As Lumber Prices Fall, the Threat of Inflation Loses Its Bite

[highroller]

Almost every industry did. What will be the determining factor is if home building goes up or down. Right now, with the record high prices still affecting the retail market, new home building is down. We'll have to see where it evens out. I still predict we'll never see pre-pandemic retail prices again. $4-$5 per 2x4 stud is where I think we'll hover.

I think that is too high. I think I will get to $2 although that will take some time.

 

[Airyaman]

I think that is too high. I think I will get to $2 although that will take some time.

$2 is where it was ~2018. No way.

 

[iguanaman]

They raised interest rates because the dollar WAS threatened in the 70s. There was a point where some investors were demanding government bonds in Swiss Francs instead of the USD.

I did not know that "King dollar" was ever "threatened". Whatever the reason it caused the economy to tank until they slashed rates and made Reagan look like a miracle worker.

 

[highroller]

I did not know that "King dollar" was ever "threatened". Whatever the reason it caused the economy to tank until they slashed rates and made Reagan look like a miracle worker.

It was a reworking of the international economic order. The world went from closed, national economies with strong union support to open trade economies with little worker rights. Mark Blythe had a interesting video on it. I don't know if it is still uploaded or was taken down.

The "miracle work" done by Reagan was the demographic affects of the baby boomers settling down and spending in their 30s.

 

[Waddy]

Gas used to be $4 a gallon under GW Bush so how could $3/gal be inflation? Don't make the same mistake the Fed did under Carter and mistake the OPEC oil price hike as inflation. They kept raising rates and guess what the price of oil doubled anyway raising prices on nearly everything. Those high rates did a real number on the economy. Mortgages were at 15%. I did like those jumbo CD's at 10% though.

Inflation is a measure from one point in time to another. If gas goes from $2 to $3 that is inflation. If it goes from $3 to $2 that is deflation. What we're seeing now is inflation. It's not as bad as the numbers reflect because much of it is peak inflation, which will deflate some, but will not go back to pre-Covid levels.

 

[Luce]

That proves that you have no understanding of even elementary economics.

Your insults mean nothing, considering that you don't even seem to understand how an economy expands.

 

[Tahuyaman]

Your insults mean nothing, considering that you don't even seem to understand how an economy expands.

If didn't insult you.

 

[Kushinator]

As I was saying...

Confirmation bias. Lumber futures hit a price point where purchasing managers feel more comfortable loading up.

Demand is strong and looks to be for the next few years. Even though futures are double their pre-pandemic level, they were 4x just a few months ago.

I expect to see lumber futures settling in at around $600 by the end of the building season.

 

[Kushinator]

If didn't insult you.

Your opinion of other people's economic knowledge is meaningless. All one needs to do is observe your contributions to this thread... just partisan bickering. Nobody reads this thread and becomes more informed by reading your posts. Nobody....

 

[Kushinator]

You do realize that the oil companies do NOT buy the majority of their feedstock on the "spot market" but they DO use an increase in the "spot price" to justify raising the price that they charge for gasoline REGARDLESS of the fact that they are purchasing at a much lower price on a long term contract, don't you?

Umm....

Gasoline prices are not determined by an individual supplier. Sure, petrol energy products have inelastic demand properties, but suppliers still compete with each other to push inventories out at a profit maximizing price.

If the global market starts to build inventory, the price level will decline.

 

[Tahuyaman]

Your opinion of other people's economic knowledge is meaningless. All one needs to do is observe your contributions to this thread... just partisan bickering. Nobody reads this thread and becomes more informed by reading your posts. Nobody....

Actually I haven't made one comment which could be construed as partisan in nature. What kind of information are you providing with stuff like that? Nothing, that's what

 

[Tahuyaman]

Inflation is a measure from one point in time to another. If gas goes from $2 to $3 that is inflation. If it goes from $3 to $2 that is deflation. What we're seeing now is inflation. It's not as bad as the numbers reflect because much of it is peak inflation, which will deflate some, but will not go back to pre-Covid levels.

Some things will fall back to pre COVID levels. Lumber prices will eventually return to pre COVID levels as will fuel. I think many durable goods and food prices will too.

 

[Visbek]

On the other hand, if they bought it at $120 and the current spot price is $1,200, do you think that they aren't going to raise the retail price "because the price of lumber has gone up"?

Retailers, distributors and manufacturers don't have deep inventory of products these days. This is one reason why the pandemic was so disruptive for supply chains; companies are so hyper-focused on cutting costs and maximizing efficiency that they aren't very robust. I.e. Any lumber inventory that Home Depot bought at $120 per 1,000 board feet was sold a long time ago.

It's plausible that retailers started raising prices before lumber prices started going up -- but not by much. No one knew that lumber prices were going to keep rising until mid-May, and then start to fall. Any company that raised its prices too fast lost business to competitors who hung onto lower prices as long as possible. And as far as I know, there isn't a "Big Lumber" cartel which fixes prices.

Along the same lines, there is only so long that retailers or distributors can charge amounts that are disconnected to the commodity's price. As spot prices fall and supply rises, sooner or later someone is going to realize they can undercut the competition by selling at a lower price. That will exert a downward pressure on the price.

And of course, people pay a lot more attention to negative news than positive news. E.g. you notice how gas prices rise as soon as there's some mitigating event (like a hurricane knocking refineries offline), but don't notice how gas prices fall shortly thereafter.

 

[Kushinator]

Actually I haven't made one comment which could be construed as partisan in nature.

There probably isn't a single post you've made that isn't a hack job or straight trolling. You do not contribute anything of value to these threads.

What kind of information are you providing with stuff like that? Nothing, that's what

My contribution to this thread has been informative. If we didn't have to put up with pissy little partisans like yourself.....

 

[Plasmaball]

BTW, That is not inflation. Inflation is a “general” rise prices.

Raise

 

[Visbek]

$2 is where it was ~2018. No way.

Yes way.

Spot prices have already fallen more than 50% in just 6 weeks. It's around $825 now. They fell about $100 in the past week alone.

In fact, spot prices for lumber started at $315 in early 2016, kept rising until the middle of 2018 to $613, then fell to $336 by September 2016. Odd how you don't remember those dramatic price gyrations, or how prices fell to pre-peak levels in just a few months.

Anyway. A huge drop in lumber prices is already happening. You shouldn't be too surprised if it winds up very close to pre-pandemic prices by the end of the year.

 

[Tahuyaman]

There probably isn't a single post you've made that isn't a hack job or straight trolling. You do not contribute anything of value to these threads.

My contribution to this thread has been informative. If we didn't have to put up with pissy little partisans like yourself.....

Interesting.

 

[Tahuyaman]

BTW, That is not inflation. Inflation is a “general” rise prices.

Actually inflation can exist in some sectors but not in others. Plus the degree of inflation generally varies from sector to sector.

 

[Visbek]

Actually inflation can exist in some sectors but not in others. Plus the degree of inflation generally varies from sector to sector.

Incorrect.

Inflation is not "an increase in prices." That's an effect and a method of measurement, not a definition.

Investopedia: Inflation is the decline of purchasing power of a given currency over time.

Or, to quote Milton Friedman: Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

That's why increases in commodity prices aren't really "inflation" in the technical sense. Real inflation is a result of monetary policy, not supply shocks.

This is also why government spending doesn't cause inflation. The federal government spending $1 trillion on infrastructure over 5 years might increase costs for concrete due to increasing demand, but it won't actually cause inflation.

The only way to generate real inflation is for the Fed to crank out so much money in a given time frame that it reduces the purchasing power of the dollar. And the Fed isn't doing that. So....

 

[Tahuyaman]

Incorrect.

Inflation is not "an increase in prices." That's an effect and a method of measurement, not a definition.

Investopedia: Inflation is the decline of purchasing power of a given currency over time.

Or, to quote Milton Friedman: Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

That's why increases in commodity prices aren't really "inflation" in the technical sense. Real inflation is a result of monetary policy, not supply shocks.

This is also why government spending doesn't cause inflation. The federal government spending $1 trillion on infrastructure over 5 years might increase costs for concrete due to increasing demand, but it won't actually cause inflation.

The only way to generate real inflation is for the Fed to crank out so much money in a given time frame that it reduces the purchasing power of the dollar. And the Fed isn't doing that. So....

Nothing in my statement was incorrect.

 

[Kushinator]

The only way to generate real inflation is for the Fed to crank out so much money in a given time frame that it reduces the purchasing power of the dollar. And the Fed isn't doing that. So....

To expand on this point. There isn't a linear relationship with respect to money supply growth and inflation. Recently, money supply (m2) has grown by more than 30% since the beginning of the pandemic. In order for this growth to translate into less purchasing power, it needs to actually be turning over... AKA monetary velocity.

However, i subscribe to the New Keynesian approach with respect to the short-run, where inflation occurs as a result of output growth outpacing productivity growth.

In the long run, velocity is fixed, and so the emphasis on supply growth takes center stage.

 

[Kushinator]

Nothing in my statement was incorrect.

Your opinion doesn't matter because you can't support it much less defend it....

 

[iguanaman]

Inflation is a measure from one point in time to another. If gas goes from $2 to $3 that is inflation. If it goes from $3 to $2 that is deflation. What we're seeing now is inflation. It's not as bad as the numbers reflect because much of it is peak inflation, which will deflate some, but will not go back to pre-Covid levels.

Sorry but the price of one commodity does not equal inflation or deflation. Also some inflation is needed for a healthy economy and deflation is a far bigger concern for the Fed. The good news is that interest rates are at historical lows which means there is plenty of room to cool off any REAL inflation by raising rates.

Inflation promotes speculation, both by businesses in risky projects and by individuals in stocks of companies, as they expect better returns than inflation. An optimum level of inflation is often promoted to encourage spending to a certain extent instead of saving. If the purchasing power of money falls over time, then there may be a greater incentive to spend now instead of saving and spending later. It may increase spending, which may boost economic activities in a country. A balanced approach is thought to keep the inflation value in an optimum and desirable range.

The U.S. Federal Reserve in June announced no change in its rate policy at its June 2021 meeting and did not signal concerns about rising inflation. A week earlier the U.S. Bureau of Labor Statistics (BLS) reported that the Consumer Price Index For All Urban Consumers (CPI-U) was up by 5.0% through May 2021, the index's biggest 12-month surge since the 5.4% increase during the period ending Aug. 2008.

https://www.investopedia.com/terms/i/inflation.asp

 

[Tahuyaman]

Your opinion doesn't matter because you can't support it much less defend it....

I’m not sure why you’re trolling me like this.

It’s a fact, not my opinion that inflation can exist in some sectors and not in others and that the rate of inflation can vary from sector to sector. I’m sure you consider that a partisan statement.

 

[iguanaman]

I’m not sure why you’re trolling me like this.

It’s a fact, not my opinion that inflation can exist in some sectors and not in others and that the rate of inflation can vary from sector to sector. I’m sure you consider that a partisan statement.

When the Fed say they are not worried about inflation you can take that to the bank. Saying they might need to raise rates in 2023 is a clear signal that current "inflation" is not a problem to them. You are being a "chicken little" by screaming the sky is falling....it's not.