February 29, 2024

Economix Blog: How Social Security Cuts Could Affect Children

President Obama’s budget includes a controversial — at least on the left — change in the way Social Security benefits are adjusted for inflation that would save the government about $130 billion over 10 years, but would reduce payments for tens of millions of Americans over time.

The switch, to a “chained consumer price index,” would allow Social Security benefits to grow more slowly. That might more accurately reflect the overall growth in prices for things like home rentals, electronics and food. But it might not more accurately reflect the price inflation that older Americans tend to experience, as my colleague Eduardo Porter has pointed out.

The change would mean less money for the elderly. But it would also mean less money for children.

One underappreciated point is that Social Security benefits millions of children and working-age Americans, as well as older adults. According to calculations of census data performed by the Center on Budget and Policy Priorities, a left-leaning Washington research group, Social Security keeps about 21 million Americans above the poverty line every year. About a third of those people are younger than retirement age, and about 1.1 million of them are under age 18.

It is not just those very low-income families that benefit, either. As of 2011, about six million children, or 8 percent of all people under 18, lived in a household receiving Social Security benefits. In part, that is because so many households with children also include a grandparent. But more than four million children are direct recipients of benefits, too, often because they have a deceased or disabled parent.

President Obama’s chained C.P.I. proposal does include protections that would prevent benefit reductions for many of the most vulnerable households. Means-tested benefit programs — like the Supplemental Security Income program — would not be affected, for instance. And economists believe that the switch to chained C.P.I. would have a negligible impact on the poverty rate over all, while reducing poverty for the very old.

Nevertheless, reductions in Social Security benefits would mean reductions in family incomes, including those of millions of families with children. And children who qualify for Social Security benefits because they have a disabled, deceased or retired parent or guardian would see slower-growing benefits too.

Article source: http://economix.blogs.nytimes.com/2013/04/12/how-social-security-cuts-could-affect-children/?partner=rss&emc=rss

Food Costs Threaten Rebound in China

BEIJING — Diners looking for beef hot pot on a chilly evening in Beijing pay more than their counterparts in Boston, a discrepancy that shows the challenges China faces in reviving growth as inflationary pressures return.

A 6 percent increase in food costs drove a rise in the Chinese consumer price index to 3.2 percent in February, compared with the same period a year earlier, a 10-month high, official data released Saturday showed. The index was 2 percent in January.

On Monday, China’s top economic planning agency, the National Development and Reform Commission, forecast consumer price inflation at about 3 percent for 2013.

Food prices typically rise in advance of the Lunar New Year holiday, which occurred in February this year. But since the holiday ended, meat prices, especially those for beef and lamb, have stayed elevated.

Retail beef prices in Beijing city markets are higher compared with supermarkets in the Boston area. Pork, China’s staple meat, is only about 50 cents per kilogram, or 23 cents a pound, below the U.S. price, a Reuters comparison of standard retail prices show. Those prices represent a direct hit on the spending power of Chinese, whose average income is about a 10th the size of Americans’ salaries.

Contributing to food production costs are the loss of farmland and farm labor to urbanization — Chinese cities are swelling as they absorb hundreds of millions of people.

Grazing restrictions because of land degradation are also causing costs to rise across the country.

“The more the economy develops, the harder it is to raise calves,” said Wang Jimin, who tracks cattle trends for the Chinese Academy of Agricultural Science’s Rural Economic Development Institute. “In the short term, I don’t see meat prices falling unless there are a lot of imports.”

After an international outbreak of mad-cow disease a decade ago, China allows beef imports only from Australia, New Zealand and Uruguay, so options to tame prices with imports appear limited.

For the near future, high feed costs will also help elevate the price of pork, an increase that is expected to drive broader inflation gains by the third quarter.

“It’s a question of fundamentals, not monthly C.P.I. fluctuations,” said Shi Tao, a livestock analyst at eFeedlink in Shanghai, referring to the consumer price index.

He said he expected a reduction in the pork supply this year because some pig breeders had decided to drop out of the business after losing money last summer.

Beef production in China has decreased every year since 2008, although it could rise by less than 1 percent this year, the U.S. Department of Agriculture estimates.

“Cattle take at least a year to raise, not like chickens, which need a few months at most,” said Yang Shaohui, a poultry vendor in Beijing. “Poultry producers can respond to the market much faster.” His chicken was selling for about a third of the price of the beef at a nearby stall.

The pressure on meat prices in China highlights not only the challenge of bringing inflation under control but also the drive to shift the economy toward consumer-led growth, Beijing’s stated goal after decades of export-led expansion.

“Accelerating food prices mean less growth in spending on other goods and services in the economy,” Carl Weinberg, the China-watching chief economist at the New York consulting firm High Frequency Economics, wrote in a client note.

A large increase in prices could jeopardize Chinese economic growth, which weakened in 2012 to its slowest pace in more than a decade. Growth only started to pick up in the fourth quarter after a seven-quarter slide.

It is a dilemma that China’s incoming leaders, Xi Jinping and Li Keqiang, might have hoped they would not have to face so early in the economic recovery.

“This year, I think, there are three priorities: to stabilize economic growth, which is not too big of a problem,” to stabilize the prices of goods, “where already it looks like there could be some pressure,” and to reduce the risk from hidden debt, like off-book wealth management products, said Zhao Xijun, deputy director of the Finance and Securities Institute at Renmin University in Beijing.

There are already indications that the Chinese central bank is shifting its policy focus to inflation from growth. China needs to control inflation as a priority, the central bank said in its fourth-quarter policy report in February, shifting from a pledge in its previous report to support the economy above other needs.

Rising food prices represent a sensitive area for the Chinese Communist Party leadership given that social tension has often accompanied price increases. Food price increases can fuel inflation expectations that lead to a broader rise in inflation and the risk that the central bank will tweak monetary policy to keep a lid on the price pressures.

But policy makers should resist the temptation for pre-emptive action, said Ting Lu, chief China economist at Bank of America Merrill Lynch in Hong Kong.

“Though policy makers should be wary of inflation later this year with an economic growth recovery, it’s too early to call for significant monetary tightening,” he wrote in a note to clients.

Article source: http://www.nytimes.com/2013/03/12/business/global/food-costs-threaten-rebound-in-china.html?partner=rss&emc=rss

Consumer Prices Fall 0.3% on Lower Gas Costs

Gas prices fell 7.4 percent, the biggest drop in nearly four years, offsetting a 0.2 percent rise in food prices.

The seasonally adjusted Consumer Price Index dropped 0.3 percent in November from October, the department said.

In another report on Friday, the Federal Reserve said that factory output increased 1.1 percent in November from October as factories rebounded from Hurricane Sandy. But after factoring out the storm’s impact — output declined 1 percent in the previous month, a drop that was blamed on the hurricane — the broader trend in manufacturing remained weak.

Auto production jumped 4.5 percent last month, the first increase since July. Production of primary metals, wood products, electrical equipment and appliances all showed gains.

Total industrial output at factories, mines and utilities also rose 1.1 percent last month, after a 0.7 percent decline in October.

In the consumer price report, priced ticked up 0.1 percent in November, excluding the volatile food and gas categories. Core prices have risen 1.9 percent in the last year, below the Federal Reserve’s annual target of 2 percent. Higher rents, airline fares and new cars pushed up core prices last month. The cost of clothing and used cars fell.

“In simplest terms, inflation is not a problem,” Jim Baird, chief investment strategist at Plante Moran Financial Advisors, said. Lower inflation “is a real positive that should provide modest relief for households dealing with limited income growth.”

High unemployment and slow wage growth have made businesses reluctant to raise prices, for fear of driving away customers. That has helped keep inflation tame.

Gas prices have fallen sharply in the last two months after spiking in the late summer. A gallon of gas cost an average of $3.29 nationwide Friday. That’s 15 cents less than a month ago and 50 cents less than in mid-October.

The increase in food prices was smaller than many economists expected. This summer’s drought in the Midwest, which scorched corn and soybean crops, has pushed up food prices, but not sharply. Food costs have risen 1.8 percent in the past 12 months.

The cost of milk, cheese and other dairy products, however, have risen 0.8 percent in each of the last two months. That could reflect the higher cost of animal feed, which usually includes corn and soybeans. Cereals and baked goods rose 0.3 percent last month.

But prices for the broad category of meat, chicken, fish and eggs fell in November after a big gain the previous month.

Shoppers may face further increases soon. Wholesale food costs jumped 1.3 percent last month, according to a separate report Thursday, the most in nearly two years.

Beef prices jumped the most in four and a half years, and vegetable costs rose sharply. Grocery stores may pass on some of those costs in the coming mons.

With inflation in check, the Fed said on Wednesday that it now planned to keep the short-term interest rate at nearly zero until the jobless rate fell to at least 6.5 percent, as long as inflation was not expected to top 2.5 percent.

It was the clearest sign yet that the Fed will keep rates low even after unemployment falls further and the economy picks up.

Article source: http://www.nytimes.com/2012/12/15/business/economy/consumer-inflation-declines.html?partner=rss&emc=rss

Economix Blog: Visiting the Doctor Less, but Spending More on Health



Dollars to doughnuts.

The average annual number of times Americans visit medical providers has been falling over the last decade, according to a new report from the Census Bureau. But their overall spending on health care is still rising.

Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6;and 2008 Panel, waves 4 and 7. Chart from Health Status, Health Insurance, and Medical Services Utilization: 2010, by Brett O’Hara and Kyle Caswell.Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6; and 2008 Panel, waves 4 and 7. Chart from “Health Status, Health Insurance, and Medical Services Utilization: 2010,” by Brett O’Hara and Kyle Caswell.

Among Americans 18 to 64 years old, the average person visited medical providers 3.9 times in 2010, compared to 4.8 times in 2001.

Both healthy Americans and less healthy Americans reported going to the doctor less frequently in 2010 than they did in 2001:

Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6;and 2008 Panel, waves 4 and 7. Chart from Health Status, Health Insurance, and Medical Services Utilization: 2010, by Brett O'Hara and Kyle Caswell.Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6; and 2008 Panel, waves 4 and 7. Chart from “Health Status, Health Insurance, and Medical Services Utilization: 2010,” by Brett O’Hara and Kyle Caswell.

Visits to the doctor and other medical providers may be falling, but health spending is still substantially higher today than it was a decade ago, according to the Labor Department’s Consumer Expenditure Survey.

The typical household (including residents of all ages) spent $3,313 on health care in 2011, compared to $2,771 in 2001, after adjusting for inflation.

Sources: Consumer Expenditures Survey, Consumer Price Index.Sources: Consumer Expenditures Survey, Consumer Price Index.

Health care spending has generally been rising even as total household spending has stagnated or fallen in recent years. As a result, health care spending is eating up a larger share of total household budgets than it used to. As of 2011, the typical American household spent 6.7 percent of its total expenditures on health care.

Source: Consumer Expenditure Survey.Source: Consumer Expenditure Survey.

Almost every category of health care spending has been rising.

The average American household spent $768 on medical services last year, an increase of 3.1 percent from the year before. It also spent $1,922 on health insurance, an increase of 1.8 percent from the year before; and $134 on medical supplies, up 9.2 percent from the year before.

Annual household spending on prescription and nonprescription drugs fell 2.3 percent, however, to $489.

Spending growth on health insurance is slower than that for some other health care categories, but the base was so large to begin with that health insurance is accounting for a growing percentage of the typical household’s total health care spending. In other words, a bigger share of households’ health care spending is going through insurance companies as opposed to coming from co-payments and other out-of-pocket spending.

Source: Consumer Expenditure Survey. Source: Consumer Expenditure Survey.

Article source: http://economix.blogs.nytimes.com/2012/10/01/visiting-the-doctor-less-but-spending-more-on-health/?partner=rss&emc=rss

China October Inflation Eases

Inflation fell from 6.1 percent in September and marked the third straight decline since a peak of 6.5 percent in July, bolstering expectations that price pressures were on a solid downtrend.

Premier Wen Jiabao said prices had fallen further since October, adding to the view that policymakers will edge toward more pro-growth policies, although inflation is still too high to expect a cut in interest rates.

“As inflation worries ease, the room for fine-tuning monetary tightening is getting bigger,” said Ting Lu, an economist at Bank of America/Merrill Lynch in Hong Kong.

“Policymakers might still put taming inflation as a top priority, but we will see policies to be increasingly nudged toward pro-growth.

“That said, we don’t expect a major change in monetary policy stance or some high profile moves such as cuts of policy rates and RRR (required reserve ratios).”

The inflation figures soothed investors concerns about a sharp slowdown in China, supporting oil prices and underpinning Chinese shares, although market direction is being largely set by events in Europe.

The 5.5 percent rise in the consumer price index in the year to September was bang in line with expectations from a Reuters poll.

Producer price inflation also showed a marked slowdown to 5.0 percent in October, a one-year low, from 6.5 percent in September. The median of a Reuters poll had forecast an October reading of 5.7 percent.

Economist Lu said the combination of figures suggested his forecast that consumer inflation would drop to 4.6 percent in December may now be too high.

Indeed, Wen suggested prices had continued to fall.

“Since October, overall domestic prices have been falling noticeably,” Wen was quoted as saying by a government website. “Prices of pork and eggs have fallen, but prices of fruit, dairy products, beef and mutton remain at high levels,” he said.

China’s leaders have begun talking in recent weeks about “fine tuning” macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 percent, its weakest in more than two years.

But they have also made it clear that stabilizing prices and fighting inflation remain the top priority, so analysts rule out a rate cut or reduction in bank reserve ratios anytime soon.

Most evidence of the fine-tuning has so far been seen through tweaks to tax policy aimed at small and medium-sized businesses and some signs that bank lending to that sector of the economy — which supports 75 percent of China’s jobs — could be relaxed.

“The best way of controlling price rises is to boost production,” said Wen.

The premier also said Beijing would not loosen policies to rein in the red-hot property market, a report on the official Xinhua news agency said.

Wen said the construction of government-subsidized housing projects would help relieve some supply strains and ease housing inflation.

The latest data showed that food prices, a major source of inflationary pressure in China, rose 11.9 percent in October from a year earlier, the smallest annual increase since May.

But they fell 0.2 percent from September, the first decline since May.

“This indicates inflation pressure is indeed slowing,” said Zhang Zhiwei, an economist at Nomura in Hong Kong, who said consumer inflation may drop below 5 percent in November.

“Lower inflationary pressure leaves room for further policy fine tuning. The PBOC has already marginally loosened liquidity by open market operations in October.

“We expect this type of fine-tuning to continue, but RRR and interest rates will be kept unchanged for the rest of 2011.”


While most analysts rule out an immediate cut in interest rates, there is more debate on when the central bank might reduce bank reserve ratios. At 21.5 percent, the RRR is at a record level for big banks.

Article source: http://feeds.nytimes.com/click.phdo?i=0d0a4fbe74417de4a329f980a6a20868

Letters: Speculators and the Price of Oil

In “Speculators Get a Break in New Rule” (Fair Game, Sept. 25), Gretchen Morgenson noted how Senator Bill Nelson, Democrat of Florida, was objecting to a Commodity Futures Trading Commission rule proposal regarding how many financial contracts traders can accumulate for any given commodity.

Mr. Nelson cited research showing that speculators may now be adding $21 to $27 to the cost of a barrel of oil — or about 25 percent of the total.

If so, why allow speculators who cannot take delivery of any commodity to buck up the Consumer Price Index and defeat all growth in the rest of the American economy?

Just imagine the uproar that would ensue if anyone seriously proposed a new $20-a-barrel tax on oil. Albert Henderson

Milford, Conn., Sept. 25

A Progressive Flat Tax

To the Editor:

In “Darwin, the Market Whiz” (Economic View, Sept. 18), Robert H. Frank says adoption of a flat tax “is unlikely because it would fall disproportionately on people with lower incomes.”

That problem is easily solved by exempting from taxation, say, the first $25,000 of income. Someone making $25,000 would owe no taxes. Assuming a 20 percent tax rate, someone earning $50,000 would owe $5,000 in taxes (20 percent of $50,000 less the $25,000 exemption), an effective rate of 10 percent.

The tax on $100,000 of income would be $15,000 (20 percent of $75,000), an effective rate of 15 percent. On $1 million in earnings it would be $195,000 (20 percent of $975,000), an effective rate of 19.5 percent.

Such a “progressive flat tax” could satisfy conservatives with its flat rate, and liberals with its progressive effective rate.

Steve Nelson

Washington, Mass., Sept. 19

2 Pictures, 2 Messages

To the Editor:

In the Sunday Business section of Sept. 25, one article profiled Christine Lagarde, the new managing director of the International Monetary Fund (“Mme. Lagarde Goes to Washington”), and another featured David Barger, chief executive of JetBlue Airways (“Early Access as a Fast Track to Learning”).

Under Mr. Barger’s picture, the caption described a business lesson he has learned. Under Ms. Lagarde’s photograph, the comments were about her wardrobe.

And you believe that you are not tilting against women?

Jacqueline Heneage

Bridgeport, Conn., Sept. 25

Letters for Sunday Business may be sent to sunbiz@nytimes.com.

Article source: http://feeds.nytimes.com/click.phdo?i=0661a01498534a1df85c6349d0b3a47b

Economix: Is Deflation Back?

Deflation has returned.



Dollars to doughnuts.

For the first time in a year, consumer prices fell in June, according to a new report from the Commerce Department released Tuesday. The price decline was driven by energy declines, and is just one month’s data point, but even so, the figure is worrisome. The Federal Reserve pays close attention to this price index (more so, reportedly, than to the Consumer Price Index released by the Labor Department); and you may recall that part of the reason the Federal Reserve engaged in quantitative easing was the threat of a deflationary spiral.

Source: Bureau of Economic Analysis, via Haver Analytics

The Commerce Department’s report delivered other bad news, too.

Nominal personal income increased by just 0.1 percent in June — and the increase was due to higher government transfer payments (like unemployment benefits) and capital gains income, not wages and salaries.

In fact, private wage and salary income fell in June.

None of these facts bode well for growth in the third quarter of this year, given that the economy is so dependent on consumer spending. And the austerity measures created by the recent debt ceiling deal look unlikely to make things better.

Article source: http://feeds.nytimes.com/click.phdo?i=ed27f8f29ab1b0ede865c80037135df0

Fast Growth and Inflation Threaten to Overheat Chinese Economy

“Prices have gone up a lot,” Mr. Wang said at a vegetable market Friday. “It’s a very bad thing to have prices go up and down. Unstable prices make people nervous and make society unstable. In this sense, our generation even has some nostalgia for Mao’s era.”

This is the predicament China finds itself in today: Fast growth has fired up the country’s economic engines, but it has also led to stubbornly high inflation, which threatens to overheat the economy and undermine the long-running boom that the country has experienced.

The latest evidence of this came Friday when China said its economy had grown 9.7 percent in the first quarter of this year, certainly the strongest performance among the world’s biggest economies. But the government also said that in March the consumer price index had risen 5.4 percent from the level of a year earlier, the sharpest increase in 32 months.

Analysts were not surprised by the figures, but some experts say they believe they may understate the real rate of growth and inflationary pressure. Bank lending, for instance, picked up strongly last month, and food, energy and raw material prices have risen sharply this year. In March alone, the government said, food prices rose 11.7 percent.

To prevent overheating, Beijing is trying to moderate growth and rein in inflation. During the past six months, the government has tightened restrictions on bank lending, raised interest rates, increased agricultural subsidies and even prevented Chinese companies from raising consumer prices.

Analysts, however, say the results have been mixed. Growth has begun to moderate from the torrid pace of 10 percent annual growth last year, but inflationary pressure has not abated; in fact, it has strengthened. Some analysts say inflation may not peak until June.

Although the government has promised to tame the property market, housing prices continue to climb, and much of this country’s growth continues to be fueled by real estate projects and government investment in infrastructure.

In the first quarter of this year, fixed asset investment, a broad measure of building activity, jumped 25 percent from the level of a year ago and real estate investment soared 37 percent, the government said Friday.

Gasoline prices have also jumped sharply, in line with global oil prices. Gasoline prices in China have risen from about $3.82 a gallon, or $1 a liter, in 2009 to about $4.50 a gallon today. Fast food chains have raised prices, and during just the past year the price of fruit has jumped more than 31 percent.

Export prices are also rising because of higher commodity, raw material and labor costs. And since China is the world’s biggest exporter, what happens in its coastal factories could eventually have a major effect on prices in other parts of the world.

Indeed, in the country’s biggest export zones, factory bosses regularly complain about worker shortages and higher labor costs.

The government has encouraged higher wages in the hopes of reducing the big income gap between the rich and the poor, and the urban and rural. But that is driving up the costs of production.

Many analysts say the government is going to have to do more to tame inflation.

“Despite the most aggressive period of tightening in years, the government cannot seem to slow the economy down,” Alistair Thornton, an analyst at IHS Global Insight, wrote in a research report Friday. “With inflation expectations still running high and prices at disconcerting levels, the government will need to press on with its tightening schedule.”

China’s current boom got under way in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $4 trillion government stimulus package and record lending by state-run banks.

A loose monetary policy and big investments in local government projects revived powerful economic growth that analysts say quickly sent land, housing and food prices soaring.

As early as 2009, however, there were already concerns about the health of Chinese growth, largely because of worries about high property prices, heavy bank lending and overly aggressive investing by local governments, many of which had been amassing huge debts.

Article source: http://www.nytimes.com/2011/04/16/business/global/16yuan.html?partner=rss&emc=rss

Economix: Does Core Inflation Predict Overall Inflation?

In his recent op-ed in The Times, Laurence Meyer, a former Federal Reserve governor, argued that core inflation — excluding oil and food prices — was a better predictor of future inflation than overall inflation was. In other words, if overall inflation is rising rapidly but core inflation is not, as is happening now, we should assume that overall inflation will soon drop.

That makes some logical sense. Oil and food prices are strongly influenced by forces outside the United States, like Mideast politics, South American crop yields and global economic growth. Unless American workers have enough leverage to demand raises that help their wages keep pace with inflation, their wages won’t keep pace. And the economy won’t then fall into the dreaded wage-price spiral, in which price increases lead to wage increases, wage increases cause companies to increase prices further and so on.

To see if reality matched this theory, I plugged the numbers on overall inflation and core inflation since 1980 into a spreadsheet. (I used the inflation measure from the gross domestic product report, which is the Fed’s preferred measure, rather than the Consumer Price Index.) I then looked at two different correlations. First, the correlation between the last three months of overall inflation and the following three months of overall inflation; second, the correlation between the last three months of core inflation and the following three months of overall inflation.

If Mr. Meyer’s theory is correct, the second correlation should be stronger. And indeed it is. On a scale of 0 to 1, it is 0.68. That means that the variation in recent core inflation explains about 68 percent of the variation in future overall inflation. The first correlation — between the last three months and the next three months of overall inflation — is only 56 percent.

The first year of the recent recession offers a nice example:

Bureau of Economic Analysis, via Haver Analytics

In the fall of 2008, shortly after Lehman Brothers collapsed, overall prices plunged, driven by a sharp drop in oil prices. If you were looking at only headline inflation, you might think that the United States was entering a deflationary spiral. But core inflation never suggested deflation was at hand.

Sure enough, it wasn’t. Prices soon began rising sharply — but the country was not then entering an inflationary spiral. Overall inflation was simply returning to the larger trend that core inflation showed all along.

The moral is that the Fed should not overreact to the recent increases in food and oil prices. My column this week has more on this subject.
Also, I recommend an article by Mark Thoma, the University of Oregon economist who writes The Economist’s View blog.

Article source: http://feeds.nytimes.com/click.phdo?i=7a32b18bc1454dc2905e19e7d71d34c6