Home Price Key Reason Some Voters Frustrated by US Economy

WASHINGTON — Lori Shelton can’t fathom ever having the money to buy a home — and that’s a major reason why so many voters feel down on the economy ahead of this year’s presidential election.

Shelton, 67, drives an Uber to help pay rent in Aurora, Colorado. An advance on her pay covered her apartment’s security deposit. But it also cut into her next paycheck, leaving her bank account dangerously low when the rent was due — a cycle that never seems to end.

“I’m always one step behind,” said Shelton, her voice choking up. “It’s a nightmare, it’s a freaking nightmare right now.”

The United States is slogging through a housing affordability crisis that was decades in the making. At the root of this problem: America failed to build enough homes for its growing population. The shortage strikes at the heart of the American dream of homeownership — dampening U.S. President Joe Biden’s assurances that the U.S. economy is strong and underscoring the degree to which Republican Donald Trump, the former president and presumptive GOP nominee for 2024, has largely overlooked the shortage.

The lack of housing has caused a record number of renters to devote an excessive amount of income to housing, according to a Harvard University analysis. Not enough homes are for sale or being built, keeping prices elevated. Average mortgage rates have more than doubled and further worsened affordability.

In fact, the Census Bureau reported that homeownership fell slightly at the end of last year in an otherwise solid economy. If it wasn’t for shelter costs, inflation — Biden’s most pronounced economic problem — would be running at a healthy and stable 1.8%. Instead, it’s hovering around 3.2%.

Administration officials are confident that shelter inflation will soon cool, but the damage across several years is apparent to advocates and economists.

“I’ve been doing housing work for 30 years — the housing affordability challenge is the worst I’ve ever seen in my career,” said Shaun Donovan, a former secretary of Housing and Urban Development in the Obama years who now leads the nonprofit Enterprise Community Partners.

Donovan noted that this is an increasingly bipartisan challenge that could bring the political parties together. Expensive housing was once the domain of Democratic areas such as New York City and San Francisco. It’s now moved into Republican states as places such as Boise, Idaho, grapple with higher prices.

“It is a first-tier issue almost everywhere,” he said. “And that is changing the national politics around it in a way that I think is quite different than I’ve ever seen.”

Mark Zandi, chief economist at Moody’s Analytics, said that the outcome of the November election could ultimately depend on the path of 30-year mortgage rates.

Rates currently average about 6.74%. If they dropped closer to 6%, the odds of a Biden victory would increase. But rates moving near 8% might enable Trump to prevail, Zandi said.

“Given the current housing affordability crisis, higher rates will make owning a home completely out of reach for nearly all potential first-time homebuyers,” he said. “Since homeownership is a key part of the American dream, if it appears unattainable, this will deeply impact voters’ sense of the economy.”

Biden, a Democrat, acknowledged the pain many are feeling in his State of the Union address earlier this month and in his budget proposal released on Monday.

The president wants to fund the building and preservation of 2 million housing units — a meaningful sum, but not enough to solve the shortage. He also proposed a tax credit worth up to $10,000 to homebuyers. Over the past three years, he has increased rental assistance to 100,000 households.

“The bottom line is we have to build, build, build,” Biden said Monday in a speech to the National League of Cities. “That’s how we bring down housing costs for good.”

Rapidly climbing home prices were also a festering problem under Trump, who first achieved celebrity status as a real estate developer. While president, Trump called for limiting construction in the suburbs. He claimed during the 2020 election that Biden’s policies to spur building and affordability would “destroy your neighborhood.”

During the 2018 to 2020 years of Trump’s presidency, the country’s housing shortage surged 52% to 3.8 million units, according to the mortgage company Freddie Mac.

The Associated Press contacted Trump’s campaign for his policy plans but did not get a response. The America First Policy Institute, a think tank promoting Trump’s vision, said the key is to cut government borrowing to reduce mortgage rates. The former president has pledged to reduce deficits, but an analysis by the Committee for a Responsible Federal Budget shows that his policies in office will have likely added more than $8 trillion to the national debt.

“The best way for us to improve access to homeownership for young people is to get interest rates back down, not to provide subsidies that cause housing unaffordability to worsen,” said Mike Faulkender, chief economist at the institute.

Lower rates might play well with voters, but most economists say they would at best offer temporary financial relief. Purchase prices would likely adjust upward in response to greater demand from falling rates.

Construction, the more enduring solution, would take years to achieve and require new rules by states and cities. The administration is trying to incentivize zoning changes, but the major choices are outside the White House’s control.

“Even as incomes are going up and the economy is doing well and inflation is coming down, people can’t buy homes,” said Daryl Fairweather, chief economist at the brokerage Redfin. “That’s like the biggest problem for Biden because it’s not one that he can solve.”

The general rule of thumb is that people should pay no more than 30% of their income on rent or a mortgage. A typical household looking to buy a home would have to devote 41% of its income to mortgage payments, according to Redfin.

There are far-reaching economic risks because of this. High housing costs can lead people to cut back spending elsewhere. Advocates said it enables landlords to neglect their properties since there is always a ready tenant.

Evictions can worsen health and educational outcomes for children and exact an even wider cost on society, said Zach Neumann, a Denver-based lawyer who provides more than $30 million annually in rental assistance through the nonprofit Community Economic Defense Project.

The cumulative costs of evicting poorer renters are “$20,000 to $30,000 a year when you include shelter nights and emergency room visits,” Neumann said. “It’s really overwhelming when you think about the total numbers and these folks are fighting to have a roof over their heads.”

While there is bipartisan agreement on the need for more housing, there has yet to be a significant plan that has passed the House and Senate. Biden has proposed housing aid throughout his administration that never materialized.

“Had Congress passed some of the investments that the president has called for since the beginning of the administration, had they done that three years ago, as he was advocating, we’d have affordable units coming online right now,” said Daniel Hornung, deputy director of the White House National Economic Council.

But Mark Calabria, who was director of the Federal Housing Finance Agency during the Trump administration, said that many of the federal tools to increase housing such as the Low-Income Housing Tax Credit could further push up demand without adding enough construction.

“My worry would be we’ve done a number of things that increased demand when the problem is supply,” said Calabria, now an adviser with the libertarian Cato Institute.

But for renters such as Lori Shelton in Colorado, the debate about how to add housing supply is cold comfort when she owes rent now. She’s previously dealt with the threat of eviction and late fees. She gets some rent money from her son, but she has also relied at times on her church to cover the $2,399 a month.

“I don’t think the majority of us have that savings account,” she said. “If you spend that much on your rent and your groceries and your car and your bills, you don’t have much for a fallback.”

Observers: US Investments in Philippines Seen Easing Reliance on China

Taipei, Taiwan — During a trade mission visit to Manila this week, U.S. Commerce Secretary Gina Raimondo announced plans to invest more than $1 billion in the Philippines’ tech sector and help double the number of semiconductor factories in the country.

Observers say the pledge and visit highlight the Southeast Asian nation’s growing importance to Washington and will also help reduce the Philippine economy’s reliance on China.

“U.S. companies have realized that our chip supply chain is way too concentrated in just a few countries in the world,” Raimondo said in remarks at a business forum on Tuesday.

“Forget about geopolitics. Just at that level of concentration, you know the old adage, ‘Don’t put all your eggs in one basket.’ Why do we allow ourselves to be buying so many of our chips from one or two countries? That’s why we need to diversify,” Raimondo said.

American business executives from 22 businesses, including Alphabet’s Google, Visa and Microsoft, joined Raimondo on the trip.

Possible expansion of chip industry

JC Punongbayan, resident economist and columnist of the online news website Rappler.com, said that while the Philippines is one of the key centers in the global electronics industry chain, it does not yet have the ability to manufacture smartphone or computer chips. The Philippines currently has 13 semiconductor factories that focus on assembly, packaging and testing.

“This commitment by the U.S. government to boost the local semiconductor industry is a welcome development because right now, even if semiconductors have figured prominently in trade statistics, these are not high value-added. So basically, we import a lot of components and then export them after assembly and packaging,” Punongbayan told VOA’s Mandarin Service.

“Hopefully, these investments by the U.S. government and private sector partners will enable the Philippines to export higher value-added goods in the future,” he said.

Punongbayan believes that at a time when the Philippines is working hard to amend its regulations and hoping to attract more foreign direct investment, the promised investment from U.S. companies could provide a strong boost to the capital-starved country.

“We have had some difficulties when it comes to attracting foreign investments. And in fact, from 2020 to 2023, foreign direct investments dropped by more than 6% on an annual basis. So, we really need these investments in order to boost the economy,” Punongbayan said.

“And the billion-dollar investment pledge of the U.S. is several times the actual foreign direct investments that have come in recent years — in fact, almost nine times the foreign direct investment from the U.S. in 2023. These are very crucial to Philippine development,” he said.

During Raimondo’s two-day visit, U.S. companies committed to invest in the digital and energy sectors, areas that are in line with Manila’s overall development plans and will help the Philippines’ industrial upgrading and transformation, Punongbayan said.

Defense and economy

Dindo Manhit, president of the Stratbase ADR Institute for Strategic and International Studies, a policy think tank in the Philippines, said that over the years, the Philippines’ economic growth has been mainly driven by strong consumption.

These investment commitments by U.S. companies will accelerate local economic growth, Manhit said, benefiting both the public and private sectors and positively affecting areas such as the Philippines’ manufacturing supply chain and business process outsourcing.

He said these investments could also allow Manila to fully understand that strengthening its alliance with Washington will not only bring it defense assistance but also economic security.

“Because we all share values, democratic values. We value jobs for people. In the case of the Philippines, imagine if we can create jobs that could provide better income for Filipinos,” Manhit said. “Then we will see the strong partnership with the U.S. not limited to national security only, but also economic security.”

Washington’s pledges of economic support for the Philippines comes at a time of rising tensions between Manila and Beijing over sovereignty disputes in the South China Sea.

Earlier this month, Philippine Secretary of Foreign Affairs Enrique Manalo warned that Manila is facing severe “economic coercion” from China. He also said the Philippines relies heavily on trade relations with China and hopes to expand economic and trade connections with other countries, including establishing formal free trade agreement negotiations with the European Union as soon as possible.

Punongbayan said that despite the disputes in the South China Sea, Manila continues to import a large amount of goods from China, which is the largest source of the country’s trade deficit. That shows how difficult it is for the country to decouple its economy from China, and why it is imperative for Manila to lessen its dependence on Beijing.

Greater interest from the United States to invest in the Philippines is a step in the right direction, he said.

“If we import a lot from China, then indirectly we are boosting China’s economy at the same time. And of course, part of the revenues coming from these payments to China will go to the Chinese government,” Punongbayan said. “So indirectly, in a way, the Philippines is funding China’s incursions in the West Philippine Sea.”

Manhit, however, said compared with other Southeast Asian countries, the Philippine economy is not very dependent on China.

According to recent poll by Stratbase ADR Institute for Strategic and International Studies, the country Filipinos most want to maintain good economic relations with is the U.S., followed by Japan, while China ranks at the bottom.

He said the poll not only shows that China does not have as strong an economic influence on the Philippines as Beijing claims, but also that Filipinos are unanimously willing to expand economic cooperation with countries that share common democratic values, or values of human rights and the rule of law.

US Inflation Rises in February in Sign Price Pressures Remain Elevated

WASHINGTON — Consumer prices in the United States picked up last month, a sign that inflation remains a persistent challenge for the Federal Reserve and for President Joe Biden’s reelection campaign, both of which are counting on a steady easing of price pressures this year. 

Prices rose 0.4% from January to February, higher than the previous month’s figure of 0.3%, the Labor Department said Tuesday. Compared with a year earlier, consumer prices rose 3.2% last month, faster than January’s 3.1% annual pace. 

Excluding volatile food and energy prices, so-called “core” prices also climbed 0.4% from January to February, matching the previous month’s increase and a faster pace than is consistent with the Fed’s 2% target. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed. 

Pricier gas pushed up overall inflation, with pump prices rising 3.8% just from January to February. Grocery prices, though, were unchanged last month and are up just 1% from a year earlier. The cost of clothing, used cars and rent also increased in February, raising the inflation figure. 

Despite February’s elevated figures, most economists expect inflation to continue slowly declining this year. At the same time, the uptick last month may underscore the Fed’s cautious approach toward interest rate cuts. 

Overall inflation has plummeted from a peak of 9.1% in June 2022, although it’s now easing more slowly than it did last spring and summer. The prices of some goods — from appliances to furniture to used cars — are falling after clogged supply chains during the pandemic sent prices soaring higher. There are more new cars on dealer lots and electronics on store shelves. 

By contrast, prices for dental care, car repairs and other services are still rising faster than they did before the pandemic. Car insurance has shot higher, reflecting rising costs for repairs and replacement. And after having sharply raised pay for nurses and other in-demand staff, hospitals are passing their higher wage costs on to patients in the form of higher prices. 

Voter perceptions of inflation are sure to occupy a central place in this year’s presidential election. Despite a healthy job market and a record-high stock market, polls show that many Americans blame Biden for the surge in consumer prices that began in 2021. Although inflationary pressures have significantly eased, average prices remain far above where they stood three years ago. 

In his State of the Union speech last week, Biden highlighted steps he has taken to reduce costs, like capping the price of insulin for Medicare patients. The president also criticized many large companies for engaging in “price gouging” and so-called “shrinkflation,” in which a company shrinks the amount of product inside a package rather than raising the price. 

“Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said. 

Fed Chair Jerome Powell signaled in congressional testimony last week that the central bank is getting closer to cutting rates. After meeting in January, Fed officials said in a statement that they needed “greater confidence” that inflation was steadily falling to their 2% target level. Since then, several of the Fed’s policymakers have said they believe prices will keep declining. One reason, they suggested, is that consumers are increasingly pushing back against higher prices by seeking out cheaper alternatives. 

Most economists expect the Fed’s first rate cut to occur in June, although May is also possible. When the Fed cuts its benchmark rate, over time it reduces borrowing costs for mortgages, car loans, credit cards and business loans. 

One factor that could keep inflation elevated is the still-healthy economy. Although most economists had expected a recession to occur last year, hiring and growth were strong and remain healthy. The economy expanded 2.5% last year and could grow at about the same pace in the first three months of this year, according to the Federal Reserve’s Atlanta branch. 

Last week, the Labor Department said employers added a robust 275,000 jobs in February, the latest in a streak of solid hiring gains, and the unemployment rate stayed below 4% for the 25th straight month. That is the longest such streak since the 1960s. 

Still, the unemployment rate rose from 3.7% to 3.9%, and wage growth slowed. Both trends could make the Fed feel more confident that the economy is cooling, which could help keep inflation falling and lead the central bank to begin cutting rates. 

Chinese Officials Acknowledge Economic Challenges

BEIJING — China needs to do more to boost employment and stabilize its property market, top officials acknowledged Saturday, as policymakers struggle to revive the country’s battered economy. 

Beijing is grappling with a prolonged property sector crisis, record youth unemployment and a global slowdown hammering demand for Chinese goods. 

Youth unemployment hit an unprecedented 21.3% in mid-2023 before officials paused publishing monthly figures. 

Home prices have in turn fallen for months, with several major property developers struggling to stay afloat. 

And on the sidelines of a weeklong annual meeting of the country’s rubber-stamp parliament Saturday, officials acknowledged the difficulties in reversing both trends. 

“Overall employment pressure has not lessened, and there are still structural contradictions to be solved,” said Wang Xiaoping, minister of human resources and social security. 

“A portion of workers face some challenges and problems in employment, and more effort needs to be made to stabilize employment,” Wang said. 

But Beijing is “confident about maintaining the continued stability of the employment situation,” she said. 

Housing Minister Ni Hong, in turn, told reporters that fixing the property market — which long accounted for around a quarter of China’s economy — remained a challenge. 

“The task of stabilizing the market is still very difficult,” he said, pointing to state efforts to reduce interest rates and lower down payments. 

Real estate companies that “need to go bankrupt should go bankrupt, and those that need restructuring should be restructured,” Ni said, adding that market players who “harm the interests of the masses should be resolutely investigated and dealt with according to the law.” 

But despite the deep trouble with the housing market, he insisted that Beijing’s “bottom line” of avoiding “systemic risks” in the property sector had been maintained. 

Meetings in Beijing this week have been dominated by the economy and security. 

On Tuesday, top leaders set an ambitious growth target of around 5% for 2024 — a goal analysts said was ambitious given the headwinds facing the Chinese economy. 

Premier Li Qiang acknowledged the objective would “not be easy” given the “lingering risks and hidden dangers” still present in the economy. 

Investors have called for much greater action from the state to shore up the flagging economy. 

Egypt Says It Reached Deal With IMF to Increase Bailout Loan

CAIRO — Egypt said Wednesday it has reached a deal with the International Monetary Fund to increase a bailout loan to $8 billion. 

Prime Minister Moustafa Madbouly announced the news in televised comments on Wednesday. Egypt has for months negotiated with the IMF to increase a $3 billion bailout loan that both parties reached in 2022. 

Madbouly said the new deal will enable the government to receive loans from other financial institutions, including the World Bank. 

The announcement came hours after Egypt’s Central Bank raised its main interest rate and floated the currency. 

The measures have been among the key demands of the IMF. They are meant to combat inflationary waves and attract foreign investment as the country experiences a staggering shortage of foreign currency. 

Following the currency announcement, the pound began floating and within hours lost more than 60% of its value against the dollar. By early afternoon, commercial banks were trading the U.S. currency at more than 50 pounds for $1, up from about 31 pounds for the dollar. 

The Egyptian economy has been hit hard by years of government austerity, the coronavirus pandemic, the fallout from the war in Ukraine, and most recently, the Israel-Hamas war in Gaza. 

The war in Ukraine, which rattled the global economy, hit cash-strapped Egypt where it is financially vulnerable — the most populous Arab country is the world’s biggest importer of wheat and needs to buy most of its food from other countries to help feed its population of more than 104 million people. 

China Unveils Ambitious Economic Growth Target Despite Weak Public Confidence

Taipei, Taiwan — China’s top leaders set an ambitious economic growth target of 5% for 2024 Tuesday, vowing to “seek progress while maintaining stability” amid a sluggish economy and weak confidence among investors and consumers. 

Delivering his first work report since assuming the second-most powerful position in China last October, Chinese Premier Li Qiang acknowledged that China faces an environment characterized by opportunities, risks, and challenges but emphasized that favorable conditions still outweigh unfavorable factors, according to China’s official Xinhua News Agency.

In the face of weak economic growth worldwide and the lack of a solid foundation for China to stabilize its economic growth, Li said Beijing will continue to adopt “proactive fiscal policy and prudent monetary policy” to cope with the long list of economic challenges.

According to Li, the Chinese government plans to issue about $139 billion in special treasury bonds over the next few years while offering support to debt-laden local governments and sticking with the strategy of “high-quality growth,” which focuses on driving growth through innovation. 

Li said China would mobilize resources across the country to “promote the construction of a modern industrial system, accelerate the development of new productive forces,” and allow innovation to drive economic growth, according to readouts on China’s state-run Xinhua news agency.

Li’s speech comes as China faces a long list of economic challenges, including an ongoing real estate crisis, low consumer and household confidence, and weak external demand. While Li promised to expand domestic demand and increase efforts to attract foreign investment, some economists say that unless China initiates fundamental economic reforms, these plans may only be “policy slogans.”  

“A lot of the strategic industries in China are controlled by state-owned enterprises and their investment efficiency is quite low,” Wang Kuo-chen, an expert on the Chinese economy at the Chunghwa Institute for Economic Research in Taiwan, told VOA by phone. 

In his view, even if China tries to increase support for private enterprises, state-owned enterprises, or military enterprises continue to control strategic industries in the country, it will be difficult for the Chinese government to emerge from the current economic turmoil.  

“If Beijing doesn’t fundamentally change its economic model, it’ll be hard for China to implement new economic strategies such as high-quality development and new productive forces,” Wang told VOA.  

Despite the doubt expressed by some economists, other analysts say the Chinese government will continue to concentrate resources on technological innovation in the near future.  

“The whole government work report is focusing on modernization with Chinese characteristics and new productive forces,” Wang Hsin-hsien, an expert on Chinese politics at National Chengchi University in Taiwan, told VOA in a phone interview.  

He said a large part of Li’s speech focuses on technological innovation, which may also be Beijing’s response to the U.S.-led effort to restrict its access to some core technologies, such as advanced semiconductor chips. “These policy proposals have a lot to do with challenges that China faces internationally,” Wang said.  

Apart from the outline of Beijing’s economic measures over the next year, Li Qiang also highlighted the need for China to strengthen social security and services, including a comprehensive strategy to cope with its rapidly aging population and measures to tackle youth unemployment.

Since China’s National People’s Congress passed revisions to the state secrets law just days before the “Two Sessions,” Li reiterated the need for the Chinese government to “safeguard national security and social stability.” “[We should] the overall concept of national security while strengthening the national security system,” he said in the speech.  

Some analysts say Li’s speech shows that security remains the top concern for the Chinese government. According to statistics shared by Ruihan Huang, a senior associate at Chicago-based think tank MarcoPolo, the word security was mentioned 28 times in this year’s government work report, which is three times more than last year.

As Li doubled down on the importance of prioritizing national security in his speech, some experts told VOA that such a governance model imposes a cost on the Chinese economy. “When [a government] invests one unit more in security, in the short term, it at least means one unit less in something else, including in growth,” Ian Chong, a political scientist at the National University of Singapore, told VOA by phone. 

While some analysts describe Li’s speech and the content of China’s government work report as “unsurprising,” the Chinese government’s decision to cancel the premier’s press conference at the end of the annual legislative meeting is still a precedence-breaking move that reflects the diminishing power that the premier possesses under the current Chinese political system. 

The Chinese government “has redefined the role of premier as an implementer of decisions made by the Politburo, a top decision-making body, under the general secretary’s leadership,” Dali Yang, a political scientist at the University of Chicago, told VOA by phone. 

As the world now interprets the signals reflected through Li Qiang’s speech Tuesday, Chong in Singapore thinks the outside world’s perception of China will likely remain unchanged in the short term.  

“Ultimately, what investors want is certainty, and for there to be more certainty, there has to be more transparency in data and that compliance is straightforward to follow,” he told VOA. “While Li Qiang talks about confidence, the instruments that allow for confidence aren’t really there.”

China Unveils 5% Growth Target During Ceremonial Meeting of Parliament

China kicked off its annual session of parliament Tuesday in Beijing. VOA’s Bill Gallo, who attended the event, says Chinese leaders are trying to put a positive spin on the many economic problems they face.

Federal Reserve’s Preferred Inflation Gauge Picked Up Last Month in Sign of Still-Elevated Prices

WASHINGTON — An inflation gauge favored by the Federal Reserve increased in January, the latest sign that the slowdown in U.S. consumer price increases is occurring unevenly from month to month.

The government reported Thursday that prices rose 0.3% from December to January, up from 0.1% in the previous month. But in a more encouraging sign, prices were up just 2.4% from a year earlier, down from a 2.6% annual pace in December and the smallest such increase in nearly three years.

The year-over-year cooldown in inflation is sure to be welcomed by the White House as President Joe Biden seeks re-election. Still, even though average paychecks have outpaced inflation over the past year, many Americans remain frustrated that overall prices are still well above where they were before inflation erupted three years ago. That sentiment, evident in many public opinion polls, could pose a threat to Biden’s re-election bid.

Inflation, as measured by the Fed’s preferred gauge, fell steadily last year after having peaked at 7.1% in the summer of 2022. Supply chain snarls have eased, reducing costs of parts and raw materials, and a steady flow of job seekers has made it easier for employers to limit wage increases, one of the drivers of inflation. Still, inflation remains above the central bank’s 2% annual target.

Excluding volatile food and energy costs, prices rose 0.4% from December to January, up from 0.1% in the previous month. And compared with a year earlier, such so-called “core” prices rose 2.8%, down from 2.9% in December. Economists consider core prices a better gauge of the likely path of future inflation.

Some of January’s inflation reflects the fact that companies often raise prices in the first two months of the year, leaving January and February price data high compared with the rest of the year. But the costs of hospital and doctors’ services are also rising to offset the sizable pay raises commanded by nurses and other in-demand health care workers.

That trend could help keep inflation elevated in the coming months. But by early spring, most analysts expect prices to settle back to the milder pace of increases that occurred in the second half of 2023, when inflation eased to a 2% annual rate.

January’s uptick in inflation helps explain the concern expressed by many Fed officials, including Chair Jerome Powell, about potentially cutting interest rates too soon this year. One influential official, Christopher Waller of the Fed’s Board of Governors, said this month that he would want to see two more months of inflation data after January’s to determine whether prices were cooling sustainably toward the Fed’s target level.

Beginning in March 2022, the Fed raised its benchmark rate 11 times to attack the worst bout of inflation in 40 years. Those rate hikes have helped cool inflation drastically. But they have also made borrowing much more expensive for consumers and businesses. In particular, high loan rates have throttled sales in the economy’s crucial homebuying sector. Conversely, rate cuts by the Fed, whenever they happen, would eventually lead to lower borrowing costs across the economy.

Thursday’s inflation data mirrors figures released earlier this month that showed that the government’s more widely followed consumer price index also rose faster in January than it had in previous months. The Fed prefers the measure reported Thursday, in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.

Several Fed officials have said they’re optimistic that inflation will continue to fall back toward the Fed’s target level, with some downplaying the recent pickup in prices as a one-time jump.

“The path will continue to be bumpy, and we should not overreact to individual data readings,” Susan Collins, president of the Federal Reserve Bank of Boston, said Wednesday. “I remain what I call a ‘realistic optimist’ in thinking that the economy is on a path to 2% inflation on a sustained basis while maintaining a healthy labor market.”

Some other officials sound more uncertain. Jeffrey Schmid, the new president of the Federal Reserve Bank of Kansas City, said this week that “when it comes to too-high inflation, I believe we are not out of the woods yet.”

Outside the Fed, most economists envision a steady, if fitful, slowdown of inflation in the coming months. Economists at Goldman Sachs project that core inflation, as measured by the Fed’s preferred gauge, will drop rapidly to just 2.2% by May — low enough for the Fed to initiate rate cuts in June.

Facing Chinese EV Rivals, Europe’s Automakers Squeeze Suppliers on Costs

London — Europe’s automakers and their already-stretched suppliers face a tough year as they race to cut costs for electric models to counter leaner Chinese rivals which are bringing cheaper vehicles to challenge them on their home turf.

A big question is how much more Europe’s automakers can squeeze out of suppliers that have already started laying off workers, with many smaller companies hard hit by supply chain issues during the pandemic.

The difference between Europe’s legacy automakers and more EV-focused Chinese manufacturers will be on stark display this week at the Geneva car show, which is returning after a four-year hiatus due to the pandemic.

The only major companies holding media events are France’s Renault and China’s SAIC Motors and the BYD Company — two of several of the country’s automakers that have set their sights on Europe.

Renault is launching its electric R5 and SAIC’s MG brand will unveil its M3 hybrid. Meanwhile, BYD’s Seal sedan is shortlisted for the Car of the Year award. If it wins, it would be the first Chinese model to get the prestigious award.

“They really are like chalk and cheese,” Nick Parker, a partner and managing director at consulting firm AlixPartners, said of the legacy European automakers and their Chinese rivals.

Unlike European automakers that are reliant on external suppliers with separate supply chains for fossil-fuel and electric, their Chinese rivals are highly vertically integrated, producing almost everything in-house and keeping costs down.

That helps them undercut their European rivals. In Britain, BYD’s electric Dolphin hatchback starts at 25,490 pounds ($32,300), about 27% less than Volkswagen’s equivalent ID.3 model. Tesla works in the same way.

Chasing those rivals means European automakers’ profit margins could be “heavily challenged” moving forward because there is only so much they can squeeze out of external suppliers, AlixPartners’ Parker said.

The challenge has been made more difficult by a slower-than-expected shift to EVs, leaving legacy automakers stuck with their dual supply chains. Data this week showed EU fully-electric car sales in January fell 42.3% from December.

Both Renault and Stellantis have stressed their EV cost-cutting efforts this month while Mercedes toned down expectations for EV demand and said it will update its traditional lineup well into the next decade.

Stellantis CEO Carlos Tavares has gone further, telling suppliers that with 85% of EV costs related to purchased materials, they need to bear a proportionate burden in reducing costs.

“I am translating that reality to my partners: If you don’t do your part of the job, then you exclude yourself,” he said.

Nickel and aluminum prices have also risen this week as Western countries expanded sanctions lists against Moscow, highlighting the lingering risks to raw materials prices even though there was no mention of the two metals.

Job cuts

Many legacy suppliers are already feeling the strain of cost cuts with FORVIA, Continental and Bosch all recently announcing or warning of layoffs, with more expected.

To preserve their profits, automakers focused production on higher-margin models during the recent semi-conductor shortage, but that meant less revenue and less upside for their suppliers.

Now industry experts say well-capitalized larger suppliers can adapt to the new reality but warn that plenty of smaller ones are teetering on the edge, like Germany’s Allgaier which filed for insolvency in July.

That means Europe’s automakers face a delicate balancing act between cutting costs to fend off Chinese rivals and avoiding pushing their suppliers too far. Philip Nothard, insight director at dealer services firm Cox Automotive, says automakers may even have to step in to bailout struggling suppliers.

“The risk is if (European automakers) try and screw those suppliers down too much, they’ll either push them into administration or they’ll push them into seeking different markets,” he said.

Tax-Free Status of Movie, Music and Games Traded Online Is on Table as WTO Nations Meet in Abu Dhabi

Geneva — Since late last century and the early days of the web, providers of digital media like Netflix and Spotify have had a free pass when it comes to international taxes on films, video games and music that are shipped across borders through the internet.

But now, a global consensus on the issue may be starting to crack.

As the World Trade Organization opens its latest biannual meeting of government ministers Monday, its longtime moratorium on duties on e-commerce products — which has been renewed almost automatically since 1998 — is coming under pressure as never before.

This week in Abu Dhabi, the WTO’s 164 member countries will take up a number of key issues: Subsidies that encourage overfishing. Reforms to make agricultural markets fairer and more eco-friendly. And efforts to revive the Geneva-based trade body’s system of resolving disputes among countries.

All of those are tall orders, but the moratorium on e-commerce duties is perhaps the matter most in play. It centers on “electronic transmissions” — music, movies, video games and the like — more than on physical goods. But the rulebook isn’t clear on the entire array of products affected.

“This is so important to millions of businesses, especially small- and medium-sized businesses,” WTO Director-General Ngozi Okonjo-Iweala said. “Some members believe that this should be extended and made permanent. Others believe … there are reasons why it should not.” 

“That’s why there’s been a debate and hopefully — because it touches on lives of many people — we hope that ministers would be able to make the appropriate decision,” she told reporters recently.

Under WTO’s rules, major decisions require consensus. The e-commerce moratorium can’t just sail through automatically. Countries must actively vote in favor for the extension to take effect.

Four proposals are on the table: Two would extend the suspension of duties. Two — separately presented by South Africa and India, two countries that have been pushing their interests hard at the WTO — would not.

Proponents say the moratorium benefits consumers by helping keep costs down and promotes the wider rollout of digital services in countries both rich and poor.

Critics say it deprives debt-burdened governments in developing countries of tax revenue, though there’s debate over just how much state coffers would stand to gain.

The WTO itself says that on average, the potential loss would be less than one-third of 1% of total government revenue.

The stakes are high. A WTO report published in December said the value of “digitally delivered services” exports grew by more than 8% from 2005 to 2022 — higher than goods exports (5.6%) and other-services exports (4.2%).

Growth has been uneven, though. Most developing countries don’t have digital networks as extensive as those in the rich world. Those countries see less need to extend the moratorium — and might reap needed tax revenue if it ends.

South Africa’s proposal, which seeks to end the moratorium, calls for the creation of a fund to receive voluntary contributions to bridge the “digital divide.” It also wants to require “leading platforms” to boost the promotion of “historically disadvantaged” small- and medium-sized enterprises.

Industry, at least in the United States, is pushing hard to extend the moratorium. In a Feb. 13 letter to Biden administration officials, nearly two dozen industry groups, including the Motion Picture Association, the U.S. Chamber of Commerce and the Entertainment Software Association — a video-game industry group — urged the United States to give its “full support” to a renewal.

“Accepting anything short of a multilateral extension of the moratorium that applies to all WTO members would open the door to the introduction of new customs duties and related cross-border restrictions that would hurt U.S. workers in industries across the entire economy,” the letter said.

A collapse would deal a “major blow to the credibility and durability” of the WTO and would mark the first time that its members “changed the rules to make it substantially harder to conduct trade,” wrote the groups, which said their members include companies that combined employ over 100 million workers. 

Consumers Pushing Back Against Price Increases — And Winning

Washington — Inflation has changed the way many Americans shop. Now, those changes in consumer habits are helping bring down inflation.

Fed up with prices that remain about 19%, on average, above where they were before the pandemic, consumers are fighting back. In grocery stores, they’re shifting away from name brands to store-brand items, switching to discount stores or simply buying fewer items like snacks or gourmet foods.

More Americans are buying used cars, too, rather than new, forcing some dealers to provide discounts on new cars again. But the growing consumer pushback to what critics condemn as price-gouging has been most evident with food as well as with consumer goods like paper towels and napkins.

In recent months, consumer resistance has led large food companies to respond by sharply slowing their price increases from the peaks of the past three years. This doesn’t mean grocery prices will fall back to their levels of a few years ago, though with some items, including eggs, apples and milk, prices are below their peaks. But the milder increases in food prices should help further cool overall inflation, which is down sharply from a peak of 9.1% in 2022 to 3.1%.

Public frustration with prices has become a central issue in President Joe Biden’s bid for re-election. Polls show that despite the dramatic decline in inflation, many consumers are unhappy that prices remain so much higher than they were before inflation began accelerating in 2021.

Biden has echoed the criticism of many left-leaning economists that corporations jacked up their prices more than was needed to cover their own higher costs, allowing themselves to boost their profits. The White House has also attacked “shrinkflation,” whereby a company, rather than raising the price of a product, instead shrinks the amount inside the package. In a video released on Super Bowl Sunday, Biden denounced shrinkflation as a “rip-off.”

Consumer pushback against high prices suggests to many economists that inflation should further ease. That would make this bout of inflation markedly different from the debilitating price spikes of the 1970s and early 1980s, which took longer to defeat. When high inflation persists, consumers often develop an inflationary psychology: Ever-rising prices lead them to accelerate their purchases before costs rise further, a trend that can itself perpetuate inflation.

“That was the fear — that everybody would tolerate higher prices,” said Gregory Daco, chief economist at EY, a consulting firm, who notes that it hasn’t happened. “I don’t think we’ve moved into a high inflation regime.”

Instead, this time many consumers have reacted like Stuart Dryden, a commercial underwriter at a bank who lives in Arlington, Virginia. On a recent trip to his regular grocery store, Dryden, 37, pointed out big price disparities between Kraft Heinz-branded products and their store-label competitors, which he now favors.

Dryden, for example, loves cream cheese and bagels. A 12-ounce tub of Kraft’s Philadelphia cream cheese costs $6.69. The store brand, he noted, is just $3.19.

A 24-pack of Kraft single cheese slices is $7.69; the store label, $2.99. And a 32-ounce Heinz ketchup bottle is $6.29, while the alternative is just $1.69. Similar gaps existed with mac-and-cheese and shredded cheese products.

“Just those five products together already cost nearly $30,” Dryden said. The alternatives were less than half that, he calculated, at about $13.

“I’ve been trying private-label options, and the quality is the same and it’s almost a no-brainer to switch from the products I used to buy a ton of to just the private label,” Dryden said.

Alex Abraham, a spokesman for Kraft Heinz, said that its costs rose 3% in the final three months of last year but that the company raised its own prices only 1%.

“We are doing everything possible to find efficiencies in our factories and other parts of our business to offset and mitigate further price increases,” Abraham said.

Last week, Kraft Heinz said sales fell in the final three months of last year as more consumers traded down to cheaper brands.

Dryden has taken other steps to save money: A year ago, he moved into a new apartment after his previous landlord jacked up his rent by about 50%. His former apartment had been next to a relatively pricey grocery store, Whole Foods. Now, he shops at a nearby Amazon Fresh and has started visiting the discount grocer Aldi every couple of weeks.

Samuel Rines, an investment strategist at Corbu, says that PepsiCo, Kimberly-Clark, Procter & Gamble and many other consumer food and packaged goods companies exploited the rise in input costs stemming from supply-chain disruptions and Russia’s invasion of Ukraine to dramatically raise their prices — and increase their profits — in 2021 and 2022.

A contributing factor was that millions of Americans enjoyed solid wage gains and received stimulus checks and other government aid, making it easier for them to pay the higher prices.

Still, some decried the phenomenon as “greedflation.” And in a March 2023 research paper, the economist Isabella Weber at the University of Massachusetts, Amherst, referred to it as “seller’s inflation.”

Yet beginning late last year, many of the same companies discovered that the strategy was no longer working. Most consumers have now long since spent the savings they built up during the pandemic.

Lower-income consumers, in particular, are running up credit card debt and falling behind on their payments. Americans overall are spending more cautiously. Daco notes that overall sales during the holiday shopping season were up just 4% — and most of it reflected higher prices rather than consumers actually buying more things.

As an example, Rines points to Unilever, which makes, among other items, Hellman’s mayonnaise, Ben & Jerry’s ice cream and Dove soaps. Unilever jacked up its prices 13.3% on average across its brands in 2022. Its sales volume fell 3.6% that year. In response, it raised prices just 2.8% last year; sales rose 1.8%.

“We’re beginning to see the consumer no longer willing to take the higher pricing,” Rines said. “So companies were beginning to get a little bit more skeptical of their ability to just have price be the driver of their revenues. They had to have those volumes come back, and the consumer wasn’t reacting in a way that they were pleased with.”

Unilever itself recently attributed poor sales performance in Europe to “share losses to private labels.”

Other businesses have noticed, too. After their sales fell in the final three months of last year, PepsiCo executives signaled that this year they would rein in price increases and focus more on boosting sales.

“In 2024, we see … normalization of the cost, normalization of inflation,” CEO Ramon Laguarta said. “So we see everything trending back to our long-term” pricing trends.

Jeffrey Harmening, CEO of General Mills, which makes Cheerios, Chex Cereal, Progresso soups and dozens of other brands, has acknowledged that his customers are increasingly seeking bargains.

And McDonald’s executives have said that consumers with incomes below $45,000 are visiting less and spending less when they do visit and say the company plans to highlight its lower-priced items.

“Consumers are more wary — and weary — of pricing, and we’re going to continue to be consumer-led in our pricing decisions,” Ian Borden, the company’s chief financial officer, told investors.

Officials at the Federal Reserve, the nation’s primary inflation-fighting institution, have cited consumers’ growing reluctance to pay high prices as a key reason why they expect inflation to fall steadily back to their 2% annual target.

“Firms are telling us that price sensitivity is very much higher now,” Mary Daly, president of the Federal Reserve Bank of San Francisco and a member of the Fed’s interest-rate setting committee, said last week. “Consumers don’t want to purchase unless they’re seeing a 10% discount. … This is a serious improvement in the role that consumers play in bridling inflation.”

Surveys by the Fed’s regional banks have found that companies across all industries expect to impose smaller price increases this year. The New York Fed says companies in its region plan to raise prices an average of about 3% this year, down from about 5% in 2023 and as much as 7% to 9% in 2022.

Such trends suggest that companies were well on their way to slowing their price hikes before Biden’s most recent attacks on price gouging.

Claudia Sahm, founder of SAHM Consulting and a former Fed economist, said, “consumers are more powerful than President Biden.”

Productivity Surge Helps Explain US Economy’s Surprising Resilience 

Washington — Trying to keep up with customer demand, Batesville Tool & Die began seeking 70 people to hire last year. It wasn’t easy. Attracting factory workers to a community of 7,300 in the Indiana countryside was a tough sell, especially having to compete with big-name manufacturers nearby like Honda and Cummins Engine. 

Job seekers were scarce. 

“You could count on one hand how many people in the town were unemployed,” said Jody Fledderman, the CEO. “It was just crazy.” 

Batesville Tool & Die managed to fill just 40 of its vacancies. 

Enter the robots. The company invested in machines that could mimic human workers and in vision systems, which helped its robots “see” what they were doing. 

The Batesville experience has been replicated countlessly across the United States the past couple of years. Worker shortages have led many companies to invest in machines. They’ve also been training the workers they do have to use advanced technology so they can produce more with less. 

The result has been an unexpected productivity boom, which helps explain a great economic mystery: How has the world’s largest economy stayed so healthy, with brisk growth and low unemployment, despite brutally high interest rates that are intended to tame inflation but that typically cause a recession? 

To economists, strong productivity growth provides an almost magical elixir. When companies roll out more efficient technology, their workers can become more productive: They increase their output per hour. A result is that companies can often boost profits and raise pay without having to jack up prices. Inflation can remain in check. 

The Fed’s aggressive streak of rate hikes — 11 of them starting in March 2022 — managed to bring inflation from a four-decade high of 9.1% to 3.1%. But, to the surprise to the economists who’d forecast a recession, the higher borrowing costs have caused little economic hardship. 

Perhaps the likeliest explanation is the greater efficiencies that companies like Batesville Tool & Die have managed to achieve. Before productivity began its resurgent growth last year, a rule of thumb was that average hourly pay could rise no more than 3.5% annually for inflation to stay within the Fed’s 2% target. That would mean that today’s roughly 4% average annual pay growth would have to shrink. Higher productivity means there’s now more leeway for wage growth to stay elevated without igniting inflation. 

The productivity boom marks a shift from the pre-pandemic years, when annual productivity growth averaged a tepid 1.5%. Everything changed as the economy rocketed out of the 2020 pandemic recession with unexpected vigor, and businesses struggled to re-hire the many workers they had shed. 

The resulting worker shortage sent wages surging. Inflation jumped, too, as factories and ports buckled under the strain of rising consumer orders. 

Desperate, many companies turned to automation. The efficiency payoff began to arrive almost a year ago. Labor productivity rose at a 3.6% annual pace from last April through June, 4.9% from July through September and 3.2% from October through December. 

At Reata Engineering & Machine Works, “efficiency was kind of forced on us,” CEO Grady Cope said. With the job market roaring, the company, based in Englewood, Colorado, couldn’t hire fast enough. Meantime, its customers were starting to balk at paying higher prices. 

So Reata installed robots and other technology. Software allowed it to automate the delivery of price quotes to customers. That process used to require two weeks. Now, it can be done in 24 hours. 

Many economists and business people say they’re hopeful that the productivity boom can continue. Artificial intelligence, they note, is only beginning to penetrate factory floors, warehouses, stores and offices and could accelerate efficiency gains. 

Automation raises fears that machines will replace human workers, killing jobs. Some workers supplanted by robots do often struggle to find new work and end up settling for lower pay. 

Yet history suggests that in the long run, technological improvements actually create more jobs than they destroy. People are needed to build, upgrade, repair and operate sophisticated machines. Some displaced workers are trained to shift into such jobs. And that transition is likely to be eased this time by the retirement of the vast baby boom generation, which is causing labor shortages. 

Some of today’s productivity gains may be coming not just from advanced technology but also from more satisfied workers. The tight labor markets of the past three years allowed Americans to change jobs and find others that pay better and make them happier and more productive. 

Justin Thompson, of Kalamazoo, Michigan, felt burned out by his job as a police officer, with its 16-hour workdays .”I was literally running myself into the ground,” he said. 

Thompson’s wife saw a job posting for operations manager at a charter airline. Even without airline experience, his wife felt he could use skills he gains as a Marine Corps infantryman — handling logistics for missions — during tours in Iraq and Afghanistan. 

She was right. Omni Air International hired him in 2019. 

Thompson, 43, loves the new job, which allows him to work from home when he’s not traveling. And his Marine experience — which included developing ways to improve efficiency — has proved invaluable. 

Other workers have switched from low-skill jobs to those that allow them to be more productive. 

At Reata Engineering, staffers were trained to use new sophisticated equipment. 

“The whole point is not to lay people off,” said Cope, the CEO of Reata Engineering. “The point is to make people do jobs that are more interesting” — and pay better, too. 

US Should Block Chinese Auto Imports From Mexico, US Makers Say

WASHINGTON — The U.S. government should block the import of low-cost Chinese autos and parts from Mexico, a U.S. manufacturing advocacy group said Friday, warning they could threaten the viability of American car companies. 

“The introduction of cheap Chinese autos — which are so inexpensive because they are backed with the power and funding of the Chinese government — to the American market could end up being an extinction-level event for the U.S. auto sector,” the Alliance for American Manufacturing said in a report. 

The group argues the United States should work to prevent automobiles and parts manufactured in Mexico by companies headquartered in China from benefiting from a North American free trade agreement. “The commercial backdoor left open to Chinese auto imports should be shut before it causes mass plant closures and job losses in the United States,” the report said. 

Vehicles and parts produced in Mexico can qualify for preferential treatment under the U.S.-Mexico-Canada trade agreement as well as qualifying for a $7,500 electric vehicle, or EV, tax credit, the report noted. 

The Chinese embassy in Washington said in response that China’s automobile exports “reflect the high-quality development and strong innovation of China’s manufacturing industry. … The leapfrog development of China’s auto industry has provided cost-effective products with high quality to the world.” 

The issue has received new interest after news reports that China’s BYD Company plans to set up an EV factory in Mexico. BYD, known for its cheaper models and a more varied lineup, recently overtook its biggest rival, Tesla, to become the world’s top EV maker by sales. 

Tesla announced plans almost a year ago to build a factory in the northern Mexican state of Nuevo Leon. In October, Mexico said a Chinese Tesla supplier and a Chinese technology company would invest nearly a billion dollars in the state. 

A bipartisan group of U.S. lawmakers has urged the Biden administration to hike tariffs on Chinese-made vehicles and investigate ways to prevent Chinese companies from exporting to the United States from Mexico. 

A group of lawmakers urged U.S. Trade Representative Katherine Tai to boost the 27.5% tariff on Chinese vehicles and said her office “must also be prepared to address the coming wave of [Chinese] vehicles that will be exported from our other trading partners, such as Mexico, as [Chinese] automakers look to strategically establish operations outside of [China].” 

Alliance for Automotive Innovation CEO John Bozzella has said that proposed U.S. environmental regulations could let China gain “a stronger foothold in America’s electric vehicle battery supply chain and eventually our automotive market.” 

The U.S. Treasury issued guidelines in December on the $7,500 EV tax credit aimed at weaning the U.S. EV supply chain away from China. 

Dior Postpones Hong Kong Fashion Show ‘Indefinitely’

HONG KONG — Dior has postponed a fashion show set to be held in Hong Kong next month, a city official confirmed Saturday, dealing a blow to the financial hub’s ambitions to boost its economy through major events.

Hong Kong is courting top international celebrities and brands in the hope of rebooting its reputation, which has been battered by years of social unrest and strict pandemic curbs. 

The Dior fashion show — meant to feature artistic director Kim Jones and the men’s autumn collection — was to be one of several “mega events” touted last month by Hong Kong’s culture, sports and tourism chief, Kevin Yeung, as part of the city’s drive to become an event capital. 

But Yeung’s office confirmed to AFP on Saturday that it had “just been notified” by organizers that the fashion show would not go ahead as scheduled on March 23. 

“Large-scale events are postponed from time to time, and we continue to welcome large-scale events to take place in Hong Kong,” a spokesperson for Yeung’s office said. 

Dior said the show had been “postponed indefinitely” without giving specifics, according to a company statement quoted by the South China Morning Post. 

According to the South China Morning Post, the event was expected to cost about $100 million ($12.8 million U.S.) and draw nearly 1,000 attendees.  

Louis Vuitton in November held its men’s pre-fall 2024 show in Hong Kong, led by creative director Pharrell Williams and drawing celebrity guests from China and South Korea. 

The much-hyped runway show was seen as a boon to Hong Kong’s international image and a sign of the luxury giant’s commitment to Asian markets. 

Ukraine’s War-Battered Economy Shows Signs of Recovery

Ukraine’s economy shrank 29% in 2022, the year Russia launched its full-scale invasion. In addition, Ukrainian businesses were destroyed, exports were halted and millions of people were displaced. But in 2023, Ukranian officials’ say, the economy actually grew 5%. Eastern Europe Bureau Chief Myroslava Gongadze reports from Kyiv.

Kenyan Companies Embrace AI for Marketing Efficiency, Cost Savings

Kenyan companies, facing economic challenges, are turning to artificial intelligence to reduce production and advertising expenses. That’s causing anxiety among artists and ad agencies, who fear reduced income and job losses if AI can replace the work they’ve always done. Mohammed Yusuf reports from Nairobi.