Thursday, October 23, 2008

Stealth Inflation

Food, energy, AND stock prices have recently been decimated so inflation is whipped for the time being, right?

Think again.

Try telling someone whose adjustable mortgage is resetting that *deflation* is in the air.

Here's another, albeit, smaller example. My wife takes the train into Boston. Rumor has it that they are going to increase the daily parking fee from $2 to $4 PER DAY. That's a $40 bump per month, or nearly $500 increase for the whole year.

So yeah, I'll save $1,000 this year on gasoline dropping from $4 to $3 per gallon....but then I give half of it right back to the parking attendants from the State of Massachusetts. Read on.

Sometimes my wife takes the boat from Hingham Harbor to downtown Boston. It's only $1 per day to park there. One day I took the boat in with my kids to meet up with her. I asked the guy selling tickets there if I needed to pay for parking this late in the day. He said,

"No. Those guys don't come back. Just in the morning. They steal the money anyway. There's no one watching them whatsoever. They just put the money in their pockets."

He sounded at least angry and at most jealous.

So, in the past three years we've lived in this terrible, cold state all they've done is raise the price of my wife's monthly train pass. They usually say it's to defray *higher energy costs*.

And now, now that energy is *cheaper*, they aren't going to rollback the increases, no they're going to continue to add to them.

I may just start dropping my wife off at the station since it's only .5 miles away. She may get a bike; or decide to walk more (some). Heck if we wipe out parking fees completely it'll be $80 in monthly savings - or a full $1,000 per year if they start charging $4 each day.

Now for Exhibit B.

I just got an email from Interactive Brokers, my commodities/futures broker that they will start charging $55 per month for NYBOT (New York Board Of Trade) market data. That's up from $1 per month.

How's that for a price hike?

How's that for a $648 inflation in my annual cost of living/working?

So just between train station parking and trading data I've given the $1,000 in gasoline deflation right back.

The CPI and PPI have systematically understated inflation for the past several years.

Expect Big Government to systematically overstate deflation in the coming months.


Taylor Conant said...

Inflation/deflation are only useful terms if they describe aggregate money/credit supply. You're referring to price changes in specific firms and industries.

Not much of an inflation/deflation argument, otherwise McDonalds offering a $1 cheeseburger is suddenly an argument for deflation too, etc.

CaptiousNut said...

That sounds like something I told you not long ago.

Slow-Rion said...

What's in it for the gov't to overstate deflation? What is gained? It seems like they will need reasons to raise interest rates so they can sell debt. ??

Taylor Conant said...


I don't think the government measures deflation ("officially"), as there is nothing like an inverse-CPI or something like that. That being said, if I understand it correctly gov debt interest rates are set by the markets as far as how little they'll pay for the debt (the below par value), for the most part. The gov doesn't try to manage attractive interest rates.

Is that right, C?

CaptiousNut said...

Gov't keeps CPI low (overstates deflation) because they have to index Social Security and government pension raises to inflation.

I've covered this last year.

CaptiousNut said...

Yes, the gov't needs to raise debt - they want high bond prices which imply low interest rates.

Anonymous said...

Do I have this right: your wife drives an auto .25 miles to a train station and pays $2 (soon to be $4) to park there all day?
That .25 miles is a typo, right?


CaptiousNut said...

.5 miles to the train station. I'll correct it.

100% further!

No sidewalks, busy road,...makes it hard to walk to a 5:50am train.

I'm with you though. .25 miles and one should definitely walk.