Marketplace - A so-so CPI

Episode Date: February 13, 2024

The January consumer price index just came out and inflation was up 3.1% year over year. That’s not awesome. But it’s not awful either. We’ll dig into the data, from lagging shelter costs to a still-hot labor market. Plus, monetary policy goes up against fiscal policy, the romance novel market flourishes, and rising prices for “inelastic” goods mean some consumers are gonna suffer.

Bumpy. Adjective marked by bumps or jolts. Marked by or full of difficulties. As in, it was always going to be bumpy getting inflation down to 2%. From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Rizdal. It is Tuesday today. This one is the 13th of February. Good as always to have you along, everybody. Today is one of those, take a deep breath. Do not check the balance in your 401k. Markets go down two kind of days, about which I will say further only this. This was always the way it was going to play out. The last mile, if you will, of the Fed trying to get inflation down to the 2% the central bank has decided it's comfortable with. Bumpy, uneven, two steps forward, one step back, or better yet, 3.1% back. As you have surely heard by now, consumer prices were up 3.1% in January compared to a year ago.

The trend does continue lower, yes, but guesses had been that today's number would be somewhere below 3%, hence Wall Street's tantrum. But here really is the question, is today's bump just a bump? Marketplace's Matt Levin gets us going. Even if the stock markets freaked out a little bit about this inflation report, economist Anne Owen at Hamilton College says she's not all that worried. I don't think this is an alarming report. I think it's only a surprising report because people thought we were going to get something else. But surprises aren't always alarming. So sure, it would have been nice if core inflation,

that's inflation without volatile energy and food prices, if that came in lower than 3.9% year over year. But a lot of that core inflation is how the CPI calculates shelter costs, which lags behind what's happening with real rents. Steven Juno is an economist with Bank of America. We should see shelter inflation moderate over the course of this year. We've seen asking rent inflation really cool off. If there is anything to be truly worried about in the data, it would be in the services sector outside housing. Veterinarian prices were up nearly 10 percent year over year. Accountants and tax preparers up 11 percent. Olu Sunola with

Fitch Ratings says a lot of that is wages. You also have to remember that we still have a tight labor market. Unemployment rate is still at 3.7 percent. Sonola says wage inflation is partly why J. Palin Company may keep rates higher for longer. The pipe dream of a rate cut in the next few months is probably gone. Sonola likens fighting the last mile of inflation to a certain type of horror movie. The zombie that refuses to die. The inflation zombie is not the threat it was, but it's still out there somewhere. I'm Matt Levin for Marketplace.

Zombies are bad. Very, very bad. You know, we could slice and dice this morning's CPI data every which way. We won't, but we could. One of the line items that did catch our eye, though, was baby food and formula up 8.7 percent from the same time last year, which is to say nearly three times the overall rate of inflation. The catch, of course, is that baby food and formula, if you need them, aren't really things you can just do without. Inelastic demand is the phrase you're looking for here, as Marketplace's Stephanie Hughes explains. Inelastic demand means regardless of how the price of something changes, you basically buy the same amount. That's according

to Stephen Blitz, chief U.S. economist for Global Data TS Lombard. I met him outside on a street corner in Manhattan so he could point out goods with inelastic demand. He pointed to all of the people driving. Gasoline. You commute, you drive, you take your kids to school. And your demand for that is inelastic to the price. Other things with inelastic demand? Food, medicine, even coffee. If the prices of those things go up? People just suffer.

Tal Gross teaches managerial economics at Boston University. When people have to spend more on gas, for instance, they might spend less on going out to dinner. But beyond that, he says, maybe you'll drive a little bit less. Maybe you'll switch to the cheaper gasoline, but there's not much you can do in the short run. In the long run, people can change, say by taking public transit to avoid buying so much gas. Paying elevated prices for must-have products can influence consumers' perception of the overall economy,

says George Mason's Veronique de Rougy. The economy's doing well, but for the stuff that you absolutely need to buy, a lot of those prices are still up. I mean, I think this is why people are frustrated. Because in the short term, she says, there's nothing they can do. In New York, I'm Stephanie Hughes for Marketplace. On Wall Street today, I mean, yeah, sure, stocks get all the glory or infamy if you prefer.

The bond market, however, would like a word. Suffice it to say, given today's reading on inflation, money in this economy ain't going to be getting cheaper anytime soon. We will have the Pacific things went the other way. Beijing reports consumer prices in China fell in January off eight tenths percent from a year ago. It's the fourth straight month of declines, the steepest drop since 2009. Insert usual caveat here. My copy says Chinese economic data must always be taken with a grain of salt. My copy says Chinese economic data must always be taken with a grain of salt. However, comma, indications both official and anecdotal are that the Chinese economy is slowing.

So we gave Adam Posen a call. He's the president of the Peterson Institute for International Economics. And when we got him on the phone, I asked him, first of all, where he thinks things stand. The Chinese economy has downshifted fundamentally over the last couple of years. And then on top of that, they've got this real estate headache that is driving them further down. It's not a calamity, but it is undercutting growth in a variety of ways on top of the long-term demographic trends. Okay. We're going to go into each of those or most of those anyway in a second, but I want to pick up where you and I left off last time, which was August-ish. You had a piece in Foreign Affairs, thank you, called The End of China's Economic Miracle. And I asked you what difference it makes fundamentally for the rest of us. And I want you to remind people why you believe that this is an important moment, not just for the Chinese economy, but for the global economy. China is, of course, Kai, one of the largest economies in the world, either the largest or the second largest.

They are a critical part of industrial processes and consumer brands and just business networks throughout the world. and consumer brands and just business networks throughout the world. So if we have a China that's growing more slowly, there's less opportunity across a range of investments for the world, including our 401ks. And most importantly, the Chinese Communist Party, the economic leadership, are likely to behave in increasingly aggressive ways economically if they're having problems at home. What happened in the Chinese economy? Because as you know better than most, it was humming right along for a good number of decades. It was humming along in historically unprecedented ways for decades, as you said.

I think three things happened. China, for a variety of reasons, including their previous one-child policy and their sexism towards women, has had a cratering birth rate. The other two things are, first, they have this real estate bubble that burst, and it wasn't even that much of a bubble. It was that they were shoveling huge amounts of money via local governments in weird connections with local banks to property developers. And that couldn't go on forever because they were building more apartments than they had people. The third thing, which is what you and I talked about last August,

and I think I did end up calling the top on China's growth, was after COVID and after Xi consolidated power a few years prior to COVID, China's Communist Party has been much more in your face to the average Chinese household, much more in your face to the average Chinese small business in terms of arbitrary decisions. And as a result, people are consuming less, they're investing less in small business, and they're keeping their money in cash-like assets. And that's reinforced by the real estate problem. All right. So let's talk the American-Chinese geostrategic relationship now and in the future. It is tense. You said a moment ago that you expect the Chinese to start acting in more economically destabilizing ways, which is not a thing anybody needs between global powers number one and two in the economy. What might that look like? And what ought President Biden do about that?

I think the biggest thing we're about to see and are already seeing, Kai, is that there's an enormous amount of dumping of electric vehicles and other autos that have been produced in China or produced by Chinese subsidiaries on global markets. I think also there is a tension that the Chinese yuan currency is going down in value. And the Chinese government, I think wisely, has been sort of tapping the brakes to keep it from going down too fast. But that also puts tensions between the U.S. and China and other countries in China, because that's seen as another way of China exporting its way out of its problems rather than dealing with domestic lack of demand. So props to you for calling the top on the Chinese economy,

you know, because that can be tricky to do. Here's the question, though. Now what? Is there a way that she turns this around? What does the bottom look like? Discuss. Yeah, I think the bottom isn't that bad. You know, a China that's got lower growth is growing at a positive 3% instead of a positive 5%. I think in the end, Xi is going to do a lot of stimulus policies, even though right now he's very reluctant to do so. And I think they're going to be largely ineffective in the sense that they'll get much less bang for their buck than they have in the past. Finally, I think the key change is how much do people exit from China? I mean, how much does capital leave? Do people leave?

We're seeing news reports about suddenly there are Chinese people coming to the U.S. as refugees and migrants. I think it would be wise, frankly, for the U.S. and Western governments to be welcoming these outflows rather than trying to bottle them up in China. Adam Pozen is the president

of the Peterson Institute for International Economics. Adam, thanks so much for your time and your wisdom. I appreciate it. Thank you, Kai. Adam Posen is the president of the Peterson Institute for International Economics. Adam, thanks so much for your time and your wisdom. I appreciate it. Thank you, Kai. Matt Levin talked a little bit about services, inflation in his spot at the top of the program, veterinarians, I think, and accountants. According to the Bureau of Economic Analysis, we are spending hundreds of billions of dollars more a year on services now than we spent in the before times. But that does not mean it's easy out there. Here's today's installment of our series,

My Economy. My name is Lita Harris-Newstetter, and I am the owner and creator of Metamorphosis Performing Arts Studio, which is based in Boise, Idaho. So I have three main branches that my jobs fall into, the mental health counseling area, the education area, and the performing area. And so they don't all ebb and flow the same. Like in the performance area, for example, I used to have a really steady income in acting gigs. I did a lot of commercials and online training videos. And so that was a big chunk of my income for quite a while. And then that completely dried up. So then I invest in other ways,

try to get more music gigs going or more counseling gigs or speaking engagements. I would say my overall income is fairly steady, but it's a constant hustle. steady, but it's a constant hustle. I really, really want my programming to be accessible. And with what I'm doing, there really runs a risk of, you know, with what kinds of families can afford to send their kids to private voice lessons, private acting coaching. And that's not where my heart lies. Like I definitely didn't grow up that way. I grew up with a single mom, you know, and so I'm not super undervaluing myself, but at the same time, I've only

raised my prices once since I started 11 years ago. So it does mean that I make less than I probably could, but you know, I need to be able to feel good about it just so that my soul doesn't like wither away. I definitely think that it's accurate to say it's hard, but I love it. A couple months ago, I had a parent message me on Facebook to let me know that her daughter had just written about me in a college essay thing. And what it was, was this theater program that I got involved with. And so this was just a once a year for one week. And I did it for like three years. Well, what I didn't know was that I was her first time ever having a Black teacher

and that she had felt very isolated here in Idaho. And that experience of working with me, it just made her feel more comfortable. And it was inspiring to her so much so that, you know, 10 years later, she was writing about it in college. So that's why I keep doing what much so that, you know, 10 years later, she was writing about it in college. So that's, that's why I keep doing what I'm doing, you know, because I know that I am making an impact. And even though I think I could be living a more financially comfortable life, if I was doing something differently or doing it in a different way, I know that what I'm doing is making a difference. And so that's why I keep showing up.

Lita Harris Neustadter. She owns and founded Metamorphosis Performing Arts Studio. She's in Boise, Idaho. We cannot do this series without you, no matter where you are. So drop us a line. Let us know what's going on. Would your marketplace.org slash my economy is where you can do that. Coming up. People want to be happy and hopeful and escape a little bit because it's always a happy ending.

Ah, the romance novel. First, though, let's do the numbers. Yeah, I mean, you knew it was going to be the Wawa's, right? Dow Industrials off 524 points, one and a third percent. That's off the lows for the session by the by. Closed at 38,272. The Nasdaq subtracted 286 points, about 1.8 percent. 15,655. The S&P 500 gave up 68 points, almost 1.4 percent there. 49 and 53. Krispy Kreme slid four and eight tenths percent. Today, the company projects profits for the rest of the year will be lower than analysts expected,

due in part to increased operating expenses like the price of sugar, which the company expects could go up by double digits. Also, just make better donuts, will you? Manchester United, PLC, climbed nearly 8.75 percent today after the England's Premier League team approved a new investor taking a 25 percent stake in said team. They are, for those keeping track, still sixth in the table.

You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl. When you ask economists what they think about monetary policy, as in the Federal Reserve and interest rates, a growing number of those economists will tell you they believe interest rates are restricting the economy too much right now. That's according to a survey out this week from the National Association for Business Economics. But the thing is, the survey also found most economists think fiscal policy, as in Congress and the president and government spending, is stimulating the economy too much. Marketplace's Justin Ho explains what happens when Team Monetary

goes up against Team Fiscal. On the monetary side, some economists are starting to wonder if the Federal Reserve should back off from the inflation fight, because keeping interest rates high for too long might be bad for other parts of the economy, like the labor market. The risks on inflation have fallen a lot, and the risks to unemployment have increased a lot. That's Preston Moy, senior economist at the research group Employ America. He says if the Fed pushes too far against inflation, unemployment could rise quickly, and lowering rates would prevent that. And so it's important not to wait until you see the whites of unemployment's eyes to start cutting. Still, even as the Federal Reserve

has been using monetary policy to slow down the economy, Congress has been using fiscal policy to do the opposite. Doing a lot of things with the Inflation Reduction Act. We had a lot of policies that were actually designed to help grow the economy. That's Lester Jones, a survey analyst with the National Association for Business Economics. His main job is chief economist with the National Beer Wholesalers Association. Jones says we don't want fiscal policy to compete against monetary policy, especially since the Fed's made progress slowing the economy down. And if one's got to give, let's kind of back off on the fiscal policy

and let monetary policy direct the economy in the right direction. One fear, Jones says, is that too much fiscal stimulus would drive up government spending and therefore the deficit. Ann Villamil, an economics professor at the University of Iowa, says lowering that deficit will require some tough decisions. The way to solve a structural deficit is either to reduce the rate of growth of government spending and or to raise some form of taxes. And the longer Congress waits to act, Villamil says, the more drastic those moves will need to be. I'm Justin Ho for Marketplace. Here's a very easy, not drastic thing you can do. Listen to the Marketplace Morning Report. David Brancaccio and the gang up early every day to get you all the business and

economic news you need. All right, so before you go and read more on monetary versus fiscal policy, which we all know you are going to do, we here are going to turn to some lighter reading. Romance novels. It has reliably been a billion dollar a year genre for a while now, but it has exploded of late. New romance writers regularly outsell other kinds of fiction now, we're talking top three spots on the New York Times bestseller list kind of outselling, which maybe shows that this once embarrassing mainstay of the publishing world is getting a little more respect, thanks in part to a new and more diverse generation of writers and fans. Marketplace's Megan McCarty Carino has that one. Books Inc. has been serving San Francisco Bay Area readers since the 1940s. So have you been here before?

But manager Carrie Gillette at the Mountain View branch says her store only had a couple shelves of romance when she started a few years ago. A romance reader herself, she pushed Books Inc. to expand to this inviting full wall display, dense with handwritten staff recommendations. A lot of people congregate here. It's a huge part of our store now, and it really pays off. Because, she says, romance readers are often repeat book buyers. And there's something for everyone. Fantasy, crime, apparently sports themes are trending. I think with Taylor Swift, people are really vibing with that right now. And Gillette is spreading the love. Last summer, she started a monthly romance book club at the Wine Bar down the street,

where a couple dozen customers gather to share their passion. People want to be happy and hopeful and escape a little bit, because it's always a happy ending. That's what makes these sometimes fluffy books serious business, says Susan Swinwood, the editorial director at Harlequin Trade Publishing, a brand that's almost synonymous with romance. Whatever you feel about it, there is no denying that it's as relevant and valid a product as anything else. It's as relevant and valid a product as anything else. Romance used to be sold more as a guilty pleasure to be hidden away.

Now, Swinwood says, it's actually cool with readers who talk about it, often on the popular TikTok community known as BookTok. So I've read 30 books this summer. Here are my 11 favorites. Talia Cadet runs digital strategy at a D.C. lobbying firm and spends many of her off hours making and watching videos about reading on BookTok. She also runs a book club called Froze and Prose, which has been heavy on romance lately. I have no shame about it. You can't shame me. She says BookTok has introduced her to a whole world of Black romance, often from independent or self-published authors who write about characters she relates to. And then seeing them have their happily ever after, especially, you know, as a

Black woman being made to feel as though we don't deserve love, we don't deserve romance, we don't deserve softness and care. So yeah, it's been eye-opening. Social media has helped romance bypass traditional publishers by connecting directly to the audience, says Florida-based romance and mystery author Tamara Lush. And yes, that is her real name. It really is. It's the name I was given at birth. She quit her job as a reporter for the Associated Press a few years ago and says she makes 75% of her previous salary writing steamy stories about tropical islands and amateur detectives. She recently sold a book to the new publishing arm of TikTok's parent company, ByteDance, and she's working on a new project called Swamp Thing. It's a funny, romantic mystery about an alligator trapper who also solves crimes. Those cliche heterosexual bodice rippers with glistening muscles

and heaving bosoms on their embossed covers still sell well. But now there's more space to represent a broader range of human experience, says Leah Koch. She's co-founder of an all-romance bookstore, The Ripped Bodice, with locations in L.A. and New York. When someone from our extremely diverse clientele comes in and says some version of, do you have a book with somebody like me? Whether that is I use a wheelchair or I wear a hijab or I am pansexual or whatever. Like almost all the time we have at least one or two options for them. And she'd like to see those one or two options expand for when those customers come back for more. I'm Megan McCarty Carino for Marketplace.

This final note on the way out today, a calendar update to situate us firmly in the mind of Jay Powell, and again, relevant to the cost of money in this economy. The Fed meets on interest rates in March. Powell has already basically taken that one off the table for a rate cut. Then it's April 30th, May the 1st, press conference on the 1st of May, followed by June 11th and 12th, press conference on the 12th. We will watch those press conferences, so you don't have to. That's just the way we roll around here. Our digital and on-demand team includes Carrie 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. I'm Kai Risdahl. We will see you tomorrow, everybody. Kyle Risdell, we will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading. 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.