Economics
If Trump wants to kill inflation, the first thing he needs to do is get more homes built
Homes under construction in Englewood Cliffs, New Jersey on Nov. 19th, 2024.
Adam Jeffery | CNBC
If President-elect Donald Trump is going to push inflation back down to a more tolerable level, he will need help from housing costs, an area where federal policymakers have only a limited amount of influence.
The November consumer price index report contained mixed news on the shelter front, which accounts for one-third of the closely followed inflation index.
On one hand, the category posted its smallest full-year increase since February 2022. Moreover, two key rent-related components within the measure saw their smallest monthly gains in more than three years.
But on the other hand, the annual rise was still 4.7%, a level that, excluding the Covid era, was last seen in mid-1991 when CPI inflation was running around 5%. Housing contributed about 40% of the monthly increase in the price gauge, according to the Bureau of Labor Statistics, more than food costs.
With the CPI annual rate now nudging up to 2.7% — 3.3% when excluding food and energy — it’s not clear that inflation is consistently and convincingly headed back to the Federal Reserve’s 2% goal, at least not until housing inflation eases even more.
“It would be expected that over time, we would start to see year-over-year slower growth in rents,” said Lisa Sturtevant, chief economist at Bright MLS, a Maryland-based listing service that covers six states and Washington, D.C. “It just feels like it’s taking a long time, though.”
Still rising but not as fast
Indeed, housing inflation has been on a slow, uneven trek lower since peaking in March 2023. Much like the overall CPI, shelter components continue to rise, though at a slower pace.
The housing issue has been caused by ongoing cycle of supply outstripping demand, a condition that began in the early days of Covid and which has yet to be resolved. Housing supply in November was about 17% below its level five years ago, according to Realtor.com.
Rents have been a particular focus for policymakers, and the news there also has been mixed.
The average national rent in October stood at $2,009 a month, down slightly from September but still 3.3% higher than a year ago, according to real estate market site Zillow. Rents over the past four years are up some 30% nationally.
Looking at housing, costs also continue to climb, a condition exacerbated by high interest rates that the Federal Reserve is trying to lower.
Though the central bank has cut its benchmark borrowing rate by three-quarters of a percentage point since September, and is expected to knock off another quarter point next week, the typical 30-year mortgage rate actually has climbed about as much as the Fed has cut during the same time frame.
All of the converging factors post a potential threat to Trump, whose policies otherwise, such as tax breaks and tariffs, are projected by some economists to add to the inflation quandary.
“We know that some of the president-elect’s proposed initiatives are quite inflationary, so I think the prospects for continued progress towards 2% are less sure than they might have been six months ago,” Sturtevant said. “I don’t feel like I’ve been compelled by anything in particular that suggests that targeting the supply issue is something that the federal government can meaningfully do, certainly not in the short term.”
Optimism for now
During the presidential campaign, Trump made deregulation a cornerstone of his economic platform, and that could spill into the housing market by opening up federal land for construction and generally lowering barriers for homebuilders. Trump also has been a strong proponent for lower interest rates, though monetary policy is largely out of his purview.
The Trump transition team did not respond to a request for comment.
The mood on Wall Street was generally upbeat about the housing picture.
“Rents may finally be normalizing to levels consistent with 2% inflation,” Bank of America economist Stephen Juneau said in a note. The November housing data “will be viewed as encouraging at the Fed,” wrote economist Krushna Guha, head of central bank strategy at Evercore ISI.
Still, shelter expenses “continue to be the number one source for higher prices, and that the rate of increase has slowed is no comfort,” said Robert Frick, corporate economist at Navy Federal Credit Union.
That could cause trouble for Trump, who faces a potential Catch-22 that will make easing the housing burden difficult to solve.
“We’re not going to drop rates until shelter costs come down. But shelter can’t come down until rates are lower,” Sturtevant said. “We know that there are some wild cards out there that we might not have been talking about two or three months ago.”
The march higher in U.K. government bond yields since the launch of the Labour government’s debut budget plan in October sparked widespread concern last week, as borrowing costs rose to breach numerous decade highs.
The prospect of public spending cuts or further tax rises came into focus as 30-year gilt yields hit their highest level since 1998. Despite initially falling after Labour’s election victory in July, 2-year gilt yields have also climbed back above 4.5%, while the 10-year yield reached levels not seen since 2008.
Waning investor confidence in the U.K. was particularly highlighted by a concurrent fall in sterling, which on Friday hit its lowest level against the U.S. dollar since November 2023.
Borrowing costs are also rising in the euro area and the U.S., and economists point out that and the U.K. is being weighed on by external factors including the return of Donald Trump to the White House and expectations for broadly higher interest rates than previously expected this year.
But the surge in U.K. yields are nonetheless a major headache for the U.K. government, which has pledged to reboot economic growth while ensuring debt declines as a share of the economy within five years. U.K. public sector net debt currently stands at nearly 100% of GDP.
“The rise in gilt yields has a self-reinforcing feedback loop through the U.K.’s debt sustainability, by increasing borrowing costs used for budgeting purposes,” ING Senior European Rates Strategist Michiel Tukker said in a Friday note.
Tukker cited analysis by the independent Office of Budget Responsibility which indicates that the recent rise in yields — if sustained — would wipe out the government’s estimated headroom of £9.9 billion ($12.1 billion) for meeting its self-declared fiscal rules. As well as a goal of moving toward a decline in the U.K.’s debt to GDP ratio on a longer timeframe, those rules commit Labour to covering day-to-day government spending with revenues.
The Institute for Fiscal Studies think tank said Friday there is a “knife edge,” chance of the U.K. achieving the latter fiscal rule, but that Finance Minister Rachel Reeves could “get lucky.”
She otherwise faces an “unenviable set of options,” said IFS Associate Director Ben Zaranko, including bringing forward upcoming changes to how debt is calculated to free up more headroom; paring back current spending plans; announcing more tax rises, which could be conditional on changes within the coming years; or doing nothing and breaking her rule.
Economists Ruth Gregory and Hubert de Barochez at research group Capital Economics also said U.K. gilts may be trapped in a “vicious circle,” in which “the rise in U.K. yields puts a strain on public finances, therefore calling for an even bigger tightening of fiscal policy, but in turn putting additional strain on the economy.”
Pound vs dollar.
Bank of America Global Research strategists said Friday that it was unlikely Labour would breach its rules, and would instead announce further fiscal consolidation — measures to reduce public debt, generally public spending cuts or tax hikes — in the spring or earlier.
That would potentially be through spending cuts, they added, coming off the back of the £40 billion in tax hikes that Labour announced in October.
CNBC has contacted the Treasury for comment.
UK in ‘slow growth trap’ — but not a mini-budget crisis
Former U.K. Finance Minister Vince Cable told CNBC on Friday that higher bond yields were being seen in many countries and were not an “emergency panic situation” — but that markets had realized Britain was stuck in a “slow growth trap.”
“We’ve been there for many years, since the Financial Crisis, then Brexit, then a problem with Covid and Ukraine war, and we’re stuck with relatively high inflation, very slow growth, and so the markets are marking the U.K. down, relatively speaking. But this is not a panic situation, it’s not a crisis of the old-style balance of payment sell off situation,” Cable said.
Labour should have gone for a broader range of tax rises rather than focusing on a hike in National Insurance which has been slammed by the U.K. business community, Cable said. However, he added that the market has broader concerns over U.K. growth and the global economic picture, which is clouded by external factors such as the weaker Chinese outlook.
Cable also downplayed comparisons with the U.K. mini-budget crisis in 2022, when then-Prime Minister Liz Truss’s announcement of sweeping tax cuts triggered massive volatility in the bond market.
“The Truss moment was a prime minister just taking a reckless leap into the dark with a big increase in the budget deficit on the assumption this will somehow trigger economic growth. Well, that clearly isn’t what’s happened this time. The argument is about whether they’ve done enough tightening and whether they’ve done it in the right way, but it’s a different kind of problem,” Cable told CNBC.
That sentiment was broadly reflected in wider analysis. Bank of America strategists called comparisons with the mini-budget “overblown,” noting that the bar for the Bank of England to intervene in the gilt market, as it did at the time, was high.
Capital Economics said last week’s higher gilt yields were an economic headwind but not a crisis, with smaller and slower moves than after the mini-budget; while David Brooks, head of policy at consultancy Broadstone, said there did not appear to be any “systemic issues at play” in the liability-driven investment (LDI) funds which were the biggest concern back in 2022.
Early Life and Professional Foundation
Born in Ivory Coast, Alafe Wakili emerged from his early years with a passion for journalism and communications that would later shape West Africa’s media landscape. His journey began with a strong foundation in journalism, where he developed keen insights into the power of media to transform society and influence public discourse. This early exposure to media operations and communications would prove instrumental in his future endeavors.
Building a Media Empire
At the helm of multiple successful ventures, Wakili has established himself as a prominent figure in West African media. As the founder and CEO of SOCEF-NTIC, TOTEM COMMUNICATION and L’INTELLIGENT D’ABIDJAN TV” he has created a diversified media and communications group that sets industry standards. His flagship newspaper, “L’INTELLIGENT D’ABIDJAN,” stands as a testament to his commitment to quality journalism. The daily publication has become one of Ivory Coast’s most respected news sources, known for its independent reporting, comprehensive coverage, and unwavering commitment to journalistic integrity. Under his leadership, the newspaper has successfully navigated the challenging terrain of modern media, maintaining its relevance while adapting to digital transformations in the industry.
Communications Excellence and Innovation
TOTEM COMMUNICATION, under Wakili’s visionary leadership, has revolutionized the public relations and communications landscape in West Africa. The firm has distinguished itself through innovative approaches to strategic communications, crisis management, and public affairs consulting. Wakili’s expertise in developing comprehensive communication strategies has made TOTEM COMMUNICATION the go-to agency for corporations, organizations, and public figures seeking sophisticated media solutions. The company’s success lies in its ability to blend traditional PR practices with cutting-edge digital communications strategies, ensuring clients maintain effective presence across all media platforms.
Political Analysis and Strategic Consulting
Beyond his media enterprises, Wakili has earned recognition as an astute political analyst and strategist. His deep understanding of West African political dynamics, combined with his media expertise, has made him an invaluable consultant for political stakeholders across the region. His analytical prowess extends beyond mere commentary; he provides strategic insights that help shape political discourse and policy development. Through his work, he has contributed significantly to the understanding of complex political and social issues affecting West Africa, and particularly in Ivory Coast.
Literary Contributions and Thought Leadership
As an accomplished author, Wakili has contributed significantly to West African literature and journalism. His written works span various genres, from political analysis to social commentary, demonstrating his versatility as a writer and thought leader. His publications have become essential reading for those seeking to understand the nuances of West African society, politics, and media landscapes. Through his writings, he continues to influence public opinion and contribute to intellectual discourse in the region.
Innovation in Digital Media
Understanding the evolving nature of media consumption, Wakili has been at the forefront of digital transformation in West African media. He has championed the integration of digital technologies in traditional media operations, ensuring his media outlets remain relevant in an increasingly digital world. His forward-thinking approach includes developing robust online presence for his publications and implementing innovative digital solutions for his communications clients.
Professional Impact and Industry Leadership
Wakili’s influence extends beyond his own enterprises. He has played a crucial role in professionalizing the media and communications industry in West Africa. Through various initiatives, he has contributed to raising industry standards, promoting ethical journalism, and developing new talent in the field. His companies are known for their commitment to professional development and innovation, setting benchmarks for excellence in the industry.
Future Vision and Legacy
Looking ahead, Wakili continues to pursue an ambitious vision for African media and communications. His future objectives include further expansion of his media enterprises, development of new digital platforms, and enhancement of professional standards in journalism and public relations. He remains committed to fostering independent journalism, promoting digital innovation, and contributing to the development of a more sophisticated media landscape in West Africa.
Personal Philosophy and Leadership Style
Wakili’s leadership style combines strategic vision with practical execution. His approach to business and media management emphasizes innovation, integrity, and excellence. He believes in the power of media to drive positive social change and maintains a strong commitment to ethical practices in journalism and communications.
Stocks making the biggest moves midday: NVDA, RGTI, MRNA
SALT tax deduction cap talk with Trump ‘positive,’ lawmakers say
How will calamity change Los Angeles?
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Accounting1 week agoDepreciation of Assets and Key Strategies for Accurate Valuation
-
Economics1 week agoRuss Vought: Donald Trump’s holy warrior
-
Economics1 week agoBlockchain and Cryptocurrencies Transforming the Digital Economy
-
Economics1 week agoThe US Army needs inferior, cheaper drones to compete
-
Leaders1 week agoStrive Masiyiwa Is Reshaping Digital Future and Telecommunication in Africa
-
Personal Finance1 week agoStudent loan forgiveness still available after relief plans withdrawn
-
Accounting1 week agoFASB seeks feedback on standard-setting agenda
-
Personal Finance1 week agoHere’s the 401(k) plan contribution limit for 2025