October 23, 2007

THE DRAGON IS DEAD:

Low inflation figures limit retirees, investors (Mike Causey, October 23, 2007, Washington Times)

The low inflation rate is having a major impact on both federal retirees and working feds who max out their 401(k) investments. [...]

• In January, federal and military retirees and people who receive Social Security benefits will get a 2.3 percent cost-of-living adjustment. That's the lowest COLA in years for the huge group of retirees whose benefits are linked to inflation.


Of course, the benefit ought not have an inflation escalator and that number overstates actual inflation by about a point.

Posted by Orrin Judd at October 23, 2007 7:06 AM
Comments

Looks like the Washington Times has gone native, finding a negative spin for low inflation. (Back in the Reagan administration, the hated rival Post headlined an article on low inflation with "COST OF LIVING RAISES TO BE LOWER THAN EXPECTED".)

What next, "LOWER MURDER RATE MEANS LAYOFFS FOR GRAVEDIGGERS"? What? Oh.

Posted by: Bob Hawkins at October 23, 2007 8:10 AM

Actually the major issue is that items that the Inflation Rate usually does not cover - food and fuel costs - have been consistently rising. It's one thing to not count them when they fluctuate up and down so much that they would distort core inflation. It's another thing when they are consistently increasing, and people are noticing that life is becoming more expensive.

Posted by: Chris Durnell at October 23, 2007 10:33 AM

Life becomes less expensive, people become whinier.

Posted by: oj at October 23, 2007 11:09 AM

Though the current cost-of-living increase -- 2.3% -- is the lowest in years, it accurately reflects recent inflationary numbers.

There is lots of controversy about the CPI and whether it overstates or understates actual inflation. For homeowners, CPI is probably overstated. For those who rent, maybe not.

When it comes to consumer goods, CPI does not accurately reflect quality improvements e.g. a basic computer today has much more power and many more features and capabilities than a basic computer had five years ago.

A bigger question than what cost-of-living increase Social Security recipients should get is, what to do about Social Security overall?

www.fundmasteryblog.com

Posted by: Kurt Brouwer at October 23, 2007 2:20 PM

While perhaps not "inflationary", the WSJ had an interesting article on the highest-ever cost of shipping (primarily raw materials) in yesterday's edition. Leasing a medium-sized vessel to cross the Pacific now costs approx. $165,000 a day, versus about $80,000 a day just a few years ago. The higher fuel cost is not the only reason - the shortage of boats is also a big factor.

The article went on to discuss the long lines of ships waiting to enter various harbors - some ports have over 100+ boats circling, waiting to dock. Sound like a major airport on a Friday afternoon.

The cost of a new ocean-going freighter has gone up dramatically, too. I have read that the typical shipyard in South Korea has a huge backlog, and is working around the clock.

Today's paper had a piece about the ever-increasing fuel demand in Asia, which began to climb dramatically around 2003 (about the time oil prices began their recent rise). As I recall, China now uses about 7% of the world's oil, up from 4% in 2004. They are heading towards 9% by 2010, with India following.

Globalization certainly improves efficiency, but there are going to be areas where the US doesn't get the lion's share anymore (at least not at the same price).

Posted by: jim hamlen at October 23, 2007 2:56 PM
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