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TheCriticalAmerican t1_it6pqer wrote

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.


LeroyoJenkins t1_it6pudc wrote

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.


TheHappyEater t1_it6qgzj wrote

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?


Me_Melissa t1_it6rvvu wrote

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


AcanthisittaFlaky385 t1_it6rw8z wrote

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.


May_win t1_it6s2pa wrote

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


blobbysnorey t1_it6vasb wrote

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


The_Lucky_7 t1_it73r7p wrote

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


Felis_1 t1_it7cb2v wrote

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.


Exp1ode t1_it7cxq0 wrote

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


Fysco t1_it7d98c wrote

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


Kobahk t1_it7e7q2 wrote

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


tom_fuckin_bombadil t1_it7epq1 wrote

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).


TheCriticalAmerican t1_it7fhp1 wrote

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.


atanase_ t1_it7il9u wrote

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.


scwadrthesequel t1_it7jt88 wrote

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


pattydo t1_it7m4co wrote

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.


baltarius t1_it7mvq2 wrote

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


pattydo t1_it7n7ki wrote

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.


az9393 t1_it7nyog wrote

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%.


LeroyoJenkins t1_it7p60t wrote

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.


hacksoncode t1_it7p9y1 wrote

> 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.


shiningPate t1_it7pgfa wrote

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?


LeroyoJenkins t1_it7q3o3 wrote

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...


pattydo t1_it7qukw wrote

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.


kevinhd95 t1_it7resv wrote

Pack your bags, we’re moving to Bolivia


DoubleFelix t1_it7rr5m wrote

I would love to see this graph over time.


Orangeflea215 t1_it7v1te wrote

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.


jacobobb t1_it7vafu wrote

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.


pattydo t1_it7vcai wrote

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.


LeroyoJenkins t1_it7w2oj wrote

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.


hacksoncode t1_it7w6tz wrote

> 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.


jffrybt t1_it7x2z3 wrote

> 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.


eva01beast t1_it7x5eg wrote

>"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".


Street-Individual292 t1_it7xd5u wrote

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


hacksoncode t1_it7y3oi wrote

> 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.


shhalahr t1_it7ygzc wrote

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.


AftyOfTheUK t1_it7z696 wrote

>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.


AftyOfTheUK t1_it7zi8u wrote

>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.


pattydo t1_it7zkyu wrote

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.


raptorman556 t1_it80vm5 wrote

>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.


-casper- t1_it82lz0 wrote

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


jffrybt t1_it82ube wrote

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.


pattydo t1_it83rus wrote

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.


-casper- t1_it8535w wrote

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


pattydo t1_it85qrw wrote

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.


-casper- t1_it87err wrote

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


AftyOfTheUK t1_it8a4cc wrote

>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.


pattydo t1_it8ao7d wrote

>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.


Turgineer t1_it8cudb wrote

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


StevenTM t1_it8eiz7 wrote

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.


Splatterman27 t1_it8h4ho wrote

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


AftyOfTheUK t1_it8hl22 wrote

>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.


pattydo t1_it8i6m2 wrote

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.


skobuffaloes t1_it8kn5l wrote

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


Dyslexic_Engineer88 t1_it8mj1q wrote

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.


AftyOfTheUK t1_it8scg7 wrote

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.


pattydo t1_it8slr1 wrote

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.


erksplat t1_it93k4v wrote

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


jrm19941994 t1_it953pe wrote

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


loud119 t1_it96auu wrote

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.


MrMitchWeaver t1_it976do wrote

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


Shesalabmix t1_it9axln wrote

Pretty sure those Chinese numbers are heavily massaged.


LeroyoJenkins t1_it9b8di wrote

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.


Orangeflea215 t1_it9fmqf wrote

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.


XkF21WNJ t1_it9qjro wrote

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.


drLagrangian t1_it9sfos wrote

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


Supercst t1_itau403 wrote

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


Grains-Of-Salt t1_itb9881 wrote

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.


pattydo t1_itkwvlc wrote

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.


Orangeflea215 t1_itlde56 wrote

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.


pattydo t1_itlmi3x wrote

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.


Orangeflea215 t1_itloxpl wrote

>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.