Small retailers shop for dry fruits in a wholesale market, in New Delhi, Oct. 10, 2022. A record drop in the rupee -- on top of higher raw material and shipping costs - has made the nuts much costlier for Indian consumers. Manish Swarup—AP
The cost of living in Cairo has soared so much that security guard Mustafa Gamal had to send his wife and year-old daughter to live with his parents in a village 70 miles south of the Egyptian capital to save money. Gamal, 28, stayed behind, working two jobs, sharing an apartment with other young people and eliminating meat from his diet. “The prices of everything have been doubled,” he said. “There was no alternative.”
Around the world, people are sharing Gamal’s pain and frustration. An auto parts dealer in Nairobi, a seller of baby clothes in Istanbul and a wine importer in Manchester, England, have the same complaint: A surging U.S. dollar makes their local currencies weaker, contributing to skyrocketing prices for everyday goods and services. This is compounding financial distress at a time when families are already facing food and energy crunches tied to Russia’s invasion of Ukraine.
The dollar is up 18% this year and last month hit a 20-year high, according to the benchmark ICE U.S. Dollar Index, which measures the dollar against a basket of key currencies.
The reasons for the dollar’s rise are no mystery. To combat soaring U.S. inflation, the Federal Reserve has raised its benchmark short-term interest rate five times this year and is signaling more hikes are likely. That has led to higher rates on a wide range of U.S. government and corporate bonds, luring investors and driving up the U.S. currency.
Most other currencies are much weaker by comparison, especially in poor countries. The Indian rupee has dropped nearly 10% this year against the dollar, the Egyptian pound 20%, the Turkish lira an astounding 28%.
Celal Kaleli, 60, sells infant clothing and diaper bags in Istanbul. Because he needs more lira to buy imported zippers and liners priced in dollars, he has to raise prices for the Turkish customers who struggle to pay him in the much-diminished local currency.
“We’re waiting for the new year,” he said. “We’ll look into our finances, and we’ll downsize accordingly. There’s nothing else we can do.”
Ordinarily, countries could get some benefit from falling currencies because it makes their products cheaper and more competitive overseas. But at the moment, any gain from higher exports is muted because economic growth is sputtering almost everywhere.
A rising dollar is causing pain overseas in a number of ways:
— It makes other countries’ imports more expensive, adding to existing inflationary pressures.
— It squeezes companies, consumers and governments that borrowed in dollars. That’s because more local currency is needed to convert into dollars when making loan payments.
Put simply: “The dollar’s appreciation is bad news for the global economy,’’ says Capital Economics’ Ariane Curtis. “It is another reason why we expect the global economy to fall into recession next year.’’
In a gritty neighborhood of Nairobi known for fixing cars and selling auto parts, businesses are struggling and customers unhappy. With the Kenyan shilling down 6% this year, the cost of fuel and imported spare parts is soaring so much that some people are choosing to ditch their cars and take public transportation.
“This has been the worst,” said Michael Gachie, purchasing manager with Shamas Auto Parts. “Customers are complaining a lot.’’
Gyrating currencies have caused economic pain around the world many times before. During the Asian financial crisis of the late 1990s, for instance, Indonesian companies borrowed heavily in dollars during boom times — then were wiped out when the Indonesian rupiah crashed against the dollar. A few years earlier, a plunging peso delivered similar pain to Mexican businesses and consumers.
The soaring dollar in 2022 is uniquely painful, however. It is adding to global inflationary pressures at a time when prices were already soaring. Disruptions to energy and agriculture markets caused by the Ukraine war magnified supply constraints stemming from the COVID-19 recession and recovery.
In Manila, Raymond Manaog, 29, who drives the colorful Philippine mini-bus known as a jeepney, complains that inflation — and especially the rising price of diesel — is forcing him to work more to get by.
“What we have to do to earn enough for our daily expenses,” he said. “If before we traveled our routes five times, now we do it six times.”
In the Indian capital New Delhi, Ravindra Mehta has thrived for decades as a broker for American almond and pistachio exporters. But a record drop in the rupee — on top of higher raw material and shipping costs — has made the nuts much costlier for Indian consumers.
In August, India imported 400 containers of almonds, down from 1,250 containers a year earlier, Mehta said.“If the consumer is not buying, it affects the entire supply chain, including people like me,’’ he said.
Kingsland Drinks, one of the United Kingdom’s biggest wine bottlers, was already getting squeezed by higher costs for shipping containers, bottles, caps and energy. Now, the rocketing dollar is driving up the price of the wine it buys from vineyards in the United States — and even from Chile and Argentina, which like many countries rely on the dollar for global trade.
Kingsland has offset some of its currency costs by taking out contracts to buy dollars at a fixed price. But at some point, “those hedges run out and you have to reflect the reality of a weaker sterling against the U.S. dollar,” said Ed Baker, the company’s managing director.
Translation: Soon customers will just have to pay more for their wine.
The surge in the value of the US dollar against other major currencies under the impact of the Federal Reserve’s interest rate hike is raising concerns about its effect both on the financial system and the global economy.
According to an index compiled by the Wall Street Journal (WSJ), the dollar has risen 13 percent this year against a basket of currencies. But the movement is even more marked in relation to other major currencies.
So far this year the dollar has risen 17 percent against the pound, sending the British currency to its lowest point since 1985.
The Japanese yen has fallen to its lowest against the dollar in 24 years, amid expectations that its precipitous slide will go further, prompting hints from the government that official intervention may be necessary. The euro is now trading at below parity against the US currency for the first time since its launch in 1999.
Warnings about the continued dollar surge are being sounded in the financial press. Over the weekend the Financial Times (FT) published an editorial comment under the headline “Currency shifts add to global woes.”
It said that in the midst of an energy crisis and the highest inflation in four decades the “global economy is also being rattled by big realignments in exchange rates.” Under conditions of war in the Ukraine, the European energy crisis and concerns over how some emerging markets will manage high oil and food prices, there was a move to seek security in US assets, which are regarded as “the least unsafe option.”
The surging US dollar, which is fueling price hikes in the rest of the world via imported goods, is one of the factors driving interest rate hikes by central banks, particularly in Europe.
For so-called emerging market economies in addition to rising food and energy prices, the rise in the dollar increases the burden of dollar-denominated debt and threatens to spark capital outflows. According to the International Monetary Fund, around 20 emerging markets have debt now trading at “distressed” levels. This proportion can be expected to rise.
The WSJ noted that because the dollar is at the centre of world financial markets its rise can have unforeseen consequences. Investors and policy makers, it said, were being forced to “consider history’s unkind lessons…….to be continued
There’s a reason why the phrase “timing is everything” doesn’t make us cringe quite as hard as other real estate cliches. (We’re looking at you, “location, location, location.”) Here’s why: It’s accurate. Homebuyers are always trying to time the real estate market so they can make the best possible deal—and it’s often difficult to do.
Time is the common thread between questions about mortgage rates (Should I lock in my mortgage rate now before they rise in a month’s time?), housing inventory (Should I put off buying until next month to see if there are more houses for sale?), and even relocating (Should we buy now so we can move before the new school year starts?).
At the current moment, homebuyers face a perplexing mix of realities: mortgage rates are still up and inflation is still putting pressure on everyone’s bottom line, but the median listing price actually fell (yes, fell) to $435,000 in August, down from an all-time high of $450,000 in June. So with all these question marks in the air, it’s hard not to wonder if it would be downright foolish to buy a house right now, or if the timing is actually good.
This week we clocked a particularly interesting discussion floating around on the r/RealEstate subreddit after one user posted the following question point-blank: “I was just told it’s the single worst time to buy real estate in U.S. history. How far off are they?”Reddit users chimed in with a variety of entertaining hot takes and personal anecdotes on the matter.
What experts think about buying a house right now
We’ve heard what the people have to say, now let’s bring a little data into the mix.“It’s true that home prices are high in 2022, so that perspective suggests that now might not be a great time to buy,” says Realtor.com Chief Economist Danielle Hale. “On top of that, the cost to borrow money right now—the interest rate you’ll pay on a mortgage—is also not far off of its highest level in more than 13 years.
This means that borrowing to buy a home is more expensive than it has been.”But Hale says these shouldn’t be buyers’ only considerations. With rents at an all-time high and still rising, buying a home and being your own landlord has advantages.
“You may think of owning a house as not having to pay rent, but economists view this as paying rent to yourself,” says Hale. “Taking on a mortgage with a fixed rate of interest (at least for a period of time) means that the homeowner has locked in the lion’s share of their housing costs—a nice hedge against inflation that is still running at just under 9%.”
She says that even if you don’t see any future home price appreciation, it can make more sense to buy than rent, especially in markets where the monthly cost of owning a home is lower than the monthly cost of rent.
“There aren’t as many of those markets, but there are still some, predominantly in the South and Midwest, as we found in our recent rental report,” Hale says.
Is it a good or bad time to buy a house?
With that information in mind, let’s go back to our initial question: Is now the worst time in history to buy a house?
“The data points to the ‘worst’ being behind us,” says Hale. “The number of homes for sale is up more than 26% compared to one year ago, which means that today’s shoppers have more homes to choose from than last year’s shoppers. Perhaps more importantly, the share of sellers making a price cut has risen, suggesting that today’s shoppers may have more negotiating room than before.”
Hale does acknowledge that homes are still more expensive than last year, but the price growth rate is slowing and is likely to slow further. Another positive indicator for buyers? Homes are lingering on the market longer.
“Time on market is beginning to increase, signaling that the days of having to make an offer as soon as possible—perhaps even before seeing the home—are behind us,” Hale says.Ultimately, buying a home is a wholly personal decision and the right timing varies from buyer to buyer.
“While market conditions couldn’t be called the best for buyers, they are somewhat improved,” says Hale. “Each of these indicators points to better balance than the housing market has seen over the last year, an advantage for today’s shoppers.”
Natalie Way is the senior editor at Realtor.com who covers news and advice stories about real estate, design, and celebrity homes. Natalie produces and co-hosts the “House Party” podcast. She can be reached at email@example.com.
Property investment is a process, not just an event. So rather than just talking about going out and buying a property in 2022, the right time for you to consider investing is when you have all your ducks in a row.
set up the right ownership structures to protect your assets and legally minimise your tax,
a robust finance strategy with a rainy day buffer in place to buy you time
Of course, for some 2022 will be a great year to invest, but in a moment I’ll explain why that will not be the case for others. Sure interest rates are rising, but there is more to property price growth than that. It’s likely that you’ve heard me talk about the drivers of property price growth over the years.
There are so many things that determine a property’s price performance and growth trajectory, many of which are well outside of your control, and some of which also have nothing to do with the property itself. These include, but are not limited to:
The economy – the performance and state of the broader economy impact people’s ability to buy and sell property as well as …
Consumer Confidence – when people feel comfortable about their financial situation and their future job prospects they are more likely to make big purchases like moving home or buying an investment property.
Employment levels – if the community at large is experiencing high levels of unemployment, then fewer people can afford to pay a mortgage, which reduces demand for property
Government policy – aspects to do with tax, depreciation, and homeownership grants will work to boost or reduce demand for property, particularly new property in recent years, which is where the federal government’s primary agenda has been.
Population growth – or household formation to be more exact, as when more people move into an area this equals more demand for housing, whether it’s to buy or rent.
Local Demographics – things like average incomes, average age, household structure, crime rates, and employment opportunities.
Supply – The basic economic principle of supply and demand is a fundamental property market driver of price growth.
Availability of credit – property investment is a game of finance with some houses thrown in the middle, but even owner-occupier demand is very much driven by the availability of finance and the cost of money, in other words, interest rates.
Now, as a result of these factors – which are by no means an exhaustive list, but they give you a general indication of some of the major influences on property prices – our property markets move through cycles, from booms to busts and back again.
Last year rising property values around Australia were driven by a combination of pent-up demand and historically low-interest rates leading to FOMO (fear of missing out), which led many home buyers and investors to make take shortcuts just to get in the market.
A highly watched economic indicator with a good track record in predicting recessions cut its forecast for second-quarter gross domestic product growth this week, implying the nation has fallen into a technical recession despite economists widely calling for a return to growth in the second quarter.
The Federal Reserve Bank of Atlanta’s GDPNow model on Thursday projected the U.S. economy shrank 1% in the second quarter, slipping into negative territory after economic data showed consumer spending dropped in May, while domestic investments, another component of GDP growth, also fell.
The model, which estimates GDP growth using a methodology similar to the one used for the Bureau of Economic Analysis’ official estimates, has been steadily trimming its second-quarter GDP forecast based on updated economic data that’s fueled concerns of a prolonged economic downturn in recent weeks.
The U.S. economy unexpectedly shrank 1.6% in the first quarter as the omicron variant fueled a record surge in Covid cases, so another negative quarter would indicate the nation has slipped into a technical recession, which is defined as two consecutive quarters of negative GDP growth.
“The model’s long-run track record is excellent,” DataTrek analysts wrote in a note to clients Thursday night, pointing out its average error has been just 0.3 points since the Atlanta Fed started running it in 2011—but was zero through 2019, before the unprecedented volatility around the pandemic.
With an error margin of 1.2 points one month before the government’s first GDP estimate, the model may still ultimately forecast positive growth for the quarter, DataTrek’s Nicholas Colas and Jessica Rabe noted, though they add the indicator will be “important to watch” as its predictive ability improves with time.
Most economists are still predicting a return to growth, with average projections calling for GDP to increase more than 3% last quarter, but many have become increasingly bearish in recent weeks, with Bank of America’s Ethan Harris on Friday downgrading his forecast to zero growth last quarter (from 1.5% previously) after the weak spending data for May.
What To Watch For
The Bureau of Economic Analysis unveils its first estimate of second-quarter GDP growth—or decline—on July 28, but it won’t release a final estimate until September. Adjusted for inflation, consumer spending fell for the first time this year in May, according to Thursday’s data. The worse-than-expected decline makes a second straight quarterly decline in GDP “much more likely,” Pantheon Macro chief economist Ian Shepherdson wrote in a Friday note, forecasting that GDP would fall 0.5% in the second quarter.
However, he notes the National Bureau of Economic Research—“the semi-official arbiter” whose declarations are accepted by the government—“very probably will not” declare a recession unless employment, which remains one of the economy’s strongest pillars, starts declining as well. Rather than purely going off technical recessions, the NBER vaguely defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
Despite growing bearishness, many economists aren’t convinced the U.S. will fall into recession—at least not imminently. In a research note on Monday, analysts at S&P Global Ratings said the economy has enough momentum to avoid a recession this year, but warned “what’s around the bend next year is the bigger worry.” The economists put the odds of a recession in 2023 at 40%. One week earlier, Morgan Stanley put them at 35%.
Fueled by government stimulus and the war in Ukraine, prolonged levels of high inflation pushed the Fed to embark on the most aggressive economic tightening cycle in decades—crashing markets and sparking recession fears. “People are really suffering from high inflation,” Fed Chair Jerome Powell testified before Congress last week, noting it remained “absolutely essential” for the Fed to restore price stability, before acknowledging it would be “very challenging” to avoid a recession while doing so.
The Covid-19 pandemic has strained global supply chains, causing freight backlogs that have driven up costs. Now some companies are looking for longer-term solutions to prepare for future supply-chain crises, even if those strategies come at a high cost. Americans responded to the pandemic with a dramatic shift in spending to goods from services. That now appears to be reversing and should gather steam as the Omicron wave of Covid-19 ebbs, economists say.
Goods—including nondurable goods such as food and clothing, and durable goods such as cars and appliances—averaged 31% of total personal consumption in the two years before the pandemic. That soared to 36% in March and April 2021, shortly before Covid-19 vaccines became widely available. The share has been dropping since, to 34% in December. Consumer spending on goods fell that month for the second month in a row, according to the Commerce Department, while spending on services increased slightly.
James Knightley, chief international economist at ING, said consumers are starting this year with “a combination of general fatigue of buying physical things and Omicron reducing the ability to spend on services.”
After bingeing on goods earlier in the pandemic, consumers are taking a breather. What’s more, spending on goods has been hit by supply-chain constraints, rising prices and dwindling government stimulus funds. As warmer springtime weather comes to much of the country and falling infection rates help people feel more comfortable socializing in-person, pent-up demand for services such as travel and dining should recover, said Robert Frick, corporate economist with Navy Federal Credit Union.
“If the Omicron wave continues to decline and there’s no follow-up strain, I do think we’re going to see a shift to a more normal breakdown in spending on goods and services,” he said.
That could be important for the inflation outlook. Strong demand for goods coupled with disruptions to their supply have fueled inflation, sending it to a 39-year high of 7% in December. Prices for goods such as furniture and appliances rose 10.7% in December from a year earlier, while services inflation for costs such as rent and airline fares was up a more moderate 3.7%. If consumer spending rotates back to services from goods, some of that upward pressure on goods prices should dissipate.
Economists caution that 2022 is off to a weak start. The Omicron wave hurt consumer spending and job growth in December, trends that likely continued through January as cases of the Covid-19 variant peaked. Real-time data show that restaurant bookings and travel remained depressed in January, suggesting the shift toward services away from goods may have paused in January.
But looking ahead, a strong labor market and rising wages mean many U.S. consumers are starting 2022 with robust income prospects that are likely to help fuel the services recovery this year. “All the indications are that it will be a big year for travel,” said Visa Inc. Chief Financial Officer Vasant Prabhu. “We see the shift to services continuing to gather momentum.”
Travel, restaurants and entertainment services all stand to benefit, he said, adding the economic impact of Omicron is more short-lived than earlier Covid-19 waves as people learn to live with the variant.
Airlines were hit hard by the Omicron variant, with travelers scrapping holiday trips and staff absenteeism prompting flight cancellations over the holidays. Still, executives are optimistic about a speedy recovery.
“The GDP growth we’re seeing now, the excess customer savings, customer spend in other categories and even things like New York City rents snapping back pretty quickly, all seem to indicate real strength for the customer and pent-up demand that wasn’t there in the past,” David Fintzen, an executive at New York-based JetBlue Airways Corp. said during an earnings call last week.
One potential roadblock to higher spending in 2022 is inflation, as shortages of supplies and workers are pushing up prices and wages at levels that may become unaffordable to some households. Some consumers are forgoing purchases because of sticker shock. “We will not buy a used car at the prices we’re seeing now, it’s ridiculous,” said Cory Randall, controller at a cattle company in Amarillo, Texas, who had been considering a secondhand compact car purchase as his son recently turned 16.
Mr. Randall isn’t alone. The Federal Reserve Bank of New York’s most recent Survey of Consumer Expectations found the share of households that made a large purchase over the past four months decreased to 58% in December from 63% in August. Households reported that they were less likely to make a large purchase over the next four months—like on a vacation, home repairs, home appliances, furniture and vehicles—than in the prior survey.
The prices of everyday goods are going up, and everyone from members of Congress to talking heads on cable news have their own diagnoses as to why it’s happening. But they’re all missing the biggest piece of the puzzle about what is to blame—namely, corporate profiteering.
You’ve heard a dizzying array of explanations about inflation. Biden administration officials have said the Covid pandemic resulted in supply chain disruptions, which are now being ironed out. Republicans are blaming Biden’s policies for putting too much money into the hands of working families.
Corporate leaders are blaming it on an inability to hire workers and a workforce that wants better pay and working conditions. Economists say that while inflation is indeed occurring, the expectation of inflation is truly what’s altering consumer attitudes and behavior.
What all these arguments miss is that, despite whatever rising costs exist for raw materials or transportation or other underlying factors, the incontestable truth is profits are way up for the largest corporations in America.
And what that means is pretty simple: Corporate America has seized on the fears of inflation to jack up prices on you and make a ton more money. According to The Wall Street Journal, nearly two out of three of the biggest U.S. publicly traded companies had larger profit margins this year than they did in 2019, prior to the pandemic. Not just profits. Larger profits.
Nearly 100 of these massive corporations report profits in 2021 that are 50 percent above profit margins from 2019. CEOs are quick to suggest to media that they have been forced to raise prices because of one difficulty or another.
However, my organization More Perfect Union reviewed recent corporate earnings calls featuring CEOs of some of the largest companies in the world, like Tyson Foods, Kellogg’s, Pepsi, Mondelez (a huge snack food and beverage company that used to be known as Kraft), and others. And we found jubilant executives revealing that price hikes are great for business.
In these calls, business leaders employ fancy financial lingo to tell large shareholders how they are engaging in “pricing improvements” and “successful pricing strategies.” They tell you they are experiencing customer “elasticities” to price increases at historically low levels. When you decode what they’re saying, it’s nothing less than a euphoric articulation that they’re able to pass off price increases to consumers, who, in the words of legendary investor Warren Buffett, are “just accepting it.”
The stocks have in turn moved higher and higher. (And interestingly, when a corporation like Target announces it hasn’t raised prices despite strong earnings, investors are punishing it by pushing the stock downward.)
In an interview with Fox Business, John Catsimatidis, a conservative pundit and billionaire CEO, revealed very simply what his C-suite colleagues are doing. “Why give something away if you don’t have to, and you can have a bigger margin?” he said. Right. It’s corporate price gouging at work.
Home Depot and Lowe’s recently posted incredible earnings, pleasing giddy investors. CNBC’s voluble Jim Cramer observed that these two companies “can do no wrong because they’re passing on rising costs to the public, and the public has no choice …because these two chains have single-handedly wiped out the competition already.”
The power is entirely in the hands of large corporations, and they’re going for the gold. This story of corporate greed is being missed in the national inflation conversation.
But there’s more! Think about the devious design of what corporations have been up to. For months, they have, with one hand, fueled talk of inflation as a way to make obscene profits off the backs of consumers. That’s bad enough. But with the other hand, they have been manipulating the talk of inflation to engage in a full-frontal assault on President Biden’s efforts to pass a Build Back Better bill for working families.
Corporate America is also feeding its talking points into the hands of Republican lawmakers and media outlets that pin the blame for inflation on Biden and falsely warn that enacting a working families bill is only going to feed it further. Because the Build Back Better act will have increased taxes on corporations, these big businesses are eager to kill it. They are not about to give up any of their record profits to invest in the safety net of America.
As we head into Thanksgiving and Christmas, and we all look forward to large enjoyable feasts with friends and family, we should rightly harbor anger about inflation. Not just that they made us pay more for turkey, cranberries, and pie crusts.
We’re having to pay more because corporate America made a choice to raise prices on us, and then on top of that, it tried to manipulate your fear about those prices to keep you from getting paid leave, home care, childcare, and climate change action. Corporate America made you pay more while trying to make sure it didn’t have to.