High inflation has many Americans tweaking their holiday travel plans

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Travelers are shifting their holiday getaway plans to avoid busting their budgets amid high inflation, according to a new Bankrate survey.

Forty-three percent of U.S. adults are planning to take overnight leisure trips between Thanksgiving and New Year’s; of them, 79% are adapting to rising prices for travel in various ways, according to the survey.

For example, 26% are shortening their trips, 25% are selecting cheaper accommodations or destinations, 24% are taking fewer trips, 23% are traveling shorter distances and 23% are driving instead of flying, according to the survey.

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The dynamic disproportionately impacts travelers with lower household incomes: 86% of those with less than $50,000 of annual income are adjusting their travel plans versus 70% of those earning more than $100,000, according to Bankrate.

“Travel costs have surged, so it’s important to plan ahead and factor these expenses into your overall holiday budget,” Ted Rossman, senior industry analyst at Bankrate, said. 

“I suggest making airplane and hotel reservations earlier than in previous years, since demand will probably outpace supply,” he added. “This summer, air travel was particularly messy as consumers unleashed pent-up demand and the industry couldn’t keep pace.”

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Costs for airfare, hotels and rental cars had been rising quickly through 2021 along with consumer prices in the broader U.S. economy, though retreated a bit in recent months.

Airline fares in August were up 33% versus a year earlier and by 9.3% relative to 2019, according to the consumer price index, an inflation gauge.

Meanwhile, rental car prices were down 6.2% versus August 2021, while hotel lodging was up 4.5% and gasoline prices increased 25.6% over the same period. Dining out at restaurants is also 8% more expensive.

10 U.S. metros where high earners have seen the most wage growth

Worker wages have risen since the onset of the coronavirus pandemic. That’s true for high, median and low-income workers, and for hourly and salaried workers alike. “It’s labor shortages,” says Sinem Buber, lead economist at ZipRecruiter. There aren’t enough workers to fill certain roles, driving up the offers employers are willing to make.

When it comes to high-income earners, for example, those making salaries in the 95th percentile ― or those making more than 94% of salaried workers ― average earnings across the U.S. went from $299,301 per year in 2019 to $327,254 per year in 2021, according to new data tracking 26 million salaried workers across the U.S. from HR company ADP.

And depending on where you are in the country, you might’ve seen a greater wage hike than others.

ADP surveyed the 53 biggest metro areas in the U.S. (those with more than 1 million residents) to see where salaried workers saw the biggest wage gains. Here are the 10 metro areas with the greatest gains for high-income earners, including their percent gain and average annual salaries in 2019 and 2021.

San Francisco-Oakland-Hayward, California

Percent gain: 15.99%

2019 annual salary: $525,415

2021 annual salary: $609,447

New Orleans-Metairie, Louisiana  

Percent gain: 16.42%

2019 annual salary: $208,149

2021 annual salary: $242,331

San Diego-Carlsbad, CA

Percent gain: 18.59%

2019 annual salary: $338,984

2021 annual salary: $402,000

Jacksonville, Florida 

Percent gain: 18.81%

2019 annual salary: $225,480

2021 annual salary: $267,901

Nashville-Davidson-Murfreesboro-Franklin, Tennessee

Percent gain: 20.15%

2019 annual salary: $283,209

2021 annual salary: $340,280

Miami-Fort Lauderdale-West Palm Beach, Florida

Percent gain: 22.13%

2019 annual salary: $275,132

2021 annual salary: $336,020

Sacramento-Roseville-Arden-Arcade, California

Percent gain: 22.45%

2019 annual salary: $274,540

2021 annual salary: $336,187

Seattle-Tacoma-Bellevue, Washington

Percent gain: 25.44%

2019 annual salary: $399,066

2021 annual salary: $500,570

Buffalo-Cheektowaga-Niagara Falls, New York

Percent gain: 25.71%

2019 annual salary: $235,691

2021 annual salary: $296,287

San Jose-Sunnyvale-Santa Clara, California  

Percent gain: 27.87%

2019 annual salary: $541,438

2021 annual salary: $692,341

A few factors may be contributing to this part of the workforce’s wage gains.

The U.S. brings in top talent from around the world to fill positions in fields like tech. But the pandemic halted or slowed many of these activities, “So the talent shortage we are seeing at the high end of the spectrum is also because of low international immigration,” says Buber. There aren’t as many people around to fill those coveted positions.

As a result, companies are competing for a smaller base of local talent and responding by offering them better packages. While this can include a higher salary, says Buber, often this includes hiring bonuses, which can get reflected in the ADP data. This could be the case in tech hubs like San Francisco and Seattle.

Many of these positions can also be done remotely. As a result, throughout the pandemic, people in the 95th percentile may have moved to cheaper cities, suburbs or states to get the most of their salaries.

“Their departures likely thinned the middle of the salary distribution,” says Issi Romem, a fellow at the ADP Research Institute and co-author of the report, “shifting some high earners down the percentile chain and giving the 95th percentile spot to an even higher earner.” This could be the case in historically expensive cities like San Francisco.

Conversely, it’s possible those people moving out of expensive metros and into less expensive ones shifted the wage scales in the latter. While it seems like wages have hiked in the latter, in fact, there are simply more people making higher salaries there as a result of migration. This could be the case in some of the Californian suburbs highlighted above, says Buber.

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2-year Treasury tops 4.2%, a 15-year high as Fed jolts short-term rates higher

Yields climbed on Friday and the yield on the 2-year Treasury note notched a new 15-year high as markets assessed the Federal Reserve’s latest rate hike and what it means for the economy going forward.

The policy-sensitive 2-year Treasury hit a fresh 15-year record of 4.266% earlier in the session but was last trading at 4.19%.

Meanwhile, the yield on the 10-year hit an 11-year high of 3.829% earlier in the session but last traded two basis points lower at 3.685%.

Yields and prices move in opposite directions, with one basis point equaling 0.01%.

The climb in yields came as markets weighed the implications of the Federal Reserve’s latest policy decisions as it signals its willingness to accept a recession ahead if it means an end to surging inflation.

The Fed on Wednesday delivered another large 75 basis point interest rate hike and indicated it intends to stay aggressive, bumping up interest rates to 4.6% in 2023 and 4.4% by the end of 2022. Global central banks took a note from the Fed’s playbook, implementing their own substantial hikes in the wake of the decision.

Even with this week’s stark move higher in yields, many analysts believe yields could climb higher.

“While we are likely much closer to the end of the increase in global rates then we are the beginning, it’s still going to take a peak in global inflation and a drop in global economic activity for yields to stop this rise and begin to decline,” wrote Tom Essaye of the Sevens Report in a note to clients Friday.

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, told CNBC’s “Squawk Box” on Friday that he sees the 10-year hitting at least 4% and added that the steepening inverted yield curve suggests a recession ahead. Many analysts interpret short-term rates being significantly higher than long-term rates as a signal of a downturn.

“The bond market anticipates a recession in the first half of 2023 and is already looking forward to the eventual recovery,” he said. “That’s what happened in 2006, 2007 — we are following the same pattern.”

Electric vehicle (EV) sales set to hit an all-time high in 2022, IEA says

Tesla electric cars photographed in Germany on March 21, 2022. According to the International Energy Agency, electric vehicle sales are on course to hit an “all-time high” this year.

Sean Gallup | Getty Images News | Getty Images

Electric vehicle sales are on course to hit an all-time high this year, but more work is needed in other sectors to put the planet on course for net-zero emissions by 2050, according to the International Energy Agency.

In an announcement accompanying its Tracking Clean Energy Progress update, the IEA said there had been “encouraging signs of progress across a number of sectors” but cautioned that “stronger efforts” were required to put the world “on track to reach net zero emissions” by the middle of this century.

The TCEP, which is published yearly, looked at 55 parts of the energy system. Focusing on 2021, it analyzed these components’ progression when it came to hitting “key medium-term milestones by the end of this decade,” as laid out in the Paris-based organization’s net-zero pathway.

On the EV front, the IEA said global sales had doubled in 2021 to represent nearly 9% of the car market. Looking forward, 2022 was “expected to see another all-time high for electric vehicle sales, lifting them to 13% of total light duty vehicle sales globally.”

The IEA has previously stated that electric vehicle sales hit 6.6 million in 2021. In the first quarter of 2022, EV sales came to 2 million, a 75% increase compared to the first three months of 2021.

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The IEA said both EVs and lighting — where more than 50% of the worldwide market is now using LED tech — were “fully on track for their 2030 milestones” in its net-zero by 2050 scenario.

Despite the outlook for EVs, the IEA separately noted that they were “not yet a global phenomenon. Sales in developing and emerging countries have been slow due to higher purchase costs and a lack of charging infrastructure availability.”

Overall, the rest of the picture is a more challenging one. The IEA noted that 23 areas were “not on track” with a further 30 deemed as needing more effort.

“Areas not on track include improving the energy efficiency of building designs, developing clean and efficient district heating, phasing out coal-fired power generation, eliminating methane flaring, shifting aviation and shipping to cleaner fuels, and making cement, chemical and steel production cleaner,” the IEA said.

The shadow of 2015’s Paris Agreement looms large over the IEA’s report. Described by the United Nations as a “legally binding international treaty on climate change,” the accord aims to “limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.”

Cutting human-made carbon dioxide emissions to net-zero by 2050 is seen as crucial when it comes to meeting the 1.5 degrees Celsius target.

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In a statement issued Thursday the IEA’s executive director, Fatih Birol, appeared cautiously optimistic. “There are more signs than ever that the new global energy economy is advancing strongly,” he said.

“This reaffirms my belief that today’s global energy crisis can be a turning point towards a cleaner, more affordable and more secure energy system,” he added.

“But this new IEA analysis shows the need for greater and sustained efforts across a range of technologies and sectors to ensure the world can meet its energy and climate goals.”

The IEA’s report comes at a time when the debate and discussion about climate goals and the future of energy has become increasingly fierce.

This week, the U.N. secretary general said developed economies should impose an extra tax on the profits of fossil fuel firms, with the funds diverted to countries affected by climate change and households struggling with the cost-of-living crisis.

In a wide-ranging address to the U.N. General Assembly in New York, Antonio Guterres described the fossil fuel industry as “feasting on hundreds of billions of dollars in subsidies and windfall profits while households’ budgets shrink and our planet burns.”

How high inflation may affect which tax bracket you’re in next year

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Typically, the IRS releases inflation adjustments for the following year in October or November, and Pomerleau predicts 7% increases across many provisions for 2023.

“This year, we’ll see a larger-than-average adjustment because we’ve experienced higher-than-usual inflation,” he said.

This includes higher tax brackets and a bigger standard deduction.

For example, the 24% tax bracket may rise to $190,750 of taxable income for joint filers in 2023, up from $178,150 for 2022, Pomerleau estimates.

This year, we’ll see a larger-than-average adjustment because we’ve experienced higher-than-usual inflation.

Kyle Pomerleau

Senior fellow with the American Enterprise Institute

There may also be a higher exemption for so-called alternative minimum tax, a parallel system for higher earners, and more generous write-offs and phaseouts for the earned income tax credit for low- to moderate-income filers and more.

And the estate tax exemptions may rise to $12.92 million and $25.84 million for single and joint filers, respectively, up from $12.06 million and $24.12 million, Pomerleau predicts.

However, that’s not a guarantee of smaller tax bills for 2023.

“It’s going to depend on the taxpayer,” Pomerleau said, pointing to different types of income, how much earnings have inflated and which provisions may apply.

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Retirement account contribution limits may increase

Higher inflation adjustments may also benefit retirement savers, with larger contribution limits for 401(k) and individual retirement accounts, Pomerleau said.

While it’s too early to predict 401(k) deferral caps, he expects annual IRA limits to jump to $6,500 for savers under 50, up from $6,000 for 2022.

“The jump for the IRA contribution limit is closer to 8% or 9% this year because of the way it interacts with the rounding rule,” he said, explaining it adjusts in $500 increments.

Some tax provisions still won’t adjust for inflation

And the $3,000 limit for capital loss deductions has been fixed for about 30 years. “Inflation is eroding that away,” Pomerleau said.

While the $10,000 limit on the federal deduction for state and local taxes, known as SALT, will sunset after 2025, the set cap is “having a larger impact in the meantime,” he said.

However, it’s difficult to gauge exactly how much any single provision may affect someone’s tax bill without running a 2023 projection, Harris said.

Why everyone is so obsessed with inflation

Fed rate hikes won’t curb inflation if spending stays high, paper says

John C. Williams, president and chief executive officer of the Federal Reserve Bank of New York, Lael Brainard, vice chair of the Board of Governors of the Federal Reserve, and Jerome Powell, chair of the Federal Reserve, walk in Teton National Park where financial leaders from around the world gathered for the Jackson Hole Economic Symposium outside Jackson, Wyoming, August 26, 2022.

Jim Urquhart | Reuters

Federal Reserve Chair Jerome Powell proclaimed Friday that the central bank has an “unconditional” responsibility to ease inflation and expressed confidence that it will “get the job done.”

But a paper released at the same Jackson Hole, Wyoming, summit where Powell spoke suggests policymakers can’t do the job by themselves and actually could make matters worse with aggressive interest rate increases.

In the current case, inflation is being driven largely by fiscal spending in response to the Covid crisis, and simply raising interest rates won’t be enough to bring it back down, researchers Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed wrote in a white paper released Saturday morning.

“The recent fiscal interventions in response to the Covid pandemic have altered the private sector’s beliefs about the fiscal framework, accelerating the recovery but also determining an increase in fiscal inflation,” the authors said. “This increase in inflation could not have been averted by simply tightening monetary policy.”

The Fed, then, can bring down inflation “only when public debt can be successfully stabilized by credible future fiscal plans,” they added. The paper suggests that without constraints in fiscal spending, rate hikes will make the cost of debt more expensive and drive inflation expectations higher.

Expectations matter

“When fiscal imbalances are large and fiscal credibility wanes, it may become increasingly harder for the monetary authority (in this case the Fed) to stabilize inflation around its desired target,” according to the paper.

Moreover, the research found that if the Fed does continue down its rate-hiking path, it could make matters worse. That’s because higher rates means the $30.8 trillion in government debt becomes more costly to finance.

As the Fed has raised benchmark interest rates by 2.25 percentage points this year, Treasury interest rates have soared. In the second quarter, the interest paid on the total debt was a record $599 billion on a seasonally adjusted annual rate, according to Federal Reserve data.

‘A vicious circle’

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They added that “the risk of persistent high inflation the U.S. economy is experiencing today seems to be explained more by the worrying combination of the large public debt and the weakening credibility of the fiscal framework.”

“Thus, the recipe used to defeat the Great Inflation in the early 1980s might not be effective today,” they said.

Inflation cooled somewhat in July, thanks largely to a drop in gasoline prices. However, there was evidence of it spreading in the economy, particularly in food and rent costs. Over the past year, the consumer price index rose at an 8.5% pace. The Dallas Fed “trimmed mean” indicator, a favorite yardstick of central bankers that throws out extreme highs and lows of inflation components, registered a 12-month pace of 4.4% in July, the highest reading since April 1983.

Still, many economists expect several factors will conspire to bring inflation down, helping the Fed to do its job.

“Margins are going to fall, and that is going to exert strong downward pressure on inflation. If inflation falls faster than the Fed expects over the next few months — that’s our base case — the Fed will be able to breathe more easily,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Ed Yardeni of Yardeni Research said Powell didn’t acknowledge in his speech the role that Fed hikes and the reversal of its asset purchase program have had on strengthening the dollar and slowing the economy. The dollar on Monday hit its highest level in nearly 20 years compared to a basket of its peers.

“So [Powell] may soon regret having pivoted toward a more hawkish stance at Jackson Hole, which soon may force him to pivot yet again toward a more dovish one,” Yardeni wrote.

But the Bianchi-Melosi paper underscored that it will take more than a commitment to raise rates to bring down inflation. They extended the argument to include the what-if question: What would have happened had the Fed started hiking sooner, after spending much of 2021 dismissing inflation as “transitory” and not warranting a policy response?

“Increasing rates, by itself, would not have prevented the recent surge in inflation, given that [a] large part of the increase was due to a change in the perceived policy mix,” they wrote. “In fact, increasing rates without the appropriate fiscal backing could result in fiscal stagflation. Instead, conquering the post-pandemic inflation requires mutually consistent monetary and fiscal policies providing a clear path for both the desired inflation rate and debt sustainability.”

UK inflation hits new 40-year high of 10.1%

Liz Truss and Rushi Sunak during The Sun’s Showdown: The Fight for No10, the latest head-to-head debate for the Conservative Party leader candidates. The next prime minister will be forced to confront a historic cost of living crisis as food and energy prices soar and real income shrinks.

Dominic Lipinski | Pa Images | Getty Images

LONDON — U.K. inflation rose to another 40-year high in July as spiraling food and energy prices continued to intensify the country’s historic squeeze on households.

The consumer price index rose 10.1% annually, according to estimates published by the Office for National Statistics on Wednesday, above a Reuters consensus forecast of 9.8% and up from 9.4% in June.

Core inflation, which excludes energy, food, alcohol and tobacco, came in at 6.2% in the year to July 2022, rising from 5.8% in June and ahead of projections of 5.9%.

British 2-year Gilt yields surged on Wednesday morning after the release, adding more than 26 basis points to reach 2.41%, their highest point since November 2008.

Rising food prices made the largest upward contribution to annual inflation rates between June and July, the ONS said in its report.

“Supermarkets have had little choice but to pass on price increases from suppliers, themselves contending with unprecedented inflation in raw material and ingredient input costs,” said Kien Tan, director of retail strategy at PwC.

“This has been particularly acute in labour and utility intensive categories like dairy, with reports of the price of a pint of milk having more than doubled in some stores since the start of the year.”

The ONS repeated that its indicative modelled consumer price inflation estimates “suggest that the CPI rate would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December.”

The Bank of England has implemented six consecutive hikes to interest rates as it looks to rein in inflation, and earlier this month launched its largest single increase since 1995 while projecting that the U.K. will enter its longest recession since the global financial crisis in the fourth quarter of the year.

The Bank expects inflation to top out at 13.3% in October. Conservative Party leadership candidates Liz Truss and Rishi Sunak, one of whom will succeed Boris Johnson as prime minister on Sept. 5 after a poll of party members, are under increasing pressure to offer radical solutions to the country’s historic cost-of-living crisis.

The latest forecasts suggest the U.K.’s energy price cap could rise to £4,266 ($5,170) annually early next year from its current £1,971, with many households already choosing between heating and eating. The cap is expected to rise to more than £3,000 in October following the next review.

Real wages in the U.K. fell by an annual 3% in the second quarter of 2022, according to ONS data published Tuesday, the sharpest decline on record.

Despite average pay excluding bonuses increasing by 4.7%, the cost of living is far outpacing wage growth and squeezing household incomes.

“Today’s inflation figures serve as a further reminder to many UK households that they are facing a period of considerable financial hardship,” said Dan Howe, head of investment trusts at Janus Henderson.

“Consumers are already grappling with rising energy costs and surging household prices, all compounded by a lack of decisive action at the political level. Amid talks of strikes and energy blackouts, there is no doubt that tough decisions lie ahead of U.K. families.”

Richard Carter, head of fixed interest research at Quilter Cheviot, predicted that the Bank of England will likely respond at its next monetary policy meeting with yet another 50 basis point interest rate hike in a bid to combat inflation, and said there is no doubt that the cost-of-living crisis is going to get worse before it gets better.

“As such, there will no doubt be a lot of pressure on the next Prime Minister to help soften the blow and the Bank of England will continue to have a very difficult job on its hands,” he added.

China consumer prices hit a two-year high

Customers buying pork at a food market in Shanghai, China. Prices of pork, a food staple in China, rose by 20.2% in July 2022 compared to a year ago, official data showed.

Qilai Shen | Bloomberg | Getty Images

BEIJING — China’s consumer price index hit a two-year high in July as pork prices rebounded, according to official data released Wednesday.

Prices of pork, a food staple in China, rose by 20.2% in July from a year ago. It marked the first increase since September 2020, according to official data accessed through Wind Information.

In fact, pork prices posted their largest month-on-month surge on record — up by 25.6%, the data showed.

Farmers’ reluctance to sell — in hopes of getting higher prices in the future — contributed to July’s pork price surge, said Bian Shuyang, agricultural products analyst at Nanhua Futures, in a statement.

Looking ahead, Bian expects it will be difficult for pork prices to surpass July’s levels.

Two Chinese holidays in September and October will help support consumer demand for pork, Bian said.

According to the analyst, live hog producers are now operating at a profit, an indication of more supply to come.

Pork prices have swung wildly over the last three years as hog farmers have had to battle deadly disease and many new producers.

Fresh fruit and vegetable prices also jumped in July, up by 16.9% and 12.9% from a year ago, respectively, according to the National Bureau of Statistics.

Ex-food price slump

While food prices rose, Wednesday’s inflation data continued to reflect lackluster demand in China’s economy.

The headline consumer price index rose by 2.7% in July, missing expectations for a 2.9% increase, according to analysts polled by Reuters.

The Covid outbreaks in many cities and the lack of further policy stimulus may have led to weaker growth in July.

Zhiwei Zhang

chief economist, Pinpoint Asset Management

“Non-food prices actually declined in July [by 0.1%] from their June level, which reflects weak demand,” Zhiwei Zhang, president and chief economist, Pinpoint Asset Management, said in a note.

“The Covid outbreaks in many cities and the lack of further policy stimulus may have led to weaker growth in July,” he said.

Despite the summer holidays, the tourism price component only rose by 0.5% in July from a year ago.

Covid outbreaks in the last few weeks have disrupted vacations with cancelled flights and venue closures in tourist spots ranging from Hainan island to the Tibetan plateau.

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China’s CPI print for last month was still the highest since July 2020, when the index also rose by 2.7%, according to Wind data.

China’s inflation data has run far below that of the U.S., which is set to release its consumer price index data overnight. Economists polled by Dow Jones expect the U.S. consumer price index to rise by 8.7% in July from a year ago, down from 9.1% in June.

Wednesday’s data showed China’s producer prices continued to moderate, also coming in below expectations.

The 4.2% year-on-year increase reported for July missed the Reuters’ poll forecast of 4.8% growth.

“Falling PPI inflation also points to limited potential upside to CPI inflation” in China, Nomura’s chief China Economist Ting Lu said in a note.

— CNBC’s Patti Domm contributed to this report.

UK cash withdrawals hit a record high as Brits grapple with inflation

Post Office has attributed the record amount for personal cash withdrawals at its 11,500 branches to more staycations in the U.K. and people using cash to manage their budgets.

Gannet77 | Getty Images

Britain’s Post Office, which offers banking services as well as mail, handled a record £801 million ($967 million) in personal cash withdrawals in July.

In total, more than £3.3 billion in cash was withdrawn and deposited over the Post Office’s counters — the first time the amount has crossed the £3.3 billion threshold in its 360-year history.

Personal cash withdrawals were up almost 8% month on month at £744 in June, and up over 20% from a year ago to £665 million in July.

Staycations and budgeting

Is it here to stay?