Latest Inflation Numbers Show That Rent Is Too Damn High

“The latest Consumer Price Index (CPI) by the Bureau of Labor Statistics (BLS) shows that prices ticked up by 0.1 percent for urban consumers in August, for an annualized increase of 8.3 percent for the year. The marginal increase in inflation comes in spite of fuel costs falling 10.3 percent last month.
“Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase,” said the BLS in its news release today. The latest CPI numbers show a 0.7 percent increase in shelter costs in August and 6.2 percent over the past year.

The BLS measures both cash rents paid by tenants and something called Owners’ Equivalent Rent—a measurement of how much an owner-occupied home could be rented for. The bureau doesn’t include home prices in the CPI.

Spot rents reported by listing companies are growing at an even faster rate. Apartment List reports a 7.2 percent increase in rental prices so far this year. That’s moderate compared to the 17.6 percent increase in rents the company reported in 2021. It’s still well above pre-pandemic increases from 3.4 percent and 2.3 percent in 2018 and 2019 respectively.

Rents plunged during 2020, driven by an urban exodus from high-cost coastal metros like New York City, San Francisco, Los Angeles, and Seattle. Many of those same cities are where rents are growing the fastest—alongside many of the Sun Belt metros where people fled to during the pandemic.

That suggests at least a partial reset of migration patterns during the pandemic. People are returning to the city (although not necessarily to the office).

The upshot is that the country’s housing affordability struggles aren’t going anywhere. Some analysts warn that they’re likely to get worse.”

55% of America’s Top Startups Were Founded by Immigrants. Why Won’t Congress Let in More?

“Immigrants are 80 percent more likely than native-born Americans to found a firm, according to a study released this May by researchers from the Massachusetts Institute of Technology. But more than that, a report released this week by the National Foundation for American Policy (NFAP) indicates that immigrants are disproportionately responsible for starting high-value companies.
According to the NFAP, a nonprofit that researches trade and immigration, immigrants have started 319 of 582, or 55 percent, of America’s privately-held startups valued at $1 billion or more. Over two-thirds of the 582 companies “were founded or cofounded by immigrants or the children of immigrants,” notes the NFAP. For comparison, approximately 14 percent of America’s population is foreign-born.

Together, the immigrant-founded companies are valued at $1.2 trillion and employ 859 people on average. Elon Musk’s SpaceX has the largest valuation at $125 billion, employing 12,000 workers; Gopuff, a food delivery service valued at $15 billion, has 15,000 employees; Stripe, a payment platform valued at $95 billion, employs 7,000; and Instacart, a grocery delivery service valued at $39 billion, has 3,000 workers.

These findings are notable, the NFAP points out, since “there is generally no reliable way under U.S. immigration law for foreign nationals to start a business and remain in the country after founding a company.” A large share of the immigrant startup founders came to the country as refugees, on family-sponsored green cards, or through employment-based pathways for other companies.

“Our employment-based pathways for immigrant entrepreneurship are so poorly designed, migrant businesses are often associated with non–employment based pathways,” points out Sam Peak, an immigration policy analyst at Americans for Prosperity. Peak notes that refugees “have the highest rates of entrepreneurship of any other immigrant group,” and family-based migration, “especially among siblings, is also strongly tied to new business formation.”

Lawmakers have introduced a number of measures this year meant to bring more entrepreneurial and highly educated immigrants to the United States, but many of these have been included in—and eventually stripped from—larger bills.”

Industrial Policy Stifles Progress When Congress picks winners, we all lose.

“To armchair economists, industrial policy seems like a solution for the country’s economic woes: “Infuse money into Industry A, add trade protections for Industry B, protect workers in Industry C from automation, and the economy will soar! New technology will arrive sooner, domestic firms will outcompete foreigners, and steady employment will ensure a chicken in every pot.” That indeed was the thinking behind Depression-era policies which extended that crisis by seven years.
Economies are not deterministic like physics or chemistry. You can’t pull a lever to achieve a particular effect. A better analog is biological or ecological systems, where there are second- and third-order effects to any given stimulus.

Think about the reintroduction of wolves to Yellowstone National Park: Increased predatory pressure keeps elk herds on the move, leaving more young willow trees for beavers. Growing beaver populations dam more waterways, altering the habitat and spurring additional difficult-to-predict effects. That’s economic policy: You must plan for unexpected downstream effects (pun intended).

That thinking has been missing in Congress this past month. I don’t know what microchip subsidies or a mistitled inflation-fighting bill will ultimately do, but neither do our elected officials.

Compounding the problem is that people, not some agnostic supercomputer, determine which industries and companies are considered worthy of a boost. Humans are subject to influence and pressure, turning industrial policy into a contest of who can secure the most government favoritism—a political game of Hungry Hungry Hippos.

Policies protecting companies from competitive pressure, like subsidies or tariffs, allow them to take their eye off the ball. This “X-inefficiency” means they’re less efficient and pay less attention to customers’ desires.”

The Democrats’ New Inflation Bill Includes Tax Credits for Electric Vehicles That Don’t Exist

“The bill also puts restrictions on which EVs can qualify. Starting in 2024, an EV that qualifies for the full rebate amount must source at least 40 percent of its battery’s components—including minerals such as lithium, cobalt, manganese, and graphite—from either the U.S. or a country with which the U.S. has a trade agreement. Also starting in 2024, no minerals can be sourced from a “foreign entity of concern,” such as China.
The stipulation was part of a compromise with Sen. Joe Manchin (D–W.Va.), whose support was critical to the bill’s passage. Manchin insisted that the bill take a hard line on China, telling reporters: “I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it.”

But 60–80 percent of EV batteries’ mineral ingredients are controlled by China. That country currently produces 76 percent of the world’s lithium-ion batteries, while the U.S. produces only 8 percent. Despite ambitious plans to scale up, the U.S. and Europe together will likely account for only about a quarter of total global production of EV component minerals by 2030.”

“Politico suggests that the government can simply get around these strictures by issuing waivers, much as it has done for steel tariffs. In practice, steel waivers incentivized cronyism, with Washington bureaucrats picking and choosing which companies received waivers and which did not. And if a law has problems, surely the best place to deal with that is in the text of the legislation itself, not an unstated hope that the administrative state will fix the issues when they arise.”

‘Could have gone either way’: Railroad union deal barely survived

“Steering clear of disaster required some 20 straight hours of talks beginning Wednesday that taxed Labor Department coffee supplies, kept West Wing office lights burning through the early hours and left everyone involved bleary-eyed and largely sleepless.”

The Fed is declaring war on inflation. It could lead straight to recession.

“many Fed watchers say some of the root causes of inflation lie outside the central bank’s control, like the U.S. labor shortage, global supply chain snags and Russia’s war on Ukraine. They’re raising concern that higher rates could crimp growth without leading to much relief on prices — a point that Sen. Elizabeth Warren (D-Mass.) has hammered away at Powell for months.”

“Markets are expecting rates to rise nearly 2 more percentage points by the end of the year. That would bring them to a level that is more normal by historical standards — the Fed’s main borrowing rate would sit above 4 percent — but is staggeringly high compared to the near-zero rates that have mostly prevailed for more than a decade.”

Congress Just Passed the Inflation Reduction Act. It Will Hike Taxes on Some Middle-class Households.

“Despite the bill’s name, independent analysts have found it will have virtually no impact on inflation. In reality, it is a pared-down version of what Biden originally pitched as the “Build Back Better” plan—it leaves aside much of the original bill’s spending, but it maintains a huge corporate tax increase, huge spending on green energy initiatives, and a plan to swell the ranks of IRS agents. What was originally a roughly $4 trillion proposal that would have relied heavily on borrowing ended up being something of a rarity in Washington: a bill that will raise more revenue than it spends.

And where will it get that revenue? Quite possibly from you. Households earning as little as $50,000 annually are more likely to see a tax increase than a tax break from the legislation.

In the final hours before the House vote, the Joint Committee on Taxation (JCT) completed a breakdown of how the bill’s corporate tax increases would affect households at various income levels. The JTC, a nonpartisan number-crunching agency within Congress, found that households earning between $50,000 and $75,000 are more likely to see a tax increase than a tax decrease next year.

Higher-earning households are more likely to see tax increases, but households earning more than $1 million next year are actually far more likely than lower-earning households to get a tax break.

That fits with what The Tax Foundation, a tax policy think tank, found when it analyzed the bill. The Inflation Reduction Act will “would also reduce average after-tax incomes for taxpayers across every income quintile over the long run,” the Tax Foundation reported on Wednesday. Those tax increases will reduce long-term economic output by about 0.2 percent and could eliminate 29,000 jobs, the group found.”

” Tax increases on corporations get passed along from the board room table to the kitchen table in a variety of ways: lower pay for workers, higher prices for consumers, and smaller investment returns for shareholders.”

Rising rent prices are keeping inflation high

“Housing keeps getting more expensive — and even though new data shows that overall price increases are slowing down, surging rent prices underscore how difficult it could be to bring inflation under control.

Prices were 8.3 percent higher in August compared to a year before, according to the Consumer Price Index report released on Tuesday. That’s slower than it was the month before, when inflation climbed 8.5 percent, but it’s still uncomfortably high for consumers and policymakers. Prices picked up 0.1 percent from July to August.

One of the biggest drivers of inflation has been higher rent prices. According to data from Zillow, the typical US monthly rent was $2,090 in August, up 12.3 percent from a year before. That is much higher than it was before the pandemic — in February 2020, the nation’s average rent was $1,660.

According to the CPI report, shelter prices — which include rent, lodging away from home, and household insurance — rose 0.7 percent in August from the month before, the biggest monthly jump since 1991. The rent index by itself also increased 0.7 percent from July, and was up 6.7 percent from a year ago.”

“Sarah House, a senior economist at Wells Fargo, said that rent prices could be decelerating as supply improves and landlords start to “get a little bit more realistic” about how much they can charge before they see more pushback from renters. But she said that rent prices in the CPI measure tend to move slowly, so it could take time for the government data to reflect the price deceleration that private-sector data may already be picking up.

That’s largely because the government data also takes into account existing rentals, while many private data sources only examine prices for new leases to capture current market conditions. Since rents typically change when leases expire, which tends to happen annually, this can lead to a lag in government data.

“I think we’re close to beginning to see a slowdown in the monthly rate of the price gain,” House said. “But it’s still likely to remain pretty strong in a historical sense for some time.”

Omair Sharif, the founder and president of research firm Inflation Insights, also said rent price gains could slow in the coming months as the CPI measure eventually catches up to private-sector data.

“Around the end of this year into the first quarter of next year, we should probably start to see the CPI data start to mimic more closely what we’re seeing in terms of that deceleration,” Sharif said.

A deceleration in rental price growth could help bring down overall inflation closer to the Fed’s goal of 2 percent annual inflation. Although prices for rent, food, and medical care climbed in August, prices for gasoline, used cars, and airline fares dropped.

Still, mortgage rates have skyrocketed to their highest levels since 2008 and home prices remain much higher than they were before the pandemic. That has made it harder for people to afford monthly payments, leading to some potential homebuyers being priced out of the market. If people continue renting rather than buying, that could drive up demand for rentals and keep prices high.”

What a rail strike could mean for you (and the economy)

“Tens of thousands of freight rail workers are prepared to go on strike on Friday at 12:01 am, which could have wide-ranging effects across the economy. It’s already causing some disruptions for rail passengers, freight companies, and others.

The cause is a dispute between the freight industry and the workers who make it run.

Most of the 12 unions representing the workers have already agreed to a proposal put together by a presidential emergency board established by the White House over the summer to try to help resolve the dispute. The proposal includes a 24 percent increase in wages for workers by 2024, but many workers have complained that it fails to address leave, on-call scheduling, and poor working conditions.

The holdout unions’ position is that pay increases aren’t enough to make up for some real downsides — and dangerous aspects — of the job.

The two most powerful unions involved in the negotiations, which represent engineers and conductors, are continuing to resist the proposal, putting both sides in a deadlock. If workers do go on the strike they appear to be hurtling toward, it would be the first such strike in 30 years.”

“If a freight strike were to occur — and especially if it’s long-lasting — it could have disastrous effects across an already fragile economy still reeling from supply chain disruptions and inflation.

“Rail moves a lot of the foundational, basic goods that we don’t think about day-to-day,” said Rachel Premack, editorial director at FreightWaves, which covers supply chains. “They’ll move sand and gravel that would then be crushed into concrete for roads or for laying home foundations. Railroads move the chemicals used to purify water or to compromise fertilizer for crops, soybeans that could become food for humans or [animals] that are then food for humans. It’s a lot of early-chain-type goods.”

Many passenger trains also run on freight rails, and their service could be suspended. Amtrak has already warned of potential disruptions and canceled cross-country trains in anticipation of a strike, though so far its Northeast service will not be affected.”

“Replacing freight with other forms of transportation is not easy if workers do walk out. Mike Steenhoek, executive director of the Soy Transportation Coalition, told Vox in an interview that one train has the freight capacity of 400 semi-trucks. “I don’t know of a shipper who just has 400 semis sitting in a garage ready to be accessed,” he said. He noted that for agriculture, the timing couldn’t be worse because of harvest season, adding more urgency for a deal.”

“Under the Railway Labor Act, Congress has the ability to block or end a rail strike. Since 1963, it has passed legislation more than 10 times to intervene in rail disputes.

So far, though, Democratic leaders have been reluctant to commit to doing so, while Republicans have been eager to pressure workers into agreeing to the terms set by the presidential emergency board.

If Congress were to intervene, there are a few routes lawmakers could take. They could require the unions and carriers to accept the presidential emergency board’s conditions, which included a pay increase but no acknowledgment of other demands like sick leave. They could extend the existing cooling-off period so both sides have more time to negotiate. Or they could turn the talks over to independent arbitrators who would be tasked with finding a resolution.

For now, congressional Democrats are waiting to see what might come out of the talks the Labor Department is leading between unions and railroad carriers on Wednesday before they lay out a policy response.”

The CHIPS Act won’t solve the chip shortage

“On its face, the idea of increasing semiconductor manufacturing in the US seems like it would help address the global supply crunch for computer chips, which has made it harder to buy everything from cars and laptops to sex toys and medical devices during the pandemic. Senate Majority Leader Chuck Schumer (D-NY) has even suggested that the funding package could help fight inflation, presumably by making these goods cheaper.

But while it’s certainly fair to call the legislation a victory for bipartisanship, this plan is primarily focused on keeping up with China’s growing investment in its own domestic chip industry — not solving the present issues with the tech supply chain. The chip factories produced by this package won’t be complete for years, and the bulk of the funding won’t necessarily go toward basic chips, also known as legacy chips, which account for much of the ongoing shortage. And that shortage may be nearing its end anyway.”