Missing Inflation.

[mike777]

With the Dollar down over 60% from 2001 versus the Euro and 24% in the past year where is the price inflation on all the stuff we import from abroad?

 

In Europe a decent dinner can cost you 300 bucks and a night at the local Marriot hotel runs 600-800 bucks.

 

Granted gas prices are up a bit here but with so much of our stuff made overseas, from raw material to finished goods I would think something gots to give.

 

Is innovation really holding back the flood of inflation and if so for how much longer?

[sceptic]

if the dollar keeps dropping then surely imports become to expensive and as the US seeems capable of taking over any country it wants (it could always steal the oil to fund its natural resources) then it will be cheaper to make things at home and thus boosting the economic situation for itself

[jtfanclub]

In Europe a decent dinner can cost you 300 bucks and a night at the local Marriot hotel runs 600-800 bucks.

 

Not good comparisons, since we don't import hotel rooms or dinners. Those tend to be 'what the consumer can afford', and have little to do with the value of the dollar.

 

How about cars and computers? How do their prices varied from 5 years ago, and how does their price here compare to the price there?

[mike777]

In Europe a decent dinner can cost you 300 bucks and a night at the local Marriot hotel runs 600-800 bucks.

 

Not good comparisons, since we don't import hotel rooms or dinners. Those tend to be 'what the consumer can afford', and have little to do with the value of the dollar.

 

How about cars and computers? How do their prices varied from 5 years ago, and how does their price here compare to the price there?

From what I saw the prices seem about the same in terms of the Euro as 5 years ago. Maybe a bit higher. Of course you could argue the quality is higher.

 

Even if the price in Euro's is the same...that means in terms of dollars it is 60% or so higher.

 

In any event I do not see the prices going up here 24%.....compared to last year....why not and for how long?

[mike777]

if the dollar keeps dropping then surely imports become to expensive and as the US seeems capable of taking over any country it wants (it could always steal the oil to fund its natural resources) then it will be cheaper to make things at home and thus boosting the economic situation for itself

Wayne......even if we just go steal the oil or everything...that costs money.....often it is just cheaper to buy the stuff than go take over the country I would think. How much does the war in Iraq cost compared to if we just bought the oil?

 

How much would it cost to take over China? I assume more than zero?

[sceptic]

I can't answer that Mike, I am no economist :)

[matmat]

i was just in europe a few weeks ago. It looked to me like electronics were about 30% more expensive there than here

[mike777]

i was just in europe a few weeks ago. It looked to me like electronics were  about 30% more expensive there than here

Well let's back...up

 

If the same good is 30% cheaper here in the USA then in Europe...you could buy thegoods here....ship them to Europe(costs less than 30% I assume) and make a huge profit....:)

 

Or Europe could fly to USA...buy the goods..and fly home. :)

 

Or you buy them off the internet at usa price.

 

CAlled PPP Purchasing power parity.......

 

At some price point the goods need to basically cost the same in all places after taxes. shipping etc....:)

[Mbodell]

With the Dollar down over 60% from 2001 versus the Euro and 24% in the past year where is the price inflation on all the stuff we import from abroad?

 

In Europe a decent dinner can cost you 300 bucks and a night at the local Marriot hotel runs 600-800 bucks.

 

Granted gas prices are up a bit here but with so much of our stuff made overseas, from raw material to finished goods I would think something gots to give.

 

Is innovation really holding back the flood of inflation and if so for how much longer?

Inflation is very underreported as the CPI is shaped to understate inflation (since gov't expenditures are indexed to CPI).

 

If you are going to look at prices since 2000 check out the following (posted last week on another board that covers economics/housing):

 

Let's look at some common expenses in Jan 2000 compared to Jan 2007 from Bureau of Labor Statistics:

 

Flour: 0.286/0.346

Bread: 0.907/1.153

Ground beef: 1.483/2.185

Bacon: 2.750/3.510

Cheddar: 3.839/4.059

Apples: 0.952/1.034

Broccoli: 1.182/1.828

Beans: 0.691/0.866

Fuel Oil: 1.189/2.368

Electricity: 45.207/59.043

Gasoline: 1.398/2.372

 

How about some other catagories:

Housing (purchase): way up (102%) between 2000 and 2007

Housing (rent): up between 2000 and 2007 (but not as much as

purchase)

Education (college): up a lot between 2000 and 2007 [up about 47% at private colleges and up 62% at public colleges]

Healthcare: double digit annual increases.

 

According to CPI the total inflation from Jan 2000 to Jan 2007 should Jan 2000 to Jan 2007 should be 21% (a per year rate of about 2.75%).

 

So if the interest rates in the US are lower than in most places why would you want to hold USD instead of Euros, CDN$, Gold, Oil, Shekels, etc.

 

The CDN$ traded at $1.10 briefly yesterday and is trading at highs not seen since the 1800s. Oil is at record highs. Gold is super high. The Euro is at record highs. The chinese are making more noise about not parking their money in US$. The situation is not great.

 

2000 JAN 1: US$1 = 1.44 CDN or 1.52 AUS or 0.99 Eur

2007 JAN 1: US$1 = 1.16 CDN or 1.27 AUS or 0.75 Eur

2007 Nov 8: US$1 = 0.93 CDN or 1.07 AUS or 0.68 Eur

 

2000 oil barrel (avg across year): $27.39

2007 oil barrel (avg across year): $58.05

 

2000 gold /oz: $272.15

2007 gold /oz: $833.00

 

So the truth is we have had relatively rapid inflation (just not quite Zimbabwe level - yet) over the past 7 years, and this past year's currency devaluation likely portends even more inflation, and certainly less purchasing power, in the future.

[jtfanclub]

Or Europe could fly to USA...buy the goods..and fly home. :)

If the same good is 30% cheaper here in the USA then in Europe...you could buy thegoods here....ship them to Europe(costs less than 30% I assume) and make a huge profit....:)

 

Can't. First of all, it's tough to transport electronics for sale purposes across international borders, for security reasons. Second of all, to import anything into Europe is darned tough, due to the ISO crap. Besides, if you bought a computer in the USA and plugged it in in Europe it would explode. :)

 

But hey, you're welcome to make the attempt. For a long time (I don't know if it's still true), it's cheaper to buy a Mercedes in Europe and ship it to the U.S. than it is to buy it in the U.S.

[Echognome]

i was just in europe a few weeks ago. It looked to me like electronics were  about 30% more expensive there than here

Well let's back...up

 

If the same good is 30% cheaper here in the USA then in Europe...you could buy thegoods here....ship them to Europe(costs less than 30% I assume) and make a huge profit....:)

 

Or Europe could fly to USA...buy the goods..and fly home. :)

 

Or you buy them off the internet at usa price.

 

CAlled PPP Purchasing power parity.......

 

At some price point the goods need to basically cost the same in all places after taxes. shipping etc....:)

You are forgetting that you have to pay VAT if you import the good. It's not always enforceable, but it certainly can account for the lack of arbitrage. Shipping costs alone are not enough to explain the difference.

[kenrexford]

Interesting query.

 

I hear a lot about a poor economy and weakening dollars and the like.

 

Last night, I heard on NPR that global warming is being affected by the wild rise in the GDP, by the fact that consumers are buying wildly, such as twice the per capita clothing purchases in comparison to 1991, cars are bigger and more people have them, and the like. The idea was that we are making too much stuff too rapidly because of wild demand increases, costing the environment.

 

Hmmm.

 

If the per capita spending on consumer items is so wildly elevated over expectations that the environment might collapse into a global catastrophe, where are these consumers getting this money to spend, with a terrible economy and all?

[Mbodell]

If the per capita spending on consumer items is so wildly elevated over expectations that the environment might collapse into a global catastrophe, where are these consumers getting this money to spend, with a terrible economy and all?

Indebtedness.

 

The consumption isn't responsible (for nearly any definition of the word: economic, environmental, moral, etc.).

 

Which is why the "sub-prime criss" or "credit crunch" is such a huge deal. And why the US is not well positioned to weather the storm.

[kenrexford]

If the per capita spending on consumer items is so wildly elevated over expectations that the environment might collapse into a global catastrophe, where are these consumers getting this money to spend, with a terrible economy and all?

Indebtedness.

 

The consumption isn't responsible (for nearly any definition of the word: economic, environmental, moral, etc.).

 

Which is why the "sub-prime criss" or "credit crunch" is such a huge deal. And why the US is not well positioned to weather the storm.

We are that much more in debt? I doubt that.

 

I never really got the whole problem with debt, actually. If I'm on the sofa with my wife, and there are four pillows also on the sofa, the number of pillows on the sofa does not change if I pass one down from me to her. It's still there.

 

If we are each entitled to at least one pillow, then I can have 1 to 3 pillows and do fine. If she can never get that fourth pillow from me, I am fine.

 

I also think about my fish tank. If someone were to take one of my fish out of my fish tank and hide it in his pocket while he runs home, the fish would not be worth as much as it was in the tank. So, I doubt that anyone will ever come in and steal my fish. So far, this assumption has played out well.

[Aberlour10]

The prices for food in Germany exploded formally in last few months, especially for milk products, meat and fresh vegetables, the cheapest sort of butter from 0,79€ to 1,19€ (250g), fresh milk from 0,49€ to 0,75€ (1l) for example...the prices for fuel, gas and electric power become astronomic dimensions, but the goverment says that the official inflation rate = still 2-3%. :blink:

 

Robert

[Al_U_Card]

Guess it must be Canada's fault.....again. Blame Canada!

 

We are your biggest trading partner.

 

We have a -15% disparity with you concerning industrial productivity.

 

Your dollar is being artificially depressed for geo-econimical reasons.

 

Part of the war on China and the destabilization of the world economy.

 

Good luck with that. :blink:

[DrTodd13]

The prices for food in Germany exploded formally in last few months, especially for milk products, meat and fresh vegetables, the cheapest sort of butter from 0,79€ to 1,19€ (250g), fresh milk from 0,49€ to 0,75€ (1l) for example...the prices for fuel, gas and electric power become astronomic dimensions, but the goverment says that the official inflation rate = still 2-3%. :blink:

 

Robert

If they are anything like the US, they exclude major sections of the economy like housing and energy. Whatever...they have people convinced that inflation is the equivalent of inflation rather than being caused by inflation (of the money supply). If the vast masses really understood that every world government routinely steals 3 or 5 or 10% of their wealth every year through debasement of the currency there would be revolutions.

[Mbodell]

If the per capita spending on consumer items is so wildly elevated over expectations that the environment might collapse into a global catastrophe, where are these consumers getting this money to spend, with a terrible economy and all?

Indebtedness.

 

The consumption isn't responsible (for nearly any definition of the word: economic, environmental, moral, etc.).

 

Which is why the "sub-prime criss" or "credit crunch" is such a huge deal. And why the US is not well positioned to weather the storm.

We are that much more in debt? I doubt that.

Then you aren't very knowledgeable about the situation. This isn't an opinion issue, tracking US indebtedness is a factual question. There can be opinions on if record indebtedness is going to lead to financial Armageddon or a depression or merely a recession, but there can be no opinions on if the US is massively in debt.

 

There is no precedent in US -- or any other -- history for the level of personal debt now carried by the American people. Consider the raw numbers. In 1974, Federal Reserve data show that US mortgage plus other consumer debt totaled $627 billion. By 1994, the total debt had risen to $4,206 billion, and by 2004, it reached $9,709 billion.  For the second quarter of 2005, the Fed announced that the nation's debt service ratio (debt payments as a percentage of after-tax income) was 13.6%, the highest since the Fed began recording this statistic in 1980. Past borrowing now costs Americans so much in debt service that more borrowing is required to maintain, let alone expand consumption.

 

or

 

this paper with the following abstract:

The ratio of total household debt to aggregate personal income in the United States has risen from an average of 0.6 in the 1980s to an average of 1.0 so far this decade. In this paper we explore the causes and consequences of this dramatic increase. Demographic shifts, house price increases, and financial innovation all appear to have contributed to the rise. Households have become more exposed to shocks to asset prices through the greater leverage in their balance sheets, and more exposed to unexpected changes in income and interest rates because of higher debt payments relative to income. At the same time, an increase in access to credit and higher levels of assets should give households, on average, a greater ability to smooth through shocks. We conclude by discussing some of the risks associated with some households having become very highly indebted relative to their assets.

[helene_t]

i was just in europe a few weeks ago. It looked to me like electronics were  about 30% more expensive there than here

Number of issues:

 

- Most European countries have higher minimum salaries than the US, making the retail step more expensive

- VAT is generally higher in Europe than in US

- In spite of all the blahblahblah of European integration, we're still a far cry of North America with respect to competition and economy-of-scale. In the smaller European countries, local importers and licensees (for example in the soft drink industry) often have a de facto monopoly, which reduces the push for efficiency.

- We have three or four different plug standards within the EU, so electronic stuff must be equiped with different plugs for different markets

- Instructions for use must be written in fifteen different languages

- As a foreigner you get screwed everywhere. When you're new to a country it seems as if everything is expensive until you learn how to get the stuff for the same prices the locals pay.

- Some say that European anti-trust regulation is less effective than the American one. Not sure if it's true.

 

OTOH producer's reliability is much less of an issue here than in the U.S. (producers hardly ever get sued and if they do they won't have to pay millions in compensations) so that should make stuff cheaper here.

[kfay]

i was just in europe a few weeks ago. It looked to me like electronics were about 30% more expensive there than here

You must be talking about iPods and iPhones etc., products imported from the U.S. which we can drive up the price on. I doubt this is true when it just comes to buying a samsung.

[mike777]

My main question was that it seemed that some economic function was keeping the lid on a boiling pot of inflationary pressures in the USA and how much longer that lid will stay on? I assumed that lid is called innovation.

[Al_U_Card]

Economic disadvantage and disarray is one of the "reasons" for war. Starting it, responding to it or continuing it. It is all part of the plan. To paraphrase Chamberlain, there will soon be "war in our time".

[gwnn]

Blame Canada!

That was a great song, lol

[matmat]

i was just in europe a few weeks ago. It looked to me like electronics were  about 30% more expensive there than here

You must be talking about iPods and iPhones etc., products imported from the U.S. which we can drive up the price on. I doubt this is true when it just comes to buying a samsung.

you mean the ipods and iphones that are made in china and exported from there to Europe and the US?

 

no. I actually looked at TVs (as I recently bought one and was curious). Same shtick. 30% more there than here (~20% was VAT) and btw, this was a samsung.

[joshs]

I actually would like to organize a group that buys cars in the US, and resells them in europe. Prices on autos currently are about 1-1, and the euro is worth $1.50US. So after shipping costs and import taxes I figure we can make a 15-20% profit. (Does anyone know the Tarriffs?)

 

Possiblly, there are other items out there with this kind of arbtrage opportunity which we can sell which are cheaper to ship...

 

 

As to inflation and exchange rates, here is my over simplification....

 

The process has been:

a. the fed sees inflationary pressure

b. the fed increases their target rates. (decreases the money supply)

c. this decreases inflationary pressure

e. with higher rates than the euro (pick your favorite currency), the value of the currency is decreasing faster with time than the euro, so I would rather have a euro in my pocket than a dollar. Consequently, the relative values of currency changes until there is an equilibrium.

 

Note:

1. The way the fed effects the interest rates is by buying treasury bills (increasing the money supply since they are paying with cash) which lowers rates or selling treasury bills (decreasing the money supply) which raises rates

2. rasing rates, makes it harder to borrow money which slows the grouth of the economy

3. this is done because when an economy is growing too quickly, pricing ineffeciences occur which causes price inflation (I respond to your price change then you respond to my price change and so on)

 

 

Important Note:

There are other factors that influence exchange rates than just the relative interest rates. In general, if you want to buy goods from a country, you need the correct currency. If there is extra demand for products (at the current price) from a country, this raises the value of the currency, until price and demand are in equilibrium.

 

As to why european prioducts are cheaper in the US than in europe its either:

a. they are cheaper to make here (less taxes, lower salaries)

b. they are making so much money in europe, that even if they cut there profit margin in order to sell things at US competative prices, they still make money...