Vibecessions, Part II
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Showing 111 database articles primarily about Inflation
Choking Iran's Economy Is the Least Bad Way to End the War
AI Summary. Iran's economy is contracting at its fastest rate in roughly 40 years, with inflation above 50%, food costs doubling year-over-year, and the national currency near worthless.
Javier Blas Bloomberg- Date Posted:
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Inflation in Iran is running at at least ~69%, its highest annual rate in 70 years. The black market exchange value of a rial hit a record low of ~1.85mm rials to the dollar, relative to 50,000 per dollar five years ago.
Is economic collapse the only path to ending the conflict?
Core argument: Iran’s inflation rate exceeds 50% annually — the highest in nearly 70 years of records — while food and essential goods costs have doubled year over year, severely compressing household purchasing power across the economy.
[Iran's] economy is on track to suffer the biggest annual contraction since the nadir of the Iran-Iraq War in the mid-1980s. Inflation is running well above 50%, the highest annual rate since records start nearly 70 years ago. Worse, the cost of food and other necessities has already doubled from a year ago. Its currency, the rial, is worthless. In the black market, the exchange rate has collapsed to a record low of about 1.85 million rials to the dollar; five years ago, roughly 50,000 rials were enough to buy a greenback.Takeaways by Macro Roundup® AI
- Iran’s inflation rate exceeds 50% annually — the highest in nearly 70 years of records — while food and essential goods costs have doubled year over year, severely compressing household purchasing power across the economy.
- Iran’s GDP is on track for its steepest annual contraction since the mid-1980s Iran-Iraq War nadir, a deterioration that surpasses every recessionary episode across four intervening decades.
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- For the Oil Market, the Strait of Hormuz Isn’t Closed — At least 5m barrels of oil per day continue to transit the Strait of Hormuz, with the true volume likely higher as growing oil spills from tanker attacks indicate ongoing vessel traffic despite efforts to close the waterway.
- U.S. Economy Less Vulnerable To Geopolitical Oil Price Shocks Than In The Past — Kilian, et al find that the impact of an energy shock on US real GDP growth has fallen to 1/20th of what it would have been in 1980, due both to the declining…
A Return To Monetarism?
AI Summary. Excessive money growth reliably signals inflationary pressure regardless of whether its source is monetary or fiscal policy, because any fiscal expansion that increases money supply is captured in price-gap models tracking monetary aggregates.
Peter Ireland, Stephen Miran and Nouriel Roubini Hudson Bay Capital- Date Posted:
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Ireland, Miran, and Roubini compare the actual price level to the predictions of an equilibrium model relating prices to money supply. Predicted inflation hit a 60-year high in 2020–21, months before inflation surged and then crashed once the Fed hiked.
Does excess money growth always predict inflation regardless of its source?
The graphs in Figure 3 show quite clearly how the surge in money growth starting in 2020 and continuing in 2021 put enormous upward pressure on inflation, to a degree unprecedented in the post-1967 sample period. And while the large and negative price gaps that followed in 2022 and 2023 are likewise indicative of strong disinflationary pressures applied through subsequent monetary tightening, one can’t see these graphs without asking: Had Federal Open Market Committee members been monitoring measures of money growth with the help of the P-star [price target based on monetary aggregates] model, might they have ended QE and raised interest rates sooner and more quickly, thereby avoiding at least some of the post-2020 inflation? Of course, massive fiscal expansion was another driver of the post-2020 surge in inflation, as suggested by fiscal theories of the price level. The model simply observes that regardless of its originating source, excessive money growth signals that inappropriate macroeconomic policies are fueling higher inflation. Fiscal expansions that expand money supply will be reflected in a P-star model.Related Articles:
- Money and Inflation — Jesper Rangvid argues that monetarist theory would have predicted deflation from the recent contraction in the M2 money supply. Continuing inflation leaves him…
- State Dependence of Monetary Policy During Global Supply Chain Disruptions — Bai, et al present evidence that btw 2017 and 2023, monetary tightening reduced US inflation relatively more than output during periods of global supply chain…
- What Next for r*? A Capital Market Equilibrium Perspective On The Natural Rate of Interest — In a base model, steady state r* is still ~0, suggesting that “secular stagnation” may not be a thing of the past. AI expansion and inflation risk could each…
Home Alone: Inflation And The New Fed Chair
AI Summary. Current inflation conditions — including labor market tightness, price pressures, supply chain stress, and the output gap — align more closely with historical conditions that prompted the Federal Reserve to raise rates than to cut them. Averaging multiple monetary policy benchmarks points to an optimal interest rate range of 4.00%–4.85%
Michael Cembalest J.P. Morgan- Date Posted:
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Cembalest notes labor market tightness, price pressures in the manufacturing sector and the implied output gap are “much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them.”
Does current inflation warrant higher rates than the Fed currently plans?
Core argument: Monetary policy rules average a 4.00–4.85% Fed Funds range vs. the current 3.50–3.75%, indicating tightening bias drives futures pricing toward.
Inflation indicators the Fed watches include labor market tightness, price pressures in the manufacturing sector, supply chain tightness and the “output gap” which measures how far actual growth is above/below potential growth. [The two] charts plot these four variables at the time of prior Fed decisions to increase or cut policy rates; green dots indicate when the Fed cut, red dots indicate when the Fed tightened and yellow circles show today’s values. In other words: current values are much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them. That may be why the futures curve is now pricing in Fed hikes instead of the cuts that were priced in at the start of the year. Superwonky: averaging several different monetary rules of thumb (Taylor rules, inertial, alternative r*, forward-looking) yields a Fed Funds range of 4.00% - 4.85% compared to the current range of 3.50% - 3.75%.Takeaways by Macro Roundup® AI
- Monetary policy rules average a 4.00–4.85% Fed Funds range vs. the current 3.50–3.75%, indicating tightening bias drives futures pricing toward.
- Labor market tightness, manufacturing price pressures, supply chain constraints, and positive output gaps align with historical rate-increase conditions, leading markets.
Related Articles:
- US Consumer Sentiment Slides to Record Low on Price Concerns — US consumer sentiment has fallen to a record low, driven by rising price expectations of 4.8% over the next year and 3.9% over the long term.
- The Dangerous Brew That’s Rattling Bond Markets — Government borrowing across major economies has reached unprecedented peacetime levels, with U.S. deficits averaging 6.2% of GDP from 2023–2026 versus 4.1% in the early 2000s. Since 2020, economic shocks have consistently pushed inflation higher rather than lower, forcing long-term interest rates up and adding an estimated $
- Are Government Bonds Safe in Times of War and Pandemic? — US government bonds, normally safe assets, become risky in times of war because of negative real returns due to bursts of inflation. As in the fiscal theory of…
US Consumer Sentiment Slides to Record Low on Price Concerns
AI Summary. US consumer sentiment has fallen to a record low, driven by rising price expectations of 4.8% over the next year and 3.9% over the long term.
María Paula Mijares Torres Bloomberg- Date Posted:
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The Michigan Consumer Sentiment Index hit a record low in May, falling ~10% month over month. Consumers foresee prices advancing 4.8% over the next year. Inflation and high gas prices have long been major causes of sentiment drops.
Are rising price expectations undermining consumer confidence?
Core argument: Michigan consumer sentiment fell 5 pts to 44.8, undershooting all economist forecasts, driving heightened recession risk perceptions.
The University of Michigan’s final May sentiment index decreased 5 points to 44.8 from April. The gauge was weaker than all projections in a Bloomberg survey of economists as well as the preliminary reading of 48.2. Consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months. They also saw costs advancing 4.8% over the next year.Takeaways by Macro Roundup® AI
- Michigan consumer sentiment fell 5 pts to 44.8, undershooting all economist forecasts, driving heightened recession risk perceptions.
- Five-to-10-year inflation expectations surged to 3.9% from 3.5% month-over-month, the highest in seven months, leading to eroded purchasing power confidence.
- One-year price expectations of 4.8% vs. 3.9% long-term forecasts signal consumers expect near-term cost acceleration to outpace eventual moderation.
Related Articles:
- The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — US consumer sentiment is significantly lower than expected based on unemployment and inflation. Alternative measures of inflation that include borrowing costs…
- The Dangerous Brew That’s Rattling Bond Markets — Government borrowing across major economies has reached unprecedented peacetime levels, with U.S. deficits averaging 6.2% of GDP from 2023–2026 versus 4.1% in the early 2000s. Since 2020, economic shocks have consistently pushed inflation higher rather than lower, forcing long-term interest rates up and adding an estimated $
- $50 Trillion Safe-Haven Debt Market Upended by Iran War Inflation — The $50tn market for Group of Seven sovereign bonds is under pressure as investors price in persistent inflation, driving long-term yields to their highest level in two decades. Rising government debt and unresolved post-pandemic price pressures are compounding the risk, forcing expectations of higher interest rates to contain inflation.
Where Did All the Affordable Cars Go?
AI Summary. The average new car costs ~$50,000, with sub-$20,000 options nearly extinct, while repair costs have risen 15%, making car ownership unaffordable for budget consumers. Removing import barriers on lower-cost foreign vehicles would expand access, as comparable Chinese models sell for ~$20,000 less than U.S. equivalents while offering superior performance
Clifford Winston New York Times- Date Posted:
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In 2012, there were ~12 new cars available for around $25,000 in real terms in the US. Today, there are only 4 new cars available at that price point. Clifford Winston notes allowing Chinese imports would likely increase that number to 11.
How Can Lower-Cost Foreign Vehicles Improve Car Affordability?
Core argument: Average new car prices reached $50,000, up from sub-$20,000 availability a decade ago, driving affordability crisis for budget consumers.
The average transaction price for a new car now sits around $50,000. In December, it became just about impossible to find one for less than $20,000. For anyone on a budget, an aging car is a trap. Auto repair costs jumped 15% in the last year alone, driven by the complexity of modern sensors and labor shortages. An average trip to the mechanic now costs roughly $840. To fix the problem, policymakers must overturn what has been for decades the third rail in American politics. It is time to stop coddling Detroit automakers [and open] the American market to cars made in China and elsewhere. Chinese cars aren’t just cheaper than the American alternatives. They’re often better. Take BYD’s slightly more upscale Seal sedan. It’s similar to Tesla’s Model 3, introduced nine years ago. But the Seal costs roughly $20,000 less than the Model 3. The Seal’s premium model offers substantially more horsepower, and its battery not only lasts longer, it can also be 80% charged in just 37 minutes. The Seal isn’t just a budget alternative; it is a more advanced machine.Takeaways by Macro Roundup® AI
- Average new car prices reached $50,000, up from sub-$20,000 availability a decade ago, driving affordability crisis for budget consumers.
- Auto repair costs jumped 15% annually to $840 per visit, as sensor complexity and labor shortages result in escalating ownership.
Related Articles:
- ‘It’s Just Crazy’: High Car Payments Make Ownership Feel Impossible — The mean payment on a new car was $774 in January, up from $588 in January 2021 – an ~32% increase, outpacing the overall 24% increase in the price…
- Inflation Is Down, But Americans Still Feel an Affordability Squeeze — The US price level has risen 26% since January 2020, leaving Americans’ average weekly real wages up only 3.7% over five years.
- Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — Tariffs implemented during the 2018-2019 trade war were “at best a wash, and may have been mildly negative” in terms of employment, but increased political…
Inflation Is Down, But Americans Still Feel an Affordability Squeeze
Mark Niquette, Jennah Haque and Jade Khatib Bloomberg- Date Posted:
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The US price level has risen 26% since January 2020, leaving Americans’ average weekly real wages up only 3.7% over five years.
Related Articles:
- The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — US consumer sentiment is significantly lower than expected based on unemployment and inflation. Alternative measures of inflation that include borrowing costs…
- Why Do We Dislike Inflation? — New survey research shows that people dislike inflation because they believe that it is associated with declining real wages and falling living standards…
- A Mystery in Fixed Income — U.S. 10-year yields are higher today than at the start of the Fed’s cutting cycle in September 2024. Sløk notes that the “pattern of rising long-term interest…