Los Angeles — For Robin Line, the cool air in her South Los Angeles apartment building’s community room in is a welcome relief.
But her July electric bill still jumped 46%. Living on a fixed income, she can barely cover the basics.
“I have to choose, milk one week, eggs the next week, it’s very difficult,” Line told CBS News.
Running the air conditioning in the record heat is expected to drive energy costs up nearly 12% this summer, according to the National Energy Assistance Directors Association, a budget-buster for some families.
“There’s a lot of work that shows that poorer households do suffer a higher inflation rate,” said Rodney Ramcharan, a finance professor at the USC Marshall School of Business. “These people are feeling it somewhere around 5% to 6%.”
That’s because most of a low-income family’s budget goes to necessities, which are still rising. Rent has risen 8% over the last year, according to the U.S. Bureau of Labor Statistics. Over the same period, groceries have risen 3.6%, and electricity has risen 3%.
There’s also new evidence people are using credit cards to cover bills. For the first time in the U.S., credit card debt has surpassed $1 trillion, according to a report this week from the Federal Reserve Bank of New York’s Center for Microeconomic Data.
“When we polled consumers that carry credit card balances about what was behind that, what caused it, emergency and unplanned expenses was the top answer, but even everyday expenses were about one in four,” said Greg McBride Chief Financial Analyst, Bankrate.com. “It’s a sign of financial strain.”
Paying bills with a credit card is not even an option for Line, who said she is “absolutely” already delinquent on at least one bill.
Inflation rose by an annual rate of 3.2% in July, according to numbers released Thursday by the Labor Department. While it marked the first increase in inflation after 12 straight months of disinflation, it was still significantly down from July of 2022, when annual inflation hit a staggering 8.5%.
Never mind the macro stats for the U.S. economy — Americans are hot, and very much still bothered by high prices, with recent reports about GDP growth, stock gains and a strong labor market apparently providing cold comfort. At least so far.
Instead, most describe the economy as “uncertain,” along with calling it bad, and “struggling” but not improved.
So, there’s plenty of lagging skepticism hanging over the public mind after the turmoil of recent years and months of chatter about a potential recession. Almost no one is calling things “stable.”
And that’s the case despite relatively good feelings about the job market and job security.
It’s not just whether one has a job, but what your wages can buy you. Most of those working say their pay is not keeping pace with rising prices.
(The fact that most report paying higher electric bills and being forced indoors because of the heat waves may not be helping the mood either.)
And even if the rate of inflation is slowing, those price hikes have clearly left their mark.
Prices are the No. 1 reason people give when asked why they call the economy bad and the top reason given when they describe their personal financial situation as bad.
Interest rates, they report, are also a net-negative on their collective finances. Most, particularly younger people, report it’s harder to buy a home than for past generations.
It all adds up to most feeling they’re staying in place financially but not getting ahead, and many feeling that they’re falling behind and concerned about affording things now and retirement in the longer term.
As is often the case in these kinds of economic evaluations, what people see at the cashier, or on their bills on the kitchen table, has outsized impact over more abstract economic reports.
Here’s that comparison: Americans rate the job market stronger than the overall economy.
But many still think the prices they pay are going up. That may comport with macro data saying inflation is slowing, but price increases are still felt by consumers.
The politics
There’s plenty of skepticism about help from political leaders on either side of the aisle. It isn’t good news for the president.
Most tie both the U.S. economy and their own personal finances (whether bad or good) at least in part to President Biden’s policies — an important measure of both macro and micro connection — and also to that very immediate measure of prices.
Most don’t think the Biden administration is lowering inflation — another key metric to watch in coming months — and even fewer think congressional Republicans are taking actions that do so, with many not sure what they’ve done. As they campaigned to win the House majority last year, most voters expected them to prioritize dealing with inflation.
(For that matter, just a quarter think the Federal Reserve’s actions have lowered inflation, though many aren’t sure what it has done.)
The race to define “Bidenomics”
This also shows the challenge President Biden faces in his latest push to get the public to reconsider not just how they think of the economy, which few describe as “rebounding,” but also the meaning of the phrase his administration has coined, “Bidenomics.”
It is not, as of yet, a widely known term by any means.
The people who say they have heard something of the term skew Republican right now. So, to many of them, it looks more pejorative. Half say they equate it with “higher inflation” and even “tax increases,” by far the top two items chosen. That said, most independents also mention those two items first.
Democrats are more positive — if they’ve heard of it — so the president at least has some building blocks with his base. Majorities of them say it means “job creation,” “investment in infrastructure,” “help for the poor” and “the middle class” to them.
But this economic mood keeps weighing on the president’s overall numbers. His handling of the economy is as low as it’s been, along with his overall approval rating too, which has been hovering in the low-40s range for more than a year, now down to 40%.
The heat
And yes, most Americans are hot and report feeling unusually high temperatures in all regions of the country, as much of the U.S. sets heat records. They’re coping by staying inside more, keeping their kids inside and economically, one impact they report is having to pay higher electric bills.
This CBS News/YouGov survey was conducted with a nationally representative sample of 2,181 U.S. adult residents interviewed between July 26-28, 2023. The sample was weighted according to gender, age, race, and education based on the U.S. Census American Community Survey and Current Population Survey, as well as past vote. The margin of error is ±3.2 points.
The numbers: The cost of goods and services rose a mild 0.2% in June as inflation eased again, but another measure of prices favored by the Federal Reserve showed somewhat less progress.
Economists polled by The Wall Street Journal had forecast a 0.2% increase in the personal consumption expenditures index.
The increase in prices over the past year slowed to 3% from 3.8% and touched the lowest level since October 2021, the government said Friday.
The so-called core PCE rate of inflation, meanwhile, also rose 0.2% last month. The core rate omits volatile food and energy costs and is viewed by the Fed as a better predictor of future inflation trends.
The rate of core inflation over the past year slowed a bit less to 4.1% from 4.6% in the prior month, but that still puts it at a more than two-year low. It’s still far above the Fed’s 2% target, however.
Big picture: Inflation has slowed a lot this year due to falling energy and food prices, but the cost of living is still rising too fast to mollify the Fed or ease the financial pain of U.S. households.
The Fed is expected to keep interest rates high through next year to bring inflation down closer to its 2% target. The danger is that higher borrowing costs could also slow the economy enough to tip the U.S. into recession.
The latest PCE report is likely to give the Fed more reason for optimism, however.
Looking ahead: “Inflation cooled, but held well above 2%, meaning the Fed can’t declare mission accomplished,” said lead U.S. economist Oren Klatchkin of Oxford Economics.
Market reaction:The Dow Jones Industrial Average DJIA, +0.50%
and S&P 500 SPX, +0.99%
rose in Friday trades. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.953%
slipped 3.96%.
Former Vice President Mike Pence is taking a long view when it comes to inflation — a very long view that isn’t commonly expressed when debating economic performance.
Pence — well behind former President Donald Trump and Florida Gov. Ron DeSantis in early polling for the Republican nomination — is trying to position himself as the true conservative alternative in the Republican presidential race, and used inflation as a key talking point.
“We’ve got to end this scourge of inflation on families,” he said Monday. “We’re still 16% inflation in the last two and a half years and that also means another issue I’ve been willing to tackle, Larry, is we’ve got to bring common-sense and compassionate reforms to entitlements.”
The Pence campaign told MarketWatch they were comparing June 2023 with Jan. 2021 — when President Joe Biden and Vice President Kamala Harris came into office, for a 16.6% rise.
They also provided a similar comparison for inflation during the Trump/Pence administration — over those four years, prices grew by a smaller 7.7%.
But then, if that’s the new way of calculating things, there’s all sorts of data that also should be compared to 29 months ago.
To name a few: there’s been a 9% increase in jobs compared to 29 months ago, compared to the 2% drop during the Trump administration.
Average hourly earnings compared to 29 months ago have climbed 12%.
Durable-goods orders are up by 23% compared to 29 months ago, and retail sales have grown by 21%.
Comparing inflation now to 29 months ago isn’t wrong, but is misleading when the overwhelming percentage of listeners assume that comparison to be done over 12 months.
It’s an adjustment of inflation data that landed President Biden in hot water last year, when he used month-by-month data — instead of the more commonly used year-over-year data — to say that inflation was zero.
U.S. stocks opened higher Wednesday after data showed the rate of inflation in June slowed to the lowest level since early 2021, fueling hopes that the Fed may be close to being done with its interest rate hikes.
How are stocks trading
The Dow Jones Industrial Average DJIA, +0.78%
gained 281 points, or 0.8% to around 34,546
The S&P 500 SPX, +1.03%
added 40 points, or 0.9% to about 4,479
The Nasdaq Composite COMP, +1.36%
rose 158 points, or 1.1% to roughly 13,915
On Tuesday, the Dow Jones Industrial Average rose 317 points, or 0.93%, to 34261, the S&P 500 increased 30 points, or 0.67%, to 4439, and the Nasdaq Composite gained 75 points, or 0.55%, to 13761.
What’s driving markets
Stocks opened higher, while Treasury yields and the dollar were lower after data on Wednesday showed U.S. inflation at its slowest pace in more than two years.
U.S. consumer prices rose a modest 0.2% in June. Economists polled by the Wall Street Journal forecasted an increased of 0.3%. The yearly rate of inflation decelerated to 3% from 4% in the prior month, marking the lowest level since March 2021.
The so-called core rate of inflation that omits food and energy rose a mild 0.2% last month. That’s the smallest increase in almost two years. Wall Street had forecast a 0.3% gain. The annual rate of core inflation decreased to 5% from 5.3% in the prior month.
The markets have been receiving the CPI print “pretty well,” said Brian Katz, chief investment officer at the Colony Group.
The lower-than-expected CPI data is likely to “prolong the uptrend [in stocks] that we’ve been experiencing this year,” Katz in a call. “As long as we are in this environment where disinflation continues and we have reasonable growth, it is a good environment for risk assets,” Katz said.
Inflation in June fell in a majority of the important categories, most notably housing prices, which had been elevated, according to George Mateyo, chief investment officer at Key Private Bank.
“The Fed will embrace this report as validation that their policies are having the desired effect – inflation has fallen while growth has not yet stalled. But it most likely won’t change their mind to raise interest rates later this month,” Mateyo wrote in emailed comment Wednesday.
Fed fund futures traders are still pricing in an over 90% chance that the Fed will raise its benchmark interest rate by 25 basis points in its meeting later this month.
Still, some analysts are optimistic that the Fed may cease its interest rate hikes.
The inflation print in June “is enough on a standalone basis for the market to put in question the Fed’s dot projections of two additional hikes left this year and consequently pull interest rate volatility down,” according to Alexandra Wilson-Elizondo, deputy chief investment officer of multi asset solutions at Goldman Sachs Asset Management.
“Yet despite the disinflationary trends, the level of Fed funds rate has only risen to levels comparable to inflation. This contrasts with previous hiking cycles when the Fed hiked rates well above inflation. Therefore, we continue to expect that US monetary policy will stay restrictive for longer, but after this print the Fed very well may be done,” Wilson-Elizondo wrote in emailed comment.
There will also be a batch of commentary from Fed officials for the market to contend with on Wednesday. Minneapolis Fed President Kashkari will speak at 9:45 a.m.; and Atlanta Fed President Bostic will make comments at 1 p.m.. Also, the Fed Beige Book will be released at 2 p.m.. All times Eastern.
Companies in focus
Shares of ShiftPixy Inc. PIXY, -15.90%
plunged almost 22% Wednesday, after the workforce management software company’s public equity offering valued the stock at a deep discount.
Lucid Group Inc. LCID, -11.02%
shares dropped 5.5% after the company said Wednesday that it delivered 1,404 vehicles during the second quarter, while producing 2,173 vehicles at its Arizona facility.
SunPower Corp. SPWR, +7.82%
shares jumped 6.4% Wednesday after Raymond James analyst Pavel Molchanov upgraded the stock to strong buy from outperform.
A hopeful sign in the nation’s grinding battle against inflation: Although the national rate of inflation across the U.S. remains roughly twice the Federal Reserve’s target of 2% per year, in some cities prices have already returned to normal.
In May, for example, the annual rate of inflation in the Minneapolis metropolitan area fell to 1.8%, while in Honolulu it was 2%, according to Labor Department figures. On the other end of the spectrum, some Sun Belt cities are still suffering scorching price hikes. Annual inflation is 7.4% in Phoenix, 7.3% in Tampa and a whopping 9% in the Miami metro area.
The Fed has been raising interest rates for 15 months in hopes of quelling the hottest inflation since the 1980s. But the disparity in inflation increases across the country highlights one difficulty policymakers have in controlling price changes. After all, the U.S. doesn’t have one economy — it has thousands of regional economies, each with their own dynamics of supply and demand, wages, laws, government policy, and geographic differences that shape local economic conditions.
The primary factor driving these geographic variations in inflation? Housing. For instance, residents of the Midwest generally spend a smaller share of their budgets on keeping a roof over their head than people in the Northeast or West. With housing a huge contributor to recent inflation increases, inflation in the Midwest has been more muted this year, economists with the Federal Reserve Bank of Chicago said in a recent blog post.
By contrast, in recent years many Florida cities have experienced a population boom because of migration from other parts of the country, which has driven up rents and housing prices across the state.
While the pandemic exacerbated this trend — giving the “migration hotspots” of Atlanta, Miami, Tampa and Phoenix some of the hottest inflation in the nation — housing’s outsize role in price changes is a longstanding trend. Housing was the major reason inflation rates diverged regionally, in the two decades before the pandemic as well as in more recent years.
“We find that price changes in the housing sector are the main driver of regional differences in inflation in the two time periods we investigate: January 2002–January 2023 and January 2019–January 2023,” Chicago Fed economists wrote. “Although residents in different areas do have different purchasing patterns, we find that this plays only a small role in discrepancies in regional inflation.”
Transportation is another factor in inflation’s regional differences — exacerbated last year as the price of gasoline and used cars skyrocketed.
Just as cities with more housing can better withstand shelter inflation, a city with a robust mass transit system will depend less on car and motor fuel prices than a region where most people drive, Rajashri Chakrabarti and Maxim Pinkovskiy, economists at the Federal Reserve Bank of New York, said in an email.
“Last year, overall inflation was driven primarily by transportation inflation — in particular, used cars and motor fuel inflation,” they said. “But since then, transportation inflation subsided rapidly and is now well below the CPI.”
To be sure, the inflation rate doesn’t offer a picture of how pricey an area is — only how fast local prices are changing. That’s illustrated by the falling inflation rate in Honolulu. Its island location, where most consumer goods are flown in, has made Hawaii’s capital a famously expensive place to live.
But thanks in part to a population exodus during the pandemic, prices in Honolulu have risen at a slower pace than elsewhere around the U.S. Annual inflation there peaked at 7.5% in March of last year, four months before the nation’s inflation rate hit 9.1%. Since then, falling population, combined with an increase in housing, helped shelter costs in the area grow only modestly — and, with prices for energy and used cars and trucks falling, overall inflation fell to a 2% rate last month.
Likewise, increased housing construction in Minnesota’s Twin Cities has helped ease price increases. The cost of shelter there is rising at just 4% a year, half the national rate, the Minneapolis Star Tribune noted. Meanwhile, shelter costs since last year have risen nearly 17% in Miami, 14% in Tampa and 10% in Dallas, according to the latest Labor Department figures.
For inflation-addled Americans, the good news is that prices nationwide are down sharply from their peak a year ago, and continuing to cool. A major sign the tide has turned: Workers pay is finally staying ahead of inflation, as real earnings in May turned positive for the first time in over two years.
A hopeful sign in the nation’s grinding battle against inflation: Although the national rate of inflation across the U.S. remains roughly twice the Federal Reserve’s target of 2% per year, in some cities prices have already returned to normal.
In May, for example, the annual rate of inflation in the Minneapolis metropolitan area fell to 1.8%, while in Honolulu it was 2%, according to Labor Department figures. On the other end of the spectrum, some Sun Belt cities are still suffering scorching price hikes. Annual inflation is 7.4% in Phoenix, 7.3% in Tampa and a whopping 9% in the Miami metro area.
The Fed has been raising interest rates for 15 months in hopes of quelling the hottest inflation since the 1980s. But the disparity in inflation increases across the country highlights one difficulty policymakers have in controlling price changes. After all, the U.S. doesn’t have one economy — it has thousands of regional economies, each with their own dynamics of supply and demand, wages, laws, government policy, and geographic differences that shape local economic conditions.
The primary factor driving these geographic variations in inflation? Housing. For instance, residents of the Midwest generally spend a smaller share of their budgets on keeping a roof over their head than people in the Northeast or West. With housing a huge contributor to recent inflation increases, inflation in the Midwest has been more muted this year, economists with the Federal Reserve Bank of Chicago said in a recent blog post.
By contrast, in recent years many Florida cities have experienced a population boom because of migration from other parts of the country, which has driven up rents and housing prices across the state.
While the pandemic exacerbated this trend — giving the “migration hotspots” of Atlanta, Miami, Tampa and Phoenix some of the hottest inflation in the nation — housing’s outsize role in price changes is a longstanding trend. Housing was the major reason inflation rates diverged regionally, in the two decades before the pandemic as well as in more recent years.
“We find that price changes in the housing sector are the main driver of regional differences in inflation in the two time periods we investigate: January 2002–January 2023 and January 2019–January 2023,” Chicago Fed economists wrote. “Although residents in different areas do have different purchasing patterns, we find that this plays only a small role in discrepancies in regional inflation.”
To be sure, the inflation rate doesn’t offer a picture of how pricey an area is — only how fast local prices are changing. That’s illustrated by the falling inflation rate in Honolulu. Its island location, where most consumer goods are flown in, has made Hawaii’s capital a famously expensive place to live.
But thanks in part to a population exodus during the pandemic, prices in Honolulu have risen at a slower pace than elsewhere around the U.S. Annual inflation there peaked at 7.5% in March of last year, four months before the nation’s inflation rate hit 9.1%. Since then, falling population, combined with an increase in housing, helped shelter costs in the area grow only modestly — and, with prices for energy and used cars and trucks falling, overall inflation fell to a 2% rate last month.
Likewise, increased housing construction in Minnesota’s Twin Cities has helped ease price increases. The cost of shelter there is rising at just 4% a year, half the national rate, the Minneapolis Star Tribune noted. Meanwhile, shelter costs since last year have risen nearly 17% in Miami, 14% in Tampa and 10% in Dallas, according to the latest Labor Department figures.
For inflation-addled Americans, the good news is that prices nationwide are down sharply from their peak a year ago, and continuing to cool. A major sign the tide has turned: Workers pay is finally staying ahead of inflation, as real earnings in May turned positive for the first time in over two years.
That’s the practice by many S&P 500 food and consumer companies of raising prices to protect what a new report calls their “cushioned corporate profits,” and it has enabled them to boost margins through the current inflationary period.
Companies including Kimberly-Clark Corp. KMB, -0.45%,
PepsiCo Inc. PEP, -0.18%,
General Mills Inc. GIS, -0.88%
and Tyson Foods Inc. TSN, -0.36%
have on recent earnings calls touted their ability to raise prices, earning tidy profits and rewarding their shareholders as they go, according to the report from Accountable.US, a liberal-leaning consumer-advocacy group.
And they have signaled their intention to continue to take “price actions” even as the Federal Reserve has hiked interest rates an unprecedented 10 times in an effort to tame inflation.
“Higher interest rates haven’t stopped S&P companies, especially in the big food industry, from raising consumer prices despite reporting billions in extra net earnings and over a trillion dollars in new giveaways to wealthy investors,” said Liz Zelnick, director of economic security and corporate power at Accountable.US.
“Corporate greed is a stubborn thing and requires serious action from Congress. The Fed has not seen an adequate return on its investment in a policy that has already created fissures in the economy that could lead to recession. It’s just not worth it,” she said.
Accountable.US is not alone in calling out price hikes on essentials including food. Walmart Inc. WMT, +0.73%
is also unhappy with packaged-food companies that have steadily raised prices in dry grocery and consumable goods, according to a recent report from research company CFRA.
“Given Walmart’s enormous bargaining power over its suppliers, we expect the retail giant to push back on further price increases from its packaged-food suppliers,” he said. That is expected to hurt margins, especially if volume growth does not recover.
May inflation data released Tuesday found that food prices were up 0.2% from April, after remaining flat for the previous two months. Food prices are up 6.7% over the last year. The food-at-home index is up 5.8% over the last year, while the index for cereals and bakery products is up 10.7%.
Food prices started to rise about two years ago, when supply-chain issues and higher fuel and commodity prices led companies to pass some of those costs on to customers.
But companies appear determined to raise prices even more, despite a decline in shipping and gas costs. Gasoline was down 5.6% in May from April and fuel oil fell 7.7%, according to consumer-price-index figures.
Kimberly-Clark executives told analysts on its recent earnings call that the company is able to “rapidly implement broad pricing actions” and acknowledged that “pricing has continued to be a big driver behind our top-line growth.”
The company’s first-quarter earnings topped expectations and it raised guidance for the full year. That’s after it raised prices by 10% for a second straight quarter, driving margins wider by 340 basis points.
Shareholders were rewarded to the tune of $425 million during the quarter, the Accountable.US report notes.
However, he said, “obviously, there are some markets, highly inflationary markets around the world, where we might have to take additional pricing. If you think about Argentina, Turkey, Egypt — those kinds of markets where the currencies are suffering. But the majority of our pricing is already done,” he said, according to a FactSet transcript.
PepsiCo’s 2022 earnings rose 16.9% to nearly $9 billion, and it spent more than $7.6 billion on stock buybacks and dividends, with the former up 1,313% from 2021.
General Mills, meanwhile, bragged about “getting smart about how we look at pricing” on its recent call. The parent of brands including Cheerios, Nature Valley, Blue Buffalo pet products and Pillsbury raised its fiscal 2023 guidance in February.
And Tyson executives touted the “significant pricing power of our portfolio with a year-over-year increase of 7.6%.” Tyson’s latest quarter included a surprise loss, as it was hit by weak demand for meat, along with plant closures and job cuts.
But Tyson had net income of over $3.2 billion in 2022, up from $3 billion in 2021, and it rewarded shareholders with $1.35 billion in buybacks and dividends.
For Accountable.US, it’s more compelling evidence that the Fed’s rate-hike strategy “has failed to root out one of the main drivers of inflation and should give the [Federal Open Market Committee] pause before lifting rates again this week to the detriment of jobs and the economy.”
The Consumer Staples Select Sector SPDR exchange-traded fund XLP, +0.36%
has fallen 1.6% to date in 2023, while the SPDR S&P Retail ETF XRT, +1.89%
has gained 4.6%. The S&P 500 SPX, +0.62%
has gained 13% in the same period.
The numbers: U.S. consumer prices rose a scant 0.1% in May — held in check by cheaper gasoline — and could cement a decision by the Federal Reserve to “skip” an increase in interest rates this week.
The small rise in consumer prices matched the forecast of economists polled by the Wall Street Journal.
The Fed is meeting Tuesday and Wednesday to determine its next step in its fight against inflation. The central bank is widely expected to leave its benchmark U.S. interest rate unchanged at the end of its two-day meeting.
The yearly rate of inflation slowed to 4% from 4.9%, marking the lowest level since March 2021. Grocery and gas prices have been on the wane after helping drive up inflation last year.
Yet the so-called core rate of inflation that omits food and energy rose a stiffer 0.4% for the third month in a row, the government reported. Wall Street had forecast a 0.4% gain.
The Fed views the core rate as a better predictor of inflation trends. The increase in the core rate over the past 12 months slipped to 5.3% from 5.5%, the smallest gain since the fall of 2021.
These prices have fallen more slowly than the broader CPI, however, and suggest the fight against inflation is far from over.
Stock rose after the report. Treasury yields fell slightly.
Key details: A nearly 6% decline in seasonally adjusted gasoline prices was the chief reason for the low inflation reading in May.
The cost of groceries rose slightly in May after two declines in a row. Still, the yearly increase slowed to 5.8% last month from a peak of 13.5%.
What helped is a big drop in the cost of eggs. Prices sank 14% last month and have returned to normal. They spiked last year after a severe bout of avian flu.
The cost of eating out or getting takeout is still rising rapidly, however.
Housing, the single biggest category of the CPI, has become perhaps the biggest sore spot on the inflation front. Rents rose a sharply again and are up almost 9% in the past year.
Prices of used vehicles jumped for the second month in a row, but they’ve been on a downtrend over the past year.
Big picture:The doggedly high rate of inflation is far from the Fed’s 2% target and senior officials think it could take a few years to reach its goal.
The big question for the Fed is whether to raise interest rates again.
The Fed has jacked up a key short-term rate by 5 percentage points since the spring of 2022 from near zero. Now it wants to see how higher borrowing costs affect inflation and economic growth. That’s why many senior Fed officials appear to prefer to skip a rate hike this week.
If core inflation doesn’t subside more rapidly, however, the Fed might be forced to raise rates again and boost the odds of recession.
Looking ahead: “The largest risk to the economic outlook—that inflation would prove sticky, requiring the Fed to throw even more cold water on the economy—appears to have receded,” said chief economist Julia Pollack of ZipRecruiter.
“The drop in year-on-year inflation may give the Fed license to slow the pace of tightening, but not to pause long term unless participants are convinced inflation will slow further,” said chief economist Chris Low of FHN Financial.
Market reaction: The Dow Jones Industrial Average DJIA, +0.43%
and S&P 500 SPX, +0.69%
rose in Tuesday trades. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.827%
increased slightly to 3.78%.
Inflation in the U.S. has slowed from a 40-year peak of 9% last year, but prices are still rising rapidly and putting great stress on household budgets.
Topping the list is rent — the single biggest expense for people who don’t own homes. Putting food on the table, caring for young children and owning a car have also become a lot more expensive.
See the accompanying table to view where inflation is hurting Americans the most.
The cost of groceries isn’t rising as fast as it was last year, but putting food on the table is much more expensive now compared to a few years ago.
frederic j. brown/AFP/Getty Images
The latest consumer price index, due Tuesday, is likely to show a further slowdown in inflation. Yet the cost of many goods and services remains stubbornly high and isn’t coming down as fast as the Federal Reserve would like.
The Fed will meet Wednesday to weigh whether to raise interest rates for the 11th straight time since the spring of 2022. Wall Street widely expects the central bank will pause or skip a rate hike this month to see how much its prior increases are cooling off the economy.
The rate of inflation, based on the CPI, has decelerated to a yearly pace of 4.9% as of April.
The core rate that excludes food and energy has tapered off to 5.5% yearly pace from a peak of 6.6% last fall.
The bad news for the Fed is that core inflation, viewed as a more accurate predictor of future inflation trends, has gotten stuck at an uncomfortably high level.
The core rate has been flat at 5.5% to 5.6% since the start of the year, leaving it well above the central bank’s long-run target of 2% inflation.
Wall Street embraced the U.S. April consumer-price index, a closely watched inflation gauge published Wednesday, with cautious optimism.
But some Wall Street analysts are worried inflation might not be slowing quickly enough to satisfy the market’s expectation for as many as three interest-rate cuts by the Fed before the end of the year.
Series I bonds had a good two-year run at the top of the interest-rate heap, but the next 6-month rate that will be announced on May 1 is likely to fall so low that buyers probably won’t show up in record-breaking numbers.
I-bonds are priced based on two factors: a variable rate based on six months of inflation data (from October through March) and a fixed rate that is less transparently calculated. The latest CPI numbers for March indicate that the variable rate is going to pan out at an annualized rate of 3.38%, down from…
Data released Wednesday shows the Consumer Price iIdex rose 0.1% in the month of March, beating estimates from Dow Jones. Barron’s economics and politics senior writer Megan Cassella joined CBS News’ Omar Villafranca to discuss the latest inflation data and what it could mean ahead of the Federal Reserve meeting in May.
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The numbers: The cost of U.S. goods and services rose by a milder 0.3% in February, perhaps a sign the Federal Reserve’s fight against high inflation is showing grudging progress.
Prices had risen by a sharp 0.6% in January, based on the so-called PCE index.
The yearly increase in prices declined to 5% from 5.3% in the prior month, the government said Friday, marking the lowest level in more than a year and a half.
That’s still about three times the rate of inflation before the pandemic, however.
Senior Federal Reserve officials have signaled they plan to raise interest rates just once more before pausing to determine how much a sharp increase in borrowing costs brings down inflation. The Fed has jacked up its key short-term U.S. rate to a top end of 5%, a remarkably fast acceleration from nearly zero one year ago.
Higher interest rates temper inflation by slowing the economy, but the effects can sometimes take up to a year or more to be fully felt. The Fed wants to avoid going too far or cause any more stress on the U.S. financial system after the failure of Silicon Valley Bank.
Key details: The more closely followed core index also increased 0.3% last month, matching Wall Street’s forecast.
The core rate of inflation in the past 12 months slipped to 4.6% from 4.7%.
The PCE is viewed by the Fed as the best predictor of future inflation trends. It is formally known as the personal consumption expenditures price index.
The central bank pays especially close attention to the core gauge that strips out volatile food and energy costs.
Unlike it’s better-known cousin, the consumer price index, the PCE gauge takes into account how consumers change their buying habits due to rising prices.
They might substitute cheaper goods such as chicken thighs for more expensive ones like boneless breasts to keep costs down. Or buy generic medicines instead of brand names.
Big picture: The Fed is trying to straddle a fine line: Bring inflation back down to its 2% target, but without causing a severe economic reaction.
Whether the Fed will be able to hold the line on just one more rate hike is far from certain.
If inflation stays high, the central bank would have to end its pause on rate hikes and risk a recession. A slim majority of economists, in fact, already believe a downturn is imminent.
Steadily falling inflation, on the other hand, could allow the Fed to pull a rabbit out of the proverbial hat.
Looking ahead: “For an economy looking to avoid recession, this was a good report,” said Robert Frick, corporate economist at Navy Federal Credit Union.
“For the Fed, it could be one and done in May,” said senior economist Sal Guatieri of BMO Capital Markets.
Market reaction: The Dow Jones Industrial Average DJIA, +0.50%
and S&P 500 SPX, +0.57%
rose in Friday trades. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.535%
declined several basis points to 3.53%.
On a year-over-year basis, rents are up modestly in Phoenix at 1%.
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Asking rents climbed by $6, or 0.3%, from January to February. That is the first monthly increase in rents in five months, since they last rose in September 2022, according to a recent survey. The 0.3% increase is only somewhat smaller than the typical February increase of 0.4%, averaged over data from 2016 to 2020, suggesting that the rental market remains somewhat cooler than normal.
Typical asking rents at the national level now stand at $1,976, which is 6.3% higher than one year ago, but 0.5% below the peak of $1,987 observed in September 2022. That annual growth rate is now down more than 10 percentage points from the peak growth rate observed one year ago this month: 17.0%, the record-high pace reached in February 2022.
Monthly changes: Winter comes to Florida
The steepest monthly declines in rent were observed this February in Cleveland (-1.0%), Jacksonville (-0.4%), Salt Lake City (-0.4%), Richmond (-0.3%), and Miami (-0.3%). That bucks the recent trend of mostly Western cities, plus New Orleans, having the largest rent drops earlier this winter. The substantial declines observed in two of Florida’s major metropolitan areas suggests some cooling may finally be arriving after years of very rapid rent growth.
Rents rose the most on a monthly basis in Hartford (1.3%), Sacramento (0.9%), Chicago (0.8%), New Orleans (0.6%) and Raleigh (0.6%). Many of these markets represent more affordable alternatives to competing cities, which may explain their recently climbing rents.
Western markets: Stepping off the roller coaster
Rents are very close to where they were last February in several inland West markets. On a year-over-year basis, rents are down 1.0% in Las Vegas, and only up modestly in Phoenix (1.0%), New Orleans (1.8%), Sacramento (2.5%), and Baltimore (2.9%). Annual rent growth didn’t fall much further in these markets from its pace in January.
The Western markets may be going through a lull after breakneck rent growth in 2021, when they saw a great deal of migration from expensive West Coast markets, followed by some mean reversion in rent growth in 2022. The cumulative effect, though, is that rents still stand much higher than pre-pandemic: 3-year growth in Phoenix, for instance, is still a staggering 37%.
Annual rent growth was highest in Cincinnati (9.4%), Indianapolis (9.1%), Louisville (8.9%), Kansas City (8.2%), and Boston (8.1%), reflecting the continued strength of demand in affordable, mid-sized Midwestern metropolitan areas, as well as a belated rebound for Boston. Miami’s absence from the top 5 MSAs for year-over-year rent growth is also notable, after growing the fastest earlier in the pandemic.
The most expensive major market is San Jose, where typical monthly rent is $3,189, followed by San Francisco ($3,084), New York ($3,084), San Diego ($2,959), and Boston ($2,958).
The beginning of a return to normal?
Not only did monthly rent growth in February break its 4-month streak in the red; it also climbed much closer to average pre-pandemic growth rates for that time of year. In each of the last 3 months, the monthly growth rate was 25 to 30 basis points lower than the pre-pandemic average: -0.41% in November (vs -0.11%); -0.26% in December (vs -0.01%); and -0.06% in January (vs 0.21%). But this February, growth was only 13 basis points below the 0.43% averaged at this time of year in the five years of data from 2016 to 2020.
If monthly rent growth for the rest of the year simply matches its pre-pandemic average growth rate in each month, the annual pace of growth would continue to decelerate, from February’s 6.3% to a low of 3.0% in September. A normal year of rent growth would be a major relief for renters after last year’s blistering pace of rent hikes. Year-over-year rent growth has already dropped precipitously, from a record-high of 17.0% in February of 2022.
The deceleration of annual asking rent growth in February only heightens the contrast with official inflation measures of rent growth, like the Consumer Price Index’s Rent of Primary Residence component, which grew 8.6% in January (the most recent month available at this time). Previous research suggests a 12-month lag between annual ZORI (Zillow Observed Rent Index) growth and annual CPI Rent growth, giving cause for hope that the year-over-year growth in the latter could begin to decelerate sometime soon.
One small data point consistent with such a slowdown was that the compounded annual growth rate of January’s monthly change in CPI Rent, 8.8%, was already down measurably from its pandemic-era peak of 11.1% in September of 2022. Given that monthly CPI Rent growth accelerated sharply last May and June, those months might be the most likely time this year to see a peak and turning point in year-over-year CPI Rent growth.
The numbers: The cost of U.S. goods and services rose a scant 0.1% in December in yet another sign inflation is cooling off, opening the door for the Federal Reserve to stop raising interest rates soon.
The rate of inflation, using the Fed’s preferred PCE index, has tapered off rapidly since last summer. Falling oil prices have played a big role, but inflation more broadly is easing.
The annual increase in prices slowed to 5% in December from 5.5% in the prior month and a 40-year high of 7% last summer, according to fresh government data.
That’s the smallest increase in 15 months, though still well above pre-pandemic levels of less than 2% annual inflation.
The increase in the core rate of inflation in the past 12 months decelerated to 4.4% from 4.7%. That’s also the lowest level in 14 months.
The PCE index is viewed by the Fed as the best predictor of future inflation trends, especially the core gauge that strips out volatile food and energy costs.
Unlike it’s better-known cousin, the consumer price index, the PCE gauge takes into account how consumers change their buying habits due to rising prices.
They might substitute cheaper goods such as chicken thighs for more expensive ones like boneless breasts to keep costs down, or buy generic medicines instead of brand names.
The CPI showed inflation rising at a 6.5% yearly rate in December, but it’s also slowed sharply since the summer.
Big picture: The Fed is trying to restore inflation to pre-pandemic levels of 2% or so, and it will keep raising interest rates until it is convinced the genie is back in the bottle. Higher rates reduce inflation by slowing the economy.
Yet with inflation subsiding, Wall Street is raising questions about whether the Fed’s work is almost done. If rates go too high, the economy could sink into recession.
Indeed, many economists think a downturn is likely this year. The central bank has jacked up a key U.S. interest rate to a 15-year high of 4.5% from near zero less than a year ago — and the effects of higher borrowing costs are just starting to bite.
Looking ahead: “With higher interest rates evidently weighing heavily on demand now, we expect core inflation to continue moderating,” said chief North American economist Paul Ashworth of Capital Economics in a note to clients. That “will eventually persuade the Fed to begin cutting interest rates late this year.”
Market reaction: The Dow Jones Industrial Average DJIA, +0.08%
and S&P 500 SPX, +0.25%
were set to open slightly lower in Friday trades.
Pour one out for the beleaguered economists, who for once got an important indicator, the consumer price index, right on the nose, after CPI fell 0.1% in December, while core prices rose 0.3%.
“The 2021 surge in durable goods demand normalized, and the resulting collapse in durable goods price inflation was stunningly fast,” says Paul Donovan, chief economist of UBS Global Wealth Management.
“The commodity wave of inflation is fading, and that leaves the profit margin expansion in focus,” he adds. What a good time for earnings season to be upon us, and what do you know, it is, kicking off with the banking sector on Friday before broadening out next week.
Strategists at Goldman Sachs have a new note out, saying that the market is pricing in a soft landing even though the trend of earnings revisions points to a hard landing.
They’re not that optimistic — even in the soft-landing scenario, the team led by David Kostin say the S&P 500 SPX, +0.40%
will end the year right around current levels, at 4,000. But they identify 46 stocks that could benefit — profitable, cyclical companies that are trading at price-to-earnings valuations below their 10-year median, among other factors.
One name jumps out: Tesla TSLA, -0.94%,
which trades at 22 times forward earnings versus the 10-year median of 117 times. But the other 45 names are less flashy, ranging from Capital One COF, +1.81%
and Carlyle Group CG, +0.54%,
to a host of industrials including 3M MMM, +0.12%,
Parker-Hannifan PH, +0.73%
and Otis Worldwide OTIS, +0.42%.
As a whole, these typically $10 billion companies are trading at 12 times earnings, versus 17 times usually.
In the hard landing scenario, S&P 500 profit margins would shrink by 125 basis points, to 10.9% — about in line with the median peak-to-trough decline during the eight recessions since 1970, which has been 132 basis points. Consensus expectations are for a 26 basis-point margin decline.
The Goldman team also have a 36 stock screen for a hard landing — profitable companies in defensive industries with a positive dividend yield. They’re typically food, beverage and tobacco companies as well as software and services companies — including Costco Wholesale COST, +0.58%,
Kroger KR, -0.99%,
Altria MO, +0.48%,
Tyson Foods TSN, +0.23%,
Microsoft MSFT, +0.30%,
MasterCard MA, -1.13%
and Visa V, -0.25%.
As a whole, these $37 billion companies are trading at 22 times earnings vs. a historical 24 times.
The market
After a 2.3% advance for the S&P 500 SPX, +0.40%
over the last three sessions, U.S. stock futures ES00, +0.39%
JPMorgan shares slumped after forecast-beating earnings, though investment bank revenue came in light of estimates. Delta shares also declined after topping earnings estimates.
Virgin Galactic SPCE, +12.34%
surged after saying it’s on track to launch space-tourism flights in the second quarter.
Apple AAPL, +1.01%
says CEO Tim Cook requested, and received, a pay cut after investor criticism.
The University of Michigan’s consumer-sentiment index is due at 10 a.m. Eastern, and Minneapolis Fed President Neel Kashkari and Philadelphia Fed President Patrick Harker are due to speak.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Inflation appears to be slowing, as the Consumer Price Index fell to 6.5% in December. But the price of some items– like eggs– is skyrocketing. The high cost of housing is also having an impact on young people, forcing many to move home with their parents. Nancy Chen takes a look.
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The rising cost of eggs in the U.S. is denting household budgets. Americans in recent years have increased the number of eggs they consume while reducing their intake of beef and venison, according to data from the U.S. Department of Agriculture.
Egg consumption has grown in part because more families are eating them as their main protein substitute, Los Angeles Times reporter Sonja Sharp told CBS News. “Each of us eats about as many eggs as one hen can lay a year,” she said.
As demand for eggs has risen, production in the U.S. has slumped because of the ongoing bird, or “avian,” flu epidemic. Nearly 58 million birds have been infected with avian flu as of January 6, the USDA said, making it the deadliest outbreak in U.S. history. Infected birds must be slaughtered, causing egg supplies to fall and prices to surge.
Egg prices in December rose 60% from a year earlier, according to Consumer Price Index data released Thursday. Across U.S cities, the average price for a dozen large grade A eggs was $4.25 last month, according to figures from the Federal Reserve Bank of St. Louis.
In some states, it can even be hard to find eggs on the shelves. But egg supplies overall are holding up because the total flock of egg-laying hens is only down about 5% from from its normal size of around 320 million hens. Farmers have been working to replace their flocks as soon as they can after an outbreak.
Sharp said prices will likely not fall again until after new chickens are born without the infection and grow to egg-laying age. More than 300 flocks of farm-raised poultry have been hit by the outbreak as of last Friday, according to USDA data.
In New York, grocery store owner Jose Filipe said that soaring egg costs have caused many customers to change their spending habits.
“I’ve seen customers gravitate from buying organic eggs now to more conventional eggs, and specifically now, the half dozen. Prices have quadrupled in about six or seven months,” he recently told CBS New York’s Jenna DeAngelis.
What is avian flu?
Bird flu is carried by free-flying waterfowl, such as ducks, geese and shorebirds, and infects chickens, turkeys, pheasants, quail, domestic ducks, geese and guinea fowl. In another major recent epidemic of the disease, it killed more than 50 million chickens and turkeys in 2014 and 2015, while causing economic losses of $3.3 billion, the USDA estimates. The agency is now researching a potential vaccine against the bird flu.
Fortunately, the public health risk related to bird flu remains low, according to the U.S. Centers for Disease Control and Prevention. Still, cooking all poultry and eggs to an internal temperature of 165 ˚F is advised as a general food safety rule.
The cost of processed eggs — used in liquid or powdered form in manufactured products including salad dressing, cake mix and chips — has also surged, adding to inflationary pressures.
Inflation cooling
The Consumer Price Index — a closely watched inflation gauge — rose 6.5% in December from the previous year. That was the smallest annual increase since October 2021, the Labor Department reported Thursday and continues the steady decline in price increases since they peaked at 9% in June of last year. Falling prices for energy, commodities and used cars offset increases in food and shelter.
But if eggs remain pricey, Chicago resident Kelly Fischer said she will start thinking more seriously about building a backyard chicken coop because everyone in her family eats eggs.
“We (with neighbors) are contemplating building a chicken coop behind our houses, so eventually I hope not to buy them and have my own eggs and I think the cost comes into that somewhat,” the 46-year-old public school teacher said while shopping at HarvesTime Foods on the city’s North Side. “For me, it’s more of the environmental impact and trying to purchase locally.”
Eggs are just one of a number of food staples that skyrocketed in price in 2022. For example, margarine costs in December surged 44% from a year ago, while butter rose 31%, according to the CPI data.
Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
