Day: February 14, 2023

U.S. inflation likely slowed again last month in the latest sign that consumer price increases are becoming less of a burden on America’s households. But Tuesday’s report from the government may also suggest that further progress in taming inflation could be slow and “bumpy,” as Federal Reserve Chair Jerome Powell has described it.

Consumer prices are expected to have risen 6.2% in January from 12 months earlier, down from a 6.5% year-over-year surge in December. It would amount to the seventh straight slowdown.

On a monthly basis, though, inflation is expected to have jumped 0.5% from December to January, according to a survey of economists by the data provider FactSet. That would be much faster than the 0.1% uptick from November to December.

So-called core prices, which exclude volatile food and energy costs to provide a clearer view of underlying inflation, are also expected to have slowed on a 12-month basis. They are forecast to have increased 5.5% in January from a year earlier, down from a 5.7% year-over-year rise in December.

But for January alone, economists estimate that core prices jumped 0.4% for a second straight month — roughly equivalent to a 5% annual pace, far above the Fed’s target of 2%.

“The process of getting inflation down has begun,” Powell said in remarks last week. But “this process is likely to take quite a bit of time. It’s not going to be, we don’t think, smooth, it’s probably going to be bumpy.”

Average gasoline prices, which had declined in five of the past six months through December, likely rose about 3.5% in January, according to an estimate from Nationwide. Food prices are also expected to have risen, though more slowly than the huge spikes of last summer and fall.

On a brighter note, clothing and airfare costs are thought to have barely budged from December to January. And economists have estimated that hotel room prices fell sharply.

Overall, the government’s inflation report will likely show the continuation of a pattern that has emerged in recent months: The costs of goods — ranging from furniture and clothing to toys and sporting goods — are falling. But the prices of services — restaurant meals, entertainment events, dental care and the like — are rising faster than they did before the pandemic struck and threaten to keep inflation elevated.

Goods have become less expensive because supply chain snarls that had inflated prices after the pandemic erupted in 2020 have unraveled. And Americans are shifting much of their spending toward services, after having splurged on items like furniture and exercise equipment during the pandemic.

Yet average wages are rising at a brisk pace of about 5% from a year ago. Those pay gains, spread across the economy, are likely inflating prices in labor-intensive services. Powell has often pointed to robust wage increases as a factor that’s driving up services prices and keeping inflation high even as other categories, like rent, are likely to decelerate in price.

The Biden White House last week calculated a measure of wages in service industries excluding housing — the sector of the economy that Powell and the Fed are most closely tracking. The administration’s Council of Economic Advisers concluded that wages in those industries for workers, excluding managers, soared 8% last January from a year earlier but have since slowed to about a 5% annual pace.

That suggests that services inflation could soon slow, especially if the trend continued. Still, wage gains of that level are still too high for the Fed’s liking. The central bank’s officials would prefer to see wage growth of about 3.5%, which they see as consistent with their 2% inflation target.

A key question for the economy this year is whether unemployment would have to rise significantly to achieve that slowdown in wage growth. Powell and other Fed officials have said that curbing high inflation would require some “pain” for workers. Higher unemployment typically reduces pressure on businesses to pay bigger wages and salaries.

Yet for now, the job market remains historically very strong. Earlier this month, the government reported that employers added 517,000 jobs in January — nearly twice December’s gain. The unemployment rate dropped to 3.4%, the lowest level since 1969. Job openings remain high.

Powell said last week that the jobs data was “certainly stronger than anyone I know expected,” and suggested that if such healthy readings were to continue, more rate hikes than are now expected could be necessary.

Other Fed officials, speaking last week, stressed their belief that more interest rate increases are on the way. The Fed foresees two more quarter-point rate hikes, at its March and May meetings. Those increases would raise its benchmark rate to a range of 5% to 5.25%, the highest level in 15 years.

The Fed lifted its key rate by a quarter-point when it last met on Feb. 1, after carrying out a half-point hike in December and four three-quarter-point increases before that.

The financial markets envision two more rate increases this year and don’t expect the Fed to reverse course and cut rates until sometime in 2024. For now, those expectations have ended a standoff between the Fed and Wall Street investors, who had previously been betting that the Fed would be forced to cut rates in 2023 as inflation fell faster than expected and the economy weakened.

Source: Voice of America

The average price for a new vehicle in the United States soared above $49,000 in December, a record high.

With Americans increasingly price conscious at a time of high inflation and elevated interest rates, customer choice is a prominent theme at the 2023 Chicago Auto Show, the largest and longest-running auto show in North America.

A launchpad for manufacturers to showcase their latest offerings, previous auto shows have highlighted battery powered electric vehicles — commonly known as EVs and BEVs — that herald a carbon-free future for ground transportation.

While many EVs are also on display this year, manufacturers want customers to know they still have other options.

“We believe it shouldn’t be just one formula,” said Toyota regional manager Curt McAllister, noting that the company’s current product lineup, a mix of electric and gas-powered automobiles, reflects customer feedback. “Our customers are telling us they want choices. They just don’t want us to try to pigeonhole them into one subset.”

Which is why Toyota is profiling a fifth-generation Prius, a best-selling hybrid that uses both a battery and a gasoline-powered engine.

“We now have 21 hybrids across Toyota and Lexus,” said McAllister. “So it’s a big part of our carbon neutrality message.”

McAllister said Toyota isn’t ignoring the rapidly growing but more expensive battery powered electric vehicle market. “We know that BEVs are part of the future, but we want to make sure that we have something that not only makes sense but makes sense for their pocketbook.”

Though overall car sales down, EV sales up

Higher interest rates for car loans in 2022 slowed new vehicle purchases, marking the first drop in sales in a decade, even as carmakers worked to overcome supply chain problems such as shortages of microchips.

Even so, the number of EVs sold increased by about 65% from a year earlier, according to research firm Motor Intelligence. EVs made up nearly 6% of all new vehicles sold in the U.S. last year.

Despite recent price cuts for some electric vehicles that make them more competitive with gasoline-powered cars, many Americans remain reluctant to purchase battery powered electric vehicles.

One primary obstacle is what’s known as “range anxiety” — the concern about how far a vehicle can travel before having to recharge in a nation where gas stations still outnumber charging stations.

“Our customer base, some of them are not ready for EVs,” explained Chad Lyons, who is representing General Motors Chevrolet brand at the Chicago Auto Show. “So, actually our plan for the next five years is to offer EVs for those that are ready … but at the same time offer gas-powered vehicles for those that are not ready.”

Lyons said demand for gas-powered sedans has plummeted. As a result, his company’s lineup is focused on sport utility vehicles — commonly known as SUVs — including the redesigned gasoline-powered Trax compact SUV launching later this year, and priced similarly to Chevrolet’s sedans.

“People want vehicles that are higher up [higher riding] — that’s why you see so many SUVs right now being so popular,” he said.

‘The jelly bean proportion’

That preference is also reflected in Chevrolet’s electric vehicle lineup. Later this year, the brand will roll out two new SUV EVs, the Equinox and Blazer, and the choices don’t end there.

“Pickup trucks are the heart of America, and so we are going to offer the Silverado EV as well,” said Lyons.

“Everyone loves muscle cars,” said Dodge design manager Deyan Ninov, adding that customers want vehicles that look less electric and more classic. “I think if you look at all the electric cars out there right now, they all sort of look the same, they all have the same feeling and character they kind of have the same proportions — the jelly bean proportion.”

Ninov’s team has been working on an electric version of Dodge’s iconic Challenger, hoping to bring the “muscle car experience” to the battery-powered vehicle segment.

While manufacturers continue to emphasize choice, President Joe Biden has outlined a plan to ensure 50% of all vehicles on the road by 2030 are all electric. As a number of states consider mandates for electric vehicle adoption, California is leading the way, requiring all new vehicles sold in the state to be electric or hydrogen powered by 2035.

Source: Voice of America