Inflation is coming...in a big way. Part 2.

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digits_
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Re: Inflation is coming...in a big way. Part 2.

Post by digits_ »

pelmet wrote: Sat Jan 15, 2022 11:18 pm

Wouldn't surprise me if they are playing a game of letting inflation run for a while to assist with the debt. The average person has their equivalent of taxes increased and don't realize it.
What makes you say that?

If there is inflation but your salary doesn't increase, your income tax stays the same but is worth less. Pst and gst might increase to keep their value, but with the salary that is worth less, people will spend less money.

If salaries do increase with inflation, the tax level is pretty much the same (increase but the same value).
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Re: Inflation is coming...in a big way. Part 2.

Post by rookiepilot »

digits_ wrote: Sun Jan 16, 2022 8:03 am
pelmet wrote: Sat Jan 15, 2022 11:18 pm

Wouldn't surprise me if they are playing a game of letting inflation run for a while to assist with the debt. The average person has their equivalent of taxes increased and don't realize it.
What makes you say that?

If there is inflation but your salary doesn't increase, your income tax stays the same but is worth less. Pst and gst might increase to keep their value, but with the salary that is worth less, people will spend less money.

If salaries do increase with inflation, the tax level is pretty much the same (increase but the same value).
He’s right, but only works until you see serious social disorder.

Biden is about to get annihilated in the midterms.
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Re: Inflation is coming...in a big way. Part 2.

Post by pelmet »

Here is an article from the National Post with some details on how it benefits the government. Taxes are pretty much maxed out in this country, so inflation can help the a bunch of uncontrollable free-spenders, like Canada and the US have now. If the high spending types of government can walk a fine line of having some inflation that is a bit annoying but not too much that really pisses off people, it would seem that it would benefit them. They can spend away buying votes and not raise taxes.

As for someone like Biden who may be getting in a situation where inflation is going too far, he has limited control on what can be done as he doesn't control interest rates, independent people do. I am no expert but I have a feeling that a deep recession is what will cure inflation. But that doesn't get governments re-elected. Then there is energy prices that go up due to mis-guided policies.

Obviously, there are other issues beyond the control of our politicians such as places like China shutting down factories and leading to shortages(and higher prices), as part of a covid zero policy and preventing pollution from marring those always clear blue skies over there(at least during the Olympics). But now we may have another self-induced issue with the vaccine requirement for truckers crossing the border combined with people calling in sick. We'll see what happens. I am stocking up on food(maybe toilet paper too this time) and got my oil furnace topped up early for the deep freeze(had it run out already once this winter despite my calling them more than once for a re-fill). No need to run out of oil when half the delivery guys are sick and it is -30 outside.

So as a final note to Digits, you can see that you didn't realize that the federal government is benefitting from this and the huge debt they continue to build. Average Canadians don't realize it and vote in the same government. Imagine if Harper was still PM and what our finances would be like.

https://financialpost.com/opinion/opini ... of-us-dont

Opinion: Ottawa gets an inflation dividend. The rest of us don't

There is only one sector of the economy that gets a holiday gift from inflation. You guessed it, the government

In this expensive holiday season, many families are finding their budgets stretched thin. With industrial prices up almost a whopping 15 per cent so far this year and wages rising because of labour shortages, businesses will be pressed to raise consumer prices further to make up for shrinking margins.

There is only one sector of the economy that gets a holiday gift from inflation. You guessed it, the government. As shown in last week’s federal economic and fiscal update, a one percentage point increase in the inflation rate pushes up federal revenues by $3.9 billion annually. With the GDP deflator rising 7.6 per cent in fiscal year 2021/22, that means the federal government is pocketing an extra $30 billion in revenue from taxpayers. Call that an “inflation dividend” — for the government, not for us.

Overall, federal revenues are expected to rise $54 billion by next March 31, reflecting both inflation and increased employment and industrial activity. Personal income tax brackets and credits are indexed for inflation but not capital gains or net investment income (i.e., dividends, rents, royalties, etc., less debt interest expense). So, when savers get a bit more money from their investments to make up for the loss in the purchasing power of their money, the government gladly taxes it!

Corporate profits aren’t indexed for inflation, either. Book profits get exaggerated since companies report depreciation, inventory costs and net interest income based on historical costs rather than current values. (By contrast, if net interest is negative, which is the normal situation with corporate leverage, then inflation benefits companies: borrowers usually gain from inflation. On balance, however, book profits are overstated when there is inflation.) The profits of federal crown corporations have also swung upwards — by $19 billion, accounting for over a third of the increase in Ottawa’s revenues this year. Part of that increase is due to inflation, as well.

As for the government’s expenses, some automatically rise with inflation, but others don’t. Many payments are indexed, such as for elder and child benefits. Others are indexed to nominal GDP, like the Canada Health Transfer and the aggregate of equalization payments paid to the provinces.

Otherwise, however, the government’s expenses may not rise as much as inflation. Most public employee salaries are not indexed for inflation. While cost-of-living adjustments in contracts were common four decades ago, they cover less than a tenth of employees today. Some payments to provincial governments, such as the Canada Social Transfer, are indexed at a fixed rate (e.g., three per cent) that is now below inflation. Infrastructure costs are ballooning, which will reduce real spending unless the budgets for them are boosted.

Despite most social benefits being indexed, inflation hurts those Canadians who lose benefits that are clawed back when their nominal incomes rise above a threshold level (even if the threshold itself is indexed). For example, low-income seniors might receive indexed CPP benefits. But a senior will lose 50 cents in Guaranteed Income Supplement with each dollar increase in their CPP benefits once their income exceeds $15,672. Talk about giving with one hand and taking away with the other!

Old Age Security payments are also clawed back at 15 cents on the dollar above $81,761 so any inflated income will be taxed by the government. If average investors squeeze out a bit more capital gains, dividends and interest income to make up for inflation, they could end up being taxed at rates close to 50 per cent, taking into account both personal taxes and OAS clawbacks. That hurts.

Same with child benefits. They are clawed back seven cents on the dollar above $32,028 in family income. So, if a worker with a salary of $60,000 gets a $1,000 end-of-year bonus that helps make up for higher living costs, 37 per cent is lost to personal taxes and the child benefit clawback.

Putting this all together, Finance Canada estimates that a one-point increase in the GDP deflator increases federal spending by $2.2 billion annually, which is $1.7 billion less than the revenue bump-up. This year’s GDP deflator of 7.6 per cent therefore gives the federal government an additional $13 billion in budgetary wiggle room.

But by far the biggest part of Ottawa’s inflation dividend is the reduction in the real cost of its debt. Unlike households and businesses, which generally have more assets than debt, government is a big net debtor. So, inflation results in a huge transfer of wealth from households and businesses to the public sector. With net federal debt at $1.2 trillion dollars and consumer price inflation running at 4.7 per cent, that transfer is equal to a whopping $56 billion. If instead interest rates were raised to compensate investors’ losses to inflation, next year’s federal deficit would not be the $144 billion predicted in the fiscal update but $200 billion.

Add it up: $56 billion in real debt relief and $13 billion in budget gains from inflation. The total federal inflation dividend is $69 billion in 2021. The budget doesn’t do inflation accounting. But it should.
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Re: Inflation is coming...in a big way. Part 2.

Post by rookiepilot »

Pelmet,

Fed (Powell) will respond forcefully to inflation, or he will be fired, soon.

They aren’t independent, they do what they are told.

Get ready for widespread strikes.

Otherwise, yup this is exactly what they do.

Don’t hold bonds of any kind, shape or form……
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Last edited by rookiepilot on Sun Jan 16, 2022 9:10 am, edited 1 time in total.
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Re: Inflation is coming...in a big way. Part 2.

Post by digits_ »

pelmet wrote: Sun Jan 16, 2022 8:36 am ...
Thanks!
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Re: Inflation is coming...in a big way. Part 2.

Post by goldeneagle »

rookiepilot wrote: Sat Jan 15, 2022 7:54 am You have a degree? Get your money back. Wow.
Rookie must be off his meds again.
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Re: Inflation is coming...in a big way. Part 2.

Post by pelmet »

goldeneagle wrote: Sun Jan 16, 2022 10:17 am
rookiepilot wrote: Sat Jan 15, 2022 7:54 am
goldeneagle wrote: Fri Jan 14, 2022 9:06 pm
But those who think the price of gas is somehow tied to overall inflation are delusional.

The price of oil will be whatever the Saudi princes say it will be. Ever heard of OPEC ? Those meetings are where they decide how they intend to manipulate the price of oil going forward, and they will grind it up to as much as they can get away with.
This take is so bad I have no idea where to begin.

You have a degree? Get your money back. Wow.
goldeneagle wrote: Sun Jan 16, 2022 10:17 am Rookie must be off his meds again.
The Saudi's certainly have influence but there are other big players too, like Russia. Then again, they are just as nefarious along with most of the others. Obviously, there are many complexities that leave the Saudis far from total control.

It amazes me how all these do-gooders play right into the hands of these nations with their Koombaya policies. But that is they way a significant part of the population is. on many subjects, and one has to just deal with reality....in my opinion.
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Re: Inflation is coming...in a big way. Part 2.

Post by rookiepilot »

goldeneagle wrote: Sun Jan 16, 2022 10:17 am
rookiepilot wrote: Sat Jan 15, 2022 7:54 am You have a degree? Get your money back. Wow.
Rookie must be off his meds again.
Try to confine your comments to a topic you actually know a little something about.

Yes, news flash, Golden—— energy prices do feed into “actual” inflation. Companies pass those costs to the consumer.

Yes, I love mocking those who flaunt their expensive paper and are in reality common sense deprived. It’s fun sport.
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Re: Inflation is coming...in a big way. Part 2.

Post by '97 Tercel »

Yep.

Inflation is basically a hidden tax
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Re: Inflation is coming...in a big way. Part 2.

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Re: Inflation is coming...in a big way. Part 2.

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4.8%. I think they left a 1 off of that number.

https://www.cbc.ca/news/business/inflat ... -1.6320085
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Re: Inflation is coming...in a big way. Part 2.

Post by altiplano »

Inverted2 wrote: Wed Jan 19, 2022 7:23 am 4.8%. I think they left a 1 off of that number.

https://www.cbc.ca/news/business/inflat ... -1.6320085
The thing is they don't include minor things - like HOUSING & ENERGY. Probably average people's single largest expenses. Add that in and we are probably pushing double digits.
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Re: Inflation is coming...in a big way. Part 2.

Post by altiplano »

HAHAHA...

I can't believe they are talking about the FCOJ market in the commodities market and the Florida crop report Where's Winthorpe when you need him!
That's causing the price of frozen concentrated orange juice to skyrocket on commodities markets.

"If you're an orange juice drinker, it means your prices are going to be going up at the store," analyst Phil Flynn, with Chicago-based commodity trading firm Price Group, told CBC News. "The cost of orange juice has almost doubled here in the last few months, and that's going to be passed down to the consumers."
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Re: Inflation is coming...in a big way. Part 2.

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goldeneagle wrote: Fri Jan 14, 2022 9:06 pm But those who think the price of gas is somehow tied to overall inflation are delusional. The price of oil will be whatever the Saudi princes say it will be. Ever heard of OPEC ? Those meetings are where they decide how they intend to manipulate the price of oil going forward, and they will grind it up to as much as they can get away with.
OPEC hasn’t really been relevant since the 80s. Remember when the oil glut happened and they put the brakes on production to try and get prices to go up? They (the Saudis especially) lost their shirts.

So they didn’t make the same mistake in 2014. They kept producing, and prices dropped precipitously. That’s ok because they can make it on volume.

Point is, everyone is along for the ride. There’s very few people who can do anything about anything.

And it is definitely about inflation. The more cash floating around, the more people consume things. Especially energy.
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Re: Inflation is coming...in a big way. Part 2.

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altiplano wrote: Wed Jan 19, 2022 11:06 am
Inverted2 wrote: Wed Jan 19, 2022 7:23 am 4.8%. I think they left a 1 off of that number.

https://www.cbc.ca/news/business/inflat ... -1.6320085
The thing is they don't include minor things - like HOUSING & ENERGY. Probably average people's single largest expenses. Add that in and we are probably pushing double digits.
Did your housing expenses increase by 4.8% this year? Mine didn’t. Mine actually decreased thanks to the feds.

For those who bought this year or found themselves suddenly homeless from landlords sale or renovictions staring down increased mortgages or rentals…. or those who have energy intensive lifestyles (I have a high efficiency furnace and wood heat, a small car and a short commute), I’d bet the figure is closer to 25%.

Point is it’s an average. Part of the reason for high home prices is very low supply meaning most homeowners are immune to the market. Unless they were stupid and sold thinking they were going to make money only to try and stay in the market with a subject to offer that’s round binned immediately.
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Re: Inflation is coming...in a big way. Part 2.

Post by altiplano »

‘Bob’ wrote: Thu Jan 20, 2022 9:05 am
altiplano wrote: Wed Jan 19, 2022 11:06 am
Inverted2 wrote: Wed Jan 19, 2022 7:23 am 4.8%. I think they left a 1 off of that number.

https://www.cbc.ca/news/business/inflat ... -1.6320085
The thing is they don't include minor things - like HOUSING & ENERGY. Probably average people's single largest expenses. Add that in and we are probably pushing double digits.
Did your housing expenses increase by 4.8% this year? Mine didn’t. Mine actually decreased thanks to the feds.

For those who bought this year or found themselves suddenly homeless from landlords sale or renovictions staring down increased mortgages or rentals…. or those who have energy intensive lifestyles (I have a high efficiency furnace and wood heat, a small car and a short commute), I’d bet the figure is closer to 25%.

Point is it’s an average. Part of the reason for high home prices is very low supply meaning most homeowners are immune to the market. Unless they were stupid and sold thinking they were going to make money only to try and stay in the market with a subject to offer that’s round binned immediately.
My mortgage stayed the same because I'm on a fixed rate/term, but when the mortgage renews it will be up as interest rates rise.

But that's only one cost...

Upkeep and repairs increased substantially.

Utilities rates increased substantially.

Insurance rates increased substantially.

Property taxes increased substantially.

Roughly 6 in 10 Canadian families own their principle residence. So there are still many people exposed to the rental market and it's corresponding rises, or trying to buy into a rapidly inflating market.

To say: "I'm a homeowner, not my problem" is arrogant and ignorant.

This is a problem that affects our whole society, even if we own our little slice of paradise, there will still be eventual broader repercussions.

That said, I've got several properties in the least affordable markets on the continent... It's good my net worth now, but I have larger concerns on the issue of sustainable market growth.
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Re: Inflation is coming...in a big way. Part 2.

Post by '97 Tercel »

I rent but my neighbour's property tax has gone up 17% since covid started. Insurance definitely went up and is set to continue that trend.


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Re: Inflation is coming...in a big way. Part 2.

Post by kgb531 »

While demand has been firm in most markets, it is low rates that have artificially increased the price of homes.
Here in Alberta, a $500K home is not a $500K home. It is a $2500/mth mortgage payment. Given that a large majority of homebuyers in the last 19 years have borrowed at or near their maximum affordability, that home stays a $2500/mth home whether rates are 1.8% or 4%.
The price of a home is what somebody is willing (capable) of paying for it. In the above scenario, the 500K home becomes a 420K quite fast. Those who are overextended, be it mortgagee or builder, will find the bankruptcy avenue to be more appealing as time goes on.
Of course those with any common sense didn't borrow to their maximum and gave themselves plenty of breathing room. The "home as investment" fad started about 20 years ago and it is the normalization of lending rates that will ultimately bring housing prices back inline. There will be a lot of carnage in many neighborhoods.

&$
‘Bob’ wrote: Thu Jan 20, 2022 9:05 am
altiplano wrote: Wed Jan 19, 2022 11:06 am
Inverted2 wrote: Wed Jan 19, 2022 7:23 am 4.8%. I think they left a 1 off of that number.

https://www.cbc.ca/news/business/inflat ... -1.6320085
The thing is they don't include minor things - like HOUSING & ENERGY. Probably average people's single largest expenses. Add that in and we are probably pushing double digits.
Did your housing expenses increase by 4.8% this year? Mine didn’t. Mine actually decreased thanks to the feds.

For those who bought this year or found themselves suddenly homeless from landlords sale or renovictions staring down increased mortgages or rentals…. or those who have energy intensive lifestyles (I have a high efficiency furnace and wood heat, a small car and a short commute), I’d bet the figure is closer to 25%.

Point is it’s an average. Part of the reason for high home prices is very low supply meaning most homeowners are immune to the market. Unless they were stupid and sold thinking they were going to make money only to try and stay in the market with a subject to offer that’s round binned immediately.
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Re: Inflation is coming...in a big way. Part 2.

Post by tsgarp »

rookiepilot wrote: Sun Jan 16, 2022 8:17 am
Biden is about to get annihilated in the midterms.
Depends who counts the votes.
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Re: Inflation is coming...in a big way. Part 2.

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