Hello. Today we look at the inflation pinch in America, how Chicago is struggling and what could spur productivity.
Getting Squeezy
Concern over a “K-shaped recovery” is back in the U.S., as a surge in the cost of living eats up the savings accumulated from stimulus checks and other help, and as wage gains fail to keep up with inflation.
Home rental costs are a particular worry, as Alex Tanzi
reported. The median national rent climbed 9.2% in the first half of 2021, according to Apartment List. The real-estate firm says rents are now higher than if they had stayed on their pre-Covid track.Higher rents are the kind of price increase that’s hard to reverse — unlike many of the ones that have accompanied the economy’s reopening, from lumber to used cars.
There are signs of other areas of “stickiness” in price gains, as well.
Rising Prices
U.S. CPI growth is expected to moderate some in July but remain elevated
Source: Bureau of Labor Statistics, Bloomberg survey
Note: July figures reflect the median estimate in a Bloomberg survey of economists
In recent earnings calls, several executives pointed to their ability to hike prices without denting demand from U.S. consumers. A report due on Wednesday will probably show consumer prices climbed in July at near the 13-year high seen in June, Reade Pickert and Olivia Rockeman explain today.
“This summer, consumers are price-takers,” said Tim Quinlan, senior economist at Wells Fargo. “People were just, ‘whatever — we’ll pay for it when the rent comes due and put it on the card for now.’”
With the economy steadily recovering, there’s little appetite to provide yet more pandemic relief, and a number of assistance programs are set to expire in coming weeks, as Jennifer Epstein and MacKenzie Hawkins have showcased.
Assuming the inflation squeeze doesn’t subside soon, it will put pressure on more Americans to take up some of the record number of job openings — some 10.1 million as of last month — and reduce the case for the Federal Reserve to hold off on withdrawing monetary stimulus.
As Atlanta Fed President Raphael Bostic put it Monday, there’s a need to ensure the Covid crisis is past before tightening monetary policy, but there’s also a need to avert any “price crisis.”
The Economic Scene
This year billions of dollars in U.S. pandemic relief for small businesses finally made it to minority neighborhoods, reaching hair salons, daycares and restaurants in some of the poorest and most-segregated urban areas of the nation.
But, so far the infusion of Paycheck Protection Program funds has failed to translate into a meaningful economic recovery in many of these neighborhoods, data compiled by Bloomberg show.
Nowhere is this more on display than in Chicago, the only metro area tracked by Bloomberg where majority-Black zip codes have received more stimulus dollars per capita than White areas — albeit by a small amount — yet the pace of business reopenings is lagging and the local rate of Black unemployment is high.
Read the full story here
Today’s Must Reads
- Infrastructure infighting | President Joe Biden’s big plans for the U.S. economy are on the verge of passing their first major legislative tests in the Senate, leaving their future to intra-party struggles between Democratic progressives and moderates.
- China policy | The country’s central bank fanned expectations of further monetary policy easing, saying in its latest quarterly report that inflation pressures are “controllable,” while highlighting risks to the economic growth outlook.
- Delta gloom | Australian business sentiment tumbled in July as Sydney’s outbreak of the delta strain of coronavirus forced even tighter stay-at-home orders and leaks of the virus prompted snap lockdowns in other major cities.
- Do nothing | Inaction could be a powerful option for Bank of England officials looking to scale back stimulus for the economy and shrink their swollen balance sheet.
- Swiss appeal | The franc’s surge to a nine-month high against the euro has brought its valuation back into focus among investors. Yet the Swiss central bank’s own data on real effective exchange rates show that the currency has shed most of its premium at the height of the pandemic.
- Rebuilding Somalia | The war-ridden country has set up a national payments system as part of plans to develop the financial industry in one of the world’s most fragile states, following decades of political and economic instability..
Need-to-Know Research
U.S. Consumers See Inflation
Median expected price gains are expected to rise sharply at both the one-year and three-year horizon
Source: Survey of Consumer Expectations, Federal Reserve Bank of New York
U.S. consumers’ expectations for inflation over the medium term rose to an eight-year high in July, according to a Federal Reserve Bank of New York
survey.
The median survey respondent anticipated an inflation rate of 3.7% in three years’ time, the highest since August 2013 and up from 3.6% in June. Expectations for inflation over the next year rose to a record 4.8%.
On #EconTwitter
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What's Happening in the World Economy: Inflation Is Squeezing Many Americans - Bloomberg
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