The rise in prices was led by gasoline, up 21.2% in March. While the prices for consumer goods and services other than food and energy, or the so-called “core inflation rate” only ticked up 0.2% in March, the rise in fuel prices started to spill over into other goods and services. Airline fares, where jet fuel is a major cost, rose 2.7% in the month of March, and 14.9% from a year earlier.

This increase in prices and the rate of inflation follows the U.S.-Israeli war on Iran, launched in the last days of February. In response to the massive U.S.-Israeli bombings, with well over 10,000 targets, Iran has retaliated against U.S. bases and businesses in the Persian Gulf and Israel itself. In addition, Iran has taken control of the Straits of Hormuz, through which flowed about 30% of the world’s exported oil, and large amounts of natural gas, urea (used to make fertilizer), and helium, used in chip manufacturing and other high-tech goods like MRI machines.

With a relative ceasefire, Trump administration negotiators led by Vice President Vance are meeting with Iranian representatives for talks hosted by Pakistan. The flow of oil, fuels and chemicals is still just a trickle, mainly ships holding Iranian oil, which now fetch almost twice as much as before the war started because of the rise in the price of oil and the fact that the Trump administration lifted sanctions on their oil. Even though oil futures have dropped back down below $100 a barrel, this is still 50% higher than their pre-war prices. The purchase price of actual, or physical oil, is another $30 a barrel higher. Even worse, with the last shiploads of oil that made it out of the Persian Gulf unloading their oil at their destinations, the soaring price of oil will soon become a physical shortage of oil in more countries.

Not surprisingly, this surge in prices weighed on consumers’ confidence. The University of Michigan’s Sentiment Index fell to a record low of 47.6. This is the lowest in the survey’s 74-year history, lower than the 2008 financial crisis and the oil-price shock of 1979 after the revolution in Iran that ended the reign of the U.S.-backed Shah of Iran and the beginning of today’s Islamic Republic.

With prices soaring, more and more Americans who were living paycheck to paycheck are falling behind. One of the businesses benefitting from hard times are pawn shops, which reported more business in March. There are now corporate chains of pawn shops, whose stocks are at multi-year highs, in effect profiting from economic problems.

#SanJoseCA #CA #CapitalismAndEconomy #Inflation

San José, CA – The price of regular gasoline has soared a dollar a gallon on average since Trump ordered this country to war with Iran. According to the American Automobile Association or AAA, the average price has gone from $2.96 a gallon a month ago to $3.98 gallon on March 24, or more than 34%.

How high could they go? No one really knows, but according to my “Trump secretly loves California” theory, since Trump has brought the national price of gas closer where the California price was before the war started ($4.63), it is quite possible that $5 a gallon gasoline could be seen in gas stations across the country in the near future.

But gasoline prices are just the visible “tip of the iceberg” for consumer price inflation. Diesel prices are up 43% since the start of the war, even more in percentage terms than gasoline, and are now more than $5.35 a gallon on average nationwide. While very few individuals have cars that run on diesel, most trucks and farm equipment use diesel fuel. The rise in diesel prices will further squeeze smaller farmers and truckers, while the increase in costs will be showing up in food prices and the prices of almost all goods which are shipped to markets.

The cost of urea, the basic building block for nitrogen fertilizers, is also up 45% since the war started. Part of this is because the in response to the U.S.-Israeli attack and bombing campaign, most the major exporters of urea are either directly affected by the war (Saudi Arabia and Oman), or indirectly, as they (Egypt, China, Malaysia and Indonesia) import the natural and petroleum gas used in urea production from the Mideast. This will squeeze farmers even more, and some of the costs will pass through to higher food prices.

Finally, Qatar is a major producer and exporter of helium, which is a by-product of natural gas production. Helium is used in the production of MRI machines, production of semiconductors, and other industrial uses. Helium prices up 70 to 100%, will likely lead to shortages, depending on how long the war lasts.

While Trump has been saying from the start of the war, more than three weeks ago, that the war is almost over, the fact of the matter is that more than 5000 U.S. troops, both Marines and Army, are on the way to the Middle East, signaling another escalation of the war, with U.S. boots on the ground.

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While this inflation measure was lower than economists expected, the report should be taken with a large grain of salt. One of the reasons that inflation came in lower than expected is that it reported that there was basically no change in housing costs between September and November. Housing costs, including rents and estimated costs of home ownership, make up over a third of the CPI. This flatlining of housing costs typically only happens during a recession, and more likely reflected problems with the statistical methods used for this report.

One change that would also lower the inflation rate is that the Bureau of Labor Statistics, or BLS, that collects the data for the inflation report, removed the cost of long-term care insurance from the index. With premiums reported to have gone up 24% on average in 2024, this would tend to lower the index.

The report as a whole had a very large number of blank entries, partly because the October data wasn’t available. While inflation rates for specific goods were reported, other services – such as gardening and lawn care, which has many immigrant workers and was up 13.9% year over year in September – were not reported. One service that was reported that also has many immigrant workers was elder care, up 10.8%, possibly reflecting Trump mass deportation efforts that are hitting occupations with many immigrant workers.

Another under-reported service was insurance, including car insurance. Health insurance premiums were reported to be up only 0.6% in November, year over year, while in September they were up 4.2% from a year earlier, suggesting that these insurance premiums went down in October and November – something that virtually no one is seeing.

Last but not least, while many specific goods were down in price, such as eggs, many others were still rising at double digit rates. Beef was up 15.8%, while coffee was up even more, with prices 18.8% higher than a year ago. Home energy prices were up 6.9% from a year ago, even faster than in September, where the year over year rise was 5.1%. This was in part due to the artificial intelligence data centers being built, which require massive amounts of electricity, with more of it coming from new or reactivated nuclear power plants, which are the most expensive way to make electricity in the United States.

Finally, because of late start, with data collection only beginning mid-month, at the end of the government partial shutdown, this report included Black Friday sales, unlike normal November inflation reports, which would have pulled down prices reported and lowered the inflation rate.

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The day after Trump announced tariffs on Canada and Mexico, on February 1, a Canadian utility with U.S. customers announced that their rates would be rising with the new tariffs. Outdoing this was Nucor, the largest producer of steel in the United States, which has raised the price of its steel four times since January. The company plans to get ahead of Trump’s planned 25% tariffs on aluminum and steel, which are to take affect March 12, even though their steel in made in the United States and not subject to tariffs. They are using the same playbook as in 2018, during the first Trump administration. When Trump put 25% tariffs on imports of steel, domestic steel producers raised their prices an average of 22%, boosting profits but not production.

Last but not least, the price of gasoline is about to begin its seasonal rise. On average, the price of gas hits a low in February, and then starts to rise during the spring and summer. While this is not the fault of any of Trump’s policies, it certainly goes against his pledge to bring down the price of gasoline.

Candidate Trump pledged to bring down prices as president. This was a big part of his victory last November, as voters turned away from the Democratic Party candidates, who were deaf to working people’s complaints about inflation. But like a true politician, Trump is turning away from this goal and actually acting to make it worse with reciprocal tariffs on all countries to go into effect in April.

Treasury Secretary Scott Bessent, one of some 13 billionaires helping billionaire Trump to manage the federal government, recently said, with a smiling face, that Trump’s actions were “disinflationary.” What he meant by this is that Trump’s DOGE chief, Elon Musk was taking an axe to federal payrolls, cutting or putting on leave some 30,000 and threatening 2 million others with layoffs.

The spreading uncertainty and pain is already reducing spending, which will tend to limit price rises at the cost of disrupting the lives of tens of thousands of civil servants. Trump is stripping away the mask from the time when two-faced politicians used to assure the people while carrying out the wishes of billionaires. But now with the billionaires in charge, there is no more pretense, so they smile while wielding a chainsaw to our jobs and pocketbook.

#SanJoseCA #CA #CapitalismAndEconomy #Inflation #Trump

The S&P Purchasing Managers Index fell in February to 51.6, just above the 50.0 line where the economy is neither growing nor shrinking. The services part of the index actually dropped below 50, to 49.7, showing that the service sector was starting to slow. The “Trump Bump” of economic and financial enthusiasm has ended after just a month in office, as concern rose among businesses about the impact of his tariffs and deportations.

A separate report, on the sale of existing homes by the National Association of Realtors, saw sales fall by almost 5% in January, as compared to December of 2024. Interest rates have been rising. Trump’s proposed tariffs have led to greater expectations of higher inflation. Mortgage interest rates topped 7% in January, making home loans more expensive to pay off. While higher interest rates affect the demand for homes, as Trump’s deportation raids begin to reduce the number of construction workers, the supply of new homes will fall, pushing prices up even more and making them even less affordable.

The University of Michigan’s Consumer Sentiment Index fell almost 10%, to 64.7 in February, down from 71.7 in January. A big part of this was the rise in expected inflation over the next year, from 3.3% in January to 4.3% in February.

The largest outbreak of stagflation in the United States was in 1973 and 1974, when inflation and unemployment rose. Typically, these indicators move in opposite directions. The recession and rising inflation showed the post-World War II economic boom in the United States was over, and that the relative decline of the U.S. economy had begun. Today’s stagflation is a sign that the U.S. economic decline is accelerating. While Trump was largely elected because of widespread dissatisfaction with the economy, especially inflation, in fact, his policies were going to accelerate both the economy’s decline and rising prices.

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While natural disasters such as the fires in southern California and the winter storms in the Midwest and Northeast were seen as pushing sales down 0.2%, the actual report was much worse. The so-called “Trump Bump” of optimism seen in the stock market and retail sales at the end of 2024 had completely fizzled out. One reason for this was that more and more households were stretched because of higher prices and have had to borrow more and more. Delinquencies, or late payments on loans, rose across all categories except for student loans, showing that more and more people had taken on too much debt to try to keep up with rising prices.

Higher inflation and falling sales in January do not foretell a good year for the economy. While Trump promised lower prices “on day one,” he is now blaming all the economic problems on President Biden. While this may have some truth since most of January was still under the Biden administration, going forward, the economic polices adopted in Washington DC will be Trump’s responsibility.

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The increase in inflation was led by eggs, up more than 15% in one month. Fuel oil, used for heating in the Northeast, saw prices go up 6.2% from December. Other categories leading the way included gasoline (up 1.8%), natural gas for utilities (up 1.8%), used cars and vehicles (up 2.2%), and transportation services (up 1.8%).

The rise in the inflation rate was foreshadowed by an earlier report on consumer confidence for the first part of February, which saw expected inflation in the year ahead jump from 3.3% in January to 4.3% in February, a very large one percent leap. Expectations matter ,because consumers may try to buy more now to avoid future price increases, which causes prices to rise even more.

A big reason Trump won the election was that people were fed up with higher prices, and he promised to lower prices “on day one.” But in fact, Trump has done nothing to lower prices, instead spending time attacking diversity initiatives and health care for trans folks, and threatening to attack Panama.

Even worse from an inflation point of view, Trump has put 10% tariffs on all imports from China. In his first term Trump raised tariffs on China by a larger percentage, but it was on intermediate goods used to make final products like aluminum, wood panels, etc.

Trump’s latest tariff also include consumer products like cell phones, computers, electronics, clothing and shoes. Now a whole range of consumer goods will be going up in price as import businesses, which pay the tariff, pass on the cost to the consumer. But experience has shown that not only imports go up in price. When Trump put 25% tariffs on all steel imports in his first term, U.S. made steel went up 22% in price.

The Trump administration has also been stepping up the deportation of undocumented immigrants. This will reduce the number of workers, especially in agriculture, food processing, construction and elder care. These labor shortages will drive up the cost of labor and/or reduce the amount of food, homes, and services. Both of these will lead to higher prices.

The fact of the matter is that while Trump campaigned on “lowering prices on day one,” he actually has been busy raising tariffs, or taxes on imports, and deporting immigrants, both of which will actually raise prices.

#SanJoseCA #CA #CapitalismAndEconomy #Inflation #Trump #Tariffs

The increase in the broad CPI from 2.4% in September to 2.6% in October was mainly driven by rising housing costs, which were up 4.9% on a year-over-year basis. While the overall increase in the CPI has fallen from 9% in 2022 to 2.6%, the drop in housing inflation has been much smaller, from 8.8% in 2022 to 4.9% last month, which is still more than half the peak.

The cost of housing is actually greater than what the CPI counts, as it doesn’t include the cost of insuring a home, which is rising at an 8.8% annual rate (and much faster in states such as Florida and California due to the increase in costs of natural disasters).

Inflation in housing costs may stop falling or even start to rise again if Trump carries out his pledge to deport undocumented immigrants. 13% of all construction workers are undocumented, one of the highest rates of all industries. If many of them are deported, a shortage of construction workers will drive up the costs of housing.

While Trump was elected largely on people’s dissatisfaction with the economy, in particular higher inflation, Trumps pledges of mass deportations and higher tariffs, or taxes on imports, could actually end up raising prices and increasing inflation.

#SanJoseCA #CA #CapitalismAndEconomy #Inflation #Housing

Mainstream newspapers have been running articles for weeks and months about how workers’ feelings about the economy don’t match the improving economic data. But these articles are talking about the fall in inflation, which did go down to a 2.9% increase in average prices over the past year, the lowest since April of 2021. And while wages have been outpacing prices recently, the average number of hours has fallen as the labor market has been weakening and the unemployment rate has risen. Put it all together and workers did lose ground again in July of 2024.

#SanJoseCA #inflation #economy #unemployment #recession

A central part of Trump’s economic plans is to raise tariffs, or taxes on imports. He is calling for 10% across the board and 60% for imports from China. Trump proudly calls himself “Tariff Man” and holds up President William McKinley as a role model for raising tariffs. McKinley was congressperson and president who was a strong advocate for tariffs in the late 1900s.

Tariffs, like other taxes on goods and services such as sales taxes, raise the prices of products and will cause even higher inflation. There are many goods, such as bananas and coffee, that cannot be produced in the United States and consumers will just pay higher prices. Other products, such as cell phones, are no longer made in the United States and will also go up in price.

Tariffs on imported goods that are also made in the United States, like steel, could lead to U.S. producers simply raising prices to fatten their bottom line. This is what happened when Trump put 25% tariffs on steel – companies that made steel in the United States raised their prices by 22% and hardly increased production at all. This will further increase prices and inflation.

China was the second largest exporter to the United States in 2023, after Canada and just ahead of Mexico. About one out of nine imports to the United States comes from China. A 60% tariff increase would cause a huge jump in prices of imports from China. The main result would be for companies to shift production to other countries such as Bangladesh and India. This would lead to more costly imports, as many component would still made in China, but then have to be shipped to, then and reassembled or packaged in, third countries before finally getting to the United States.

Besides the impact on inflation, higher tariffs would invite retaliation from other countries. During his first term as president, Trump tweeted, “Trade wars are good and easy to win.” But like hot wars, trade wars are only easy to win if a strong country attacks a very small and weak country. But during Trump’s first term, both the European Union and China retaliated, causing losses for industries and businesses that relied on exports, such as farming. While government aid offset much of these losses, it meant that U.S. taxpayers were paying a second time for U.S. tariffs.

Behind Trump’s support for much higher tariffs is his view that trade deficits mean that the United States is “losing money” to other countries. However, the U.S. is not giving money to other countries, but in fact buying more from other countries than we sell to them. Further, this money comes back to the United States as other countries buy U.S. bonds, stocks and businesses.

A big factor that contributes both to trade deficits and job losses in the United States is U.S. corporations exporting capital and jobs to other countries. A prime example of this is Apple, which once manufactured here in the United States, but first offshored production to Ireland and then China, producing almost none of its products in the United States.

Trump does not target these corporations and the billionaires who own them. He wants to extend the tax cuts that corporations and the rich received in his 2017 tax bill. In return, more and more billionaires are lining up to give big bucks to the Trump campaign.

#SanJoseCA #CA #CapitalismAndEconomy #Trump #Tarrifs #Inflation

Average weekly wages for workers went up 3.8% over the last year. Subtracting inflation, the “real” or purchasing power of wages went up 0.8% over the last year according to another report of the Department of labor on Real Wages.

But the CPI does not include two important payments made by consumers. The first is interest payments, which have mainly gone up because of the Federal Reserve, the U.S. central bank, which raises interest rates to try to slow the economy and lower inflation. Mortgage interest rates are near 7% and are the highest in more than 20 years. Credit cards now charge more than 20% in interest on unpaid balances, which is the highest level in more than 30 years.

Adding back higher interest costs, for both consumer loans (student loans, credit cards and auto loans mainly) as well as mortgages, would increase the inflation rate by about 0.7% over the course of the year. This is not much, but enough to offset out the 0.8% gain in real wages.

The second omission is that the CPI does not include insurance costs for homeowners. The CPI estimates the equivalent rent for a house, but this does not include rapidly rising home insurance costs. These costs would add about 0.8% to inflation over the last year, mean that purchasing power for the average household in the United States has actually gone down by about 0.7%. This is only an average, so many would be much worse off, while some would be better off. No wonder surveys show so many people are sour on the economy.

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First of all, revisions to the December and January job numbers meant that there were 167,000 fewer jobs added those two months than first reported. The January employment report in particular was reduced from 353,000 net new jobs to only 229,000.

Second, the unemployment rate rose from 3.7% in January to 3.9% in February. This number comes from a survey of households, which showed a 184,000 fewer people working in February as compared to January. This was the third month in a row that the number of people working has declined, opposite to what the survey of employers is saying.

The broadest measure of unemployment, which includes those workers who are working part-time because full-time jobs aren’t available, workers that have given up looking, and thus aren’t counted as unemployed, continued to rise to 7.3%. This measure was only 6.7% last July. Most of the increase has come from more workers who are taking part-time jobs because full-time ones are not being offered. This explains part of the difference between the growing job numbers and the declining number of people with jobs.

President Biden, in his state of the union address on Thursday, repeated the claims of many mainstream economists that the economy is managing a “soft landing” where job growth continues while inflation continues to cool. But talk of a “soft landing” typically peaks before a recession, so is actually a negative indicator for the future economy.

While the national news reported on the decline in the Federal Reserve’s (the U.S. central bank) favored inflation measure for January, little was said about the rest of the report. The Personal Consumption Expenditure, or PCE, index did decline in January to 2.4% higher than a year earlier, from 2.6% in December. But the income and spending figures were very weak. There was no increase in after-tax incomes after correcting for inflation. And consumer spending, adjusted for inflation, actually declined by one-tenth of one percent in January (this measure, like other government statistics, is adjusted for seasonal changes, in this case holiday spending).

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Recent announcements of job cuts means that unemployment will continue to rise. Technology firms are leading the layoffs, with Twitter cutting half their workers (3700 jobs), and Snapchat 20% (1300 jobs). In the post-pandemic period, exercise equipment company Peloton cut 32% of its workforce (1250 jobs) in two rounds of layoffs, and used car retailer Carvana cut 25% (2500 jobs).

A different picture was painted by the jobs report, which said there were 261,000 net new jobs created. While this is a solid gain, it is the lowest number since December of 2020, and is another sign of a slowing economy. The slowdown in job growth was broad based, with only accommodation (hotels) and local governments hiring more than this year’s average.

Part of this divergence between the unemployment rate and new job creation is that more and more people are having to work more than one job to make ends meet. Different government agencies estimate that between 5 and 15% of workers are doing this, which would mean more jobs but not more people with jobs.

One of the reasons for this is that over the last two years price increases have outpaced wage gains. In addition, the average number of hours worked has gone down. Between the two, the purchasing power of workers’ weekly earnings was down by more than 9% since the end of the last recession.

In response to high inflation, the Federal Reserve, the U.S. central bank, has been raising the interest rate at the fastest rate in 40 years. On Wednesday, November 2, the Fed raised the interest rate for the fourth time in 2022. The Federal Funds Rate that the Fed targets has gone from around zero in March to a bit over 3.8% this week, and more increases are coming. The Fed’s goal is to slow demand for goods and services, and thus bring down inflation.

One problem that will make this task more difficult is that big corporations have been increasing their prices when demand slacks off. For example, Campbell Soup, which has a bit more than half of the canned soup market, actually raised their prices when demand for Campbell Soup dropped off as restaurants reopened and people started eating out more as the pandemic eased.

The vast majority of economists think that the fall in demand from rising interest rates will lead to the start of a recession in 2023. Total domestic demand for goods and services made in the United States has been slowing over the last nine months, with the July to September 2022 period showing only a 0.1% growth. The last two quarters, or six months, have seen a fall in spending on business investment on new plant and equipment and new residential construction. A drop in this investment sector of GDP is typical of a period leading into a recession.

While most economists think that the recession will be relatively brief and mild like 1991 and 2001, they are assuming that a financial crisis will not break out. But in fact, there are growing strains the in financial system, especially in the market for U.S. government bonds that centers the financial sector. Aside from that, the Federal Reserve is not going to slash interest rates as they did in 1991, 2001, 2008 and 2020, because of continuing high inflation. The last time a recession happened when the Fed was raising interest rates, was the brutal 1981 recession where unemployment topped 10%, the highest rate since the Great Depression of the 1930s.

More Republicans in the Congress and Senate have been threatening to hold up the budget to force cuts in Social Security and Medicare. They are trying to blame today’s inflation on the large federal government budget deficit. In fact, during the 2022 Fiscal year the federal government budget deficit fell by more than half, from almost $3 trillion in 2020 and 2021 to $1.4 trillion. But inflation continued to rise to 8% or more for the last eight months, despite the drop in the budget deficit.

Of course, Social Security and Medicare did not cause the large budget deficits; the cause was spending to fight off the effects of the pandemic. In fact, the Republicans have long wished to reward Wall Street – both the investment funds as well as private health insurance companies – by cutting Social Security and Medicare. These programs are the most help to working-class Americans, who have to depend on their benefits in old age. But this austerity will just make the recession worse, not mention the health and standard of living of our seniors.

#SanJoséCA #economy #inflation

San José, CA – Inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers or CPI-W has been rising this year at the fastest rate in 40 years. This high inflation continued in September, with prices measured by CPI-W up 8.5% over a year ago. Higher prices combined with fewer hours means that the purchasing power of average weekly earnings for workers fell 3.5% from a year earlier.

But many workers’ wages are buying even less than the 3.5% average drop in purchasing power. The difference in hourly pay gains between the highest-paid 25% of all workers, and the lowest paid 25% of workers is the widest on records going back 25 years. While the highest paid workers saw their wages rising on average 7.3% in the last year, the lowest paid workers only saw a 4.3% increase. This means that for lower-income workers, the purchasing power of their paychecks has fallen about 5% from 2021.

Inflation was led by rising energy costs, up almost 20% from a year ago, and food, up more than 11% from a year ago. More people are falling behind on their utility bills and most people are cutting back or trading down on their food purchases.

Prices not counting food and energy were up 6.6%. While this was less than the overall increase in prices, it was also the biggest increase in 40 years. Inflation fighters at the Federal Reserve, the country’s central bank, are more concerned as inflation excluding energy and food is much harder to push down. Most economists are expecting the Fed to raise interest rates by another three-quarters of a percent at both their November and December meetings. This would raise short-term interest rates from just over 3% now to more than 4.5% by next year.

Longer-term interest rates, such as on mortgages, have been increasing even faster as the standard 30-year mortgage interest rate is now 7% or more, the highest in 20 years. This makes buying a house that much more expensive. Credit card interest rates are also rising, adding the costs of household who carry credit card debt.

The only silver lining to the inflation cloud is that Social Security benefits will rise 8.7% in 2023. This is because Social Security benefits are “indexed” or automatically adjusted for inflation using the CPI-W. In addition, there will be a very small drop in the Medicare Part B monthly premium, instead of a usual increase.

But Social Security and Medicare will be under threat if the Republicans win in the November midterm elections, as many Republicans in Congress and candidates are calling for cuts or even ending these essential programs for seniors and the disabled.

#SanJoséCA #economy #inflation

Prices paid by production and non-supervisory workers (the CPI-W) rose 9.7% as compared to June 2021, a 40-year high. This is even higher than the 9.1% for the headline Consumer Price Index for all urban consumers (CPI-U) which also hit a 40-year high. This CPI includes prices for goods and services bought by professionals, supervisors and managers, and businesspeople, as well as workers.

The increase in annual inflation from 9.2% in May to 9.7% in June has led many economists to predict that the Federal Reserve may raise short-term interest rates by a full one percent at their next meeting later in July. Before the latest inflation report, expectations were that the Fed would raise interest rates by ¾ of one percent, the same as in their June meeting.

Higher interest rates make mortgages, car loans and credit cards more expensive, putting a drag on consumer spending. Interest rates for bank loans for smaller businesses as well as bonds sold by large corporations are also rising.

For example, gasoline prices, which are up almost 60% from a year ago, reflect the higher oil prices in the wake of the U.S. economic sanctions on Russia. Western oil giants such as Shell, Exxon Mobil, Chevron and British Petroleum are not pumping more oil to make up for the lack of Russian oil, instead they are seeing their profits triple or more as prices rise but their costs do not.

The cost of rents and owners’ housing is up “only” 5.5 to 5.8%, but this makes up a third of the CPI. While the price of homes and the cost of mortgages continue to rise, this just makes home buying less affordable. This increases the demand for rentals, causing rents to rise.

An even faster increase in interest rates is increasing the chances of a recession in the near future. Scattered reports of large companies laying off workers finally showed up in the weekly new claims for unemployment insurance, which jumped to 244,000 for the week ending July 9. While low compared to some of the records set with the pandemic in 2020, it is still the highest number of new applications since November of 2021.

The next recession shows few signs of being as steep as the one in 2020 with COVID-19, or the 2007 to 2009 recession with the greatest financial crisis in the United States since the 1930s. However the typical Keynesian government responses of lower interest rates and more government spending are unlikely to happen. The Federal Reserve is focused on raising interest rates to fight inflation and has said that a recession may be necessary to bring inflation down. The massive federal government aid for extended and expanded unemployment benefits, eviction and foreclosure protections, and increased food stamps, as well as easier access to health insurance and a moratorium on student loan payments are almost certain not to come back with Republicans holding half the Senate and a couple of conservative Democratic senators, such as Manchin of West Virginia, able to block more social spending.

#SanJoséCA #wages #inflation

San José, CA – With Bitcoin now down 70% from its record price in April of 2021, businesses based on cryptocurrencies have started to fold. The latest victim was Celsius, a crypto “bank” which stopped withdrawals from its accounts on Sunday, June 12. Celsius had more than $20 billion in assets at its peak in August 2021, drawing investors with yields of more than 18%. But Celsius is looking more and more like a high-tech Ponzi scheme that only lasted as long as new investors kept buying in.

The collapse of Celsius followed the collapse of the “stablecoin” Terra just last month. “Stablecoins” are digital currencies that are supposed to maintain a value of $1, unlike Bitcoin and other cryptocurrencies whose value can go up and down. But Terra was not backed by assets such as cash or Treasury Bills (short-term U.S. government bonds), instead it was “backed” by another cryptocurrency, Luna. The attraction of Terra was that it enabled investors to put their Terra coins into Anchor Protocol, which was paying interest rates similar to Celsius. But on May 7, Terra slipped below $1, and continued to drop, eventually losing more than 95% of its value.

The losses from Celsius and Terra are in the tens of billions of dollars, but pale compared to the losses by investors in Bitcoin and other cryptocurrencies. Bitcoin is based on solving complex mathematical problems, so it has the scarcity needed for money. The problem is that fundamentally it has little use aside criminal transactions, and even here governments are getting better at tracing and clawing back illegal crypto payments.

For decades low interest rates and low inflation have set the conditions for investors to pursue risky assets. First there was the boom and bust in dot-com stocks in companies that didn’t even have any revenue, not to mention profits. This was followed by bonds backed by risky mortgages which went into default with the bust in the housing market. Most recently there are Bitcoin and other cryptocurrencies, and a number of “DeFi” (decentralized finance) like Terra and Celsius.

But what is different today is that the economic environment has changed. Inflation, running at 9.3% (CPI-W) is the highest in 40 years. The Federal Reserve is raising interest rates to jack up the unemployment rate and bring down inflation. On June 15, the Federal Reserve raised short-term interest rates by three-quarters of one percent (0.75%), the biggest jump since 1994. On the same day, the Federal Reserve also began to reduce their $9 trillion stash of bonds by $47.5 billion a month, which will double to $95 billion a month in September. This will increase the amount of bonds on the market, pushing bond prices down and longer-term interest rates up.

This “double-barreled” increase in both short- and long-term interest rates has never been done in such an aggressive manner by the Fed. These interest rate increases are likely to begin to bring down inflation but are all but certain to bring about another recession.

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San José, CA – On Friday, June 10, the Bureau of Labor Statistics reported that prices for workers’ families, the so-called Consumer Price Index-Wage or CPI-W rose by 9.3% as compared to prices a year ago. This rate of inflation is near a 40-year high, only exceeded by the 9.4% increase in March. The last time that prices rose so quickly was in November of 1981.

The headline number that the corporate media reported was a smaller 8.6%. This was the number for the CPI-Urban or CPI-U that includes households with managers and professionals as well as wage workers. The CPI-W inflation is higher than the CPI-U because the CPI-W puts more weight on the prices of food and transportation that have been bedeviling working families. Food prices are up more than 10% over the past year while gasoline is up almost 50%. On the other hand, recreation costs, which are given a more weight in the CPI-U, are up less than 5%, bringing down the CPI-U.

The CPI-W was the original Consumer Price Index that the federal government began to report on in 1919. After the introduction of the CPI-U, which included more higher-income earners, in 1978 the Bureau of Labor Statistics reported data for both for many years. But in May of 2012, the Obama administration stopped publishing the data breaking down the CPI-W. At the same time the Bureau of Labor Statistics included more “attractive” data tables in the report. The government seems to have taken a page from corporate marketers who will often put a lesser product in a more attractive package.

In response to the high level of inflation, the Federal Reserve Bank, the U.S. central bank, has raised interest rates twice, the second time by one-half of one percent instead of the typical one-quarter percent increase. The Fed is expected to raise interest rates by a half a percent again in June and also July. This is one of the most aggressive rounds of interest rates increases that the Fed has ever done.

Interest rate increases will slow borrowing and spending on goods and services, thereby slowing increases in prices. But this also tends to raise the unemployment rate and in most cases is accompanied by a recession. Thus, more and more economists are talking about the growing likelihood of “stagflation” where the economy goes into a recession while inflation stays high.

The problem that the Fed faces is that many of factors that are spurring inflation are coming on the supply side, not the demand side. One trigger for many of the shortages was the pandemic, where globalized supply chains were subject to factory closures and shipping problems. Another factor is climate change, which has contributed to the worst drought in 50 years on the island of Taiwan, where most advantage chips are made, using processes that are very water intensive. These chip shortages have caused a slowdown in auto production, leading to higher car prices.

But the U.S. government’s policies to wage economic wars on first China, and now Russia are also a factor. About half of all the goods made in China that the U.S. buys have a 25% tariff, leading to higher prices. The tariffs and embargoes on solar panels in particular are slowing or even stopping solar energy projects, driving up prices for electricity. While the Biden administration is blaming Russia’s president Putin for high gas prices, the fact is that the Russian government has not limited the export of oil to the United States. It is the United States embargo on Russian oil and the U.S. economic war on Russia that is making it difficult for Russia to export its oil, driving up the price of oil and oil products like gasoline.

The Biden administration does have a point in placing some of the blame for high prices on big corporations that have been raking in profits, such as oil corporations and meat packers. When a few large corporations dominate an industry, it is very difficult for any new companies to break in. So when prices go up, instead of new firms coming in and adding to supply, the existing companies can just sit back and let the profits roll in. One thing that can be done in a capitalist economy is to place price controls on key industries like gasoline and meat production, to freeze or even lower prices while making sure that the companies don’t try to limit production.

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While it is true that the biggest rent increases are for new tenants, and most tenants don’t face such large increases, the burden of rising rents is the single biggest factor in the 40-year high inflation rate cutting working people’s purchasing power. Almost one-fifth of inflation comes from rent increases, more than the more widely mentioned gasoline or cars.

Working-class and oppressed nationality/national minority (African American, Chicano, Latino, Native American, Arab American and Asian American) households are hardest hit by rising rents. We are more likely to rent and tend to pay a greater part of our income on rent than others.

An important reason for rising rents is soaring home prices. As homes become less affordable, landlords can more easily raise their rents, knowing that their tenants have less of an option of buying. With home prices up almost 20% over the last year, it is no wonder that rents are rising too.

Another factor in the rise in rents is the growth of corporate landlords. This is a hot new investment for Wall Street. One such firm, Blackstone, made $6 billion in profits over the last year, a sixfold increase. About half of these profits came from real estate.

Not only are these corporate landlords raking in massive profits, but they are also more likely to evict tenants behind on their rent. Evictions did fall from the 3.7 million per year before the pandemic because of the moratorium on evictions by the federal government. This has now expired, and even those states that extended their own eviction bans are ending. A few cities have introduced their own eviction ban, but landlords are pulling strings at the statewide level to stop these local eviction bans.

In many states, including New York, landlords can evict at will, without having to show any cause. New York renters owe the most in back rent of any state, and with their eviction moratorium having ended in January of 2022, more tenants are at risk of eviction than any state.

A needed change is rent control, which caps rent increases. Berkeley, California which had a strong form of rent control that limited rent increases to the rate of inflation plus any documented repair costs. But this law, along with a handful of other smaller cities, was overturned at the state level by landlord-backed politicians.

Despite the difficulties, tenants and their supporters are fighting evictions and rent increases across the country. These struggles will only grow as tenant are squeezed by rising rents and wages that are not keeping up with inflation.

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One important cause of higher prices was the continued impact of the COVID-19 pandemic. While spending on services, which involve more human contact and a greater possibility of infection lagged, spending on goods surged. This was the case for used cars, where prices went up 37.3% last year, as travel on mass transit declined. In New York City, transit rides were still 50 to 70% lower than before the pandemic.

The pandemic is continuing to cause disruptions in supply, which are also contributing to higher prices. Shortages of computer chips is a disruption of new cars, each of which can use a thousand chips or more. Limiting the supply of new cars also limits the number of used cars for sale as people hang on to their current cars.

The growing power of a handful of giant corporations that monopolize more and more markets is also contributing to higher inflation. Take a look at beef prices, which rose 18.6% in 2021, more than twice as fast as food prices in general, which rose 6.3%. Four giant meat-packing corporations now control 85% of the market for beef, up from 36% 40 years ago. This market power allows them to raise prices for consumers while at the same time keep down what they pay ranchers for cattle. This has led ranchers, who once got about 60 cents for every dollar spent on beef, last year getting less than 40 cents. While ranchers are going out of business, meat packers are making massive profits.

Federal government borrowing and spending in this latest crisis was about three times as large as the stimulus after the 2008 financial crisis. This came in the form of support for businesses, the unemployed, and relief checks for most of the population. Almost all of this was available for spending, unlike 2008, when large amounts of aid went to ailing financial institutions.

Last but still important was the massive money printing by the Federal Reserve. In the six years after the 2008 financial crisis the Fed created about $3.5 trillion in money to buy U.S. government and mortgage-backed bonds. But most of this money, about $2.6 trillion, just sat in banks as “excess reserves” meaning that the money wasn’t being lent out and spent. This meant low inflation. In just two years since the start of the pandemic, the Fed has printed even more money, about $4.2 trillion. Again about $2.6 trillion of this is sitting in banks, but much of that money created is being loaned out and spent, at five times the rate after the 2008 financial crisis, contributing to higher inflation.

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