Finance

Some segments of the U.S. economy are seeing deflation, meaning prices are falling for consumers.
That’s largely happening for physical goods such as furniture and bedding, clothing, household appliances, electronics, toys and sporting goods.
The services side of the economy is more sensitive to labor costs, economists said. Relatively high wage growth has kept inflation for services more elevated.

Customers shop at an RC Willey home furnishings store in Draper, Utah, Aug. 28, 2023.
George Frey/Bloomberg via Getty Images

Inflation has pulled back significantly from its pandemic-era peak. In fact, some categories have fallen into outright deflation, meaning consumers are seeing the prices decline instead of rise.
Deflation has largely occurred among physical goods rather than services, economists said. The former are tangible objects, while the latter are largely things we can experience, like haircuts and veterinary visits.

Demand for goods soared early in the Covid-19 pandemic, as consumers were confined to their homes and couldn’t spend on things such as travel or concerts. The health crisis also snarled global supply chains, meaning volume couldn’t keep pace with demand for those goods. Such supply-and-demand dynamics drove up prices.
Now, they’re falling back to earth.

So-called “core” goods inflation — which exclude food and energy prices, which can be volatile — was negative 0.3% in January 2024 relative to a year earlier, according to the latest consumer price index data issued Tuesday by the U.S. Bureau of Labor Statistics.
“Supply chains are going back to normal,” said Jay Bryson, chief economist for Wells Fargo Economics. “And on the demand side, there’s been somewhat of a rotation from goods spending back toward services spending.”
“We’re kind of reverting back to the pre-Covid era,” he added.

A shift away from spending on goods

Average prices have deflated for these physical goods, among others, from January 2023 to January 2024: furniture and bedding (prices have fallen by 2.9%); major household appliances (-7.3%); men’s suits, sport coats and outerwear (-5.3%); girls’ apparel (-9%); video and audio products (-5.8%); sporting goods (-1.1%); toys (-4.2%); and college textbooks (-5.7%), according to CPI data.

Prices for used cars and trucks have also deflated over the past year, by 3.5%, according to CPI data.
Used and new vehicle prices were among the first to surge when the U.S. economy reopened broadly early in 2021, amid a shortage of semiconductor chips essential for manufacturing.

These are the big deflationary factors

“A lot of factors have come together to push goods prices down,” said Mark Zandi, chief economist at Moody’s Analytics.
In addition to normalizing supply-demand dynamics, a historically strong U.S. dollar relative to other global currencies has also helped rein in goods prices, Zandi said. This makes it cheaper for U.S. companies to import goods from overseas, since the dollar can buy more.

The Nominal Broad U.S. Dollar Index is higher than at any pre-pandemic point dating to at least 2006, according to U.S. Federal Reserve data. The index gauges the dollar’s appreciation relative to currencies of the U.S.′ main trading partners such as the euro, Canadian dollar, British pound, Mexican peso and Japanese yen.
Falling energy prices have also put downward pressure on goods prices, due to lower transportation and energy-intensive manufacturing costs, economists said. Overall energy costs have fallen by 4.6% in the past year.
However, economists fear that attacks by Houthi militias on merchant vessels in the Red Sea — a major trade route — could cause shipping disruptions and a reversal of some goods deflation.

Lower energy prices also put downward pressure on the transportation of food to store shelves.
Among grocery items, egg and lettuce prices declined significantly from January 2023 to January 2024 (by 28.6% and 11.7%, respectively) after having soared in 2022. Among the reasons for those initial shocks: a historic outbreak of avian influenza in the U.S., which is extremely lethal among chickens and other birds, and an insect-borne virus that raged through the Salinas Valley growing region in California, which accounts for about half of U.S. lettuce production.
Egg prices have started to climb again in recent months, however, due to a comeback of avian flu.
Overall grocery prices rose at a 1.2% pace in the past year, according to CPI data.

Why aren’t services deflating, too?

The average American allocates most of their budget — about two-thirds of it — to services instead of goods.
The services sector of the U.S. economy has seen disinflation — which is when prices are still rising but at a slower pace than they had been — but hasn’t sunk into deflation like core goods. Services inflation (minus energy) is still up 5.4% since January 2023, according to CPI data.
More from Personal Finance:Here’s the inflation breakdown for January 2024 — in one chartWhy the ‘last mile’ of the inflation fight may be tougherWhy disinflation is ‘more ideal’ than deflation
Services businesses are more sensitive to labor costs, economists said.
A hot job market as the economy reopened in 2021 led workers’ wage growth to balloon to its highest in decades. Average earnings have cooled along with the broader labor market but remain elevated relative to their pre-pandemic baseline, they said.
“The most recent [Employment Cost Index] wage growth numbers for Q4 2023 came in below 4% annualized (first time since Q2 2021), which reflects the better balance between labor demand and supply that has been achieved by rebalancing,” according to a recent outlook authored by J.P. Morgan’s Global Investment Strategy Group.

Some services categories have deflated, though.
Airline fares, for example, have fallen by 6.4% in the past year. That’s due to factors such as lower jet fuel costs for airlines and an increase in seat capacity (available seat supply for passengers due to greater flight volume) on domestic and international flights, according to Hopper.

How measurement quirks can cause deflation

Elsewhere, some deflationary dynamics are happening only on paper.
For example, in the CPI data, the Bureau of Labor Statistics controls for quality improvements over time. Electronics such as televisions, cellphones and computers continually get better. Consumers get more for roughly the same amount of money, which shows up as a price decline in the CPI data. 

Health insurance, which falls in the services side of the U.S. economy, is similar.
The Bureau of Labor Statistics doesn’t assess health insurance inflation based on consumer premiums. It does so indirectly by measuring insurers’ profits. This is because insurance quality varies greatly from person to person. One person’s premiums may buy high-value insurance benefits, while another’s buys meager coverage.
Those differences in quality make it difficult to gauge changes in health insurance prices with accuracy.
Health insurance prices declined by 23.3% over the past year. That decline reflects smaller insurer profits in 2021 relative to 2020.
These sorts of quality adjustments mean consumers don’t necessarily see prices drop at the store, just on paper. More

TUI Chief Financial Officer Mathias Kiep told CNBC on Wednesday that investors had asked the company to reconsider its dual listing amid a shift in liquidity from London to Frankfurt.
London has also suffered a number of de-listings and high-profile IPO snubs over the past year, with British semiconductor design firm Arm notably opting to list on New York’s Nasdaq.

The offices of London Stock Exchange Group Plc, right, in Paternoster Square in the City of London, UK.
Bloomberg | Bloomberg | Getty Images

LONDON — TUI became the latest company to ditch its share listing in London, as shareholders voted overwhelmingly for the German travel giant to list solely in Frankfurt.
The Hannover-headquartered group’s investors voted 98.35% in favor of moving the portion of its shares traded on the London Stock Exchange’s FTSE 250 to Frankfurt’s MDAX, with the transfer expected to occur on June 24.

TUI has a dual listing between the two cities, but said in a statement Tuesday that the company was approached by various investors last year questioning whether this was still optimal, given changes in the ownership structure of the company’s shares and a “marked shift in liquidity from the U.K. to Germany.”
Around 77% of transactions in TUI shares are currently settled via Germany, with the U.K. now accounting for less than a quarter.
“A lot of the liquidity, the volumes, already for quite some time went from the trading line in the U.K. to the trading line in Frankfurt, so on the back of this, we were actually approached last summer by shareholders,” TUI Chief Financial Officer Mathias Kiep told CNBC on Wednesday.

“A lot of comments were about if we were to go to Frankfurt, one, liquidity would be in one pool only. The other point was that a lot said ‘then you are more prominent in the MDAX than where you are today in the FTSE 250,’ and there were also some comments that [the U.K.] could be a more challenging market environment today.”
U.K. stocks are trading at a considerable discount to the rest of Europe, having suffered an investor flight in recent years. The country’s blue chip FTSE 100 index is down almost 5% over the past year, compared to a 5% increase for the pan-European Stoxx 600.

London still a contender
London has also suffered a number of de-listings and high-profile IPO snubs over the past year. The number of applications to list in the Square Mile fell to a six-year low in 2023, according to data obtained by investment platform XTB late last year and reported in several U.K. media outlets.
British semiconductor and software design firm Arm, owned by Japanese investor SoftBank, notably opted last year to list on New York’s Nasdaq, along with a number of other tech companies, despite efforts from Prime Minister Rishi Sunak’s government to persuade the company to list in London.

“It is very disappointing to see another company leave the Main Market of the LSE, following multiple takeovers and de-listings last year, and with companies such as Arm turning to NASDAQ for IPO,” Melanie Wadsworth, partner at international law firm Faegre Drinker, told CNBC on Tuesday.
“However, I can understand the rationale behind this proposal, given that TUI’s headquarters is in Germany and only approximately 22% of its trading in 2023 took place via the U.K. market. I would therefore hope this decision is driven by factors specific to TUI, rather than being indicative of a trend.”
Tom Bacon, partner at global law firm BCLP, said it was understandable for some to point to the TUI de-listing as another example of companies moving away from London, but agreed that it was important to consider the specifics of TUI’s case.
“Much like other recent examples, there are specific reasons for this decision related to the legacy merger of TUI Travel plc and TUI AG in 2014,” Bacon said via email Tuesday.
“On various metrics, London remains the largest exchange in Europe and has actually faired better in 2023 in terms of activity than the other European exchanges like Frankfurt, Paris and Amsterdam.” More

Romance scams are run by organized criminal gangs that set up phony social media avatars and use those to connect to potential American victims.
Once a psychological hook is set, the scammer turns the conversations to money.
“We need the social media companies to shut down these people that are putting these out there. We need law enforcement engaged to try and prosecute some of these folks,” Paul Benda of the American Bankers Association told CNBC.

The banking industry is seeking help from the federal government and the social media industry to stop an escalating crisis that’s costing Americans billions of dollars every year: online romance scams.
These digital crimes have proliferated since the pandemic, as criminals pose as attractive partners and reach out to lonely Americans on social media.

“We really need help,” Paul Benda, the executive vice president for risk, fraud and cybersecurity at the American Bankers Association, said in an interview with CNBC. “We need the social media companies to shut down these people that are putting these out there. We need law enforcement engaged to try and prosecute some of these folks. Unless you put a bad guy behind bars, that guy is gonna keep doing what he’s doing.”
Experts estimate that known instances of fraud amount to billions of dollars every year. Factoring in that many victims don’t report their losses to anyone, the overall losses could be in the tens of billions of dollars annually, they say.
The romance scams are run by organized criminal gangs, often based in Southeast Asia, that set up phony social media avatars and use those to connect to potential American victims. Their targets are male and female, old and young, highly educated and not, according to experts.
The common theme is loneliness and a willingness to engage online. Once a victim responds to the message, avatar operators launch into a lengthy campaign — often hours of texting each day — designed to persuade the victim that they have fallen in love with a real person. The psychological power of the relationship can take hold surprisingly quickly.
“Some people get hooked in within a matter of weeks,” Benda said. “It’s that really burning brightness of a relationship where the texts go on constantly, all day and all night and they get hooked into that.”

Once that psychological hook is set, the scammer turns the conversations to money. In some cases, they present the victim with a sure-fire-seeming investment opportunity, or they prey on the victim’s empathy and solicit money for an expensive but phony medical procedure.
“Some of the scams I’ve heard of, they literally have people draining their bank accounts, to send the scammer everything that they have,” Benda said. “They want to do anything for the person they love … And these are just evil people taking advantage of vulnerable people.”
The experts CNBC spoke with said social media companies should do more to throttle this kind of outreach over their platforms and do a better job of taking down the big perpetrators.
They also saw the value in regulatory changes that would allow financial institutions to talk to one other about customers who are at risk. Some victims may be draining a savings account with one institution to send funds to a fraudster, while the institution that services their 401(k) retirement account remains unaware.
Scammers will often coach the victim on how to access and transfer funds. And Benda noted banks are in a difficult position, even when they suspect their customer is in the process of being defrauded.
“We’re legally obligated to provide you access to your funds, full stop. So we can’t stop you from withdrawing from your bank account. Not even if we think that … it’s going to destroy your life,” he said.
The experience can be an emotional one even for the bank employees who watch the scam play out.
“We’ve heard stories where we know a bank teller that was sobbing … talking with a longtime customer, begging them not to do this type of thing, and in the end, no, we have to give them access to their funds,” Benda said.
Banks generally will not reimburse a customer for romance scam losses, Benda explained, because the customer transferred the money of their own free will. And reimbursing victims would likely just make a market that would draw in more scammers.
Erin West, deputy district attorney in Santa Clara County, California, estimated that between $30 billion and $50 billion was lost to romance scams in 2022.
“That’s an astonishing number. It’s huge,” she said, adding the caveat that arriving at an estimate can involve some guesswork since victims can be reluctant to report the details of their own financial humiliation.
But West, who is part of a national group of prosecutors trying to shed light on the problem, said the scale of the emotional wreckage may be even worse. Discovery of these scams can lead to lost marriages, lost careers or a permanent change in financial position.
“I’ve been in law enforcement for 25 years, and I’ve done sex crimes and I’ve done homicide, and I’ve never heard the depths of despair that you get when someone realizes that the life they thought they’d had is completely gone,” she said. “On one day, to lose a marriage and every last cent that they have, is traumatic for people.”
West explained there’s a very human reason why lonely people fall for these scams.
“This kind of crime goes to the very core of what we want in life. We want to feel loved,” she said. “And we want to have a person to come home to, even if it’s by text, who loves us, understands us, and is thinking of us. And they provide exactly that.”
“And then they provide a dream that not only can you be loved, but you can be financially comfortable beyond your wildest dreams,” West said. “It’s easy to call it lust and greed, but what it really is, is it’s comfort on both levels.”
— CNBC’s Bria Cousins contributed to this report. More

The consumer price index rose by 3.1% in January, a smaller annual increase than in December.
Workers’ buying power has increased each month since May.
However, there were a few potentially worrying signs under the surface.

People shop at a home improvement store in Brooklyn on Jan. 25, 2024.
Spencer Platt | Getty Images News | Getty Images

Inflation declined in January and consumers’ buying power rose as price pressures for U.S. goods and services continued to ease.
The consumer price index, a key inflation gauge, rose 3.1% in January relative to a year earlier, the U.S. Labor Department said Tuesday. That’s down from 3.4% in December.

The CPI measures how fast the prices of everything from fruits and vegetables to haircuts, concert tickets and household appliances are changing across the U.S. economy.

While that overall downward trend is encouraging, there were a few “disappointments” under the surface, as inflation rose from December to January in categories such as shelter, food, electricity and airline fares, said Mark Zandi, chief economist at Moody’s Analytics.
Ultimately, it’s likely just a “brief detour” from the broader disinflation trend, which is unlikely to move in a perfectly straight line, he added.
“You get zigs and zags in all these data, and this was just a zag,” Zandi said. “The bottom line: Inflation continues to moderate. It’s still uncomfortably high — though … moving in the right direction. And all the trend lines still look good aside from today’s data detour.”

Workers’ paychecks can buy more

Inflation has fallen significantly from its pandemic-era peak, 9.1%, in June 2022. Around that time, the average consumer’s paycheck wasn’t keeping up with fast-rising prices. Their so-called “real earnings” — earnings after accounting for inflation — were negative for more than two years.

That dynamic has reversed: Workers’ hourly pay has exceeded the rate of inflation since May. In other words, their wages can buy more. Real average hourly earnings rose by 1.4% between January 2023 and January 2024, the Labor Department said Tuesday.

Normalizing inflation means consumers don’t need to spend down their “excess savings” to support spending, according to a recent outlook authored by J.P. Morgan’s Global Investment Strategy Group.
Consumer sentiment jumped 13% in January to its highest level since July 2021, which reflects “improvements in the outlook for both inflation and personal incomes,” according to the University of Michigan.

Where inflation was high in January

Cartons of orange juice on display in a grocery store in Los Angeles.
Mario Tama | Getty Images

Despite broad disinflation, there are specific categories where inflation remains relatively high.
“Notable” categories include motor vehicle insurance (where costs are up 20.6% in the past year), recreation (2.8%), personal care (5.3%) and medical care (1.1%), according to the Labor Department.
Prices for motor vehicle insurance and auto repairs, for example, have risen rapidly following an earlier pandemic-era surge in prices for new and used cars, albeit with a lag.

Additionally, shelter inflation is up 6% in the last 12 months. Shelter is the largest component of the average household’s budget, and stubbornly high inflation in the category has propped up overall inflation readings.
Economists expect housing inflation to moderate due to encouraging signals, such as moderating national prices for newly signed leases, a trend that tends to take months to flow into broader inflation data.
“Everything suggests that’s going to happen,” Zandi said. “The lag is longer than I would have anticipated.”
More from Personal Finance:Why the ‘last mile’ of inflation fight may be toughWhy disinflation is ‘more ideal’ than deflationWorkers may be unfairly sour on the job market
Other categories have retreated significantly.
Inflation for groceries, for example, has declined to 1.2% over the last 12 months, from a peak of around 13.5% in August 2022. Some categories — such as frozen noncarbonated juices and drinks, sugar, and beefsteaks — remain elevated, though. Their prices are up by 29%, 7.2% and 10.7%, respectively.
Sugar prices, for example, were affected by “ongoing shortfalls and availability issues” in 2023, said Amy Smith, an economist at Advanced Economic Solutions.

Sugar is a key ingredient in, among other things, juices and drinks; the latter were also affected by bad weather in Brazil and Florida, which reduced production of oranges and led futures on frozen concentrated orange juice to surge to an all-time high in November, Smith said. And beef production was down almost 5% in 2023, due partly to the impact of severe drought on pasture lands, she added.
Meanwhile, overall energy costs have decreased, or deflated, by 4.6% in the past year, with gasoline down 6.4%, natural gas 17.8% and fuel oil 14.2%.

Why inflation surged in the pandemic era

Inflation initially spiked in early 2021 as the U.S. economy reopened from its Covid-19-related shutdown.
During the pandemic, consumer demand for household goods jumped as people spent more time at home and couldn’t spend on travel and other experiences. Goods production couldn’t keep up with high demand amid snarled supply chains.
It was a “double whammy” that caused prices to “skyrocket,” according to Jay Bryson, chief economist for Wells Fargo Economics.
Now, supply chains and consumer demand for goods have largely normalized, Bryson said.
Inflation in the “services” side of the economy — the intangible things we consume, such as concerts, auto repairs and veterinary visits — is also declining but remains elevated, he said. A big reason for this is wage growth, since labor is a major input cost for services businesses, economists said.
Businesses’ demand for workers rose to a record high as the economy reopened, and wage growth jumped to its highest level in decades as workers enjoyed ample leverage in the job market. That growth has since eased as the labor market has cooled from red-hot levels, reducing the inflationary pressure for services, but remains elevated, economists said. More

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Evercore ISI’s Julian Emanuel thinks Nvidia’s monster rally is fueling a fear of missing out in the market.
He finds clients, including many who traded through the dot-com boom and subsequent collapse, are more worried about being underinvested than overexposed right now.

“That’s the first time that’s happened since 2021 for us,” the firm’s senior managing director said on CNBC’s “Fast Money” on Monday. “That’s a bit of an alarm bell.”
In his Sunday note, Emanuel warned clients there are similarities to Y2K emerging, particularly when it comes to momentum. This time around, he cites excitement around artificial intelligence and the idea the U.S. will avoid a recession as major catalysts.
“The sentiment is very, very bullish. The bears have been eliminated,” he told CNBC’s Melissa Lee. “It’s time to think more about risk than reward until we get just a little cooling off.”
On Monday, the Dow closed at an all-time high to 38,797.38. The tech-heavy Nasdaq Composite is up 6% so far this year and is less than 2% off its record high.
Meanwhile, Nvidia, the global leader in artificial intelligence chips, is up 46% so far this year and 240% over the past year.

Emanuel believes stocks could go through a 13% pullback this year, which he considers normal during a nonrecession period. “If you can’t see yourself being a buyer down there, you should probably lighten up a little bit,” said Emanuel.
However, he hasn’t completely ignored the winning growth trade.
“We have been on board in pieces,” he said. “We like communication services. It’s been a great sector. We think there are defensive properties.”
Emanuel’s top picks also include consumer staples, health care and money markets.
“At the end of the day, you’re still making 5% on cash,” he added.
His S&P 500 year-end target is 4,750, which implies a roughly 5% loss from Monday’s close.
Disclaimer More

Whenever a global economic transformation takes place, a single city usually drives it forward. Ghent, in modern-day Belgium, was at the core of the burgeoning global wool trade in the 13th century. The first initial public offering took place in Amsterdam in 1602. London was the financial centre of the first wave of globalisation during the 19th century. And today the city is San Francisco.California’s commercial capital has no serious rival in generative artificial intelligence (AI), a breakthrough technology that has caused a bull market in American stocks and which, many economists hope, will power a global productivity surge. Almost all big AI startups are based in the Bay Area, which comprises the city of San Francisco and Silicon Valley (largely based in Santa Clara county, to the south). OpenAI is there, of course; so are Anthropic, Databricks and Scale AI. Tech giants, including Meta and Microsoft, are also spending big on AI in the city. According to Brookings Metro, a think-tank, last year San Francisco accounted for close to a tenth of generative-AI job postings in America, more than anywhere else. New York, with four times as many residents, was second.This has changed the mood of San Francisco. When you live in the city, you can feel AI in the air. Drive to the airport and every second billboard tells you the various ways in which your business can improve by adopting AI. Go to a party and every second guest says that they are working on the tech or in an industry being transformed by it. Barely a day goes by without some nerdy event to satisfy your curiosity about the world’s liveliest intellectual field, from talks about the philosophy of artificial general intelligence to MLHops, a meet-up for AI folk who like beer.How is this happening somewhere supposedly falling apart? Even before the covid-19 pandemic there was a sense that the best days of San Francisco and the wider Bay Area had passed. In the late 2010s worries about crime and rising taxes saw other cities, including Austin, Los Angeles and Miami, hyped as the “next Silicon Valley”. According to data compiled by PitchBook, a financial database, at the start of 2014 firms in the Bay Area attracted four times more venture funding than New York, the next-biggest metro area. By the end of 2020 they attracted only 2.5 times as much.Covid did not improve the situation. San Francisco locked down early, hard and for a long time, crushing employment in service industries. The city’s tech elite realised they could work from home, emptying downtown. After the murder of George Floyd in 2020, many in city government turned against the police. Officers felt the city no longer had their back. From 2019 to 2022 their numbers fell by 14%. In 2021 Elon Musk left for Texas, the richest of the many who quit San Francisco that year.Action in startup-land moved elsewhere, too. The hottest firms were foreign, such as Ant Group, a Chinese “super-app”, at least until it was forced to abandon plans to go public, and Grab, a Singapore-based ride-hailer, which listed at a valuation of $50bn. Venture dealmaking in San Francisco inflated along with a wider market bubble. But when interest rates jumped in 2022, the entire industry shut down. Valuations of venture-backed firms halved between the end of 2021 and the end of 2022.image: The EconomistAcross the world “San Francisco” is now shorthand for a failed city. Drug overdoses and homelessness have soared; the city’s population fell by 8% from April 2020 to July 2022. Just 52% of Americans polled by Gallup last year viewed San Francisco as a safe place to live, down 18 percentage points from 2006. Conservatives, in particular, see the city as an example of what happens when you let social-justice warriors run amok. Today, if you so choose, you can drive through red lights at high speed with impunity—police have almost completely stopped issuing traffic citations as they prioritise other crimes. More than 30% of offices are vacant. Market Street, the city’s main drag, has an astonishing number of empty shops.There are now signs that the local quality of life is starting to improve: overdoses have begun to fall; in the final months of 2023 car break-ins halved. Yet the start of the ai boom predated these changes. Despite headlines about an exodus of the rich, San Francisco’s tech elites mostly weathered the storm—its population decline was, in fact, mostly driven by the exit of poorer folk. As a result, inhabitants are now better paid and more educated than before covid. According to official data, the pre-tax total income of the average working person in San Francisco is around $220,000 a year, compared with $130,000 across the country. Even as poor residents have left, income inequality has soared.image: The EconomistMany of the people with the skills to ride the AI wave were already in San Francisco or nearby. Most of today’s tech giants were founded in the suburban neighbourhoods that make up the Valley. Today they, and other big tech firms, have huge campuses 20 or 30 miles south of San Francisco, but their young employees rent cupboard-sized flats in the city. Much of the funding for the AI boom is coming from these tech behemoths. In 2022 and 2023 firms such as Meta completed more Bay Area-based venture-capital investments than ever before, largely focused on AI. Owing to a mix of government support and creative counterculture, Stanford University and the University of California, Berkeley, have long been centres of AI excellence specifically. In 2017 eight people published a paper, “Attention is all you need”, which recently has become known even outside AI circles as the groundbreaking contribution to the current wave of technological progress. Almost all were based in or near the city. By 2021 San Francisco and nearby San Jose accounted for a quarter of conference papers on the topic, according to the Brookings Metro analysis.Academic excellence has fed private-sector innovation, with many researchers moving between the two spheres. Nine were hired to build OpenAI. At first, they laboured in the apartment of Greg Brockman, one of its co-founders, in the Mission District. Data from LinkedIn, a job-search platform, suggest that one in five of OpenAI’s engineering staff in America attended Berkeley or Stanford. Now San Francisco’s AI concentration has reached a critical mass, with success begetting further success. London and Paris may be AI rivals, but they are a long way behind.image: The EconomistThus investors are again spending big in the Bay Area. Venture funding to San Francisco-based startups halved between 2021 and 2022, but recovered to two-thirds of its peak in 2023. By contrast, in Miami just a quarter as much funding went to startups in 2023 as in 2021. Finance types who once worked in Silicon Valley are moving into the city to be closer to the action. Y Combinator, which helps startups get off the ground, recently set up shop. Venture-capital firms from General Catalyst to Pear VC have opened new offices. In desirable neighbourhoods competition for rental properties is fierce, as the city’s population once again grows. The arrival of lots of well-paid tech types has boosted house prices. Although they fell by more than 12% from their pandemic highs, they have risen since the start of 2023. The city has fewer restaurants than in 2019, but about the same number with two or three Michelin stars. North of the city, in wine country, there is no shortage of new, expensive hotels at which venture capitalists and founders can relax.Some elites see San Francisco’s AI success as a precursor to a broader transformation of the city. Locals are fed up with having to call 911 because someone is overdosing in front of their children. In 2022 they ousted Chesa Boudin, a progressive district attorney, and three members of the school board who were more concerned with renaming schools than reopening them. On March 5th they will vote on measures championed by moderate Democrats, including one that will try to get homeless people suffering from mental illness off the streets. In November they will choose a raft of local officials and perhaps whether to give the mayor more power.London Breed, the current office holder, sounds genuine when she talks of the need to improve public safety and cut red tape: “Rather than being a city that says ‘no’ all the time”, she explains, we need “to get to ‘yes’ by getting rid of bureaucracy.” She is being pushed by political groups that have formed as tech types take a keener interest in local politics, including GrowSF and TogetherSF, the latter co-founded by Michael Moritz, a famed venture capitalist.Defending the indefensibleThese efforts face stern resistance. Aaron Peskin, president of the Board of Supervisors, the city council, is the de facto leader of San Francisco’s progressives. He argues that Mr Moritz and his fellow campaigners are “amateurs” who are dressing up their own elite interests in the language of reform. “I generally think that people believe their own bullshit,” he says. (Unsurprisingly Mr Moritz disagrees: “It’d be easy for us to pick up roots and…go to a low-tax state or go to Europe.”) Even today plenty of the city government’s time is wasted on pointless projects such as deciding whether or not to call for a ceasefire in Gaza. The local NIMBY movement is extremely powerful. And cartoonish corruption remains a problem: in 2022 the former director of public works was sentenced to seven years in prison for taking huge bribes.Yet it may not matter much to the AI boom if San Francisco remains chaotic. If you want good schools, public transport or public safety, San Francisco is not the place for you. If you do not need these things, or you can buy your way around them, then the city remains a great place in which to innovate. Covid tested the “network effects” that people in Silicon Valley believed were crucial to its success. It turned out they were as powerful as ever. That founders, firms, money and workers are returning to San Francisco suggests that remote work has not killed their importance. The city is still the place to be if you want to meet a co-founder by chance at a party.Can the AI-driven excitement last? For now it is attracting people to the city; in time, it could cut the workforce needed for startups. “With AI you might not need 50 developers to start a firm—maybe you just need five,” speculates Auren Hoffman, a founder who moved from San Francisco to Washington, DC, a few years ago. Another risk is that the AI boom will amount to less than the bulls hope, perhaps because fewer than expected businesses actually adopt AI tools. Yet as real as these concerns are, they are also ones that just about every other city would love to face. When it comes to governance, San Francisco breaks all the rules. At the same time, it is the richest place on earth, and getting ever richer. ■ More

Digital banking startup Revolut is launching travel eSIM plans in the U.K. that give users access to data abroad without suffering roaming charges.
The product launch is a rare step for a financial services company, and is part of Revolut’s long-term ambition to become “super app” with multiple services spanning finance and travel.
Subscribers to Revolut’s Ultra subscription tier will get access to 3GB of data for use across different countries, which resets every month.

Revolut is launching a travel eSIM plan in the U.K., in a rare move for a financial services firm.

British financial technology company Revolut is launching phone plans in the U.K., the company has told CNBC exclusively, making it the first financial services firm in the country to offer telecom plans — and among the first globally.
The digital banking and payments unicorn said it will start offering eSIMs — SIM cards that can be stored virtually rather than in physical form in the device — this week. The plans will begin rolling out for users in the coming days.

Customers on Revolut’s basic app experience without any subscription can get a standard eSIM plan that allows them to access their Revolut app so that they can top up their phone as and when needed. For instance, if a Revolut user arrives at an airport and runs out of data on their current SIM provider, they can still access features on their Revolut app free of charge and top up their data as usual.
Revolut customers on the company’s £55 ($69.47) a month, premium Ultra package will get 3GB of data to use globally, with a rolling refresh every month. That means that they will not have to worry about unexpected roaming charges when entering another country.

The cost of using mobile data overseas has increased for Brits in recent years. Several mobile carriers, including BT, Vodafone and Three, have reintroduced roaming charges since the U.K. left the European Union. Brits were previously able to travel across the EU without incurring roaming fees. Meanwhile, most mobile carriers don’t include free data in non-EU countries as part of their standard plans.
Revolut users without an Ultra subscription can get an introductory offer of 100MB of free data if they apply before May 1. The offer is valid for seven days.
Revolut has partnered with U.K. mobile network operator 1Global, formerly known as Truphone, to launch its eSIM.

Tara Massoudi, general manager of premium products at Revolut, said the decision for Revolut to launch eSIMs was to turn the company into more of an all-encompassing “super app” with services spanning bank accounts, currency exchange, insurance, travel bookings and airport lounge passes.

“Our ambition is very much to be the financial super app,” Massoudi told CNBC. “This is really in that direction.”
“Travel is a huge value prop that we’ve always had, and it’s still remained super important for our users,” Massoudi added. “So it’s important that we continue to innovate in that space.”
Launching phone plans is a rare step from a financial services firm. Plenty of challenger banks have bundled new services into their apps to give consumers more of a reason to use them over alternatives. The aim is to pull in a stickier customer base long term.
That’s pretty key in Revolut’s case. The company, which notched a $33 billion valuation in 2022, has been trying to get more of a loyal user base and grow its line of paid subscriptions to diversify revenue.
For that, it needs customers who use it as more of a permanent banking provider for all their financial needs, rather than just an optional low-fee travel account for when they go abroad.

Hermann Frank, CEO of tech startup Gigs, which helps businesses set up and sell their own branded eSIM phone and data plans, said Revolut’s move could prove lucrative for the firm in the long term.
“This move presents an easy avenue for Revolut to unlock a lucrative new revenue stream and could play a vital part in the company’s long-term profitability,” Frank told CNBC via email.
“By enriching their offering with branded phone plans, neobanks like Revolut can fuse two essential services in one single app, easing the user experience and further compounding stickiness.”
Retail spending on travel connectivity services, including roaming packages and travel SIMs, is expected to rise to over $30 billion by 2028, according to roaming and connectivity market intelligence and consulting firm Kaleido Intelligence.
“We foresee many other banks launching phone plans and travel offers in the coming 18 months,” Frank added.
Revolut isn’t the first fintech ever to launch an eSIM offering. Indian credit card startup Zolve, which helps immigrants set up banking before arriving in the U.S., started offering phone plans attached to physical SIMs and eSIMs in August. More

Central banks have embarked on austere monetary policy to crush inflation. Worries about the financial system, from bond markets to commercial property to the health of the banks, are ever-present. Some 4bn people will head to the polls this year, with unpredictable consequences. Most concerning of all, the world is on fire, with conflicts from Ukraine to Israel to the Red Sea. Other wars, not least in Taiwan, do not feel far away. Little wonder that analysts speak of “polycrisis”, “hellscapes” and a “new world disorder”.And yet, for the moment at least, the world economy is laughing in the face of these fears. At the start of 2023 almost all economists reckoned that a global recession was due that year. Instead, global GDP grew by about 3%. The early signs suggest progress is continuing at the same rate this year. Data from Goldman Sachs, a bank, indicate that global economic activity is about as lively as it was in 2019. A measure of weekly GDP produced by the OECD, a club of mostly rich countries, finds similar results. A measure of global activity produced from surveys of purchasing managers (so-called PMI data) points to strongish growth across the world.Labour markets are even stronger. The unemployment rate across the OECD remains comfortably below 5%. The share of working-age folk actually in a job, a better measure of labour-market strength, is at an all-time high. Healthy job markets are boosting family finances, which have been hit by inflation. Real household disposable incomes across the G7 shrank by 4% in 2022, but are now growing once again.True, some countries are doing less well. Chinese growth figures continue to disappoint. Some of those coming out of Europe are concerning. Germany, facing fallout from high energy prices and competition in its famed car industry from Chinese electric-vehicle exports, may be in recession. But there are also stronger showings. In January total nonfarm payroll employment in America rose by 353,000—a blow-out figure, surpassing almost all expectations.So far there does not seem to be much evidence that problems in the Red Sea are derailing the economy. PMI data suggest that manufacturers are facing longer delivery times. This is consistent with ships rerouting around the Cape of Good Hope, which increases the length of a journey between Shanghai and Rotterdam to 14,000 miles, from 11,000. Yet in almost all economies shipping costs are a tiny fraction of the overall price of a good. Even the most pessimistic wonks are pencilling in a jump in inflation, because of the Red Sea disruption, that amounts to little more than a rounding error.Why is the global economy so oblivious to the new world disorder? High interest rates have managed to bring down inflation from a peak of more than 10% across the rich world to about 6%. This not only raises households’ purchasing power; it also raises their spirits. Indeed, having hit an all-time low in 2022, rich-world consumer confidence has risen sharply. Higher borrowing costs have been muted by the fact that a lot of household and corporate debt is on fixed interest rates.There is also a more intriguing possibility: after so many shocking global developments, the world no longer minds chaos as much as it once did. This is consistent with academic evidence, including a recent paper by two researchers at the Federal Reserve, which suggests that the hit to output from a spike in economic uncertainty fades after a few months.All good economists remain vigilant. Higher interest rates may have a delayed impact on growth. Escalation in the Russia-Ukraine war or the Red Sea could provoke another round of shocks to energy supply, feeding into inflation. All bets are off if Xi Jinping decides to move on Taiwan. Yet on the flipside, falling inflation and a potential boost to productivity from generative AI could prompt GDP to accelerate. And the global economy has already demonstrated its resilience. Polycrisis, what polycrisis? ■ More