Evelyn Reynolds

Inflation in Britain rose to its highest level in nearly a decade in October after soaring energy prices hit household bills.The Consumer Price Index rose to 4.2 percent from a year earlier, the highest since November 2011, and up from 3.1 percent in September, the Office for National Statistics said on Wednesday. The price increases were more than twice the central bank’s target of 2 percent, increasing the likelihood that policymakers will go ahead with the interest rate increases they have signaled are coming.The biggest contributor to higher inflation was a surge in energy costs, including wholesale natural gas, which has caused nearly two dozen energy suppliers in Britain to collapse and disrupted manufacturers. The cap on energy bills, which protects about 15 million households, was raised 12 percent sharply in October.Other large contributors were higher prices for gasoline and at hotels and restaurants, the statistics agency said.The Bank of England has said it expects inflation to peak at about 5 percent in the spring. “This period of higher inflation is likely to be temporary,” Andrew Bailey, the central bank’s governor, said this month. But there was “no fixed unit of time” that defines transitory, he said.The central bank said that “it would be necessary over coming months” to raise interest rates if the economic data played out as policymakers anticipate, especially if the end of the government’s furlough program doesn’t result in a large increase in unemployment. In the three months through September, the unemployment rate was 4.3 percent, 0.2 of a percentage point lower than in the three months through July, and early payroll data indicated that only a small number of people lost their jobs in October when the furlough program expired.As the global economy emerged from successive lockdowns over the past year, supply bottlenecks, labor market shortages and other shortages have disrupted supply chains around the world. Policymakers are now warning that the supply problems and the higher prices that result will last longer than they initially expected, adding pressure on central bankers to act more aggressively to stop inflation from getting out of their control.In the United States, the Consumer Price Index jumped to 6.2 percent in October, the fastest annual increase since 1990, and prices rose 4.1 percent in the eurozone last month, the fastest in 13 years. In China, the prices wholesalers pay to producers climbed to the highest in 26 years amid rising commodity prices and power shortages. More

Spending on roads, broadband internet and more will help revitalize U.S. competitiveness against its top economic adversary, the president says.President Biden said the newly signed infrastructure law would help the United States counter China in the battle to dominate the 21st-century economy, as broad swaths of his agenda remained stuck in Congress.Kenny Holston for The New York TimesWASHINGTON — President Biden on Tuesday began selling his $1 trillion infrastructure law, making the case that the money would do more than rebuild roads, bridges and railways. The law, he said, would help the United States regain its competitive edge against China.“We’re about to turn things around in a big way,” Mr. Biden said in remarks at a bridge over the Pemigewasset River, in snowy New Hampshire. “For example, because of this law, next year will be the first year in 20 years that American infrastructure investment will grow faster than China’s.”The president has cast the legislation as a giant leap for the United States in its battle with China to dominate the 21st-century economy, even though it does not include the full scope of his campaign promises to pour money into research and development and provide incentives for domestic manufacturing and other initiatives.“It’s an important step, although it’s not a huge one, if one thinks about the progress China has made in building up its physical and soft infrastructure,” said Eswar S. Prasad, an economist at Cornell University who specializes in trade policy. The infrastructure law “is a good defensive measure,” he added. “But will it fundamentally alter the dynamics? Not by itself.”Even as his administration begins spending the money in the law to upgrade bridges, broadband internet, water pipes and more, broad swaths of Mr. Biden’s agenda to compete economically with the Chinese remain stuck in Congress. A bill to significantly increase federal research and development spending on advanced batteries, semiconductors and other high-tech industries — which the president was forced to drop from his initial infrastructure proposal — has cleared the Senate but not the House, though administration officials expect it to eventually pass.Mr. Biden’s additional plans to stimulate more low-emissions energy production, including hundreds of billions of dollars in tax incentives, hinge on passage of a $1.85 trillion spending bill that Democrats have yet to find consensus on. That bill also contains spending on early childhood education, child care and other support for the work force that economists say will help the United States bolster the skills and productivity of its workers.If the president can shepherd those two bills through Congress, analysts say, he could have a foundation for a U.S. industrial policy that rivals Chinese investments in manufacturing and advanced technology. If he cannot, he will still have better transportation, energy and information sectors domestically, but his efforts to counter China will be incomplete.Chinese commentators have taken notice. An editorial this month in Global Times, a popular tabloid controlled by the country’s Communist Party, called the infrastructure bill a “feeble imitation of China” and said it was “tantamount to a fairy tale” that the measure alone would revitalize U.S. competitiveness.Mr. Biden has leaned into the issue as he sells Americans on the benefits of the law. Hours before he met virtually with President Xi Jinping of China on Monday, during a signing ceremony with hundreds of attendees at the White House, Mr. Biden put the countries’ economic rivalry front and center.“I truly believe that 50 years from now,” he said, “historians are going to look back at this moment and say, ‘That’s the moment America began to win the competition of the 21st century.’”Brian Deese, the director of Mr. Biden’s National Economic Council, said in an interview that the law would increase competitiveness and productivity through a variety of spending programs.“This bill is going to be a game-changer in getting Americans to work,” Mr. Deese said.He added that it would allow people to gain access to economic opportunities through better public transportation, roads and bridges, and provide high-speed internet, which he called “the lifeblood of the 21st-century economy.”China’s large investments in its own infrastructure, and its threat to U.S. dominance in new and longstanding global industries, loomed large over the congressional negotiations that produced the law. Democratic and Republican lawmakers are more attuned than ever to Chinese spending, thanks to Mr. Biden and President Donald J. Trump, who both put competition with China at the center of their presidential campaigns last year.Understand U.S.-China RelationsCard 1 of 6A tense era in U.S.-China ties. More

Retail sales rose 1.7% in October, both for all items and excluding autos.
Price pressures fueled the spending increase, led by online shopping and gasoline.
Inflation has been rising at the fastest pace in 30 years, but consumers don’t appear to be curtailing their purchases

Shoppers search for clothing at Uniqlo Retail Clothing Company November 12, 2021 in New York City.
Robert Nickelsberg | Getty Images

U.S. shoppers accelerated their level of spending in October even as the prices of goods jumped at their fastest pace since the 1990s, the Commerce Department reported Tuesday.
Retail sales, a measure of how much consumers spent on goods ranging across categories from autos to sporting goods and food and gas, increased 1.7% for October, compared with 0.8% the previous month.

Excluding autos, sales also increased 1.7%, according to the Census Bureau advance estimate.
The two numbers were above the Dow Jones estimates of 1.5% for the headline print and 1% for the core sales gain.
Online shopping posted the biggest relative gain for the month, rising 4% and good for a 10.2% gain from a year ago. Soaring prices at the pump pushed gasoline sales up 3.9% in October. Year over year, sales increases at stations have surged 46.8%.
The news comes after the consumer price index, measuring a similar basket of goods, increased 0.9% for October and 6.2% year over year. That year-over-year gain was the strongest since 1991. Even excluding food and energy, the CPI was up 0.6% from the previous month and 4.6% year over year.
However, the retail sales numbers — which are adjusted for seasonal variations but not for inflation — indicate consumers are willing to pay the higher prices, despite a recent indication that sentiment is at its lowest level in 10 years.

“So much for soft consumer confidence signaling slower growth; what people do is much more important than what they say,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
U.S. households have been flush with cash, thanks to a series of payments Congress approved to combat the Covid pandemic crisis. The spending has totaled more than $5 trillion and included transfer payments in the form of direct checks to millions of Americans, as well as enhanced unemployment benefits, most of which expired in September.
Savings totaled $1.6 trillion in the third quarter, well off the pandemic peak but still at a high level. However, worries over inflation have been creeping up in sentiment surveys.
Spending has remained brisk, however, with debt and credit card outlays up 27% on a two-year basis, according to Bank of America.
Overall, sales are up 16.3% on a year-over-year basis.
Electronics and appliances also rose substantially, up 3.8% for the month, while miscellaneous retailers and building material centers each rose 2.8% and motor vehicles and parts dealers saw a 1.8% increase.
However, sales at restaurants and bars were flat for the month despite rising 29.3% year over year, and clothing stores fell 0.7% but were still up 25.8% from the same point in 2020.
A separate report Tuesday from the Labor Department showed that import prices rose 1.2% in October, ahead of the 1% Dow Jones estimate and the fastest increase since May. That was well ahead of the 0.4% increase in September.
Also, industrial production rose 1.6% in October, ahead of the 1% estimate and a rebound from the 1.3% decline in September. And capacity utilization rose to 76.4%, its highest level since December 2019.
Correction: Excluding autos, sales also increased 1.7%, according to the Census Bureau advance estimate. An earlier version misstated the percentage.

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Homebuilder sentiment rose to 83 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
Current sales conditions rose 3 points to 89. Buyer traffic also increased 3 points to 68. Sales expectations in the next six months were unchanged at 84.
Not only are builders still experiencing supply chain disruptions and a massive labor shortage, they also can’t find enough land on which to build.  

Carpenters work on building new townhomes that are still under construction while building material supplies are in high demand in Tampa, Florida, May 5, 2021.
Octavio Jones | Reuters

Higher prices and longer wait times do not appear to be turning buyers away from the nation’s homebuilders. With demand still surging, homebuilder confidence in the market for single-family homes rose more than expected in November, to the highest level since last May. 
Confidence rose 3 points to 83 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Anything above 50 is considered positive. Analyst expectations had been for it to remain unchanged at 80. Sentiment stood at 90 in November 2020.

“The solid market for home building continued in November despite ongoing supply-side challenges,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida. “Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.”
Of the index’s three components, current sales conditions rose 3 points to 89. Buyer traffic also increased 3 points to 68. Sales expectations in the next six months were unchanged at 84. 
While buyers are plentiful, most of the components that go into building a home are not. That has led some builders, like the nation’s largest, DR Horton, to slow sales in order to make sure they can deliver on time.
Company Chairman, Donald Horton, noted in the company’s most recent quarterly earnings release, “We continued intentionally restricting our home sales pace by selling homes later in the construction cycle to align with our production levels and better ensure the certainty of home close dates for our homebuyers.” 
Not only are builders still experiencing supply chain disruptions and a massive labor shortage, they also can’t find enough land on which to build.  

“Lot availability is at multi-decade lows and the construction industry currently has more than 330,000 open positions,” said NAHB Chief Economist Robert Dietz, who called on policymakers to focus on resolving these issues.
Regionally, on a 3-month moving average for HMI scores, sentiment in both the Midwest and South rose 4 points to 72 and 84 respectively. In the West it rose one point to 84 and in the Northeast fell two points to 70.

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Rents for single-family homes rose 10.2% nationally in September year over year, up from a 2.6% increase in September of last year.
Miami saw the highest rent increase in the nation.
The priciest rental homes are seeing the strongest rent increases.

Kent Weakley | Getty Images

Rents for single-family homes increased 10.2% nationally in September year over year, up from a 2.6% rise in September of last year, according to a new report from CoreLogic.
Improved job growth and sky-high prices in the for-sale housing market added to already strong demand for single-family rentals fueled by the coronavirus pandemic.

While 93% of consumers said they believe owning a home is a good investment, according to a separate CoreLogic report, competition in the buying market is forcing more potential buyers to remain renters.
The single-family market is particularly hot right now, as people want more space and as the huge millennial generation ages into marriage and parenthood.
“Single-family rental vacancy rates remained near 25-year lows in the third quarter of 2021, pushing annual rent growth to double digits in September,” said Molly Boesel, principal economist at CoreLogic. “Rent growth should continue to be robust in the near term, especially as the labor market improves and the demand for larger homes continues.”
Rent growth is strong in every price tier, but strongest at the very top:

Lower-priced (75% or less than the regional median): 8.3%, up from 2.4% in September 2020
Lower-middle priced (75% to 100% of the regional median): 9.3%, up from 2.3% in September 2020
Higher-middle priced (100% to 125% of the regional median): 10.5%, up from 2.4% in September 2020
Higher-priced (125% or more than the regional median): 11%, up from 2.8% in September 2020

Some markets are hotter than others.  Rent growth was strongest in Miami, with a stunning 25.7% year-over-year gain. Miami also has one of the highest median rents in the country.

Miami was followed by Phoenix and Las Vegas at 19.8% and 15.9%, respectively. Those three markets are seeing more growth as tourism finally begins to return following pandemic restrictions. Austin, Texas, and San Diego rounded out the top five markets for rent growth.
On the bottom, Chicago, Boston, Philadelphia, Washington D.C., and the New York City metropolitan area are seeing the lowest rent growth of under 5% from a year ago.

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Republicans on the Joint Economic Committee on Monday warned that inflation is having an outsized effect on low-income Americans.
Sen. Mike Lee, Republican of Utah and ranking member of the committee, blamed Democrats for the widespread jump in prices.
The GOP report represents the latest attempt by the party to highlight rising prices less than one year before the 2022 midterm elections.
Democrats argue that pent-up demand and overwhelmed supply chains after the worst of the Covid-19 pandemic are to blame.

A person shops in the meat section of a grocery store on November 11, 2021 in Los Angeles, California.
Mario Tama | Getty Images

Republicans on the Joint Economic Committee on Monday warned that inflation is having an outsized effect on Americans in the lowest income brackets given acceleration in the price of housing, gasoline and food.
The GOP cited two studies from the Federal Reserve that find that inflation reduces poorer Americans’ lifetime consumption more than it does wealthier Americans, and that gas prices are the main reason inflation has historically had greater impact on low-income Americans.

The report from the committee’s Republicans represents the latest attempt by the party to highlight the risks of rising prices less than one year before the key 2022 midterm elections. With 34 seats in the Senate and all 435 seats in the House contested, the GOP hopes it can retake at least one chamber as a check to Democrats’ current monopoly over Congress and the White House.
Sen. Mike Lee, Republican of Utah and ranking member of the committee, blamed Democrats for the widespread jump in prices and a decline in Americans’ real wages.
“Democrats’ reckless spending has driven inflation to a three decade high, and it’s making life harder for poor and middle class Americans,” he said in a statement. “Inflation is eating into the livelihoods of American families. It’s causing them to fall further behind. The reckless spending must stop.”
The Joint Economic Committee, chaired by Rep. Don Beyer, D-Va., is composed of both Senate and House members who advise the broader Congress on how to improve economic policy.
Senior Economist Jackie Benson, who works for the committee’s Republicans and conducted the analysis, wrote that that current prices increases have an outsized impact on low-income Americans because those with more modest incomes tend to spend a greater proportion of their earnings on groceries and fuel.

Those two categories saw some of steepest accelerations in the Labor Department’s October consumer inflation report.
The Bureau of Labor Statistics reported last week that its consumer price index increased in October by 6.2% from a year ago, the fastest 12-month pace since 1990. The same report showed grocery prices rose 1% last month, while gasoline prices rose 50% from the same month one year ago.
While inflation has returned under Democratic control of Congress and the White House, its cause and remedy are up for debate.

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Democrats argue that pent-up demand and overwhelmed supply chains after the worst of the Covid-19 pandemic are to blame and that inflation – to an extent – was inevitable. After a year of reduced spending, wide swaths of the economy closed and ruined travel plans, Democrats say it’s no surprise to see prices rise as Americans demand a return to normal en masse.
“When we shut down the economy in 3/2020, it was inevitable that we’d have some inflation as things restarted,” Jesse Rothstein, a professor at the University of California, Berkeley and a former Labor Department chief economist during the Obama administration, wrote on Wednesday.
“Overall, the cycle has been milder than we had any right to expect — no mass starvation, no depression,” he added on Twitter. “What is the story in which it could have gone better than this?”
Progressives add that the combination of a $1 trillion infrastructure package and a $1.75 trillion bill to tackle climate change and improved access to child care will keep price increases in check and encourage more Americans to return to the labor force.
The White House Supply Chain Disruptions Task Force, President Joe Biden’s team working to ease logistics problems across the U.S., said on Nov. 3 that the current shipping headaches underscore the importance of the legislation.
“For too long, our country has underinvested in the roads, railways, ports and projects that propel goods movement,” the White House team wrote. “With the Infrastructure Investment and Jobs Act, we can make the fundamental changes that are long overdue for our ports, rail and roads. This is how we build back better, with government bringing workers and businesses together to leverage American ingenuity to tackle the challenges brought on by a global pandemic.”
Still, Republicans feel that playing up inflation is a winning strategy for 2022 and plan to underscore the harmful effects of rising prices over the next year. The party already credits that strategy for Republican Glenn Youngkin’s victory over Democratic former Governor Terry McAuliffe in Virginia’s gubernatorial election earlier this month.
“We must continue to focus on the failures of the Biden economy,” Rep. Jim Banks, Republican of Indiana and chair of the Republican Study Committee, wrote in a memo following the Virginia election results. “Our early focus on runaway inflation and the growing supply chain crisis is hitting home with voters. We need to keep hammering away and work on bringing solutions to the table to address their concerns.”

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Fueling Change

“I’ve argued that it is really important to reestablish a credible voice on inflation and this has massive institutional, political and social implications,” El-Erian said on Monday.
He was speaking to CNBC’s Dan Murphy at the ADIPEC energy industry forum in Abi Dhabi, the United Arab Emirates.
Fed Chair Jerome Powell has previously said he expects inflation conditions to persist “well into next year” and conceded it is “frustrating” that supply chain issues are showing no sign of improvement.

Mohamed El-Erian
Scott Mlyn | CNBC

The Federal Reserve is losing credibility over its long-standing view that inflation is transitory, according to Allianz Chief Economic Advisor Mohamed El-Erian.
“I think the Fed is losing credibility,” El-Erian said on Monday. “I’ve argued that it is really important to reestablish a credible voice on inflation and this has massive institutional, political and social implications.”

He was speaking to CNBC’s Dan Murphy at the ADIPEC energy industry forum in Abi Dhabi, the United Arab Emirates.
El-Erian argued that the Fed’s inflation stance weakened the central bank’s forward guidance and undermined President Joe Biden’s economic agenda. He said that people shouldn’t forget that those on low incomes are hardest hit by rising consumer prices.
“So, it is a big issue and I hope that the Fed will catch up with developments on the ground,” he added.
A spokesperson for the Federal Reserve was not immediately available to comment when contacted by CNBC.
Fed Chair Jerome Powell has previously said he expects inflation conditions to persist “well into next year” and conceded it is “frustrating” that supply chain issues are showing no signs of improvement. The Fed has largely stuck to its messaging, however, that rising inflation is largely tied to the coronavirus pandemic and these supply chain problems will pass.

The consumer price index, which covers products ranging from gasoline and health care to groceries and rents, rose 0.9% on a monthly basis in October, the Labor Department reported on Nov. 10, significantly higher than expectations. The reading climbed to 6.2% year-over-year, hitting its highest point since December 1990.

‘It is not transitory’

“We are in this transition of central banks mischaracterizing inflation. The repeated narrative: ‘It is transitory, it is transitory, it is transitory.’ It is not transitory,” El-Erian said, warning the Fed risked making a major policy mistake.
“We have ample evidence that there are behavioral changes going on,” El-Erian said. “Companies are charging higher prices [and] there’s more to come. Supply disruptions are lasting for a lot longer than anybody anticipated. Consumers are advancing purchases in order to avoid problems down the road — that of course puts pressure on inflation. And then wage behaviors are changing.”
“So, if you look at the underlying behavioral element that leads to inflation, you come up with the conclusion that this will last for a while. And that’s even before you talk about the renewed Covid disruptions,” he added.

El-Erian cited the reintroduction of public health restrictions and the closure of ports in big manufacturing nations, such as China and Vietnam, as examples of renewed supply chain disruptions.
When asked what the most appropriate response from the Fed would be, El-Erian said: “To accelerate, in December, the pace of tapering.”
The Fed said on Nov. 3 that it would start tapering the pace of its monthly bond purchases “later this month.” The process will see reductions of $15 billion each month — $10 billion in Treasurys and $5 billion in mortgage-backed securities — from the current $120 billion a month that the Fed is buying.
“And secondly, start doing what the Bank of England is doing … which is start preparing people for higher interest rates,” El-Erian said, citing similar steps taken by central banks from Australia, New Zealand and Norway, among many others.
— CNBC’s Jeff Cox contributed to this report. More

Julian Howard is the lead investment director of multi-asset solutions at GAM, which has 103 billion Swiss francs ($112 billion) in assets under management.
He cited research by economic historian Paul Schmelzing, who was a visiting scholar at the Bank of England when the paper was published in 2020.

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S., on Tuesday, Aug. 18, 2020.
Erin Scott | Bloomberg via Getty Images

Interest rates could remain at their record lows “forever,” according to one asset manager, despite a recent rush to normalize policy by many of the world’s central banks.
GAM Investments’ Julian Howard told CNBC’s “Squawk Box Europe” last week that he believed it was “entirely consistent historically to talk about low rates forever.”

Howard is the lead investment director of multi-asset solutions at GAM, which has 103 billion Swiss francs ($112 billion) in assets under management.
He cited research by economic historian Paul Schmelzing, who was a visiting scholar at the Bank of England when the paper was published in 2020.
The research looked at interest rates globally dating back to the 14th century, identifying a downward trend, with Schmelzing predicting that “real rates could soon enter permanently negative territory.”
Howard said the lower rates that we had seen in recent years were, therefore, “actually a return to a very, very long-term trend of yields falling over an extended period of time.”

He pointed to the economic damage caused by the coronavirus pandemic and climate change, which is set to have a “very, very negative effect on interest rates,” he added.

“There’s no context in which a central bank will be able to normalize, sort of 1990s style normalize, interest rates when there’s going to be absolutely no growth,” Howard explained.
Howard expected that the Federal Reserve would probably only start raising interest rates in the second half of 2022.

The risks of low interest rates

Rep. Jim Himes, D-Conn., told CNBC Tuesday that low interest rates and the “free money” that we had seen for many years, risked creating asset bubbles.
This is when the price of an investment rises rapidly, but the jump not necessarily reflecting the asset’s underlying value.

Himes added that low rates had also resulted in “remarkably odd financial behavior,” such as the “near-cult” growth of special purpose acquisition companies, or the “dumping of money into meme stocks,” which are companies that have gained surprise popularity on social media and have seen their share prices spike.
Himes suggested that it was the responsibility of the Federal Reserve to manage such risks around low interest rates.
He said: “I fought my entire career to make sure monetary policy does not get influenced by the tender mercies of political people in the Congress but I think … we’re taking a turn there and hopefully that will begin over time to maybe take some of the risk out of what are pretty clearly some asset bubbles out there.”  
The Fed has started to normalize policy after the economic fallout from the coronavirus pandemic. It said earlier in November that bond purchases would start to taper “later this month” and acknowledged that price increases had been more rapid and enduring than central bankers had forecast.
The Fed also voted not to raise interest rates from their anchor near zero, and warned against expecting imminent rate hikes.

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