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inflation

Wholesale Inflation In The US Rose More Than Expected In July 

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According to reports from the Bureau of Labor Statistics, US wholesale inflation rose more than it was expected to throughout the month of July, reversing the yearlong trend of cooling. 

According to consensus estimates on Refinitiv, the Producer Price Index (PPI), which tracks the average change in prices that businesses pay to their suppliers, rose by 0.8% annually, which is above June’s increase of just 0.2%. The expected rise was 0.7%. 

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“Services and demand for services were the primary culprits behind the lift higher for producer prices. Services prices rose 0.5% from June, the highest monthly increase since March 2022 for the category,” said Kurt Rankin, senior economist for PNC Financial Services.

“The inflation story now, be it for producers or consumers, is demand. Mainly that’s consumers still spending money on services. The food index, which had declined for three straight months, rose 0.5% in July, suggesting a 6.3% annualized pace of inflation,” he told CNN.

“Consumers continue to go out and spend money, and as long as consumers are spending money, that’s going to create demand from producers, so that’s going to drive up their costs for their raw materials, for their transportation needs, etc. and they’re going to pass those prices on to consumers,” he added.

“The numbers over the past six months have been much more encouraging, but it’s a reminder that the Federal Reserve has an eye toward the possibility of inflation flaring up again,” he said.

The Consumer Price Index showed that prices rose by 3.2% annually in July, which is below the 3.2% increase that economists were expecting. 

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“Similar base effects played their role in the headline PPI increase as well. The tick upward to 0.8% doesn’t tell the whole story, because the index decreased in five of the previous seven months. 

Annualizing the 0.3% monthly gain, however, would put the PPI rate at about 3.6% and core at 3.8%. So the July number does suggest that there’s still some producer cost pressures,” said Rankin.

“The underlying trends show that PPI inflation is reverting to its pre-pandemic run rate, though progress is likely to be slower in [the second half of 2023] than [the first half]. While this data will comfort Fed officials, policymakers will likely maintain a hawkish tone and keep a close eye on whether last month’s jump in services prices persists in the months ahead,” Oxford Economics economists Matthew Martin and Oren Klachkin wrote.

Ranking said “We’re seeing energy prices, oil prices, rising over the past few weeks. Any flareup in oil prices goes straight through to not only manufacturing costs, but transportation of goods to market, even transportation of food to restaurants. So even services, leisure and hospitality get hit when energy prices spike, so that possibility is always there.”

“So the fact that energy prices were not a contributor to this month’s reading makes this number jumping a bit a stark reminder that the Federal Reserve’s fight against inflation and their rhetoric regarding that fight is going to remain hawkish in the near term.”

Central Bankers Around The World Claim The Fight Against Inflation Will Continue To Get Worse

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Central bankers from all over the world are claiming that the fight against high inflation rates will only continue to get more “serious and painful” if certain rates remain how they are currently.

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insurance

The Cost Of Car Insurance Is Continuing To Rise 

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While inflation has begun to ease throughout the nation, car insurance prices are continuing to rise, as premiums are projected to go up throughout the year. 

According to Bankrate’s annual True Cost of Auto Insurance Report, released this Monday, the average cost of full coverage auto insurance is about $2,014 a year in America. 

Cat Deventer, Bankrate’s insurance analyst, told CNN that “car insurance rates are reactionary,” and currently feeling the lasting impact of high inflation rates from throughout the last two years; which also led to labor and auto part shortages. 

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These shortages, as a result, caused the cost of insurance claims on car repairs to increase, along with other related auto costs. 

“If inflation keeps cooling we could see insurers file for rate decreases in future years.” 

If you get into an accident, receive a speeding ticket, have a teenager as a driver under your policy, and credit score decreases are all factors that could lead to one having to pay an increased premium. 

Where you live can also have a major impact on how much you pay for auto insurance. According to Deventer: “Each geographic area has different risks and costs of living, so the cost for car insurance varies across the nation.”

Bankrate reported that Orlando, Florida saw the biggest rise in premium costs throughout 2023 so far, with an increase of 23% to average a $3,078 annual cost. 

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Phoenix, Arizona experienced the second highest rise in cost with a 17% increase to $2,164. Philadelphia and New York City both experienced the biggest decrease in rates. Philadelphia costs decreased around 22% to a $1,872 average, while NYC had a 14% decrease to a $2,649 average. 

“While you can’t control the effects of inflation or location on your premium, there are other things you can do to keep your costs to a minimum,” Deventer explained. 

She recommended looking for as many discounts as your insurer offers and taking advantage of them. For instance, taking a defensive driving course can decrease one’s premiums in many areas. 

“Or if the teenager on your policy goes away to boarding school or college and can’t drive your car, your insurer may offer a “student away” discount. And if they aren’t away, but attend school full-time and get good grades through age 24, that may save you a few bucks, too,” Deventer said.

“Every company uses a different algorithm to determine rates,” Deventor continued, so take the time to shop around for different providers in your area to receive the best possible coverage at the lowest price.

wealth

The Top 1% Gained Twice As Much New Wealth As The Rest Of The World Within Two Years

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Over the past two years, the world’s wealthiest individuals have acquired twice as much new wealth as the rest of the world, according to Oxfam’s annual inequality report.

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dollar

Surging US Dollar Wreaks Havoc on Global Economy

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The U.S. dollar is the strongest it has been in the last 20 years. The rising value of a dollar has worldwide ramifications, with international currencies plummeting in comparative value and foreign central banks hiking up interest rates to protect price stability.

The dollar continues to strengthen as the U.S. Federal Reserve continues its aggressive monetary policy, raising interest rates to bring down inflation in the U.S. economy. The Dollar Index, which measures the U.S. dollar against an average of six major global currencies, including the euro, Swiss franc, Japanese yen, Canadian dollar, British pound and Swedish krona, has risen 15% in 2022.

A stronger dollar can purchase more foreign currency. The British pound plummeted to a record low on Sept. 26, reaching $1.03 against the dollar in a near historic dollar-to-pound parity. Historically, the pound has always been valued higher than a dollar, usually upward of $1.20 against the dollar.

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The effects of a strengthening dollar reverberate throughout the global financial system since the dollar is the currency used in most international transactions. Recent shocks to the global economy, such as the war in Ukraine, supply chain disruptions and the pandemic, push up the dollar’s value even higher since companies and other countries stow their reserves in dollars during economic volatility.

The dollar is traditionally seen as a symbol of “stability and security” in terms of crisis. Moreover, despite ongoing inflation, the U.S. economy is still more stable than other nations’ economies. Consumer spending is still strong, and unemployment is still low.

George Saravelos, Deutsche Bank’s head of foreign exchange research, noted the building tension in the global economy.

“The dollar is experiencing its largest valuation overshoot since the 1980s. Amid extreme volatility, a global chorus of discomfort is slowly building.”

American tourists and U.S. consumers benefit from a stronger dollar since goods and services produced in other countries and sold in the U.S. become less expensive to purchase. A stronger dollar also helps U.S. companies import goods at lower prices. Tourists traveling abroad can also buy goods at lower prices since the dollar has stronger buying power.

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However, American businesses that export goods struggle under a strengthening dollar since goods made in the U.S. become more costly and less attractive to buyers in other countries. Multinational businesses that operate in other countries also make less profit when they convert revenue in foreign currency to U.S. dollars.

Smaller emerging economies worldwide especially struggle with the rising cost of the dollar since international companies borrow and trade money in dollars. The world’s commodities, like oil, industrial metals, wheat and soybeans, are priced in dollars and increasingly more expensive to import. Petrol now costs more in several countries worldwide. Countries with debt denominated in dollars will also see higher interest payments, no matter the initial exchange rate.

As reported by the NYTimes, Mr.Obstfeld, a U.C. Berkeley economist, spoke on the far-reaching impact of the Fed’s monetary policy.

“Central banks have purely domestic mandates, but financial and trade globalization have made economies more interdependent than they have ever been and so closer cooperation is needed. I don’t think central banks can have the luxury of not thinking about what’s happening abroad.”

At the same time, the consequences may be even worse for the global economy if the Fed does not bring down historical inflation rates in the U.S.

Central banks around the world are trying to raise the value of their currencies by increasing interest rates, similar to what the Fed is doing in the U.S. The U.K. increased its rate by 2%, and analysts predict they may raise it to as high as 6%. The European central bank has increased its interest rate by 1.25 percentage points. These rising rates may push many countries into a recession if raised too high by decreasing borrowing and spending and reducing economic activity.

dow

Dow Tumbles More Than 1200 Points After Inflation Data

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US stocks plummeted Tuesday after the latest Consumer Price Index report showed inflation rates are still at a 40-year high. The Dow fell more than 1200 points on its worst day since June 2020.

The report revealed that monthly consumer prices rose more than expected in August. History shows that low unemployment and rising inflation often precede a recession. High inflation rates erode consumer purchasing power. They also decrease companies’ profits due to rising material costs, causing stocks to fall and economic activity to slow down.

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Matt Peron, director of research at Janus Henderson Investors, agreed with most analysts that the Federal Reserve will likely increase the federal funds rate higher to cool off the market.

 “The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes.”

The Fed responds to rising inflation by increasing the federal funds rate. In the wake of the pandemic, the rate sat at near zero in an attempt to stimulate the economy. The Fed then hiked rates from a range of 0.25% to 0.50% in March 2022 to a range of 2.25% to 2.5% in July 2022. The rate of increase in borrowing costs was the fastest since the 1980s.

When the Fed raises the federal funds rate, the cost of credit throughout the economy increases and loans become more expensive for businesses and consumers, since interest payments are higher. At the same time, people with savings in banks earn more interest on their deposits. Together, this drops the amount of money in circulation, bringing down the inflation rate. However, if the Fed increases the federal funds rate too high, it may also trigger a recession by slowing economic activity too much.

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The Fed is expected to keep hiking the federal funds rate until a sustained drop in consumer price inflation. Investors hoped that the Fed would keep its interest rate increases at a slower speed, with analysts predicting a federal funds rate of 3.4% at the end of the year. Brian Jacobsen, a senior investment strategist at Allspring Global Investments, told Reuters his concerns.

“The big risk is that next week, the Fed tries to convince the markets that they’re not going to just try to go for 4% with the Fed funds rate, but that they could push it to something closer to four and a half percent.”

All three major US stock indexes — S&P 500, the Dow, and Nasdaq had their most significant one-day percentage drops in over two years. The CBOE volatility index, which measures the market’s expectations for volatility over the next 30 days, rose to 25.74 points.

The next Federal Reserve meeting is scheduled for Sept. 20.

 

UK

One Third Of Households In The United Kingdom Facing Poverty Due To Rising Energy Costs 

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According to campaigners from the United Kingdom, nearly one third of households in the nation will face poverty by the winter due to increasing energy costs and paying bills that are expected to rise in price even further with the new year. 

According to estimates from the End Fuel Poverty Coalition (EFPC), about 10.5 million households will be in “fuel poverty” for the first three months of 2023. In other words, based on their incomes after they’re done paying their energy bills their household income will fall below the poverty line. 

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The definition of poverty in the UK is any household with an income of less than 60% of the UK median, which stands at £31,000 ($37,500), according to official statistics.

Cornwall Insight is the research firm that provided the data leading to the prediction that one third of households will be impoverished in the winter. The average energy bill is expected to hit £3,582 ($4,335) a year from October, and £4,266 ($5,163) from January; about £355 ($430) a month.

The forecast for 2023 represents a 116% increase in energy bills from their current levels. Fuel prices have been surging worldwide, and in the UK prices are projected to continue to rise by 83% in January. 

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Cornwall Insight, however, also is expecting energy bills will start decreasing in the second half of 2023. The average household bill in the UK has risen by 54% this year due to inflation rates regarding fuel and energy consumption.

The UK government announced a bill in May which introduced a  £15 billion ($18 billion) package of support — including a “£400 ($484) payment to 29 million households from October — to ease the burden of energy bills.”

But Simon Francis, coordinator for the EFPC, said “the latest price estimates meant the current level of government support amounted to a drop in the ocean.”

Craig Lowrey, a principal consultant at Cornwall Insight, said in a Tuesday press release that “if £400 was not enough to make a dent in the impact of [the company’s] previous forecast, it most certainly is not enough now.”

Liz Truss, the UK’s foreign minister and as prime minister, has proposed “cutting taxes to help people struggling with their bills, rather than direct help.”

travel

Despite Increased Prices, OAG Study Shows Travel Demand Remains Strong

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Despite increasing inflation and prices in nearly every industry, that hasn’t stopped travel-hungry explorers from embracing a world that’s slowly moving away from the COVID-19 pandemic that’s now in its 31st month.

According to a survey from OAG that interviewed more than 1,400 North American travelers, 27% more people are traveling this summer than in the summer of 2021, while nearly 63% of travelers have booked or are planning to book international flights, a number that’s up from 49% in 2021.

The increased demand comes at a time where both airlines and countries are easing restrictions — like no longer requiring pre-departure COVID-19 tests — that have become commonplace within the last two years.

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However, the survey shows some travelers remain wary of embracing remaining protocols. 30% say that COVID-19 protocols have no impact on where they travel, while 22% say those protocols have significant impacts on their bookings.

The nationwide mask mandate that was lifted in April still retains an extremely divisive reaction. 51% believe it should be in place for airplanes and airports, while 49% are happy to be able to walk around mask-free.

In regards to individual ticket prices, most passengers aren’t afraid to break out the wallet in the face of upticks. 79% of respondents said they were just as likely to buy a ticket with a price increase of $50, while 43% said they were just as likely to buy one with a $100 jump.

On the opposite side, only 4% said they were unlikely to buy a ticket with a $50 price increase, while that number was 15% for $100 increases. From $200 to $300 is where travelers start to bulk: only 4% said they’re okay with a price increase of $300, as opposed to 68% who are extremely less likely.

In the last year, the consumer price index for airline tickets rose by 25%, the highest jump since tracking began in 1989. April saw a 18.6% increase alone. The national average fare currently sits at $327.13.

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Of course, COVID-19 and inflation aren’t the only concerns passengers have to worry about. Airlines have also been affected due to pilot and staff shortages, leading to the cancellation of thousands of flights throughout the packed summer months.

That kind of effect was obvious during this past Fourth of July weekend, where more than 4,900 flight delays and 500 cancellations were reported the evening of July 1. Overall, the holiday weekend saw 1,435 flights cancelled from July 1 to July 4, according to FlightAware. Additionally, one in five flights experienced disruptions.

Even with mishaps like that, 54% of respondents said staffing shortages have little to no affect on their travel effect, while only 34% said staffing shortages negatively affect their travel experience.

So why is the demand sky-high right now despite all the potential barriers and negatives? Some experts have called it a case of “revenge travel.” While not an official term, it’s the idea that because of the pandemic, travelers are wanting to make up for lost time and moments.

“It’s a proclamation of “Screw you, COVID, I can travel and I’m going to,” CIRE Travel owner Eric Hrubant told NPR. Hrubant advised that those who do want to travel might be better off waiting until the fall, where they can see lower prices, less crowds, and a wider selection of possible destinations to visit.

Inflation

Retail Sales Drop 0.3% In May As Federal Reserve Prepares To Hike Interest Rates Further

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According to the U.S. Department of Commerce, retail sales fell 0.3% in May, wiping out any progress made by a 0.7% rise in April. It comes as a 8.6% inflation jump has forced millions to focus their money on food and gas, the latter of which now sits above $5 per gallon nationally.

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U.S. Consumer Confidence Slips In May Among Inflation

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On Tuesday, The Conference Board reported that its consumer confidence index decreased slightly in May to 106.4, a score that — while still a strong number — is down from 108.6 in April (which saw a small increase itself from March).

Meanwhile, the group’s present situation index, which is based on consumers’ assessments of current business and labor market conditions, declined from 152.9 to 149.6. The expectations index, based on consumers short-term outlooks for income, business, and labor, decreased from 79.0 to 77.5.

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“The decline in the present situation index was driven solely by a perceived softening in labor market conditions,” Lynn Franco, The Conference Board’s senior director of economic indicators, said. “By contrast, views of current business conditions — which tend to move ahead of trends in jobs — improved. Overall, the present situation index remains at strong levels, suggesting growth did not contract further in Q2.”

“That said, with the expectations index weakening further, consumers also do not foresee the economy picking up steam in the months ahead. They do expect labor market conditions to remain relatively strong, which should continue to support confidence in the short run.”

The dip in confidence comes after April saw an 8.3% year-over-year rise, which was down from March’s 8.5% year-over-year hike. Also not helping is the producer price index, which saw a jump of 6.9% in April. That’s down from March’s 7.1%, but up from February’s 6.7%.

Even with the Federal Reserve’s attempts to fight inflation by raising interests rates by 0.5% to 1.00%, the soaring prices will likely continue to be a burden to Americans over the coming summer months. One area consumers are being tortured in are rising gas prices, which now sit at a national average of $4.6 per gallon.

The labor market continues to remain a question mark for consumers even after employers added 428,000 jobs in April, keeping the unemployment rate at a pandemic-low 3.6%. Those numbers helped the country keep a 12-month streak of 400,000 or more jobs added.

However, that steady improvement may be misleading. Politico noted that data released by the Ludwig Institute suggests the “true rate of unemployment” (or TRU) is higher than national or local figures show and accounted for 23.1% of the labor force in April.

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“We think it misleads the American people to say, ‘Oh, we’ve got 3.6 percent of America that is unemployed, ergo, a huge percent of the population is employed,’ when in fact they can’t make above a poverty wage,” Ludwig told Politico.

Additionally, Federal Reserve chair Jerome Powell has previously called the labor market “unsustainably hot,” and — in an interview with Marketplace — explained that the demand of labor is inconsistent with low inflation. “What we need to do is we need to get demand down, give supply a chance to recover and get those to align,” he said.

President Joe Biden met with Powell Tuesday, saying afterwards that inflation has become his top domestic priority. “My plan to address inflation starts with the simple proposition: Respect the Fed, respect the Fed’s independence, which I have done and will continue to do,” Biden said.

How Biden deals with inflation could significantly impact his odds of possessing a second term in two years. According to FiveThirtyEight, the President currently sits at a 54.0% disapproval rating (up from 52.4% May 1), with just 40.8% approving of his work. Biden has pointed to the Ukraine invasion and supply chain issues as culprits of inflation woes.