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Inflation is at historic lows, so why do things seem so expensive?

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Ever had the experience of seeing that the temperature is 40 degrees, but then you step outside and the ‘real feel’ is more like 20?

Well, something similar is going on in the economy, specifically with inflation. Currently only slightly above the Federal Reserve’s target 2% level, the inflation rate remains at historical lows. Stories of the double-digit annual inflation of the 1970s and 1980s that made buying a home or filling a gas tank painful seem almost apocryphal.

But a Fortune analysis of inflation data and price changes in critical areas vital to consumers suggests that, for many, rising prices in a variety of categories are making everything from rent to college and healthcare seem out of reach for many consumers. A recent Bankrate survey showed that 57% of U.S. adults did not expect their personal financial situation to improve this year.

So why the disconnect?

To dig deeper, you have to look at how inflation is calculated. And what the government measures, versus what the average person paying for housing, healthcare, school and childcare (categories that have grown anywhere from 18% to 65% faster than disposable income) experiences, are two very different things.

First, a bit of background. Inflation is the measure of how prices and wages grow over time. The faster they rise, the higher the level of inflation. To determine the general inflation rate—known as the CPI-U, or consumer price index for all urban consumers—the government tracks the cost of a market basket of goods and services, based on surveys of what consumers buy at any given time.

“The majority of that basket is going to be housing expenses” like mortgage or rent, food, and clothing, said Rebecca Neumann, an economics professor at the University of Wisconsin-Milwaukee. Other parts include such items as childcare, transportation costs, college, and health care.

The CPI-U is a complex composite. Some prices change more slowly and others, far quicker. The graph below compares the percentage growth rates of housing (both rent and a rent-equivalent for home owners), school and childcare, health, CPI-U, and per capita disposable income (average income after taxes across all people).

Economists, government officials, public policy advocates, investors, and businesses often discuss the CPI-U as a single measure of inflation—and for good reasons, as it is a way of discussing average changes in the overall economy. But there is a serious limitation. The calculated number doesn’t apply evenly across all categories of goods and services, in all places, or for all people.

“We’re not back in the 70s where you see pricing increases every day,” said Neumann. “But we have this steady [trend of] prices going up, and more in some categories than another.”

As the graph shows, the price increases in some of the most critical categories of expenses quickly outstrip inflation and, more so, the rate at which average disposable income grows. In addition, disposable income is not distributed evenly across the population; those who have lower take home pay will see an even bigger gap between income and expenses.

Individual inflation

While inflation is frequently treated as a hard and fast number, your ‘personal’ rate of inflation can vary greatly depending on which goods and services you’re spending your money on and where you live.

Part of an individual rate depends on location. Even one measure, like the CPI-U, doesn’t apply accurately across all geographic regions and demographics. The Bureau of Labor Statistics has a list of CPIs for different states as well as specific cities. Someone in a rural area may find different inflation rates because their likely market basket won’t completely match that of an urban dweller.

Where people are in their lives also has a big impact as types of incurred expenses can change. Someone dealing with college costs, daycare for young kids, or a health crisis will have a higher personal inflation rate because those fast-rising categories now have a heavier personal impact than the CPI-U would show.

There are also technical aspects of defining inflation that can make a general number virtually meaningless for many. The CPI-U is only one of three consumer price index versions. There is a CPI-W for urban wage earners and clerical workers. Both depend on survey data that is two to three years old.

The third is the C-CPI-U, or chained CPI for all urban consumers. It incorporates more recent information and also looks at relative prices and substitution of one good for another.

“You substitute other things you wouldn’t have bought when prices were different,” like maybe buying cheaper brands of clothing or swapping a chicken quarter for a steak, said Chester Spatt, a professor of finance at the Tepper School of Business at Carnegie Mellon University.

Substitution lets people decrease what they spend so the C-CPI-U inflation rate is lower than the CPI-U. The difference between the two measures of inflation has lead some politicians to support use of C-CPI-U when calculating automatic changes in government programs. The switch lowers government expenses.

For example, the 2017 tax overhaul changed how the IRS calculates automatic increases in tax brackets due to inflation. As goods and services get more expensive, a dollar doesn’t go as far as it once did. Brackets become higher to take that into account.

Adjustments used to be based on CPI-U. Now they use C-CPI-U, which is smaller so brackets grow more slowly. A greater portion of someone’s income can fall into higher brackets than would have been true using CPI-U, meaning more taxes are due.

There are also inconsistencies between economic theory and individual lives. Over time, CPI measurements have increased focus on the quality of goods and services.

“The quality of most goods, like technology goods, has improved,” said Steven Sheffrin, a professor of economics and affiliated professor of law at Tulane University. The differences in capabilities between a laptop computer or smartphone from the mid-2000s and 2020 are substantial. “If the good today is better and the price is the same, the good is actually cheaper,” he said.

But a word processor or browser might show no improvement that is obvious to the owner. This year’s model of smartphone likely has a better camera than one from two years ago, but you still pay today’s prices even if you can’t see, or don’t care, about the difference. From the consumer’s viewpoint, the product may not seem any cheaper.

The upshot of individual inflation and madly racing price growth in key areas is that personal finances become even more of a challenge.

How does a family plan for college costs when they can’t predict the gap between what they can save, the increase in prices, and the amount a school’s financial aid department expects as a contribution? How can an individual deal with an unexpected illness that far surpasses the support health insurance offers?

Those are equations that no government metric seems to be able to accurately solve.

More must-read stories from Fortune:

—All of your questions on filing taxes in 2020, answered
—The health of the economy in nine charts
—Global companies enter lockdown mode as coronavirus rocks China
—Bull market advice for investing in today’s market
—WATCH: Biggest investing opportunities and risks for 2020

Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.



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Think long-term for your financial security

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Some opportunities only come once in a lifetime. With the release of CIMB Bank Philippines’ (CIMB Bank PH) new ‘One Shot at Love’ short film, the digital bank wants to show every Filipino out there looking for love how having good saving habits can make them ready for those unexpected, life-changing moments.

The film tells the story of the typical working-class millennial: hard-working, future-oriented… and bored. The routine of every day gets exhausting, and without someone special to spend them with the days just blur on by until the next paycheck.

But life’s biggest moments hardly ever come with warning. You never know what each day can bring. But when the opportunity of a lifetime comes knocking on your door, you’d be happy to have some money in the bank to seize it.

Whether it’s for an unexpected plane ticket, for the capital for a new business, or for the funds to supplement a scholarship application, money allows freedom. This is the true meaning of financial inclusion — to give Filipinos the ability to seize the opportunities that life throws their way.

Bringing more Filipinos towards financial inclusion

Since its foundation in December 2018, CIMB Bank PH has aimed to bring more Filipinos towards financial inclusion. As an all-digital, mobile-first bank, it has served around two million customers since its first year of establishment, earning its reputation as the most awarded digital bank in the country in 2019, securing eight international awards, including Global Finance’s Best Digital Consumer Bank, Asian Banker’s Best Digital Bank, and International Finance’s Fastest Growing Digital Bank Award.

The all-digital bank seeks to empower Filipinos by giving them access to flexible, innovative products and services specifically designed to prepare them for every opportunity. Through the CIMB Bank PH mobile app, Filipinos can open a savings account and apply for a personal loan without the hassle of waiting in line or the extensive paperwork required by traditional banks.

Applicants can open an UpSave account seamlessly in 10 minutes, anytime all-year round, all without an initial deposit, minimum balance, nor any penalty charges for anytime withdrawal.

To help more Filipinos in their financial journey, UpSave account holders also have access to one of the highest savings interest rates in the market at a no-time-limit 4% per annum — 1600% higher than other major banks in the country. Account holders with P100,000 and above average daily balance can also get free life insurance coverage worth up to P2 million.

CIMB Bank PH’s digital model further accounts for Filipinos’ increasingly busy work schedules by forming strategic partnerships with local payment gateways, giving their account holders access to over 8,000 convenience partners to make their transactions, or withdraw in over 20,000 ATMs nationwide for free.

The all-digital bank eliminates the barriers of traditional borrowing methods offered by other banks through an all-digital loan application system. No need to appear for a personal review, as the system allows for initial loan approval of up to P1 million in 10 minutes (with a minimum of P30,000), with zero processing fees and no hidden charges. Loans are payable within 12 to 60 months, providing flexibility and ease of mind for borrowers.

Giving everyone a chance to take charge of their life

Financial inclusion, after all, is giving every Filipino the chance to take charge of their life and make the decisions they need to create a better future.

How many people in the distant provinces remain unbanked without a choice? How many businesses failed to get off the ground because of a lack of capital? How much savings have been lost to inflation due to low interest rates?

With an always-accessible mobile app, best-in-market rates, and a hassle-free loan application system, financial inclusion for every Filipino might not be so far away.

“Highlighting how financial literacy is a main component of CIMB Bank’s operations in the Philippines as the company fulfills its mission in bringing Filipinos closer to their next step of achieving a comfortable future while enjoying today,” said CIMB Bank Philippines Chief Executive Officer Vijay Manoharan.

CIMB Bank PH is the newest member of the CIMB Group, one of ASEAN’s leading banks and is present in over 16 global markets. With the establishment of CIMB Bank PH, CIMB Group is able to extend its reach and transform the Filipino banking experience.

To know more about CIMB Bank PH, click here or download the app for Android and iOS.


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Nokia to Weigh Strategic Options as Profit Pressure Mounts

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(Bloomberg) — Nokia Oyj is exploring strategic options as fierce competition puts pressure on the Finnish network equipment maker’s earnings, people familiar with the matter said.The company is working with advisers to consider potential asset sales and mergers, the people said, asking not to be identified because the information is private.Nokia shares have lost roughly a third of their value over the past year before news of its deliberations. The company’s American depositary receipts rose as much as 13% Wednesday. The ADRs closed up 6.1% to $4.15 in New York trading, giving the company a market value of about $23.5 billion.The firm cut its outlook and suspended its dividend in October, saying it’s not expecting a major recovery in profit until 2021. That’s ratcheting up pressure on Chief Executive Officer Rajeev Suri to act.Deliberations are ongoing, and there’s no certainty they will lead to a transaction, the people said. A representative for Espoo, Finland-based Nokia declined to comment.Possible CombinationsOne possibility Nokia could also consider is combining with a competitor like Ericsson AB or partnering in certain business areas. Still, such a move would face significant hurdles including political pressure to preserve jobs as well as antitrust scrutiny. A representative for Ericsson declined to comment.The limited number of direct rivals to Nokia would also require the company to consider interest from further afield — like technology companies or wireless operators — if it were to ever seek a full sale.The December announcement that Nokia Chairman Risto Siilasmaa would step down stirred speculation about deeper changes at the company. The firm is in a fierce rivalry with Ericsson and China’s Huawei Technologies Co., as the three dominant players seek to benefit from phone carriers’ investments in next-generation mobile networks.“Nokia’s return to sustained growth and profitability has been delayed by its struggle to transition to a cost-competitive 5G hardware design, impeding its ability to compete, in our view. The 5G spending cycle is ramping up as commercial launches gain momentum, putting Nokia at risk of losing early awards.”\–John Butler and Boyoung Kim, telecom analysts, Bloomberg IntelligenceThe U.S. should be “actively considering” investments into Nokia or Ericsson to counter the threat posed by China’s dominance of emerging 5G technology, Attorney General William Barr said this month.Huawei RivalsLarry Kudlow, President Donald Trump’s top economic adviser, later said the U.S. government isn’t in the business of buying companies. He has since announced plans by the White House to hold a conference with Huawei rivals to try to accelerate development of affordable competing products.Nokia warned this month that, excluding China, its addressable market is likely to be stagnant this year compared with 2019.As it struggles to catch up with competitors, Nokia’s acquisition of French rival Alcatel-Lucent in 2016, which helped to broaden its offering, may have slowed down development of new products as it contended with a complicated integration process.(Updates with Ericsson response in sixth paragraph)\–With assistance from Matthew Monks.To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net;Dinesh Nair in London at dnair5@bloomberg.net;Myriam Balezou in London at mbalezou@bloomberg.net;Niclas Rolander in Stockholm at nrolander@bloomberg.netTo contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Ben Scent, Michael HythaFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.



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Lowe’s anemic e-commerce growth is helping Home Depot deepen its lead

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In the era of the so-called retail apocalypse, reporting even modest in-store sales growth should seem close to miraculous.

But that’s not the case for Lowe’s. On Wednesday, the $72 billion-a-year home improvement giant reported a 2.6% increase in comparable sales for the fourth fiscal quarter of 2019. Up against its biggest competition, Home Depot, that figure underscored a major weakness in Lowe’s business: a lackluster e-commerce business.

Lowe’s said that sales on its website rose 3% in the quarter ending January 31. On a call with Wall Street analysts, Lowe’s CEO Marvin Ellison acknowledged that the company’s e-commerce trajectory “lags market growth.” He is right on that front: in the final three months of 2019, e-commerce sales in the U.S. rose 16.7%, according to the U.S. Census Bureau.

But of greater concern to Lowe’s, digital sales growth at archrival Home Depot was 20.8% during the same fiscal quarter, and data firm eMarketer estimates Home Depot’s e-commerce business has now hit the $10 billion mark. (Total Home Depot revenue was $110 billion.) Home Depot’s overall U.S. comparable sales rose 5.3%, continuing a years-long tradition of outpacing Lowe’s in quarterly sales growth.

“At the beginning of 2019, Lowes.com was sitting on a decade old platform,” Ellison explained to the analysts, noting that the “replatforming” of the site would not be complete until sometime in the second quarter of the current year.

Ellison tried to put a good spin on the numbers, saying, “there are very few large retailers in America delivering a 2.6% comp growth almost exclusively from the brick-and-mortar stores.”

Thin consolation. As results at countless big box retailers have shown, the stronger the e-commerce growth, the greater in-store sales growth is too since both avenues feed business to each other and reinforce the overall brand.

At Home Depot, for instance, some 50% of online orders last quarter were picked up in store. Such customers typically pick up an extra item or two while at the store, and the process saves Home Depot shipping money.

Ellison said he expects the trajectory of Lowe’s e-commerce business to change in the second half of 2020. Even so, the company will have a lot of catching up to do.

Home Depot has ramped up its business-to-business website that caters specifically to professional contractors, its biggest customer segment by sales. There are 1 million customers using the site. And, pairing with that site, in-store sales staff is equipped with customer relationship management tools that catalogs what customers bought previously and what they might need for a current project.

Meanwhile, Lowe’s is still looking to improve the basic functions of its main site. Ellison was candid about some its shortfalls and pointed to the labor intensive process of adding items to its online assortment, particularly for items that will be shipped by a brand directly to the customer rather than by Lowe’s. The process is currently manual, but Ellison said he is working on digitizing that. He also conceded that basic features like giving customers the ability to schedule a delivery in a narrow time window haven’t been added to the site yet. Ellison said new features like the tighter scheduling window will be “up and going by the second half” of 2020.

The CEO of J.C. Penney before joining Lowe’s in 2018, Ellison struggled to fix the department store chain’s ailing e-commerce business despite years of promises. While Lowe’s e-commerce is in better shape than Penney’s ever was, it remains a show-me story for Ellison.

E-commerce woes and all, Lowe’s has a lot of wind in its sails thanks to the booming housing market, a trend that has also lifted Home Depot. But, unless Lowe’s bridges the online shopping gap with Home Depot, it will be much harder to eke out sales gains when the environment gets tougher .

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—Land O’Lakes wants you to know the farmer behind your butter
—How “for women, by women” Lola views its investor’s Trump ties
—WATCH: Inside the algorithm powering Stitch Fix

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