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Why these countries? I'm confused exactly what I'm supposed to take away from this graphic. I mean, it's interesting, but why are so many countries having a negative real interest rate? Would it be possible to group these countries by some common trait?

I just don't know what I'm supposed to take away from this.

No exactly: inflation rates are backwards looking. Nominal interest rates are forward looking.

While the two are related, you can't just subtract one from the other, because the two never overlap in time.

The inflation measures the average change in consumer prices, compared to the previous year. It's worth noting that the table in wikipedia references the timeframe from 2013 to 2017 for measuring the inflation.

What kind of nominal interest rate is this? Is it for banks borrowing from the central bank? For what kind of duration (also a year? or is this a 3-Month- or an overnight rate)? It's worth noting that these interest rates are quite recent (mostly from the 2020s) - I wouldn't call this "real" interest rate since the time frames are different.

How does the nominal interest rate of a central bank relate to the single consumer? Why is this a reasonable comparison to begin with?

Also, what's the red line? Is that supposed to mark where both are equal? Why does it miss, e.g. the (256,256) point?

This is one I'd actually like to see animated over time.

Iirc, Europe (UK and the EU) have been doing this since the 2008 finance crash. The bank of England had the target of <1% interest rates and ~3% inflation rate.

The EU were even more fucked up with negative interest. Most EU countries were operating a 0% intrest or less.

IMHO. Log scale and powers of two are not the best way to represent data. It's really difficult to take it

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Aha! See, Canada doesn't really exist!

Turkey is higher than I thought it would be comparatively. Thanks OP. Good stuff

>I just don't know what I'm supposed to take away from this.

The link to OP's Substack, obviously. (/s)

We're just North of New Zealand.

Both axis growing exponentially looks deceptive af, but I guess it make sense from a "we gotta make all the stuff fit" perspective.

What kind of economic study omits half of the G8 countries?

Looking up the numbers just now, Canada would be just below the "n" in "India". Draw a line on that graph from India to Thailand, and from the USA to Vietnam. Where they cross, is roughly Canada.

Honestly I just think you're supposed to leave with some vague sense of "China good" from this...

Looks like they're just not labeled.

Even when India is faring better than a lot of "developed" economies, the West esp US and some anti-india psudo-intellectuals are against India, like Chidu nowadays with increased barking sound.

Log scales are good for when data has a wide range of magnitudes. To fit Zimbabwe on the scale, about 90% of the countries would be bunched up in the first 10% on a linear scale. Additionally it's a log-log plot, so the relationship is linear

I don't know what any of this means, so I'm just going to be upset about everything being in the red. :)

With them both log scales, the relationship becomes linear again. In other words, a straight line on this graph would also be straight with linear scales

I didn't know China and Hong Kong could set different interest rates.

Especially since many of the points are unlabelled. I understand labelling would have been a nightmare but OP could have at least opted to used different types of markers depending on a category (such as by continent, or political affiliation or even level of development).

Target is 2% flat not ~3%. It's also not set on interest rates, they can go up and down as needed.

This sin't a log scale nor powers of two... I don't know why you're thinking this...

Real Interest Rate = Nominal Rate - Inflation

The line (green vs. blue) is just a Y=X where Real Interest Rate =0

I'm not sure if you're trolling, or just don't know economics.

Edit: Oh! You mean the scale! Yeah, that doesn't matter from an economics perspective. You just need to look at the percentages. It's to force the 45 Degree line that separates positive real rates from negative real rates.

Thank you for googling that information. Perhaps next time, listen to the view and expressions on Mark Carney and Andrew bailey.

And where is Orions belt?

It is a buy or rent Line. In red you would prefer to buy your home. In green, you would prefer rent. I read it this way. Maybe I am wrong.

The division line between positive and negative does not pass through the point (128, 128) and (256, 256), making the graph wrong

They're mostly related at this point because countries think, in vain, that interest rates will fix their inflation.

Edit: It's fair not to believe me. Maybe listen to Jerome Powell?

>says the relationship between inflation and unemployment is gone

Here he is talking about how interest rates won't impact food or gas prices

It's not that interest rates can't fix inflation. It's more that it won't.

High interested rates fix inflation, but they also slow down the economy. Both are through reducing consumption.

Not sure if canada is around belgium or just off the chart (pun intended)

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The relationship between inflation and interest rates really isn't that strong anymore. Largely because the link between unemployment and inflation isn't very strong anymore either.

The fed doesn't even think raising interest rates will do much for inflation.

Russia had an interest rate of 20% for while this year. Inflation over there is currently at around 13%. The rate is now 8% but you could’ve opened some pretty nice savings accounts this year. Plus the currency has grown against the USD like 30%.

It depends. When inflation is cross-border, and caused by supply shocks, raising interest rates in a single country isn't enough because consumption is global (such as as with energy). When it is localized, it is strongly tied to local consumption and therefore strongly impacted by interested rates.

> High interested rates fix inflation,

Only if the reason for the inflation is too much economic activity, rather than too little.

I.e. if demand is the primary problem rather than supply. Hint: today the problem is supply, not demand, and we need more industrial activity rather than less.

While it's not likely, "stagflation" is an incredibly ugly word.

What is the type of chart called (plotting entities on grid whose axes are different attributes of the plotted entitties)? Is there any way to get Excel to make one frrom set of rows of entity names, followed by attribute values?

No, even if supply is the problem, high interest rates will decrease consumption and eventually bring it to the level of supply.

Naturally, that might also cause a decrease in the economic activity causing a recession.

The problem is that fixing inflation hurts, and people tend to have an aversion to pain, and to politicians who cause it.

And none of that matters to my point: inflation is backwards looking, target interest rates are forward looking. The rest is pedantism.

Anyway, no point in arguing economics on Reddit...

Aren't they rather hoping that high inflation will dilute the government borrowing?

Even every country raising interest rates isn't going to do much for inflation. It's not the 1980s anymore, the economy is changing. Many central banks realize it (like the US), but are raising interest rates anyway because that's the only tool they have.

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Pack your bags, we’re moving to Bolivia

I would love to see this graph over time.

We are below the N in India and right beside the USA.

Our inflation rate is slightly lower than the USA, but our interest rate is the same now.

Exactly. This data, therefore, provides a small hint for causation. Central banks see high inflation and tend to raise interest rates in response.

What do you mean "might"? Lowering consumption is lowering economic activity.

That is the point.

just like birds!

That article is from 2019

You are

This is a scatter plot…

So?

He also said it in 2022.

https://www.businessinsider.com/fed-chair-jerome-powell-inflation-unemployment-relationship-abnormal-phillips-curve-2022-1

You entirely missed the point of that comment. Raising interest rates won’t reverse any inflation that’s already taken place, but it absolutely will slow down the rate of future inflation.

That's just another way of saying demand is too high. The reason demand is higher than supply is irrelevant. Higher interest rates curb consumption, full stop. Now, there may be issues on the supply side simultaneously that need addressing, but that's a productivity problem, not a demand problem.

Fair point. Still though, interest rates are going to do very very little to gas prices and food, two of the main drivers of inflation. And if they do, it's likely because people are starving.

Might is referring to the recession. Depending on the circumstances, you might just slow the growth of consumption allowing supply to catch up, without causing a recession.

It all depends on how drastic things are and what is the roadblock.

> Higher interest rates curb consumption, full stop.

Higher interest rates curb all economic activity, both supply and demand.

Effectively, they are an attempt to create a recession... which is fine if the problem is everything is in a bubble that needs a correction...

But in conditions where the inflation is primarily due to supply shocks for reasons external to basic economics, like now, and like Japan because of their demographic collapse, there's a serious risk of creating stagflation, which is strictly worse than inflation.

I’m not convinced. You don’t think a decrease in overall economic activity will result in a decrease in fuel consumption (i.e. demand for fuel)?

> Today the problem is supply, not demand.

It is impossible to say this. Demand continues to outpace supply.

Did demand rise? Yes. Did supply drop? Yes. They are out of equilibrium. There is only one equilibrium created by both.

If there were fewer job openings than job seekers, I would agree that you could look to supply to fix it.

But more job openings than job seekers shows that the supply side sees unmet demand, is trying to meet it, but will not be able to catch up to demand. They cannot employ enough people to keep up with demand.

How can you have an economy that has more consumers than producers? You can’t. The result: inflation.

So in that sense, the demand side is the one that needs to addressed.

>"developed" economies

You put developed in quotations, even even our own economy has a lot of deep rooted problems. Unemployment is high, per capita income is low and there aren't a lot of opportunities. People with mechanical, chemical and civil engineering degree ultimately have to learn coding and join the IT sector because of a dearth of good paying jobs in their respective fields. How can you say that we're faring better when we can't provide enough opportunities to mechanical and civil engineers? What does it say about our economy where there aren't enough industries to absorb them?

Go spend a couple of months in these "developed" countries to see how much more we need to improve. Hell, you can even go to the "developing" nations of China and Vietnam. Some of us criticize the way things are in this country so that we can improve it, not because we're "psuedo-intellectuals".

Not to a large degree, no. There are way too many other factors causing it right now. The amount of activity it would have to cut would be a disaster.

It’s not that interest rates won’t help inflation, it certainly will. It’s just not as efficient as certain supply stimulus when inflation is drawn from a drop in output instead of an increase in consumer demand.

The demand side can still be manipulated to help though, which is why the fed is still raising rates

Didn't know Hong Kong was a country...

> If there were fewer job openings than job seekers

At current offered wages. The only way to fix that, ironically, is inflation.

>They cannot employ enough people to keep up with demand.

Not because those people don't exist, presently (as in Japan's case), but because of external factors.

But even if they didn't exist, though, the only answer other than "everyone just suffers" would be more automation... which requires... capital that high interest rates make scarce.

I'm not trying to say that it won't help at all, it will just won't be much. And will almost certainly be more harm than good. And yeah, there are way better ways to help.

I'd think there are more factors. I mean, if people continue to go grocery shopping on the same schedule, but just buy less with each trip, that can slow overall economic activity without significantly impacting fuel demand.

Similarly, people that can't work from home still have to make it to work.

Or perhaps the economic downturn causes businesses closer to where most people live to shut down and now they gotta get all the way to the other side of town to get their necessities at the big box store that is now their only option.

Fuel demand can certainly stay the same or even increase while demand for most other things goes down.

>Not to a large degree, no. There are way too many other factors causing it right now. The amount of activity it would have to cut would be a disaster.

You don't need a large cut to make a significant impact. Even a 5% fall would be incredibly notable.

But you’re just thinking about households. Manufacturing and shipping far outpace households for fuel consumption, and thus have a larger impact on fuel prices.

>Higher interest rates curb all economic activity, both supply and demand.

But not equally, which is the vital missing link here.

Activities that are currently highly profitable will continue and possibly even grow, despite the higher interest rates.

However, activities which are unprofitable, or who have a long horizon to their ROI break even point will be affected, and will shrink.

That's the whole point. We don't want to curb EVERYTYHING, and we won't. We will leave the important, valuable, today stuff going... but we will lose the less important, less valuable and/or tomorrow stuff.

And OPEC would probably just cut production a little and keep the price the same. Or russia would destroy another pipeline.

Even still, a 5% decrease in global demand for oil is massive.

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Do you have a source? has production, or consumption, dropped in real terms since 2019 for instance?

>Only if the reason for the inflation is too much economic activity, rather than too little.

Inflation is caused by a mismatch in aggregate supply and aggregate demand. Interest rates can even be somewhat effective in the case of a supply shock—whether or not that's the tool you want to use depends on how long you expect the supply shock to last.

>Hint: today the problem is supply, not demand

The data indicates this is not the case—demand is a strong contributor to inflation and ignoring that will only cause us more problems.

The Fed looks at core-CPI ex food and gas, which is still way higher than they want.

They can’t curb supply side, so they are trying to curb demand side. Another side to this is that they want to dampen the labor market which helps reduce wage-spiral inflation a bit

Good point.

Automation is its own supply and demand and growth limitations. You could flood it with capital, but if every company seeks to increase automation simultaneously, you won’t see an actual increase in automation. You’ll see an increase in the price of automation and an increase in job listings in automation.

Exact same position we are in.

Supply building is slow.

Demand is now.

And you can bet your ass companies are building automation. Long term job destruction is happening behind all of this.

Yeah, when all you have is a hammer, everything looks like a nail.

>Another side to this is that they want to dampen the labor market which helps reduce wage-spiral inflation a bit

But like Powell has said (and is backed up), unemployment and inflation no longer have a strong relationship.

Hmm, but with inflation that leads to higher interest rates, higher interest rates means cost of borrowing becomes more expensive, this leads to less capital raising by companies (leading to less ventures and reduction in hiring) and for companies on the fringe, they won’t be able to raise capital to maintain (potentially) headcount / opex.

We may be at a weird time where with covid and baby boomers retiring, the surplus of jobs to job seekers can counteract this (which may be what Powell is referring to) but the above should hold — unless the vast majority of companies in the US right now are well capitalized, which seems unlikely

I could be missing something. Higher rates to cost of borrowing reductions may definitely lag a bit

Interest rates absolutely impact employment numbers. It's that employment numbers doesn't have much of an impact on inflation. It makes sense when like, 50% of inflation is caused by corporate profits.

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Nah, I don't see Canada where I'd expect it to be

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It may not be directly related to employment, but if consumer sentiment goes down (which is definitely related to employment), and people think storms are ahead, they probably start to reduce spending (especially on things like travel, etc) which curbs demand side and should bring down prices

That's the theory. It's just not really happening anymore for many reasons (market concentration likely one of the main ones)

Hmm that’s an interesting/good point

Here's a pretty good video about it from 2019

https://www.youtube.com/watch?v=YJ6o7s_5118&ab_channel=BloombergMarketsandFinance

>And OPEC would probably just cut production a little and keep the price the same.

You appear to be talking about gas prices at the pump.

I'm talking about consumption levels. When people buy fewer services and go on fewer trips/holidays, they use less fuel.

Very different things.

>You don’t think a decrease in overall economic activity will result in a decrease in fuel consumption?

If you wanted to change the subject you should have specified.

But yeah, consumption can pretty easily be reduced without impacting price. Our markets are too concentrated and barriers too high.

I thought you were north of Old Zealand?

The annual inflation felt in Turkey is 180% according to independent sources.

I like how Germany isn't listed, but Rwanda (15% the population and 1% the GDP) is. Also that whatever is right next to Turkey wasn't listed, despite there being tons of space.

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Ah, I see Vlad Tenev brought over much of his Bulgarian culture

>If you wanted to change the subject you should have specified.

I didn't change the subject.

Someone asked:

>I’m not convinced. You don’t think a decrease in overall economic activity will result in a decrease in fuel consumption (i.e. demand for fuel)?

You responded:

>Not to a large degree, no.

You knew what the subject was, as you were discussing it before I even entered the discussion.

Oh, I didn't articulate my point well. My bad.

Yes, a decrease in overall economic activity will result in a decrease fuel consumption. That doesn't mean it will lead to a decrease in fuel price.

Probably should just put a question mark over the countries whose numbers aren’t reliable

Until next Wednesday...

I am guessing 0.75%, but fed will match in November, and if they dont, we will match them in December.

Either way, they won't stay different for long unless something drastic happens to us that doesn't affect them or vice versa.

I've priced another 2.5% increase into my mortgage on top of where we're now, so I am ready for it.

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Indeed it doesn't. But to reign in inflation we need to reduce economic activity. Fuel prices are weakly correlated with economic activity so may or may not follow that trend depending on other determining factors.

I mean, no we don't? Just because the Fed only has a hammer doesn't mean the problem has to be a nail. This is not the best way to fix it, and is probably one of the worst.

IMF : You again ?!
Zimbabwe : ...

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So I can borrow below inflation? There has GOT to be a way to make easy money from this.

Yup, so let's rephrase that: What kind of beautiful data omits labels, and among them some of the most important ones?

Real yields in the US have been negative for like 4 years now. I believe in about 6 months they will turn positive.

Technically true for academic analysis but since inflation isn’t expected to whipsaw rapidly over the next few months this is a really helpful visual proxy if you were to explain to someone the concept of real vs Nominal rates.

Majority doveish. Would be nice to see this chart again during a worldwide economic boom.

Invest in Uruguayan Peso. Got it.

Pretty sure those Chinese numbers are heavily massaged.

Which would be accurate if it were inflation rate over the last 12 months vs. nominal interest rates over the past 12 months.

As it is, it doesn't make much sense, other than conveying a wrong sense of absurdity.

Is there any evidence that it's bidirectional? Powell made the claims you've referenced with regard to open market operations/low interest rates/low unemployment not resulting in increased inflation over the past decade, but I don't see any reason that that would necessarily imply that raising interest rates/high unemployment wouldn't still exert deflationary pressure.

Surely inflation is expected to go down at some point? It seems unlikely that prices would continue to increase rapidly indefinitely.

Of course we wouldn't suddenly get a large spike of deflation as prices go down again, wages are already adjusting to the new price point which means it's probably stuck for now (not necessarily a bad thing, to some extent it's the economy fixing itself by devaluing old money).

Inflation is the derivative of the price level though, it would be weird for inflation to stay record high two years in a row.

Also 'difference with 12 months ago' is useful as a metric, but behaves a bit oddly when you want to estimate the derivative of something that changes rather quickly. It doesn't filter out high frequency stuff, it mostly just filters periodic patterns that repeat yearly.

I'd love to see this as a time animated visual.

It’s cherry-picked data to show that “rAiSinG iNtErEST rAtEs woN’t FiX iNfLaTiON”. OP is butt hurt about his mortgage because they overbought.

Oh that’s really cool! I don’t get it.

https://fred.stlouisfed.org/graph/?g=V8zQ

Always has been.

My macroeconomics professor would be ashamed at how little I retained from his class lmao

Canadas dream

Yeah wow it looks like the slope is slightly higher than 1 what the fuck? That’s not even an ‘oops’ mistake that actually changes where Vietnam and Ukraine are placed on which side. It’s just straight up wrong.

Agreed. A 0-100% scale is generally best to be presented linearly. If they’re all grouped near the bottom then that’s the point, and shouldn’t be hidden.

Most of us live south of that Zealand.

The link that is broken is unemployment and inflation, and yes there's evidence for that. That's not to say raising interest rates can't fix inflation. It's that, IMO, it would do very little for this inflation.

Yes, the Phillips curve, I’m aware. I’m not sure that you’ve understood my question. My point was that interest rates have been kept near zero (and unemployment correspondingly low) for well over decade with little deviation, so it’s unlikely there’s any empirical evidence that an increase in unemployment won’t still have an impact on the inflation rate (because aside from the year or so post-covid, there hasn’t really been one). So to rephrase, sure, there’s evidence that low unemployment rates aren’t driving inflation as you would traditionally expect, but is there any evidence that an increase in unemployment isn’t still linked to a decrease in the inflation rate?

Of course, that’s all irrespective of the fact that the Phillips curve is an oversimplification and changes in the labor market are hardly the only means by which a change in the interest rate might mediate inflation. It’s not like open market operations don’t affect the money supply.

Wouldn't a low interest rate with changing unemployment be a pretty decent indicator that the link isn't very strong?

>so it’s unlikely there’s any empirical evidence that an increase in unemployment won’t still have an impact on the inflation rate

It's not no impact, it's just a lot less of one than in the past.

>but is there any evidence that an increase in unemployment isn’t still linked to a decrease in the inflation rate

Yes. When unemployment spiked in ~2010 but inflation was at 1%

There's just so so much more monetary policy and economic forces that impact inflation these days.

>Wouldn't a low interest rate with changing unemployment be a pretty decent indicator that the link isn't very strong?

You still haven’t understood my argument.

> Yes. When unemployment spiked in ~2010 but inflation was at 1%

I’m not sure what you meant to say but that’s perfectly in line with what the Phillips curve would suggest.

Alternately, go check the cat. He's got the galaxy on his belt.