Newsletter: Everyday Low Prices – Real Time Economics

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Our Prices Are Insane
U.S. consumer prices rose slowly in December, capping a decade of soft inflation with a quiet peep. The consumer-price index—which measures the costs of everyday goods and services from food to dental care—was up 2.3% from a year earlier. For the decade, prices climbed about 19%, the weakest such stretch since the Great Depression. Consumer prices more than doubled in the 1970s, when the Nixon administration broke the dollar’s last link to gold, oil prices skyrocketed and the Federal Reserve started to combat inflation with higher interest rates. Since then, consumer price gains, in aggregate and as measured by the government, have been heading lower.

While overall price gains have been tame, some expenses have powered higher over the past 10 years. Televisions, toys and cell-phone services might have gotten relatively cheaper (in part because of improved quality), but medical care and education costs are up significantly. (h/t to the American Enterprise Institute’s Mark Perry for the chart idea.)

A final note from Heard on the Street’s Justin Lahart: Just because economists have been struggling to understand why inflation has been so low doesn’t mean that inflation can’t pick up. Instead, their struggle may simply show that inflation is hard to predict, and might end up doing something unexpected. Indeed, in the early 1960s inflation was running even cooler than it is today. Policy makers assumed that would continue and rather suddenly found out they were wrong.
WHAT TO WATCH TODAY
The U.S. producer-price index for December is expected to rise 0.2% from the prior month. (8:30 a.m. ET)
The New York Fed’s Empire State survey for January is expected to rise to 4.0 from 3.5 the prior month. (8:30 a.m. ET)
The Philadelphia Fed’s Patrick Harker speaks on interest rates at 10:45 a.m. ET and the Dallas Fed’s Robert Kaplan speaks to the Economic Club of New York at 11:30 a.m. ET.
President Trump and Chinese Vice Premier Liu He sign a phase-one trade deal at 11:30 a.m. ET.
The Federal Reserve releases its beige book report on U.S. economic conditions at 2 p.m. ET.
TOP STORIES
Phase-One and Done?
President Trump and Chinese Vice Premier Liu He are scheduled to sign a phase-one trade pact Wednesday. But a continuing battle over technology is bound to keep relations between the two superpowers on edge. The Trump administration’s immediate focus: Huawei Technologies, a Chinese telecom giant the White House and Congress view as a national-security threat. Twin efforts—cracking down on technology exports while easing tariffs—represent different factions within the administration. While there is broad agreement that China’s power should be checked, there is no consensus among or even within various agencies on the best approach, Bob Davis and Katy Stech Ferek report.

You’re Next
The European Union’s top trade official is trying to head off a trans-Atlantic trade war. Hanging over Phil Hogan’s first U.S. visit since taking office last month is a widening European trade surplus and threats from President Trump, who says the EU is “taking advantage” of the U.S. and is worse than China on trade issues. Washington is threatening to slap levies on $2.4 billion of French goods over a digital tax, considering expanding tariffs on $7.5 billion worth of imports over EU subsidies for airplane maker Airbus, and has not ruled out imposing duties on some $60 billion worth of European auto exports. Rather than directly address the issues stoking U.S. anger, Mr. Hogan is focusing on how the two economies can together tackle China’s market-distorting trade policies. But Mr. Trump’s administration has largely opted to tackle China alone, Emre Peker and Josh Zumbrun report.

A trade war could hit Europe at a vulnerable moment. Economic growth in Germany slumped to a six-year low in 2019. A recession in Germany’s outsize manufacturing sector was the main factor behind the tepid performance.
You’re Grounded
Boeing said deliveries and new orders for its jetliners hit their lowest point in more than a decade as the global grounding of the 737 MAX undermined the aerospace giant’s business. The company suspended deliveries following two fatal crashes and has since halted production, Doug Cameron and Benjamin Katz report. That will ripple through the economy: IHS Markit economists estimate the production halt will knock 0.5 percentage point off of first-quarter gross domestic product.
One reason for optimism: Boeing’s order count also has suffered from a two-year drought from China customers, which historically has accounted for a quarter of deliveries. President Trump—in a tweet—has said his trade deal with China could unlock $20 billion in aircraft orders.

The Old Apartment
U.S. builders are on track to finish more new apartments in 2020 than in any year since the 1980s. The crush comes as state and local governments grapple with how to create more rentals to combat the rising cost of housing for middle- and lower-income families. But as much as 80% of new supply this year will come from luxury developments. Property developers say that the costs associated with land acquisition and construction have become so steep that catering to affluent renters presents the best opportunity to make a profit, Will Parker reports.

The Wheels on the Bus Go ‘Round and ‘Round
U.S. cities are rethinking bus service as they face increasing traffic and falling ridership. Competition ranging from electric scooters to ride-hailing services like Uber are driving people away from buses nationwide. One solution: Free rides. The idea is catching on in cities like Lawrence, Mass., Olympia, Wash., and Kansas City, Mo. Lawrence used $225,000 in reserves to waive fares on three bus lines for two years. The regional transit agency said ridership on the lines climbed quickly—up about 24% in the first few months from a year earlier, Jon Kamp reports.

WHAT ELSE WE’RE READING
Global interest rates are falling. It’s been that way for centuries. “[S]ince the major monetary upheavals of the late middle ages, a trend decline between 0.6–1.6 basis points per annum has prevailed. … Against their long-term context, currently depressed sovereign real rates are in fact converging ‘back to historical trend’—a trend that makes narratives about a ‘secular stagnation’ environment entirely misleading, and suggests that—irrespective of particular monetary and fiscal responses—real rates could soon enter permanently negative territory,” Bank of England economist Paul Schmelzing writes in a working paper.
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