Economy

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Americans are set to enjoy their least expensive Thanksgiving holiday since the pandemic, as falling transportation prices and lower costs for festive food basics such as turkey and potatoes bring relief after months of rampant economy-wide inflation.A sharp sell-off in crude oil markets has pushed pump prices to their lowest levels since January — leaving petrol as cheap as it has been for this time of year since 2020.Airfares have tumbled too, thanks to a surge in capacity, while food-price inflation, which was running at an annualised 12 per cent October last year, was closer to 2 per cent last month, another sign that months of high interest rates from the Federal Reserve are cooling price rises. “The inflation outlook is definitely improving,” said Jeremy Schwartz, senior US economist at Nomura. “We still think there will be bumps in the road . . . but for now it’s been a smoother path than we were thinking going into the holiday season.”The easing of prices ahead of Thanksgiving will be a relief to Joe Biden, whose presidency has been dogged by high inflation. A recent FT-Michigan Ross poll found that just 14 per cent of voters believed that they were better off financially than when the president took office, and 82 per cent said rising prices were the biggest source of financial stress.  Voters have been giving Biden low marks on his handling of the economy for months, even though the rise in the annual consumer price index has now eased to 3.2 per cent from a peak of 9.1 per cent in June 2022. Inflation still remains above the Federal Reserve’s preferred target of 2 per cent, and core inflation — which strips out more volatile food and energy costs — is at 4 per cent, even further from the US central bank’s goal. Even so, the improvement should be notable for some consumers over the Thanksgiving period. While food prices in general continue to rise, some staples, such as potatoes, saw declining prices. A survey by the American Farm Bureau Federation found the average cost of a Thanksgiving dinner for 10 people will be $61.17, a fall of 4.5 per cent from record levels in 2022. Betty Resnick, an economist at the federation, said that a fall in turkey prices had been “the big driver in lowering costs for the dinner”, pointing to “a much better avian flu situation nationally this year”. The cost for a dozen large eggs has more than halved from $4.82 per dozen in January to $2.07 in October. Whipping cream and cranberry prices have also plunged. And as Americans take to the roads and skies to visit family this week, they will pay much less to travel than in recent months — with a sharp drop-off in fuel prices leading the pullback. Petrol prices averaged $3.21 a gallon in the week to November 13, according to the US Energy Information Agency — down 14 per cent in the past two months alone and well below levels that reached more than $5/gallon last summer. It marks their lowest level for the second week of November since 2020. “Really the story . . . has been an overall downward trend in fuel prices . . . because you had more supply coming online,” said Rob Smith, director of refining and marketing at S&P Global Commodity Insights.“It’s good news for the holiday season, for sure,” he added. “Prices should remain low or continue to drop a bit lower through the end of the year.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.A stumbling Chinese economy has helped to ease global crude demand growth, while record US production has pushed up supply. Brent crude, the international oil marker, settled at $80.55 a barrel on Friday — down almost 20 per cent since late September. Experts have warned that crude could rise again quickly. Oil powerhouse Saudi Arabia is considering further production cuts, while the risk of supply disruptions if the Israel-Hamas conflict spreads through the Middle East has not dissipated. Airline ticket prices have also eased off, as budget carriers lowered fares in the face of shrinking demand and abundant supply of seats and flights. The companies have a greater ability to fine-tune their schedules, charging more on popular travel days and offering fewer flights at other times, to ensure holiday flights remain pricey, experts said. Still, airfares in October were 13.2 per cent lower than a year earlier and are now cheaper than in the year before the coronavirus pandemic. “There have been reports of double-digit fare discounts advertised across airlines, which points to continued declines in airfares,” said Jefferies analyst Sheila Kahyaoglu. Despite the drop-off in travel prices, the inflation that has heaped pressure on cash-strapped households over the past few years persists, forcing shoppers to pull back spending and prioritise essentials.Target has said customers are increasingly delaying spending to the last minute. “This is a clear indication of the pressures they’re facing as they work to stretch their budgets until the next pay cheque,” chief executive Brian Cornell told analysts last week.There are signs relief from price pressures are broadening out. Walmart reported that a fall in prices for chicken and dairy, with declines also beginning to show in “dry” groceries, consumables and general merchandise. “As we look ahead to next year, we could find ourselves in Walmart US with a deflationary environment,” said Walmart chief executive Doug McMillon. Additional reporting by James Politi, Peter Wells, Sam Learner and Oliver Roeder More

BUENOS AIRES (Reuters) -Argentines headed to the polls on Sunday in a delicately poised presidential runoff, with voters seeking a solution to triple-digit inflation and rising poverty, and two clashing visions for the country’s future on offer.The election sees Peronist Economy Minister Sergio Massa, at the helm for the country’s worst economic crisis in two decades, go head-to-head with radical libertarian outsider Javier Milei, the slight pre-election favorite in the polls.Milei is pledging economic shock therapy, from shutting the central bank to ditching the peso and slashing spending, potentially painful reforms, but which have clicked with crowds of voters angry at the economic malaise.With many Argentines unconvinced by either, some have characterized the vote as a choice of the “lesser evil”: fear of Milei’s painful economic medicine or anger at Massa over the economic crisis. Many Argentines say they won’t vote at all.Whoever wins, it will shake up Argentina’s political landscape, its economic roadmap, trade in grains, lithium and hydrocarbons, and its global ties with partners including China, the United States and Brazil.”The election will mark a profound rupture in the system of political representation in Argentina,” said Julio Burdman, director of the consultancy Observatorio Electoral.”I think all the political forces as we have known them are going to be transformed.”The story of the election race has been the shock rise of 53-year-old economist and former TV pundit Milei, driven by the disenchantment of Argentines with the traditional political parties on both the left and right.Milei has a slight edge in opinion polls, but most show a tight and uncertain race. Massa, 51, an experienced political wheeler-dealer, has been clawing back votes with tax cuts and campaigns highlighting Milei’s radical plans to slash state spending.”I’m going to vote for Massa because he’s the only option for us to continue living in a democratic country and where our rights are respected,” said Matias Kawior, 22, a student in Buenos Aires.Milei, who at rallies used to carry a chainsaw in a blunt symbol of his planned cuts, favors privatizing state firms and making changes to health and education. He has in recent weeks shelved the chainsaw as he has sought to moderate his image and capture centrist voters.His core supporters consider that he is the only candidate capable of dethroning the political “caste,” as Milei calls mainstream politicians, and ending years of crisis that has dogged South America’s second-largest economy.”You cannot vote for the current government under these conditions and a blank vote will only favor it. Milei is the only viable option so that we do not end up in misery,” said Santiago Neria, a 34-year-old accountant.In the first-round vote in October, Massa won 36.7% of the votes compared to some 30% for Milei. The libertarian has since won public backing from third-place finisher Patricia Bullrich, though it’s by no means certain all her votes will shift to him.Whoever wins the presidency will have to deal with the empty coffers of the government and central bank, a creaking $44 billion debt program with the International Monetary Fund, inflation nearing 150% and a dizzying array of capital controls.In addition, the new Congress, decided in the October vote, will be highly fragmented, with no single bloc having a majority. The eventual winner will need to get backing from other factions to push through legislation.Voting started at 8 a.m. local time (1100 GMT) and polling stations will close at around 6 p.m., with the first official results expected a few hours later. More

LONDON (Reuters) -British finance minister Jeremy Hunt said on Sunday he would not implement tax cuts that would push up inflation, days before he announces a major budget update that is widely expected to contain reductions in some taxes.Hunt is due to present an Autumn Statement on Wednesday which he hopes will revive the fortunes of both a stagnant British economy and the governing Conservatives ahead of an election expected next year, and the Sunday Times reported he was considering cutting income tax or national insurance.He has been under pressure from some Conservative lawmakers who, alarmed at the opposition Labour Party’s big lead in opinion polls, have demanded he deliver tax cuts.”We do want to bring down the tax burden but we will only do so responsibly,” Hunt told Sky News. “The one thing we won’t do is any kind of tax cut that fuels inflation.”Annual inflation tumbled to 4.6% in October from 6.7% a month earlier, putting Prime Minister Rishi Sunak on track to meet a pledge of halving inflation over 2023.”I do think the British economy has turned a corner this week,” Hunt said in a separate interview with Times Radio, adding that his priority was growth. “I will be doing everything that I can possibly think of to boost growth.”Asked if he would cut inheritance tax – a move the Sunday Times said could be delayed owing to bad press – Hunt told Sky “everything is on the table” ahead of his statement.OPTIONS LIMITED AFTER HEAVY SPENDINGLabour’s finance spokesperson Rachel Reeves said cutting inheritance tax would be the wrong priority in a cost-of-living crisis.”Lower taxes on working people – if the government can explain where the money is coming from – is something I would support,” Reeves told Sky News.Hunt’s options are limited after heavy state spending on the COVID-19 pandemic and last year’s surge in energy prices. Public debt now stands close to 100% of economic output, more than three times its size 20 years ago.Still, official forecasts due on Wednesday are expected to show Hunt has more room for giveaways before running into trouble with fiscal rules than in his annual budget published in March.”If we’re going to be a dynamic, thriving, energetic, fizzing economy, we need to have a lower tax burden,” Hunt told Times Radio, adding that the only way to bring personal taxes down was to spend public money more efficiently.”We want to show people there is a path to lower taxes but we also want to be honest with people this is not going to happen overnight.”While UK tax revenues are at their highest since the 1940s, according to the Institute for Fiscal Studies, the country’s tax rate is lower than in most other western European countries. Data for 2021 from the Organisation for Economic Co-operation and Development showed Britain was the lowest among major European countries, well below France’s 45% or Germany’s 40%. More

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Buying a home was hard before the pandemic. Somehow, it keeps getting harder.Prices, already sky-high, have gotten even higher, up nearly 40 percent over the past three years. Available homes have gotten scarcer: Listings are down nearly 20 percent over the same period. And now interest rates have soared to a 20-year high, eroding buying power without — in defiance of normal economic logic — doing much to dent prices.None of which, of course, is a problem for people who already own homes. They have been insulated from rising interest rates and, to a degree, from rising consumer prices. Their homes are worth more than ever. Their monthly housing costs are, for the most part, locked in place.The reason for that divide — a big part of it, anyway — is a unique, ubiquitous feature of the U.S. housing market: the 30-year fixed-rate mortgage.That mortgage has been so common for so long that it can be easy to forget how strange it is. Because the interest rate is fixed, homeowners get to freeze their monthly loan payments for as much as three decades, even if inflation picks up or interest rates rise. But because most U.S. mortgages can be paid off early with no penalty, homeowners can simply refinance if rates go down. Buyers get all of the benefits of a fixed rate, with none of the risks.“It’s a one-sided bet,” said John Y. Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.”This isn’t how things work elsewhere in the world. In Britain and Canada, among other places, interest rates are generally fixed for only a few years. That means the pain of higher rates is spread more evenly between buyers and existing owners.In other countries, such as Germany, fixed-rate mortgages are common but borrowers can’t easily refinance. That means new buyers are dealing with higher borrowing costs, but so are longtime owners who bought when rates were higher. (Denmark has a system comparable to the United States’, but down payments are generally larger and lending standards stricter.)Only the United States has such an extreme system of winners and losers, in which new buyers face borrowing costs of 7.5 percent or more while two-thirds of existing mortgage holders pay less than 4 percent. On a $400,000 home, that’s a difference of $1,000 in monthly housing costs.“It’s a bifurcated market,” said Selma Hepp, chief economist at the real estate site CoreLogic. “It’s a market of haves and have-nots.”It isn’t just that new buyers face higher interest rates than existing owners. It’s that the U.S. mortgage system is discouraging existing owners from putting their homes on the market — because if they move to another house, they’ll have to give up their low interest rates and get a much costlier mortgage. Many are choosing to stay put, deciding they can live without the extra bedroom or put up with the long commute a little while longer.The result is a housing market that is frozen in place. With few homes on the market — and fewer still at prices that buyers can afford — sales of existing homes have fallen more than 15 percent in the past year, to their lowest level in over a decade. Many in the millennial generation, who were already struggling to break into the housing market, are finding they have to wait yet longer to buy their first homes.“Affordability, no matter how you define it, is basically at its worst point since mortgage rates were in the teens” in the 1980s, said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California. “We sort of implicitly give preference to incumbents over new people, and I don’t see any particular reason that should be the case.”A ‘Historical Accident’The story of the 30-year mortgage begins in the Great Depression. Many mortgages at the time had terms of 10 years or less and, unlike mortgages today, were not “self-amortizing” — meaning that rather than gradually paying down the loan’s principal along with the interest each month, borrowers owed the principal in full at the end of the term. In practice, that meant that borrowers would have to take out a new mortgage to pay off the old one.That system worked until it didn’t: When the financial system seized up and home values collapsed, borrowers couldn’t roll over their loans. At one point in the early 1930s, nearly 10 percent of U.S. homes were in foreclosure, according to research by Mr. Green and a co-author, Susan M. Wachter of the University of Pennsylvania.In response, the federal government created the Home Owners’ Loan Corporation, which used government-backed bonds to buy up defaulted mortgages and reissue them as fixed-rate, long-term loans. (The corporation was also instrumental in creating the system of redlining that prevented many Black Americans from buying homes.) The government then sold off those mortgages to private investors, with the newly created Federal Housing Administration providing mortgage insurance so those investors knew the loans they were buying would be paid off.The mortgage system evolved over the decades: The Home Owners’ Loan Corporation gave way to Fannie Mae and, later, Freddie Mac — nominally private companies whose implicit backing by the federal government became explicit after the housing bubble burst in the mid-2000s. The G.I. Bill led to a huge expansion and liberalization of the mortgage insurance system. The savings-and-loan crisis of the 1980s contributed to the rise of mortgage-backed securities as the primary funding source for home loans.By the 1960s, the 30-year mortgage had emerged as the dominant way to buy a house in the United States — and apart from a brief period in the 1980s, it has remained so ever since. Even during the height of the mid-2000s housing bubble, when millions of Americans were lured by adjustable-rate mortgages with low “teaser” rates, a large share of borrowers opted for mortgages with long terms and fixed rates.After the bubble burst, the adjustable-rate mortgage all but disappeared. Today, nearly 95 percent of existing U.S. mortgages have fixed interest rates; of those, more than three-quarters are for 30-year terms.No one set out to make the 30-year mortgage the standard. It is “a bit of a historical accident,” said Andra Ghent, an economist at the University of Utah who has studied the U.S. mortgage market. But intentionally or otherwise, the government played a central role: There is no way that most middle-class Americans could get a bank to lend them a multiple of their annual income at a fixed rate without some form of government guarantee.“In order to do 30-year lending, you need to have a government guarantee,” said Edward J. Pinto, a senior fellow at the American Enterprise Institute and a longtime conservative critic of the 30-year mortgage. “The private sector couldn’t have done that on their own.”For home buyers, the 30-year mortgage is an incredible deal. They get to borrow at what amounts to a subsidized rate — often while putting down relatively little of their own money.But Mr. Pinto and other critics on both the right and the left argue that while the 30-year mortgage may have been good for home buyers individually, it has not been nearly so good for American homeownership overall. By making it easier to buy, the government-subsidized mortgage system has stimulated demand, but without nearly as much attention on ensuring more supply. The result is an affordability crisis that long predates the recent spike in interest rates, and a homeownership rate that is unremarkable by international standards.“Over time, the 30-year fixed rate probably just erodes affordability,” said Skylar Olsen, chief economist for the real estate site Zillow.Research suggests that the U.S. mortgage system has also heightened racial and economic inequality. Wealthier borrowers tend to be more financially sophisticated and, therefore, likelier to refinance when doing so saves them money — meaning that even if borrowers start out with the same interest rate, gaps emerge over time.“Black and Hispanic borrowers in particular are less likely to refinance their loans,” said Vanessa Perry, a George Washington University professor who studies consumers in housing markets. “There’s an equity loss over time. They’re overpaying.”‘Who Feels the Pain?’Hillary Valdetero and Dan Frese are on opposite sides of the great mortgage divide.Ms. Valdetero, 37, bought her home in Boise, Idaho, in April 2022, just in time to lock in a 4.25 percent interest rate on her mortgage. By June, rates approached 6 percent.“If I had waited three weeks, because of the interest rate I would’ve been priced out,” she said. “I couldn’t touch a house with what it’s at now.”Mr. Frese, 28, moved back to Chicago, his hometown, in July 2022, as rates were continuing their upward march. A year and a half later, Mr. Frese is living with his parents, saving as much as he can in the hopes of buying his first home — and watching rising rates push that dream further away.“My timeline, I need to stretch at least another year,” Mr. Frese said. “I do think about it: Could I have done anything differently?”The diverging fortunes of Ms. Valdetero and Mr. Frese have implications beyond the housing market. Interest rates are the Federal Reserve’s primary tool for corralling inflation: When borrowing becomes more expensive, households are supposed to pull back their spending. But fixed-rate mortgages dampen the effect of those policies — meaning the Fed has to get even more aggressive.“When the Fed raises rates to control inflation, who feels the pain?” asked Mr. Campbell, the Harvard economist. “In a fixed-rate mortgage system, there’s this whole group of existing homeowners who don’t feel the pain and don’t take the hit, so it falls on new home buyers,” as well as renters and construction firms.Mr. Campbell argues that there are ways the system could be reformed, starting with encouraging more buyers to choose adjustable-rate mortgages. Higher interest rates are doing that, but very slowly: The share of buyers taking the adjustable option has edged up to about 10 percent, from 2.5 percent in late 2021.Other critics have suggested more extensive changes. Mr. Pinto has proposed a new type of mortgage with shorter durations, variable interest rates and minimal down payments — a structure that he argues would improve both affordability and financial stability.But in practice, hardly anyone expects the 30-year mortgage to disappear soon. Americans hold $12.5 trillion in mortgage debt, mostly in fixed-rate loans. The existing system has an enormous — and enormously wealthy — built-in constituency whose members are certain to fight any change that threatens the value of their biggest asset.What is more likely is that the frozen housing market will gradually thaw. Homeowners will decide they can’t put off selling any longer, even if it means a lower price. Buyers, too, will adjust. Many forecasters predict that even a small drop in rates could bring a big increase in activity — a 6 percent mortgage suddenly might not sound that bad.But that process could take years.“I feel very fortunate that I slid in at the right time,” Ms. Valdetero said. “I feel really bad for people that didn’t get in and now they can’t.” More