Marketplace - A higher-than-expected CPI 

Episode Date: March 12, 2024

The February consumer price index is out — inflation was 3.2% year over year. That’s just a smidge higher than January. Still, prices in some sectors are down from a year ago. We’ll dig into the data, from price drops in furniture to still waters in apparel. Plus: the state of banking one year after the SVB fiasco and the future of addiction treatment in Oregon. 

Hey, Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive, and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million. That is greenlight.com slash million. Let us talk instead about prices going down, shall we? From American public media, this is Market Class.

In Los Angeles, I'm Kai Risdell. It is Tuesday today, the 12th of March. Good as always to have you along, everybody. It does seem important here at the outset today to point out that the Consumer Price Index, the A-list economic indicator that came out this morning, measures the overall change in price levels in any given economy over time. Doesn't say a word in the CPI rulebook about that change having to be positive. So, while, yes, we did learn this morning that headline inflation in this economy is running at 3.2% year on year, and that core, which is taking out food and energy, is at 3.8%. That is not the whole story. Less inflation is, of course, what we're looking for here, not no inflation. And generally speaking, once the overall price level goes up, it doesn't usually overall come down. But you dig into the data, as Marketplace's Sam Fields did for us today, and you will see some prices have actually fallen in the past year. Most of us would love to see prices go back down.

But Victoria Fernandez at Crossmark Global Investments says that's wishful thinking. Prices rarely actually come down once they go up. And she says deflation, when lots of prices start to fall, is actually not a good thing. Most of the time, if you have deflation, it's because your economy is struggling tremendously. Think about it this way. If we think something will be cheaper tomorrow, we don't buy it today. And Carl Tannenbaum, chief economist at Northern Trust, says because consumer spending accounts for a huge chunk of the U.S. economy,

about 70 percent, if we stop spending, the economy slows down. So while we often root for lower prices on certain categories, I don't think that is a general outcome that we would find pleasing. A more pleasing outcome is if prices rise slowly and wages rise too. But Tannenbaum says if some prices fall here and there, that's not bad. A bunch of things were cheaper in February than they were a year ago, including appliances, electronics, and furniture. More on that in a minute. Most of the examples where we're seeing falling prices, if we go back a little further in time, we will see outsized price increases. Those increases were mostly because of the pandemic

and all the supply chain issues, says Kevin Jakes at Baldwin Wallace University. Remember when there weren't enough chips to make all the computers and cars we wanted to buy and couches were backordered for months? Those kind of prices that had risen so much because of these supply side constraints, they're now largely resolved

and the prices can come back to more what we would think of as a side constraints. They're now largely resolved and the prices can come back to more what we would think of as a normal price. This is not just about supply, though. Demand is, as always, also a big part of the story. But I'm going to let my colleague Megan tell you more about that. I'm Samantha Fields for Marketplace. All right, back to furniture, as Sam promised. It is one of the few overall sectors to see prices go down over the past year, 3.7% if you're curious. Our case study today is IKEA, one of the biggest furniture retailers in the world. The Swedish shop has been cutting prices on budget staples like the Billy bookcase and Kallax storage cubes. And executives say those price rollbacks are going to continue, as Marketplace's Megan McCarty Carino reports. That weird supply and demand shock of the pandemic

hit furniture sales harder than a sleep-deprived person stumbling into the corner of their bed the first morning of daylight savings. First, there was the pivot to work from home in 2020, says Marisa Ortega, a retail analyst at Mintel. Then in 2021, with record low mortgage rates, a lot of people upsized their homes. And you know, that requires to fill more spaces in our home, more pieces for another living room and another bathroom. That intense demand has subsided as mortgage rates have soared. If people are not buying houses, there is less need to shop for furniture and home decor. At the same time, supply pressures, like shipping costs, have also eased.

Most furniture is imported, says Michael Brown, a partner with Kearney Consulting. Coming in on ships that were very, very expensive and that quickly dissipated. He says IKEA has been uniquely positioned to save thanks to its clean, modern designs, which are also more efficient to manufacture and transport. There's not a lot of waste. There's not a lot of shapes. They're all pretty straight cuts, you know, all connected by similar hardware. cuts, you know, all connected by similar hardware. Transportation and materials make up the bulk of furniture costs, which is why the spike in prices was transitory, says Gregory Dacco, chief economist at EY. Meanwhile, on the services sector, you still have that labor component that remains quite expensive and that continues to put upward pressure on services prices. Labor isn't a big part of the cost of furniture, Daco said, especially at Ikea,

which is why you've got to pull the items from that big old warehouse yourself and assemble them with nothing but an Allen wrench and some Swedish swear words. I'm Megan McCarty Carino for Marketplace. All kinds of swear words, no matter the language. Wall Street today. Well, let's see. Inflation comes in a tad hot. Traders say, yeah, whatevs, and they start buying. Sure. Makes sense. banks, Silicon Valley Bank and Signature by name. They failed, as you might remember, and then in May, First Republic joined them. Things got a bit tense in finance after that. Lending fell off, bank deposits dipped.

So we have gotten the community banker we know back on the phone for a check-in on the state of that slice of banking. Lori Stewart is president and CEO of Sound Community Bank up in Seattle. Laurie, welcome back to the program. It's always good to talk to you. Oh, I really enjoy chatting with you. And you know me. I love to talk about banking. That's why we call you.

How are you feeling about banking, the kind of banking you do these days? Actually, you would be surprised that I'm actually very, very confident in the kind of banking that community banks are doing. And I want to say before we get too far along that your mom should still be feeling really good about her certificate rates because rates are still high. She's going to email me. She's already writing it, I can tell. But, you know, community banks are resilient and we serve the markets where we do business. And I think banks as a whole have demonstrated they can do that a year after the failure of some regional banks. So that part I feel really super good about. I'm a little less positive on some of the potential regulation that will require holding more capital and more liquidity and what that impact will have on both borrowers and investors in banks. So that's where

I'm less optimistic. All right. We'll get to that in a minute. Sorry, just writing down regulation as a note to circle back to. But I do want to talk about sort of the regional tier of banks in this economy. When you have people like Jay Powell saying, I don't know, parts of it are really challenged. And when you have people reading about New York Community Bank and the exposure to commercial real estate, do you understand why there's some agita out there? Oh, I totally get it, right? But again, we need to think about the perspective and who's in commercial real estate and where are the problems, right? So in a city like Seattle, where we're headquartered, we're not in downtown commercial real estate. Most of the regional banks aren't in those mega-sized deals in city central cores either.

The great big banks are. city central cores either. The great big banks are. But again, they've demonstrated their ability to maneuver through multiple cycles. Now, there are regional banks with more exposure to commercial real estate. But when I look at the statistics, Kai, there are 4,587 banks in the country at the end of the year. 52 are troubled banks. So 1.1 percent. Not many. And we had one bank failure in the fourth quarter. So the concern might not be appropriate to the data. All right.

But look, fine, and I appreciate the statistics, but if things are as hunky-dory as you say they are, to get back to your point of regulation, why do the people who are in charge of supervising banks in this country think there is some more regulatory oversight needed, some more capital requirements that are required? I mean, you know, they presumably know what they're talking about, too, just like you do. Sure. I mean, I think we all have a perspective on this. But more capital has always been the solution. More capital. It's been what regulators have talked about for decades. Is the regulatory solution the right solution? And if it is, OK, give those regulators full credit for doing their homework.

OK, give those regulators full credit for doing their homework. If it is, how do we go forward as an industry? You know, we're businesses, too. We have a requirement to make a profit to keep building capital. So how do we do that under those constraints? That's, again, where I'm less optimistic and think we have to ask questions. Last thing and then I'll let you go. Risk is part of your job.

Managing risk, keeping an eye on risk, knowing what risks are coming is literally why you get paid. What risks do you think are coming to banking? That's interesting. I've just been in a leadership meeting with our executive team, and we've been talking about enterprise risk management. As bankers, we've always thought, okay, credit risk. And that's something I don't want us to take our eye off of. Not just commercial real estate, but credit risk overall. Right now, we can live with some of these lower interest margins because credit quality has been great. these lower interest margins because credit quality has been great. But I think we should all be focused on,

are there any early warning signs after this much inflation in the economy that suggests credit could be our next big problem? So that would be on my keep me up at night list. Cyber risk is always going to keep me up. You know, it just takes one employee clicking on a malicious link to bring down a system. Your lips to IT offices everywhere. They're cheering you right now. Laurie Stewart, she's at Sound Community Bank up in Seattle.

Laurie, thanks a bunch. Thanks so much. There have been in this economy nearly 16 million applications to start new businesses since 2021. That is a lot, historically speaking. Well, well above average. And you can find those new businesses wherever you look. Down the block, on Main Street, and maybe all over town. Here's today's installment of our series, My Economy. My name is Han Huntington Kasaga. I'm the CEO of Burlington Trolley Tours in Burlington, Vermont.

Savannah was the first place that I lived in the U.S. That was the very first time that I saw these trolleys. I was fascinated. I was compelled to take a trolley myself. They were showing us different places and this. I love the historical perspective, you know. So it was interesting, very interesting. Fast forward, I made a decision to relocate to Vermont. And I got a job in Hilton Hotel. Guests would constantly ask certain questions. Can you direct me to such and such a restaurant? What are the nice places to view in Vermont? So the idea of the

trolley kicked in and I thought, wow, this could be something amazing. is amazing. We are three business partners, myself, Catherine, and Barbara. We all come from Uganda. Fate just got us all in Vermont, and finally we are running a trolley business. You know, the cost of the trolley is quite pricey.

We are looking for something about like 300,000. So we hit a few banks and we are rejected, which was so disappointing because we had put in a lot of work. But we didn't give up. And soon we found a funder. And when we went to the manufacturer's warehouse and we saw our trolley, I think that was the happiest moment in my entire life. Yeah, it was ecstatic, yeah.

Burlington has a very rich history. And we've had lots of people from out of state coming to take the trolley. We've done foliage tours. They were so successful. But I can tell you that right now, it is not profitable at all. A few days ago, we had a meeting and we agreed that we have to put in more of our money to make ends meet and we are willing to do that. We want to grow the business into something big and we are willing to go all the way to make it big.

We feel like Burlington or Vermont has given us a home, and we want to add something good to Burlington, to Vermont, because it has accepted us, so I think that is worth going all the way. Small business is hard, man. Huntington Kasaga of Burlington Trolley Tours in Burlington, Vermont. No matter where you are, no matter what you do, no matter how hard it is, let us know what's going on in your economy with your marketplace.org slash my economy. MyCon.

Coming up. $89 million when I'm talking about generational underfunding. It's not a lot of money. Honestly, it's kind of not. First, though, let's do the numbers. Dow Industrials up 235 today, 6 tenths percent, 39,005. The NASDAQ up 246, 1.5 percent on that particular index, 16,265. The S&P 500 up 57 points, 1 and a tenth percent, 51.75. We heard from Megan McCarty Carino that IKEA has been cutting prices on its already budget-friendly furniture

and that furniture prices generally have slipped a tad. So, some furniture stocks. Lazy Boy Incorporated reclined nine-tenths of one percent. Both Haverty Furniture Company and American Woodmark Corporation lost about a tenth percent today. March 12th, should you be curious, is Equal Pay Day in the United States, a symbolic date that represents how far into the new year women have to work to earn as much as men did during the previous calendar year. Most recent census data finds women make 84%

of what men earn in this economy. You're listening to Marketplace. I'm Kai Risdell. We talked about prices up at the top of the program, specifically those prices that, despite the CPI going up, are going down. Well, here's another variation on that theme. Zero, zero point zero. In fact, that's the inflation reading on apparel in February from a year ago. Footwear was up, watches were down. But when prices overall are going up, clothing on balance is staying the same.

Marketplace's Stephanie Hughes has that one. At June Ruby, a women's clothing store in the Denver area, owner Michelle Rotter has some hard to find items, but also carries national brands and says she's limited in what she can charge for those. It's frustrating because sometimes I feel like we're a showroom for these bigger brands, you know. She says people will sometimes try stuff on and go buy it online. So it's hard for us to mark above what they're selling it for because we're competing with them. Rotter also says the price margins for those clothes are smaller than they used to be. Before we could have marked things up more. Now their retail suggested price is actually a little bit lower. That's because clothing manufacturers are reading the economic room, so to speak. Natalie Cutler, who follows retail trends for BDO USA, says they know what people

are open to buying. So consumers are not willing to pay higher prices for something that's not a necessity. Cutler says that was different a couple years ago when there was pent-up demand for office-ready pants and bow ties to wear to all those delayed weddings. And now? People that have gone back to work have been back at work for quite some time, and there really isn't as much of a reason to go out and make that big significant apparel purchase. That lower demand for clothes has kept prices from growing. One reason they haven't gone down, though, is that retailers have gotten better at managing inventory over the past few years. Poonam Goyal with Bloomberg Intelligence says when clothing stores have too much stock, they have to offer big discounts to get it out.

But when you have just the right amount of inventory, you can sell it at full price. Something that Michelle Rotter at June Ruby in Denver says she can sell at a slightly higher markup are hats embroidered with the Denver area code 303. They may not be a necessity, but she says Denverites have a lot of city pride. I'm Stephanie Hughes for Marketplace. It's been just about two and a half years, a little bit more actually, July of 2021, since 46 states and a handful of opioid manufacturers and distributors signed the first national settlement meant to help those states deal with the huge rise in substance use and overdose deaths. Settlements with other companies have now pushed the total to about $50 billion, $5-0 billion, that's going to be distributed over the next nearly two decades.

Oregon is right at the heart of the crisis. It's got some of the highest rates of opioid use disorder and demand for treatment in the country. The state's first payment, opioid use disorder and demand for treatment in the country. The state's first payment, $89 million out of an expected $600 million, is already being put to use, as Marketplace's Mitchell Hartman reports from our bureau in Portland. The Hooper Detox Center sits on a freeway feeder road in an industrial area near downtown. Along the street outside are homeless tents and abandoned cars. Inside, a bustling medical clinic. Patients sit or doze in the lobby,

some with a sleeping bag or sack of belongings tucked under their chair, waiting to be checked in. We pass into the secure treatment wards. And this is a nurse's station. Amanda Risser is senior medical director for Central City Concern, the non-profit that operates this detox center, supervising withdrawal management for about 55 patients coming off opioids, alcohol, and meth. The women's dorm, most people are just resting in bed. Everybody gets their own little locker. Their medications are brought to them. Patients are brought in by outreach workers, EMTs, local hospitals, and stay five to seven days. Risser says the beds are nearly always full.

Last year, for example, we admitted 2,000 patients, and we turned away about 1,200. And Risser says when patients are discharged from detox, it's not easy to take the next step. We have folks who desperately want a bed in residential or supported housing, and we don't have enough beds for them. Their desire is to get treatment, and it's just not accessible to them. Oregon is currently probably last or second to last in access to care. Fernando Pena serves on Oregon's 18-member Opioid Settlement Board, which is deciding how to spend the state's first $89 million. He also runs Northwest

Instituto Latino, which provides outreach services to Spanish speakers. There are so few treatment beds or recovery support organizations for the African American community, the Latino community, the rural communities. We have parts of the state right now, not only do they not have a detox, some of them don't have pharmacies, right? So how can you fill a Suboxone prescription if there's no pharmacy? Native American communities are particularly hard hit, with an overdose death rate more than two and a half times that of other Oregonians. That's one reason fully 30 percent of settlement funds, tens of millions of dollars, will go to Oregon's nine federally recognized tribes. Meanwhile, the Oregon Health Authority projects the state needs to add 3,000 new

treatment beds by next year, nearly double the current capacity. And they won't come cheap, says Settlement Board co-chair Annalise Dolph. We need half a billion dollars. And so certainly the opioid settlement dollars alone are not going to close that gap. Oregon's entire settlement is only $600 million, spread over 18 years. And advocates say there are plenty of other uses for the money, like training more drug and alcohol counselors and providing more treatment in jails. Fernando Pena's organization has tapped settlement funds to beef up harm reduction. He showed me the emergency kits they pass out. Artan and safer use supplies, safer sex supplies, wound care supplies.

Israel Peneda is part of Northwest Instituto Latino's harm reduction team. After years in prison, he got clean and now does outreach. We go into the streets and talk to clients, help them when it's cold. We provide sleeping bags, tents, and engage with the community. Like Oregon, states around the country are using settlement money to pay for overdose prevention and post-detox recovery services. For his part, Oregon's settlementlement Board member Fernando Pena is under no illusions about how far his state's first installment of funding will go.

It's difficult to get this across, but $89 million, when I'm talking about generational underfunding, is not a lot of money. But every little bit can help and maybe save a life, he says. I'm Mitchell Hartman for Marketplace. This final note on the way out today, one last inflation tidbit, one that probably hits closest to home for a lot of us, food. Prices at the grocery store. And again, this is overall, not specific foodstuffs. Grocery prices flat month on month. Restaurants up a tolerable tenth of one percent. Our digital and on-demand team includes Kerry Barber, Jordan Mangy, Dylan Miettenen, Janet Nguyen, Olga Oxman, Ellen Rolfes,

Virginia K. Smith, and Tony Wagner. Francesca Levy is the Executive Director of Digital and On-Demand. And I'm Kai Risdell. We will see you tomorrow, everybody. This is APM. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation. And it's happening because of a podcast. I think your podcast has changed my life. And I'm going to share this podcast with everyone I meet.

Sold a Story investigates how teaching kids to read went wrong. New episodes of Sold a Story are available now.