.co.nz/2017/07/18/39165/inflation

The mystery of the disappearing inflation

---

Can't remember what day but on the front page of the business herald last week (I think)they broke down the June quarters inflation figures. Computers, electronic devices, airfares, recreation and petrol prices are all dropping. House construction, rent, food and electricity prices are rising. It sort of looks like dropping prices in non-essentials(except petrol) are disguising the rise in the price of essentials. Admittedly if you go to the reserve bank site wage inflation seems to be keeping up for the quarter. Probably reading too much into one quarter's figures though. It is interesting to compare the rise in wages and housing over any number of periods. Wages definitely losing to capital but lets not discuss a capital gains tax this election as wealth from rising prices shouldn't be taxed whereby money generated by the sweat off your brow the hard earned way to wealth should be taxed as people with wealth don't want to contribute to society. Seems fair.

Quote:

---

Originally Posted by Aaron

Can't remember what day but on the front page of the business herald last week (I think)they broke down the June quarters inflation figures. Computers, electronic devices, airfares, recreation and petrol prices are all dropping. House construction, rent, food and electricity prices are rising. It sort of looks like dropping prices in non-essentials(except petrol) are disguising the rise in the price of essentials. Admittedly if you go to the reserve bank site wage inflation seems to be keeping up for the quarter. Probably reading too much into one quarter's figures though. It is interesting to compare the rise in wages and housing over any number of periods. Wages definitely losing to capital but lets not discuss a capital gains tax this election as wealth from rising prices shouldn't be taxed whereby money generated by the sweat off your brow the hard earned way to wealth should be taxed as people with wealth don't want to contribute to society. Seems fair.

---

Relative to some developed countries and income level Food, rent and clothing prices are high in New Zealand. This will lead to slowdown in the economy in the mid and long run unless housing market adjusts to the fair value.

https://www.interest.co.nz/property/88965/housing-costs-these-days-make-much-greater-proportion-household-budget-they-used-msd

Housing costs these days make up a much greater proportion of the household budget than they used to,' MSD incomes and inequality report finds

http://www.stats.govt.nz/browse_for_...PJun17qtr.aspx

Consumers Price Index: June 2017 quarter

How about following?

https://www.stuff.co.nz/taranaki-daily-news/business/94966044/Shamubeel-Eaqub-I-ve-bought-a-house-at-last

Shamubeel Eaqub: I've bought a house at last!

the "Shamub sign" house prices to decline now LOL

Quote:

---

Originally Posted by JBmurc

the "Shamub sign" house prices to decline now LOL

---

Now I'm more inclined to buy something. I didn't think Shamubeel was right when he wasn't buying. In theory renting is cheaper but inflation will always change that over time. Rents go up house prices go up but your house price purchase is in todays dollars and even your mortgage gets easier to deal with as wages rise. That's the game and I suppose that is why deflation is apparently bad because everyone is playing the game, central banks are obliged to keep it going as to stop now would be disastrous. I wonder if there is an end to continuous growth. The planets ability to provide for more and more humans could be tested eventually but that could take more than my lifetime.

Quote:

---

Originally Posted by Aaron

Now I'm more inclined to buy something. I didn't think Shamubeel was right when he wasn't buying. In theory renting is cheaper but inflation will always change that over time. Rents go up house prices go up but your house price purchase is in todays dollars and even your mortgage gets easier to deal with as wages rise. That's the game and I suppose that is why deflation is apparently bad because everyone is playing the game, central banks are obliged to keep it going as to stop now would be disastrous. I wonder if there is an end to continuous growth. The planets ability to provide for more and more humans could be tested eventually but that could take more than my lifetime.

---

Deflation is definitely bad for people who leverage their deposit to be able to buy a house. Nobody wants to be stuck with negative equity especially if they suddenly can no longer afford the mortgage. Home owners, especially the highly leveraged ones, definitely hope that the government will keep them happy with policies that ensure asset price inflation.

The mortgage remains affordable provided you can lock in today's low interest rates for the term of the mortgage, or the first good few years at least? Those who have bought using large mortgages in recent years may be depending on that or depending on wages rising faster than any increase in interest rates. It is debatable whether NZ's unaffordable housing can continue at such unaffordable levels for much longer. Will the high levels of net immigration continue? Will low interest rates continue to be so low? What will happen when the next downturn arrives? etc.

I think the second sentence in Shamubeel's item is telling: "We bought a house last week. We bought because our rental will be sold and we want stability for our family. "
It made financial sense for his continuing to rent. However NZ renters have comparatively little security of tenure compared with many developed countries. "Our rental market is broken" says Samubeel. Luckily for Shamubeel he can afford to buy his own home to provide security for his family. Maybe he had sufficient assets to be able to afford a generous deposit and has a financial cushion to be able to weather any adjustment to house prices too.

Maybe he had to sell shareholdings in productive companies to be able to buy an expensive section of land with a house to provide himself with a home. Many others are increasingly unable to become first home buyers in NZ's unaffordable residential housing market, as falling home ownership rates attest. They are in effect locked into the rental market, with its insecurities, and unable to have the choice to access the advantages of home ownership.

I like the balance between the two economic conditions. If I am correct it is called delicate. Any extreme situation in assets prices will have some economic repercussions.

JBmurc wrote:

The "Shamub sign" house prices to decline now LOL

Will it be contrarian signal?

Aaron wrote:

That's the game and I suppose that is why deflation is apparently bad because everyone is playing the game, central banks are obliged to keep it going as to stop now would be disastrous. I wonder if there is an end to continuous growth. The planets ability to provide for more and more humans could be tested eventually but that could take more than my lifetime.

This is true.

Bjauck wrote:

Many others are increasingly unable to become first home buyers in NZ's unaffordable residential housing market, as falling home ownership rates attest. They are in effect locked into the rental market, with its insecurities, and unable to have the choice to access the advantages of home ownership.

This is also true.

"A lower future interest rate environment could justify higher asset prices and seemingly easier financial conditions today by virtue of markets’ discounting cash flows with a lower interest rate."
https://finance.yahoo.com/news/neel-...152049875.html

https://www.reuters.com/article/us-g...-idUSKBN1CA0Q6

http://www.stats.govt.nz/browse_for_...x_MRSep17.aspx

Yes, the lower NZD goes the more inflation will kick upwards ... interest rates will finally be FORCED upwards... then the house of cards the NZ property market has been balanced will FALL HARD ...

exp- locally we have just had a new sub-divison of sections practically half the size they released in the same location only 3-4yrs ago for double the price !!!!!! pure madness

Now to put this into numbers on a per SQM of land 2014 $185per-sqm to 2017 $750-800per sqm

Slow & steady as she goes
https://www.marketwatch.com/story/wh...of2&yptr=yahoo

Quote:

---

Originally Posted by kiora

Slow & steady as she goes
https://www.marketwatch.com/story/wh...of2&yptr=yahoo

---

Ah ha
This is what will happen?
https://finance.yahoo.com/news/bank-...174601396.html

http://www.nzherald.co.nz/business/n...ectid=12012893

ECB head: Higher inflation needed to end stimulus

https://www.hellenicshippingnews.com...roved-weather/

GRAINS-Wheat prices face second week of losses on record world supply, improved weather

https://www.bloombergquint.com/opini...ght-for-stocks

Inflation Is Finally Balanced Just Right for Stocks