Marketplace - All inflation is local

Episode Date: November 13, 2024

The national inflation rate doesn’t give a full picture of rising prices. Some places have it better than others. In this episode, housing costs have driven inflation down in some places, and kept rates above the average in others. Plus: Will China have to pay its fair share in the clean energy transition? Are Americans in better shape to pay off debt than before the pandemic? And, does anyone really need an AI shopping assistant?

That last mile on inflation? Yeah, we're not there yet. From American Public Media, this is Marketplace. In Baltimore, I'm Amy Scott in for Kai Rizdal. It's Wednesday, November 13th. Good to have you with us. The latest inflation news is pretty much as expected stuck. The Labor Department said consumer prices rose 2.6 percent in October compared to the same time a year ago. The monthly increase was 0.2 percent for the fourth month in a row. One reason for the stalled progress, the price of shelter, which was up 5% year over year. And while that sounds like a big increase, rent inflation has actually been slowing down. Marketplace's Justin Ho is on the cold comfort beat today.

Justin Ho The thing about the CPI report and the way it tallies up shelter costs is that it tends to reflect leases that were signed a while ago. Michael Puglisi, senior economist at Wells Fargo, says other private sector data show that today's rents have slowed down even further. Look at, say, the Zillow indicators as just an example. Year over year, they're about what they were pre-pandemic, three, four, five percent. Puglisi says the slowdown in rent inflation reflects the cooling in the broader economy. There's less turnover in the labor market than a year ago. Earnings growth has come down. And it makes sense that that would then over time kind of be reflected in you're not gonna

sustain these 10% or even higher rent numbers that you were seeing a couple of years ago. Rent growth is still up quite a bit in the Northeast and the Midwest, but in southern states, including North Carolina and Tennessee, rents have eased up a lot. Daryl Fairweather, chief economist at the real estate website Redfin, says that's because of new supply coming online. Especially of zero to one bedroom units. So that's bringing down the national rent figure because there are considerable rent cuts going on in some of those southern metros.

Fairweather says more rental units are hitting the market next year, which should cause rent inflation to slow further. But new construction projects have been slowing down, thanks in large part to elevated interest rates. Odeta Cushi, deputy chief economist at First American, says if that continues. Then after this current batch of completed and under construction apartments come to market, there won't be a lot left to deliver, say, in 2026. Especially if the Federal Reserve has any reason to keep interest rates higher for longer.

I'm Justin Ho for Marketplace. Wall Street today, pretty much flat. We'll have the details when we do the numbers. Our second snapshot of how the American consumer is doing comes from the Federal Reserve Bank of New York, which said today household debt ticked up slightly in the third quarter of this year, reaching nearly $18 trillion. At the same time, though, personal disposable income grew, meaning on balance, many households are in better shape to manage that debt. Marketplace's Elizabeth Troval has more.

When we think about household debt, Rice University's Benedict Gutman Kenney says it's all about how much more debt someone taking on relative to their ability to repay it. And this report shows that Americans are in a better spot to pay off their debt. That's because income has grown an average of 6.2% annually while debts have increased 4%. We're nowhere near like the debt to income ratios that we saw kind of pre the financial crisis. Debt's low on those measures.

Can't say the same for the US government though. Our national debt is around 36 trillion. For instance, Autif Mian says he has some concerns about how government debt could lead to higher long-term interest rates. Consumers obviously have a lot of debt on their heads. And if long-term interest rates were to rise, ultimately those interest rates will have to get priced into mortgages, auto loans, and so on. For now, the aggregate picture of household debt in the U.S. looks pretty good, but that doesn't mean people feel good about their debt, says Jesse Mecham, who founded the budgeting platform YNAB. There are a lot of 40-year-olds that make way more money than they did when they were 30-something, and they are just as or more stressed about their money. And so that's what tells you it's not an income issue.

He says it's easy to overspend with how much consumers use credit cards. Everything is stacked to get you to swipe and tap and buy and not think. Despite the bright spots in the report, delinquency rates are still a problem, meaning debt is a stress for plenty of American households. I'm Elizabeth Troval for Marketplace. It's been about seven weeks since Hurricane Helene swept through the southeastern United States, and many small businesses along its path are still trying to find their footing in the aftermath. Jesse Dean owns one of those businesses, Asheville Tea Company, a tea producer in Asheville, North Carolina. We called her up to see how she's faring.

When Hurricane Helene hit, yes, it was just a huge shift for us, as I'm sure anyone can imagine. We have sort of built our business over the last eight years and had moved into our first facility that was our own to manufacture RT on a street called Thompson Street in Asheville. It's right beside the Suwananua River. And when Helene hit, we lost all contact. You know, our cell phone service went out, our internet went out, the storm was coming through and we didn't know what was happening for hours. And later found out that the water had risen 27 feet and had completely swallowed our building whole. I'm sure you've been doing some math in the week since.

What is this going to cost you to replace all that equipment and inventory? I mean, we estimate that we lost close to half a million dollars in equipment and inventory, which for us, you know, is more or less everything and is a huge hit. You know, and we can, I will say that we've had just an incredible outpouring of support from other tea companies, from local businesses, from our customers, from our farmers, and from so many people. And so we don't need to pay that much out the gate to start to rebuild, which is really phenomenal. But it is going to take funding and it is going to take a lot of support. And yeah, I think it's going to be an exciting time

when we have some tea back and we do anticipate having some tea made by the holidays, but it's also going to be an extremely long road. And I'm sure it's going to be filled with ups and downs as we go because we can kind of only make what we can make you know we're gonna have to inchworm along for sure. What about programs aimed at helping small businesses recover are you getting any funding or grants or loans through those programs? We did receive a loan from a local CDFI called Mountain Bizworks. They are

phenomenal and have been very helpful really since our business started but they have been providing some relief funding in the form of a bridge loan. That's hugely helpful just to allow us to get some teammate and start to resupply on ingredients and packaging and things like that. It also is a loan. It's something that we're going to have to pay back at some point in addition to the debt we already had on equipment and inventory that was lost. Hosting You said you're hoping to start selling again

in time for the holidays. Where are you making your tea? Dr. Kirsten Kiefer Yeah, well, we actually have two co-manufacturers that we are going to work with and they are based in different locations outside of North Carolina. And so our tea bags will be made of the same material, they'll look the same and be the same ingredients and we're still getting herbs from local farms too. So yeah, so that's very exciting and that's been our focus really. We've really zeroed in on getting some tea made and then we'll

start to kind of rebuild the actual facility. What's your favorite tea that you make? What would you like to have a cup of right now? Oh, I love that question. You know, one that I tend to drink a lot of is called chamomile lavender. And it was one of the first blends that I had made. And it's obviously chamomile and lavender. And then we blend it with Tulsi, which some people call holy basil and Anise Hyssop, which is in the mint family, but it has a little bit of a licorice taste. And so it's just one of my personal favorites.

It sounds very calming. Yes. We could all use a cup of tea right now. That's right. I think maybe that's why I'm feeling drawn to that one. All right. Jesse Dean is owner of Asheville Tea Company. Thank you so much for your time. Thank you so much, Amy. I'm really grateful. Looking more broadly now to the global climate. As we talked about earlier this week, the COP29 climate talks are underway in Azerbaijan. The central question under negotiation this year is how much should wealthier countries pay to help developing nations transition

to cleaner energy and adapt to the impacts of climate change. Industrialized countries have already been funding these efforts after a previous COP agreement in 2009. What negotiators need to decide now is how much more those nations will commit in the years ahead and which countries have to pay. Marketplace's Henry Epp reports. At the root of these negotiations is that some countries are historically more responsible than others for all the carbon in the atmosphere, says Kenneth Gillingham, a professor at Yale. It's really the wealthier nations of the world

that predominantly have been leading to the issue of climate change that we have today. The United States, the United Kingdom, most of Europe bear more blame. So as those nations ask poorer countries to also reduce their carbon emissions, they've said they'll pay to help them do that. Industrialized countries agreed in principle many times in the history of the climate negotiations

to provide this kind of financial assistance. Kelly Sims Gallagher is Dean of the Fletcher School at Tufts University. Here's where things get tricky. That list of industrialized countries that have to pay was made in the 90s. So countries like China were considered and very much were developing countries in terms of per capita income at that time back in the 1990s. But circumstances have changed a lot. China especially is now much wealthier and more industrialized, but it's not officially on the hook for climate finance.

And that's a big sticking point at COP this year, says Rishikesh Ram Bandari at Boston University. How do you get the politics and the reality in one place so that we can have a deal that really works for everybody? And as they figure out who pays, negotiators must also settle on a number, says Ian Mitchell at the Center for Global Development. Most people agree that the needs are in the trillions of dollars per year. Mitchell just landed in Azerbaijan for COP29.

He says he's not particularly optimistic that the assembled countries will agree to an amount that meets those needs. I'm Henry Abt for Marketplace. If you want to know more about how the US election results could affect climate policy, the latest episode of How We Survive's Burning Questions is out now. Find it wherever you Music Coming up. So we're seeing a really significant uptick in traffic coming from generative AI sources to retail sites. AI assisted shopping is on the rise.

But first, let's do the numbers. The Dow Jones Industrial Average gained 47 points, a tenth percent, ended 43,958. The Nasdaq lost 50 points, a quarter percent, to finish at 19,230, and the S&P 500 added just one point, barely changed, to close at 59.85. Budget carrier Spirit Airlines plunged 59 percent. The Wall Street Journal reported today that the company could file for bankruptcy after merger talks with rival Frontier failed. Frontier dipped one and eight tenths percent. JetBlue ascended nine and eight tenths percent. Rivian Automotive accelerated more than 13 percent. The electric vehicle maker announced a joint venture with Volkswagen in a deal worth $5.8

billion. Volkswagen slowed 2.3%. EV giant Tesla edged up 0.5%. Bond prices fell. The yield on the 10-year T-note rose to 4.45%. You're listening to Marketplace. What do they say? More money, more problems, and way more questions? From your kids, right? But not to worry. Million Bazillion, a podcast from Marketplace, has you covered. I'm Bridget

Bodner, and with my co-host, Ryan Perez, we take you and your young ones on grand adventures and comedic sing-alongs to answer all the questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales. Listen to Million Bazillion wherever you get your podcasts. This is Marketplace. I'm Amy Scott. We started the show talking about inflation.

Quick recap, the CPI was up two tenths percent in October from the previous month and up 2.6 percent compared to a year ago. Those are the national numbers, which is how we tend to talk about inflation, but the numbers look different depending where you live. For example, right now, inflation in the New York, Newark, and Jersey City metro area is up 4 percent since last year, while in Phoenix, Mesa and Scottsdale, Arizona, it's up 1.6 percent. Marketplace's Samantha Fields has more on what drives those regional differences. It mostly comes down to one thing, housing.

Steve Reed, an economist at the Bureau of Labor Statistics, says housing is one of the few markets that's still very local. When we think of why would prices be moving more in one area than another, the rental market is really an area that can vary from place to place more than most markets. With other things we buy, if prices are rising in one part of the country, they're likely rising at a similar rate everywhere else. Take groceries. That's mostly a national likely rising at a similar rate everywhere else. Take groceries. That's mostly a national market.

And it's similar for durable goods. You're not going to have cars getting way cheaper in Seattle, but way more expensive in Tampa, anything like that. Same for clothes, electronics, furniture. One way to think about this is that these are products that can be moved from one place to the other. Yiming Ma at Columbia Business School says with anything that can be shipped, there's competition.

So, if a business in Boise raises the price of dishwashers, a customer can just go online and buy a cheaper dishwasher from somewhere else. That's why in a lot of these sectors where moving products around is more feasible, the regional variations tend to be much lower. But with housing, it's a different story. There isn't that same kind of cross-border competition. If you need to live in a specific area for your job, you can't really go looking for a cheaper apartment

somewhere far away. And economist Jed Kolko says housing costs can behave differently in different parts of the country. In places where there's a lot more demand for housing, maybe because population or employment is growing, prices might be rising faster, especially in places where there is growing demand and very little housing construction. Housing is a main driver of inflation because it's the biggest monthly expense most people have.

So Kenton Poole at the Nonprofit Center for Regional Economic Competitiveness says it's the biggest monthly expense most people have. So Kenton Poole at the Nonprofit Center for Regional Economic Competitiveness says it's weighted heavily in the consumer price index. Of the basket of goods that a consumer buys, anywhere from 30% to 50% of their wages go into housing. So even a small bit of increase in housing can have an outsized impact on your household budget. And an outsized impact on the inflation rate where you live. Barbara Denham at Oxford Economics says in the first couple of years of the pandemic, when lots of people moved away from big expensive

cities like New York to more affordable ones in the Sun Belt, places like the Florida markets used to have the highest inflation rates and they don't anymore because their rate of increase in their housing costs is not as dramatic as it had been say two or three years ago. In fact the Tampa area now has one of the lowest inflation rates in the country and New York has one of the highest. While housing is the biggest factor, Yiming Ma at Columbia says there is another thing that's playing a role here, gas prices.

The extent to which different regions are affected by a change in the gasoline price is the extent to which you drive versus the extent to which you, say, use public transportation. In Tampa, for instance, most people drive, so gas prices are a bigger part of household budgets and the inflation calculation than in New York City, where many people take the subway. So, when gas prices fall, as they have recently, that pushes Tampa's inflation rate down faster than New York's. I'm Samantha Fields for Marketplace. All right, so we've talked about consumer prices and debt.

Now to a story about how people spend money. Adobe is predicting online shopping will rise nearly eight and a half percent this holiday season to more than $240 billion. And more people are turning to artificial intelligence to help with that shopping. We're talking chat GPT, Gemini, and new conversational chat bots from retailers. Adobe found that two in five people it surveyed plan to use generative AI for holiday shopping this year. Corinne Ruff has that story. Victoria Winter relies on AI every day, in particular, chat GPT for her to do list. She's an entrepreneur and busy mom of two in Charleston, South

Carolina. Whenever chat GPT first came to the market, I was like, I know exactly what to do with this. She uses chat GPT's dictation feature to create a bedtime routine list for the babysitter, transcribe notes from calls, and this year for holiday shopping to brainstorm gift ideas for her kids. I like to get outdoor toys. So it could be like, what's something I could get today that would be appropriate for a four-year-old that, you know, we could keep adding on to it, making like a full jungle gym.

And now she has AI options beyond chat GPT. More retailers are rolling out GenAI assistance. It's the first holiday season for Walmart's chat bot, still in beta, and also the Rufus assistant, which came out in February from Amazon. Of course, buying online is already super easy for consumers. So Forrester retail analyst Sucharita Kodali says these AI tools are more of a bonus than a necessity. People purchase repeatedly from Amazon multiple times a day in many cases. So it's sort of what problem are you looking to solve with GenAI?

Kadali says there are three reasons consumers shop online rather than in store to search for specific products, see which retailers sell those products and to get them delivered fast. Gen. AI has not proven itself to be that much of a value add in any of those things. What shoppers do seem to be using it for is to find brand recommendations and compare prices. It's still early days for Gen. AI shopping, and Vivek Pandya, Lead Insights Analyst for Adobe, says young consumers seem to really like it.

So we're seeing a really significant uptick in traffic coming from generative AI sources to retail sites. Amazon says its Rufus chatbot has already answered tens of millions of questions from shoppers. It recently rolled out AI-powered gift guides. Walmart is talking up the convenience of its chatbot to help find the perfect gifts. CEO Doug McMillan said on an earnings call back in August

that Gen. AI is already helping drive digital impulse sales. Think you're shopping for a new soccer ball for your kid, and the shopping assistant suggests shingards and cleats to go with. But who knows if AI will change how people buy stuff? Brad Jushinski, a director analyst at Gartner, likens this moment to the early days of Alexa, when people thought everyone would start dictating shopping lists to their devices.

But what they ended up using Voice Search for was less for shopping and more for asking what's the weather going to be, setting kitchen timers, recipes, that type of thing. Jaschinsky says Gen.ai is most helpful if you're trying to decide on a big purchase, like say a new TV, which is what he's shopping for right now.

Even just understanding the brands and what's out there, I felt like it was all new to me because I haven't purchased one in a long time. So he's been asking both Amazon and Walmart's AI assistants for help. Jasinski says they both generate good review summaries and allow you to compare product details. Or you can ask it if it's a good deal and it'll tell you like about pricing. I think Amazon has the edge with their tool on that side.

On the other hand, he says it felt like Walmart had a bigger selection, but he hasn't bought a TV yet. I feel embarrassed, but I'm waiting for Black Friday deals before I pull the trigger. In other words, AI or not, just like always, shoppers want a good deal. I'm Corinne Ruff for Marketplace. This final note on the way out today from the Department of No Surprise here, Axios reported on new consumer sentiment data from Morning Consult, showing that for the first

time in four years, Republicans are feeling good about the economy. Democrats, suddenly less so. Our media production team includes Brian, Allison, Jake Cherry, Jessen Duhler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Carlos Torrado, and Becca Weinman. Jeff Peters is the manager of media production. And I'm Amy Scott. Hope to see you back here tomorrow. This is APN. What do they say? More money, more problems, and way more questions from your kids, right? But not to worry.

Million Basilion, a podcast from your kids, right? But not to worry. Million Basilion, a podcast from Marketplace, has you covered. I'm Bridget Bodner and with my co-host Ryan Perez, we take you and your young ones on grand adventures and comedic sing-alongs to answer all the questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales. Listen to Million Basilion wherever you get your podcasts.