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    Ice Cream Trucks Are the Latest Target of Inflation

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    Inflation and its rising fuel prices have pushed some ice cream truck owners to the brink.On a steamy evening at Flushing Meadows Corona Park in Queens, Jaime Cabal had a line of customers at his Mister Softee ice cream truck. He blended milkshakes, topped bowls of vanilla soft-serve with strawberries and dipped cones into cherry and blue-raspberry shell. One boy no sooner finished his treat than he begged his parents for more, pointing at the menu’s pops shaped like SpongeBob SquarePants, Sonic the Hedgehog and Tweety.Crowds like these are becoming rarer for ice cream vendors across the country as high fuel prices feed inflation, leaving some owners of soft-serve trucks questioning their future in the business.Owning an ice cream truck used to be a lucrative proposition, but for some, the expenses have become untenable: The diesel that powers the trucks has topped $7 a gallon, vanilla ice cream costs $13 a gallon and a 25-pound box of sprinkles now goes for about $60, double what it cost a year ago.Many vendors say the end of the ice-cream-truck era has been years in the making. Even the garages that house these trucks are evolving, renting parking spaces to other types of food vendors as the ranks of ice cream trucks dwindle.For much of the day at Flushing Meadows Corona Park in Queens, Mr. Cabal sits in his truck waiting for customers.Jose A. Alvarado Jr. for The New York TimesParks, pools and residential streets used to be prime territory for the ice cream man. But now, more often than not, a soft-serve truck’s jingle plays to a crowd of no one as prices for some cones with add-ons like swirly ice cream and chocolate sauce reach $8 on some trucks.Though no organization appears to have hard figures on just how many ice-cream trucks are currently working the streets of New York City, some owners said they would likely leave the business in the next few years. It’s a sentiment that is felt nationwide, where mobile ice-cream vendors face higher costs for city permits and registration, and hefty competition from other ice cream businesses, said Steve Christensen, the executive director of the North American Ice Cream Association.The ice cream truck, he said, is “unfortunately becoming a thing of the past.”New delivery methods, through third-party apps or ghost kitchens, are proliferating. Brick-and-mortar scoop shops are focusing on offering a fun experience, he said, and serve dozens more flavors than a traditional ice cream truck can, driving lines away from these vehicles.“It’s horrible,” said Mr. Cabal, the ice cream vendor in Queens, who has worked on ice cream trucks for the last nine years. Inflation has even raised the cost of mechanical parts for the truck. Last year, when his slushy machine broke down, a part he needed cost $1,600. He decided to wait a few more months to fix it, but part nearly doubled in cost, to $3,000. Now, the slushy is off the menu and the machine is sitting in his garage.In 2018, Mr. Cabal thought business in the Flushing Meadows Corona Park would be good enough to support his own truck, so he sold his house in New Jersey for $380,000, moved to Hicksville, N.Y., and bought a Mister Softee franchise. He won a contract with the city to operate in the park.Despite the tens of thousands of dollars he pays each year for that permit and others, Mr. Cabal has contended with unlicensed vendors who sell fruit, empanadas and Duro wheels from baby strollers, and even ice cream from pushcarts strategically placed around his truck. He said they undercut him on price so much that it’s impossible for him to compete. Ramon Pacheco said many of his 27 years in the ice cream truck business were profitable, but the pandemic has drastically cut into customer traffic.Jose A. Alvarado Jr. for The New York TimesIn Lower Manhattan, Ramon Pacheco is struggling with his recent decision to raise his prices by 50 cents to account for some of his increased daily expenses, like $80 in gasoline ($15 before the pandemic) and $40 in diesel, ($18 earlier). He now pays about $41 for the three gallons of vanilla ice cream that used to cost him $27.He has sold ice cream for 27 years, and since the pandemic, he said he’s noticed a drop-off in demand. He now takes in as little as $200, before expenses, selling ice cream for nine hours. Sometimes, if a regular customer comes to him with $2 for ice cream, he’ll just sell it at a loss.“I’m 66, and I’m tired,” Mr. Pacheco said in Spanish, adding that he is thinking of selling his truck next year.Carlos Cutz decided to leave his job at a deli two years ago to work on an ice cream truck to support himself, his wife and their three children. He took out a loan and bought his own truck in May.The ice cream man he bought it from had a route in Williamsburg, Brooklyn, and Mr. Cutz has resisted raising the prices to avoid alienating his customer base, even though his expenses have doubled for products like a package of 250 cake cones.“These have been the worst years for ice cream trucks,” he said in Spanish, adding “I’m going to try to do the best that I can to continue with this business. I’m feeding my family, and I can’t leave a business I haven’t tried.”Carlos Cutz decided to leave his job at a deli and buy an ice cream truck.Jose A. Alvarado Jr. for The New York TimesThe price of gasoline has been the most shocking expense in recent months for Andrew Miscioscia, the owner of Andy’s Italian Ices NYC which operates three trucks for private catering events. He spent $6,800 in June on gas alone. Mr. Miscioscia pivoted to catering during the pandemic when sales slipped on the Upper West Side.“People are not getting out like they used to,” he said. “And there’s a lot of competition out there.”Still, the appearance of an ice cream truck on a hot summer day remains a thrill for many. At Flushing Meadows Corona Park, Domenica Chumbi, of Hillside, N.J., held a vanilla cone dipped in cherry shell for her quinceañera photos. The pink-hued ice cream not only matched her dress and her party’s theme of cherry blossoms, but it also summoned memories of childhood visits to the park.“It’s something that reminds me of New York,” she said.Follow New York Times Cooking on Instagram, Facebook, YouTube, TikTok and Pinterest. Get regular updates from New York Times Cooking, with recipe suggestions, cooking tips and shopping advice. More

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    After Enduring a Pandemic, Small Businesses Face New Worries

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    It has been a tough few years for companies without the scale to cruise through disruption. Making money isn’t getting any easier.America’s small businesses can’t catch a break.After two years of shutdowns and restrictions due to the Covid-19 pandemic, they’re straining to keep up with price increases without losing customers to larger competitors. They are struggling to keep positions filled as competition for workers remains at a fever pitch. And just at the moment that many business owners begin to recover and shore up their depleted savings, they’re worried that the Federal Reserve’s medicine for inflation will bring fresh hardship: higher borrowing costs and timid consumers.Surveys show that small-business sentiment has taken a markedly pessimistic turn in recent months — even more so than that of professional forecasters and of corporate executives.In June, the National Federation of Independent Business measured its lowest reading ever for economic expectations. The nonprofit Small Business Majority, in a survey in mid-July, found that nearly one in three small businesses couldn’t survive for more than three months without additional capital or a change in business conditions. The U.S. Chamber of Commerce’s Small Business Index for the second quarter showed that inflation had skyrocketed to the top of owners’ concerns. Seventy-five percent of participants in Goldman Sachs’s small-business coaching program reported that higher costs had impaired their finances.The sector — which the federal government typically defines as businesses below a certain size, ranging from 500 to 1,500 employees depending on the industry — is responsible for two of every three jobs created over the past 25 years, according to the Labor Department. So a weakening of that engine bodes ill for American growth and prosperity.Corinne Hodges runs the Association of Women’s Business Centers, a national network offering training, mentoring and financing to entrepreneurs. The organization’s funding from the Small Business Administration was augmented to help thousands of businesses navigate the pandemic, but, with the extra money now exhausted, the centers are laying off advisers, just as clients are asking for more help.“We saw pivoting in Covid,” Ms. Hodges said. “Well, what is it now? What’s the new pivot? It’s just been a vise grip of pressure emerging from the pandemic. Is a pivot going to be enough, or does it need to be something more?”Kymme Williams-Davis was one of those who survived pivot after pivot, and she isn’t sure she can make it much longer.Seven years ago, she started a coffee shop in Brooklyn called Bushwick Grind, specializing in fair-trade beans that are locally roasted. She spent $200,000 building out the space with a kitchen, and developed a brisk business selling healthier fare than that of the fast food outlets around her.When the pandemic hit, the shop had to close for nine months. Ms. Williams-Davis made rent by subletting the space to other small vendors. When she reopened in 2021, she got a boost from a contract to deliver 400 meals a day to the city’s vaccine sites. That cash flow allowed her to qualify for a loan to buy her own space.But she hasn’t been able to find anything in Brooklyn, in part because large investors keep outbidding her. Foot traffic hasn’t recovered. The cost of coffee, kale and other provisions — if she can even get them — is skyrocketing. Farmers from upstate are saving on gas by taking fewer trips into the city, so she has begun to swap in lower-grade ingredients.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    China’s Economy Hits a Slump as Covid Policy Takes a Toll

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    High unemployment, a housing market in crisis and sluggish consumer spending during lockdowns are putting pressure on Beijing in a year when officials are focused on projecting stability.When countries around the world have stumbled in the face of pandemic headwinds, China has often stood apart, seemingly impervious to financial pressures that undermined growth.But now, dragged down by its commitment to curbing the spread of Covid-19 with widespread lockdowns and mass quarantines, China has suffered one of its worst quarters in years, threatening a global economy heavily dependent on Chinese factories and consumers.For the country’s ruling Communist Party, the downturn could put added pressure on Beijing at a sensitive moment. China is scheduled to hold its party congress later this year. A thriving economy and growing wealth was part of the bargain that Chinese citizens accepted in exchange for living under authoritarian rule.But the lockdowns, a staple of Beijing’s zero-Covid policy, have heightened the risk of instability — both socially and economically.The National Bureau of Statistics in China said on Friday that the economy expanded 0.4 percent from a year earlier in the second quarter, worse than some economists’ expectations. It was the lowest growth rate since the first three months of 2020, when the country effectively shut down to fight the early stages of the pandemic, and its economy shrank for the first time in 28 years.The 2020 downturn was short-lived, with the Chinese economy recovering almost immediately. But the current outlook is not so promising. Unemployment is close to the highest levels on record. The housing market is still a mess, and small businesses are bearing the brunt of weakness in consumer spending.“China is the shoe that has never dropped in the global economy,” said Kenneth Rogoff, a professor of economics at Harvard University and a former chief economist for the International Monetary Fund. “China is no position to be the global engine of growth right now, and the long-term fundamentals point to much slower growth in the next decade.”Construction in Beijing this month. China has urged local authorities to step up measures to ensure job stability during lockdowns.Wang Zhao/Agence France-Presse — Getty ImagesThis is an unwanted complication in a year when China is trying to project unwavering strength and stability. At the party congress, Xi Jinping, the country’s leader, is expected to coast to another five-year term, further cementing his grip on power.In May, Li Keqiang, China’s premier, called an emergency meeting and sounded the alarm about the need to gin up economic growth to more than 100,000 officials from businesses and local governments. The stark warning cast doubt about China’s ability to reach its earlier growth target of 5.5 percent for the year. The Latest on China: Key Things to KnowCard 1 of 6China’s economy stumbles. More

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    Fed Confronts a ‘New World’ of Inflation

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    Central banks had a longstanding playbook for how inflation worked. In the postpandemic era, all bets are off.Federal Reserve officials are questioning whether their longstanding assumptions about inflation still apply as price gains remain stubbornly and surprisingly rapid — a bout of economic soul-searching that could have big implications for the American economy.For years, Fed policymakers had a playbook for handling inflation surprises: They mostly ignored disruptions to the supply of goods and services when setting monetary policy, assuming they would work themselves out. The Fed guides the economy by adjusting interest rates, which influence demand, so keeping consumption and business activity chugging along at an even keel was the primary focus.But after the global economy has been rocked for two years by nonstop supply crises — from shipping snarls to the war in Ukraine — central bankers have stopped waiting for normality to return. They have been raising interest rates aggressively to slow down consumer and business spending and cool the economy. And they are reassessing how inflation might evolve in a world where it seems that the problems may just keep coming.If the Fed determines that shocks are unlikely to ease — or will take so long that they leave inflation elevated for years — the result could be an even more aggressive series of rate increases as policymakers try to quash demand into balance with a more limited supply of goods and services. That painful process would ramp up the risk of a recession that would cost jobs and shutter businesses.“The disinflationary forces of the last quarter-century have been replaced, at least temporarily, by a whole different set of forces,” Jerome H. Powell, the Fed chair, said during Senate testimony on Wednesday. “The real question is: How long will this new set of forces be sustained? We can’t know that. But in the meantime, our job is to find maximum employment and price stability in this new economy.”When prices began to pick up rapidly in early 2021, top Fed policymakers joined many outside economists in predicting that the change would be “transitory.” Inflation had been slow in America for most of the 21st century, weighed down by long-running trends like the aging of the population and globalization. It seemed that one-off pandemic shocks, especially a used-car shortage and ocean shipping issues, should fade with time and allow that trend to return.But by late last year, central bankers were beginning to rethink their initial call. Supply chain problems were becoming worse, not better. Instead of fading, price increases had accelerated and broadened beyond a few pandemic-affected categories. Economists have made a monthly habit of predicting that inflation has peaked only to see it continue to accelerate.Now, Fed policymakers are analyzing what so many people missed, and what it says about the unrelenting inflation burst.“Of course we’ve been looking very carefully and hard at why inflation picked up so much more than expected last year and why it proved so persistent,” Mr. Powell said at a news conference last week. “It’s hard to overstate the extent of interest we have in that question, morning, noon and night.”The Fed has been reacting. It slowed and then halted its pandemic-era bond purchases this winter and spring, and it is now shrinking its asset holdings to take a little bit of juice out of markets and the economy. The central bank has also ramped up its plans to raise interest rates, lifting its main policy rate by a quarter point in March, half a point in May and three-quarters of a point last week while signaling more to come.Understand Inflation and How It Impacts YouInflation 101: What’s driving inflation in the United States? What can slow the rapid price gains? Here’s what to know.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.An Economic Cliff: Inflation is expected to remain high later this year even as the economy slows and layoffs rise. For many Americans, it’s going to hurt.Greedflation: Some experts say that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. It is making those decisions without much of an established game plan, given the surprising ways in which the economy is behaving.“We’ve spent a lot of time — as a committee, and I’ve spent a lot of time personally — looking at history,” Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said in an interview on Wednesday. “Nothing quite fits this situation.”A recruiter at a job fair in North Miami Beach, Fla., last week. Labor shortages are pushing up wages, which is likely contributing to higher inflation. Scott McIntyre for The New York TimesGas prices have helped drive inflation higher.Scott McIntyre for The New York TimesThe economic era before the pandemic was stable and predictable. America and many developed economies spent those decades grappling with inflation that seemed to be slipping ever lower. Consumers had come to expect prices to remain relatively stable, and executives knew that they could not charge a lot more without scaring them away.Shocks to supply that were outside the Fed’s control, like oil or food shortages, might push up prices for a while, but they typically faded quickly. Now, the whole idea of “transient” supply shocks is being called into question.The global supply of goods has been curtailed by one issue after another since the onset of the pandemic, from lockdowns in China that slowed the production of computer chips and other goods to Russia’s invasion of Ukraine, which has limited gas and food availability.At the same time, demand has been heady, boosted by government pandemic relief checks and a strong labor market. Businesses have been able to charge more for their limited supply, and consumer prices have been picking up sharply, climbing 8.6 percent over the year through May.Research from the Federal Reserve Bank of San Francisco released this week found that demand was driving about one-third of the current jump in inflation, while issues tied to supply or some ambiguous mix of supply-and-demand factors were driving about two-thirds.That means that returning demand to more normal levels should help ease inflation somewhat, even if supply in key markets remain roiled. The Fed has been clear that it cannot directly lower oil and gas prices, for instance, because those costs turn more on the global supply than they do on domestic demand.“There’s really not anything that we can do about oil prices,” Mr. Powell told senators on Wednesday. Still, he added later, “there is a job to moderating demand so that it can be in better balance with supply.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Covid Vaccine and Fisheries Deals Close a ‘Roller Coaster’ W.T.O. Meeting

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    Members of the global trade group were forced to scale back plans for more ambitious agreements, but they were ultimately able to reach several deals at a meeting in Geneva.WASHINGTON — Members of the World Trade Organization announced several agreements on Friday at the close of their first in-person ministerial conference in four years, pledging to rein in harmful government policies that have encouraged overfishing and relax some controls on intellectual property in an effort to make coronavirus vaccines more widely available.The agreements were hard fought, coming after several long nights of talks and extended periods when it appeared that the meeting would yield no major deals at all. Indeed, while the parties were able to reach a compromise on vaccine technology, the divide remained so deep that both sides criticized the outcome.“It was like a roller coaster, but in the end we got there,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said at an early-morning news conference in Geneva after the group’s members approved the final package of agreements.The deals were an important success for an organization that has come under fire for being unwieldy, bureaucratic and mired in disagreement. But several of the government officials, business leaders and trade experts who descended on the trade body’s headquarters on the shore of Lake Geneva this week described the agreements as the bare minimum and said the trade organization, while still operational, was hardly thriving.Wendy Cutler, a vice president at the Asia Society Policy Institute and a former trade negotiator, wrote in an email that the deals, “when packaged together, are enough to claim success but by no means suggest that the W.T.O. has turned a corner.”Ministers ended up stripping out some of the most meaningful elements of a deal to combat harmful subsidies for fishers that have depleted global fish stocks, Ms. Cutler said, and the pandemic response was “too little, too late.”The outcomes “seem particularly meager in light of the grave challenges facing the global economy, ranging from sluggish growth to a serious food crisis to climate change,” she said.To address the growing food crisis around the world, which has been brought on by the pandemic and the war in Ukraine, the group’s members made a mutual declaration to encourage trade in food and try to avoid export bans that are exacerbating shortages.The trade organization also agreed to temporarily extend a ban on taxes or customs duties on electronic transmissions, including e-books, movies or research that might be sent digitally across borders. But the debate was difficult and protracted over an issue that many businesses and some government officials argued should be low-hanging fruit.“Ministers spent the entire week preventing the demise of the e-commerce moratorium, instead of looking ahead at how to strengthen the global economy,” said Jake Colvin, the president of the National Foreign Trade Council, which represents major multinational businesses.One of the trade body’s biggest accomplishments was reaching an agreement to help protect global fishing stocks that has been under negotiation for the last two decades.Governments spend $22 billion a year on subsidies for their fishing fleets, often encouraging industrial fishing operations to catch far more fish than is sustainable, according to the Pew Charitable Trusts. The agreement would create a global framework for sharing information and limiting subsidies for illegal and unregulated fishing operations, as well as for vessels that are depleting overfished stocks or operating on the unregulated high seas.In the organization’s over 25-year history, the deal was only the second agreement on adjusting trade rules to be signed by all of the body’s members. And it was the group’s first agreement centered on environmental and sustainability issues.Oceans advocates had mixed reactions.Isabel Jarrett, manager of the Pew Charitable Trusts’ project to reduce harmful fisheries subsidies, called the agreement “a turning point in addressing one of the key drivers of global overfishing.”“Curbing the subsidies that drive overfishing can help restore the health of fisheries and the communities that rely on them,” she said. “The W.T.O.’s new agreement is a step towards doing just that.”But others expressed disappointment. “Our oceans are the big loser today,” said Andrew Sharpless, the chief executive of Oceana, a nonprofit group focused on ocean conservation. “After 20 years of delay, the W.T.O. failed again to eliminate subsidized overfishing and in turn is allowing countries to pillage the world’s oceans.”As part of the agreement, negotiations will continue with the goal of making recommendations on additional provisions to be considered at next year’s ministerial conference.World Trade Organization members also agreed to loosen intellectual property rules to allow developing countries to manufacture patented Covid-19 vaccines under certain circumstances. Katherine Tai, the U.S. trade representative, said in a statement that the trade organization’s members “were able to bridge differences and achieve a concrete and meaningful outcome to get more safe and effective vaccines to those who need it most.”The issue of relaxing intellectual property rights for vaccines had become highly controversial. It pitted the pharmaceutical industry and developed countries that are home to their operations, particularly in Europe, against civil society organizations and delegations from India and South Africa.Stephen J. Ubl, the president and chief executive of the Pharmaceutical Research and Manufacturers of America, said the agreement had “failed the global population.” Global vaccine supplies are currently plentiful, he said, and the agreement did little to address “real issues affecting public health,” such as supply chain bottlenecks or border tariffs on medicines.Lori Wallach, the director of the Rethink Trade program at the American Economic Liberties Project, called the outcome “a dangerous public health fail” and “a vulgar display of multilateralism’s demise” in which a few rich countries and pharmaceutical companies blocked the will of more than 100 countries to improve access to medicines. The agreement did not loosen intellectual property rights for treatments or therapeutics, as civil society groups had wanted.Divisions between rich and poor countries and between big business and civil society groups were apparent in other negotiations, which were also overlaid with the geopolitical challenges of a global pandemic and the Russian invasion of Ukraine.The World Trade Organization requires consensus from all of its 164 members to reach agreements, and India emerged as a significant obstacle in several of the negotiations, including over e-commerce duties and fishery subsidies.Mr. Colvin said the requirement of unanimous consent had put severe limits on the trade body’s ability to produce meaningful outcomes. “The system is set up to reward hostage-taking and bad faith,” he said.Catrin Einhorn More

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    Hiring Remains Strong Even as Fed Tries to Cool Economy

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    The Labor Department reported 390,000 new jobs in May, as policymakers try to ease inflation without inducing a recession.American employers extended an impressive run of hiring in May, even as policymakers took steps to cool the economy in an effort to ease high inflation.The Labor Department reported Friday that employers added 390,000 jobs, the 17th straight monthly gain. The unemployment rate was 3.6 percent for the third straight month, a touch away from a half-century low.At the same time, the labor force grew by 330,000 people, and the share of adults employed or looking for work continued to edge closer to prepandemic levels.The data signaled that the Federal Reserve’s initial moves to dial back its monetary support for the economy were — at least so far — not constraining business activity so much that hiring was feeling a pinch.After the strong rebound from the depths of the coronavirus lockdowns — all but 800,000 of the 22 million jobs that were lost have been recovered — the Fed has shifted its emphasis from maximum employment to its other mandate: price stability. The challenge is to apply its primary tool, a steady series of interest-rate increases, without inflicting a recession.“I think we’re on sort of what looks like a glide path right now, and that’s good — nothing’s broken,” said Guy Berger, the principal economist at the career-focused social network LinkedIn. “But keep fast-forwarding it a year and the question marks are still big.”The closely watched indicators include the impact on wages, which have been increasing at a pace not seen in decades, though not enough to keep up with inflation over the past year. The Fed is worried that rising labor costs will be passed along to consumers.Wages kept rising across industries.Percent change in average hourly earnings for nonmanagers since January 2019

    Data is seasonally adjusted. Not adjusted for inflation.Source: Bureau of Labor StatisticsBy The New York TimesOn that score, the Labor Department report showed little change in trajectory. Average hourly earnings rose 0.3 percent from the previous month, the same pace as in April, and were 5.2 percent higher than a year earlier, compared with a 5.5 percent year-over-year increase in April.“It’s moderating, but it’s not moderating to a level, I think, where it’s consistent with the Fed’s inflation goals,” said Michael Feroli, chief U.S. economist at J.P. Morgan, said of wage growth. He said the Fed would probably want wages to cool toward an annualized 3.5 percent pace, at the higher end, a rate that officials view as aligned with 2 percent inflation.The State of Jobs in the United StatesJob gains continue to maintain their impressive run, even as government policymakers took steps to cool the economy and ease inflation.May Jobs Report: U.S. employers added 390,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the fifth month of 2022.Vacancies: Employers had 11.4 million vacancies in April down from a revised total of nearly 11.9 million the previous month, which was a record.Opportunities for Teenagers: Jobs for high school and college students are expected to be plentiful this summer, and a large market means better pay.Higher Interest Rates: Spurred by red-hot inflation, the Federal Reserve has begun raising interest rates. What does that mean for the job market?President Biden gave a nuanced celebration of the jobs data in remarks on Friday, emphasizing recent gains while arguing that a slowdown would be welcome, allowing inflation to ease.“The point is this: We’ve laid an economic foundation that’s historically strong,” Mr. Biden said. “Now we’re moving forward to a new moment, where we can build on that foundation, build a future of stable, steady growth so that we can bring down inflation without sacrificing all of the historic gains that we have made.”Stocks declined on Friday and bond yields rose as investors evidently read the report as reinforcing the Fed’s muscular efforts, which risk denting economic growth. “The better the data, the more difficult that a pause or reduced pace of tightening later this year becomes,” analysts at TD Securities wrote in a research report published after the jobs numbers were released.The continued job gains are among many indications of a vibrant economy. Reports from the nation’s largest banks show checking accounts are still above 2019 levels for nearly all income groups. New bankruptcies and debt-collection proceedings are both at their lowest levels since tracking began in 1999.Yet those encouraging trends have been at odds with the generally sour national mood, dominated by inflation concerns. U.S. consumer sentiment declined in early May to the lowest since 2011, according to the University of Michigan.The unemployment rate stayed flat in May.The share of people who have looked for work in the past four weeks or are temporarily laid off More

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    Is ‘Greedflation’ Rewriting Economics, or Do Old Rules Still Apply?

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    Economists and politicians are debating whether monopolistic companies are fueling inflation in ways that confound longstanding theory.There are few good things about living through a period with the highest inflation in four decades, but here’s one: It’s a chance to re-examine what happens in an economy that’s gone haywire.Since prices started to escalate a year ago, politicians and economists have seized on inflation to tell their preferred story about what went wrong, and what policies would bring it back into line. Some say it’s very straightforward: Supply and demand, Economics 101.“There’s simply a lot of cash out there,” said Joe Brusuelas, chief economist for the accounting firm RSM US, referring to the several trillion dollars in pandemic stimulus that’s filtered into the economy since early 2020. “The competition for those goods is up and that’s sending prices up, whether we’re talking about getting a Nissan Sentra or a seat on an American Airlines flight.”The White House and progressive organizations, however, say wait a minute: This time is different. In a time of extraordinary disruption, they contend, increasingly dominant corporations are taking the opportunity to jack up prices more than they otherwise could, which is squeezing consumers and supercharging inflation. Or “greedflation,” as the hypothesis has come to be known.The argument comports with the Biden administration’s focus on the ills of economic concentration. Congressional Democrats have run with the idea, introducing bills that would impose a temporary “excess profits tax” on companies that charge prices they deem unreasonably high, or simply ban those high prices altogether. Critics, including the nation’s largest business lobby, deride these efforts as based on a “conspiracy theory” and a “flimsy argument.”So what’s really going on?It’s hard to tease out. A pandemic, a trade war, a land war, huge government spending, and a global economy that’s become vastly more integrated might be too complex for traditional macroeconomic theory to explain. Josh Bivens, research director at the left-leaning Economic Policy Institute, thinks that’s a good reason to revisit what the discipline thought it had figured out.“When I hear stories about an overheating labor market, I don’t think about falling real wages, and yet we have falling real wages,” Dr. Bivens said. Nor is the rise in profits typical when unemployment is so low. “The idea that ‘there’s nothing to see here’ — there’s everything to see here! It’s totally different.”When thinking about greedflation, it’s helpful to break it down into three questions: Are companies charging more than necessary to cover their rising costs? If so, is that enough to meaningfully accelerate inflation? And is all this happening because large companies have market power they didn’t decades ago?Productive Profits, or Gouging?There is not much disagreement that many companies have marked up goods in excess of their own rising costs. This is especially evident in industries like shipping, which had record profits as soaring demand for goods filled up boats, driving up costs for all traded goods. Across the economy, profit margins surged during the pandemic and remained elevated.When all prices are rising, consumers lose track of how much is reasonable to pay. “In the inflationary environment, everybody knows that prices are increasing,” said Z. John Zhang, a professor of marketing at the Wharton School at the University of Pennsylvania who has studied pricing strategy. “Obviously that’s a great opportunity for every firm to realign their prices as much as they can. You’re not going to have an opportunity again like this for a long time.”Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Measuring Inflation: Over the years economists have tweaked one of the government’s standard measures of inflation, the Consumer Price Index. What is behind the changes?Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.The real disagreement is over whether higher profits are natural and good.Basic economic theory teaches that charging what the market can bear will prompt companies to produce more, constraining prices and ensuring that more people have access to the good that’s in short supply. Say you make empanadas, and enough people want to buy them that you can charge $5 each even though they cost only $3 to produce. That might allow you to invest in another oven so you can make more empanadas — perhaps so many that you can lower the price to $4 and sell enough that your net income still goes up.Here’s the problem: What if there’s a waiting list for new ovens because of a strike at the oven factory, and you’re already running three shifts? You can’t make more empanadas, but their popularity has risen to the point where you would charge $6. People might buy calzones instead, but eventually the oven shortage makes all kinds of baked goods hard to find. In that situation, you make a tidy margin without doing much work, and your consumers lose out.This has happened in the real world. Consider the supply of fertilizer, which shrank when Russia’s invasion of Ukraine prompted sanctions on the chemicals needed to make it. Fertilizer companies reported their best profits in years, even as they struggle to expand supply. The same is true of oil. Drillers haven’t wanted to expand production because the last time they did so, they wound up in a glut. Ramping up production is expensive, and investors are demanding profitability, so supply has lagged while drivers pay dearly.Even if high prices aren’t able to increase supply and the shortage remains, an Economics 101 class might still teach that price is the best way to allocate scarce resources — or at least, that it’s better than the government price controls or rationing. As a consequence, less wealthy people may simply have no access to empanadas. Michael Faulkender, a finance professor at the University of Maryland, says that’s just how capitalism works.“With a price adjustment, people who have substitutes or maybe can do with less of it will choose to consume less of it, and you have the allocation of goods for which there is a shortage go to the highest-value usage,” Dr. Faulkender said. “Every good in our society is based on pricing. People who make more money are able to consume more.”Sorting Chickens and EggsThe question of whether profit margins are speeding inflation is harder to figure out.Economists have run some numbers on how much other variables might have contributed to inflation. The Federal Reserve Bank of San Francisco found that fiscal stimulus programs accounted for 3 percentage points, for example, while the St. Louis Fed estimated that manufacturing sector inflation would have been 20 percentage points lower without supply chain bottlenecks. Dr. Bivens, of the Economic Policy Institute, performed a simple calculation of the share of price increases attributable to labor costs, other inputs, and profits over time, and found that profit’s contribution had risen significantly since the beginning of 2020 as compared with the previous four decades.That’s an interesting fact, but it’s not proof that profits are driving inflation. It’s possible that causality runs the other way — inflation drives higher profits, as companies hide price increases amid broader rises in costs. The St. Louis Fed’s Ana Maria Santacreu, who did the manufacturing inflation analysis, said that it would be very hard to pin down.“It would be interesting to get data on profit margins by industry and correlate those with inflation by industry,” she said. “But I still think it is difficult to capture any causal relationship.”Concentration’s Double EdgeIf you think that’s complicated, try establishing whether market power is playing a role in any of this.It is well established that the American economy has grown more concentrated. On a fundamental level, domination by a few companies may have made supply chains more brittle. If there are two empanada factories and one of them has a Covid-19 outbreak, that in itself creates a more serious shortage than it would if there were 10 factories.“Concentration has affected prices during the pandemic, even setting aside any potentially nefarious actions on the part of leaders,” said Heather Boushey, a member of President Biden’s Council of Economic Advisers.But most of the public argument has been about whether companies with more market share have been affecting prices once goods are finished and delivered. And that’s where many economists become skeptical, noting that if these increasingly powerful corporations had so much leverage, they would have used it before the pandemic.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Fed Minutes Show Officials Expecting to Raise Rates Three Times to Address Inflation

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    Federal Reserve officials agreed at their last meeting that the central bank needed to move “expeditiously” to bring down the most rapid pace of inflation in 40 years, with most participants expecting as many as three half-a-percentage-point interest rate increases in the months ahead, minutes of the Fed’s May meeting showed.They also discussed the prospect of raising interest rates beyond the so-called neutral rate, at which they are neither supporting nor dampening the economy, to further slow economic growth as policymakers try to combat inflation.The officials noted that inflationary pressures were evident in a broad array of goods and services, causing hardship for Americans by eroding their incomes and making it hard for businesses to plan for the future. They said further supply chain disruptions from the Russian invasion of Ukraine and pandemic lockdowns in China were also threatening to push inflation higher.Their discussion highlighted the urgency of the task ahead, with some officials emphasizing “that persistently high inflation heightened the risk that longer-term inflation expectations could become unanchored,” making it more difficult for the central bank to return inflation to the 2 percent annual average that the Fed aims for.Officials also debated whether price pressures might be beginning to abate. Several observed that recent economic data suggested inflation might no longer be worsening, though they said it was too soon to say whether it had peaked. While they said the job market and consumer and business spending remained strong, they also expressed concern about “downside” risks to the economy “and the likelihood of a prolonged rise in energy and commodity prices.”Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.The Fed raised rates half a percentage point in May, its biggest rate increase since 2000. Officials also detailed a plan to shrink the central bank’s $9 trillion in bond holdings and signaled that it would continue making money more expensive to borrow and spend until it got inflation under control. In the May meeting, officials reiterated plans to begin winding down on June 1 a stimulus program that has been in place since early in the pandemic.The Fed’s policy rate is now set in a range of 0.75 to 1 percent.Its decision to raise rates by half a percentage point in May initially buoyed Wall Street, which had been worried about a larger increase of 0.75, as some officials had been suggesting. The Fed chair, Jerome H. Powell, speaking at a news conference after the May meeting, appeared to rule out such a large move, saying it was “not something the committee is actively considering.” Investors took notice of that comment, and stocks rallied.But in the weeks since, Mr. Powell has made clear that economic conditions remain incredibly uncertain and that the Fed may need to go bigger — or smaller — depending on how things evolve.“If things come in better than we expect, then we’re prepared to do less,” Mr. Powell said during an interview with “Marketplace,” a radio program distributed by American Public Media. “If they come in worse than when we expect, then we’re prepared to do more.”Still, as of the May meeting, “most participants judged that 50-basis-point increases in the target range would likely be appropriate at the next couple of meetings,” according to the minutes, which were released on Wednesday.Inflation F.A.Q.Card 1 of 5What is inflation? More