The Fourth Horseman - Inflation?

[alfred russel]

A quick google of research on the topic and how it is impacting home prices in Japan:

How does a shrinking population affect the housing market? In this study, drawing on Japan's experience, we find that there exists an asymmetric relationship between housing prices and population change. Due to the durability of housing structures, the decline in housing prices associated with population losses is estimated to be larger than the rise in prices associated with population increases. Given that population losses have been and are projected to be more acute in rural areas than urban areas in Japan, the on-going demographic transition in Japan could worsen regional disparities, as falling house prices in rural areas could intensify population outflows. Policy measures to promote more even population growth across regions, and avoid the over-supply of houses, are critical to stabilize house prices with a shrinking population.

https://www.imf.org/en/Publications/WP/Issues/2020/09/25/Demographics-and-the-Housing-Market-Japans-Disappearing-Cities-49737

[mongers]

Whilst academically it's an interesting topic, from my perspective inflation is just a mechanism for driving an increasing number of 'us' into poverty. It's a pyramid structure with most Languishites probably at the middle levels or nearer the top, inflation just acts to eat away at the income/resources of those at the base/bottom and then continues to work it's way up the social structure.

The 'game' for the likes of me is cut outgoings early and for long enough to try and wait out this period of inflation; one or two years is doable, anymore it's hello soup kitchens and hand-outs.

[crazy canuck]

Inflation also devalues debt and so helps to moderate wealth inequality. 

[Tamas]

Inflation also devalues debt and so helps to moderate wealth inequality. 

I have trouble seeing high inflation hitting the well-off more than the poor, which would seem necessary for such a balancing effect.

[crazy canuck]

Inflation also devalues debt and so helps to moderate wealth inequality. 

I have trouble seeing high inflation hitting the well-off more than the poor, which would seem necessary for such a balancing effect.

That's understandable. But the effect on devaluing that is also real. Why do you think countries concentrate so much on keeping inflation down. Do you really think it is to protect the poor. Or do you think it more likely that it is to protect banking interests?

[The Minsky Moment]

People reliant on fixed income - pensions, un-indexed government benefits - are harmed by inflation.  Wage earners in competitive industries who carry debt may benefit.  So generally speaking the effect on inflation for lower income strata is harmful for the elderly or those reliant on government assistance, mixed for wage earners who rent, more positive for wage earners at the bottom of the housing ladder and carrying a fixed mortgage.

[Tonitrus]

I am a bit surprised that talk of price controls (mainly on gasoline) hasn't reared its head yet.  Throwing Nixon policies at the GOP is always fun.

[commie] I keep seeing in business news how oil companies are pulling in massive profits, so it is probably not increased costs that they are passing on to the consumer. [/commie]

[Sheilbh]

People reliant on fixed income - pensions, un-indexed government benefits - are harmed by inflation.  Wage earners in competitive industries who carry debt may benefit.  So generally speaking the effect on inflation for lower income strata is harmful for the elderly or those reliant on government assistance, mixed for wage earners who rent, more positive for wage earners at the bottom of the housing ladder and carrying a fixed mortgage.

I think public sector workers are going to be particularly screwed because - at least in Europe - there is talk of the need for wage constraint by governments.

[Josquius]

At the supermarket today I really noticed the price increases. Even the cheapest cooking oil is over 3 quid. Madness.

[Sheilbh]

Interesting piece from Helen Thompson on the energy side of this:

Here's the crux of the crisis — we in the West are running out of energy
New oil flows solved the 1970s price shock but a changing world means there is no easy fix this time
Helen Thompson
Sunday June 05 2022, 12.01am, The Sunday Times

It is easy to imagine we are back in the 1970s. To those who lived through that tumultuous decade, the economic news feels eerily familiar. With energy costs soaring, inflation in the UK has hit 9 per cent. Only two years after the recovery from the economic slump induced by the first lockdown, the Bank of England is signalling that another recession is probably coming. So far there has been no energy rationing of the kind that, after the 1973 oil price shock and 1974 miners' strike, led to petrol ration books and electricity blackouts. But the government has let it be known that it is modelling "reasonable" worst-case scenarios for the autumn under which Russia halts gas and oil exports to Europe and there are electricity shortages and limits placed on industrial gas use.

Geopolitically, a 1970s vibe prevails too. Then, tumult in the Middle East from the 1973 Yom Kippur War to the 1978-79 Iranian revolution inflicted a series of energy blows on western economies while the Soviets projected their power deeper into central Asia and Africa. Now, Russia's war to annihilate Ukraine's independence has sent energy and food shock waves around the whole world, not least the Middle East. In Iran, where the government is reducing food subsidies, the security forces have already killed protesters. Arab governments have proved slow to produce the extra oil needed to push prices back down. This has invoked sufficient anger in Washington that a bill opening up Opec members to antitrust lawsuits has been working its way through Congress.

But to think that we have returned to the 1970s is a comforting illusion, suggesting there is a similar path to the relative economic improvement of the second half of the 1980s and 1990s. The way out of the 1970s was both harsh and fortuitous. Only severe recessions driven by a sharp increase in interest rates and new oil supplies in the West brought the energy crises to an end.

The oil that flowed out of the North Sea and Alaska also transformed the world geopolitically. The Saudis reacted to the glut by increasing production to win market share, sending prices tumbling in 1986. This caused a profound crisis for the Soviet Union from which it did not recover. High energy prices in the 1970s had been an opportunity for the increasingly moribund Soviet economy. Yet in using oil export revenues to allow a massive volume of grain imports from the West, the Soviet state left itself existentially reliant on foreign currency earnings that from 1986 the oil industry could no longer provide. For two years, it got by. But in 1988 there was a bad harvest. A year later the Soviet empire in eastern Europe duly ended; within two more the Soviet Union itself dissolved.

Now we live in an economic world far removed from the 1970s. Inducing recession may be the only way to reduce the inflationary pressures from energy prices, but the high interest rates pursued by the American Federal Reserve Board and Margaret Thatcher's first government are not an option. Quite simply, there is too much debt in the world for interest rates in any advanced economy to rise very far. For more than a decade, central banks have set rates to facilitate high debt. Whatever the inflationary pressures in play, they have only a little latitude to turn away from that imperative.

The geopolitical world is also scarcely recognisable. The 1970s were an immediate turning point, marking the end of the historical Middle East created by western territorial and commercial imperialism, and a deepening reliance of western Europe on Soviet energy exports. But western countries could adapt to those changes under conditions in which high per capita energy consumption was largely a western affair. By contrast, from the 2000s, China and India's spiralling demand transformed energy consumption, at the same time as the supply of oil coming from the Middle East began to stagnate.

During the first half of 2008 the world experienced an economic crisis generated by exceptionally high oil prices, the significance of which was disguised by the financial crash that September. It was the American shale oil sector that allowed the world to escape repeats of this oil crisis during the 2010s. But shale output cannot grow as rapidly again as it did over the past decade.

In sanctioning Russian oil exports, western countries are, meanwhile, reconfiguring the supply and transport chains for oil. By contrast, most west European governments responded to the shock of the Yom Kippur War by siding with the invading Arab states over Israel to protect their oil supplies.

Through the 2010s, the Asian demand shock spread to gas. But it did so as the American capacity to export gas across the world surged, producing a period of low prices. This cushion for European countries buying seaborne liquid natural gas abruptly changed last year when China's demand for imports rapidly accelerated, pushing up prices dramatically. Now, another shock has arrived with Germany — Europe's largest gas consumer — planning to join the liquid natural gas market to replace pipelined Russian gas.

From the first years of this century, Asian energy consumption also transformed Russia's geopolitical options. Unlike the Soviet Union, Russia became a Eurasian energy power able to sell westwards and eastwards. Just as significantly, Vladimir Putin has reversed the old Soviet agricultural vulnerability by turning Russia into the world's largest wheat exporter.

This underlying geopolitical environment makes it impossible to minimise the economic disruption wrought by Moscow's war, or to inflict sufficient harm on the Russian economy to force Putin to recalibrate. Russia's export earnings are still rising, and its naval blockade of Ukraine's ports, leaving Ukraine unable to export food, means its market share of the international grain market is growing.

Adaptation to the economic crisis must recognise it for its singular particulars. Since the rate of new oil discoveries has been falling since the 1960s, there are nothing like the same energy fixes available that there were 40 years ago. If these hard realities incentivise a rapid energy transition, they do not detract from the serious difficulties that reducing fossil fuel energy dependency entails. What can be taken from the 1970s is a belief that the future can be faced. But that faith must start from an understanding that there is nothing that can be done to bring back a western-centric energy world where the supply of oil is plentiful.

Helen Thompson is author of Disorder: Hard Times in the 21st Century.

[Josquius]

Worth remembering the 70s oil crisis induced economic downturn game after the pretty succesful 60s.
This time around.... 

[mongers]

At the supermarket today I really noticed the price increases. Even the cheapest cooking oil is over 3 quid. Madness.

Noticed quite a few prices rises and volatility at Sainsbury's, but what really surprised me was I spotted a price rise at Lidl, pretty much unheard of.

And yesterday, the coffee I went in to buy has gone up 27%. :gasp: