Business
Inflation improves slightly in April, but high cost of housing remains a big obstacle
Government data released Wednesday show that inflation eased a bit in April, but remains at a relatively high level. The latest report isn’t likely to lift the grim mood that much of the public has toward an otherwise solid economy.
Though incomes have generally risen more than consumer prices, the overall rate of inflation remains stubbornly high. It dropped a notch in April but was up 3.4% from a year ago, the Bureau of Labor Statistics said.
And unexpectedly, the biggest culprit is housing.
The Federal Reserve’s textbook-perfect policy of fighting inflation by pushing up interest rates has worked in large parts of the economy. The higher interest rates have helped slow growth in consumer prices for items such as food, gas, clothes and cars. Today, the inflation rate for those products is back down to, or even below, the central bank’s 2% target.
But the Fed’s same policy has paralyzed housing, an important segment of the economy, and sabotaged efforts to bring down overall inflation faster.
What the higher interest rates have done is freeze both homeowners and renters in place, discouraging either group from moving. The effect has been strong in California, where housing — what economists call the cost of “shelter” — was already very expensive.
And, in a complicated chain of cause and effect, the fact that both homeowners and renters are staying put has worked to keep inflation high.
“For two years we’ve been waiting for shelter inflation to drop enough to have an effect on the overall inflation rate. It’s constantly disappointing,” said G.U. Krueger, a longtime housing economist in Los Angeles.
“Because of high interest rates,” he said, “there’s no mobility out of rental situations to buy homes. Everyone is stuck — homeowners with golden handcuffs, renters basically with unadorned handcuffs.”
For homeowners, inflation is helping make their homes more valuable. But selling isn’t an option for many because they don’t want to give up their lower mortgage rates. Today the average 30-year fixed rate is more than 7%. Higher home prices also mean they could lose whatever gains they’d made when they replaced the house they’d sold.
For renters, there isn’t even the appearance of gains: They’re frozen in place because rent prices have failed to come down even though many new rental properties have come on the market. The typical rent for apartments and houses combined last month was about $2,920 in Los Angeles, making it one of the least affordable regions in the country, according to Zillow.
With more renters forced to stay put, there’s greater demand for, and lower vacancy at, many rental properties. That’s tended to keep pressure on prices even as more supply has come on line. Builders and landlords also are pricing rents to recoup higher costs for construction and maintenance.
Last month, consumer spending for shelter accounted for about 36% of the basket of goods and services that made up the government’s consumer price index, or CPI.
Fed policymakers track a different inflation measure in which housing isn’t given as much weight in figuring overall inflation. But both tell the same story: Housing inflation is running a lot hotter than for most other consumer goods and services.
In April, consumer prices overall rose 0.3% from March, seasonally adjusted, to an annual inflation rate of 3.4% compared with 3.5% the previous month. While that’s a dramatic decline from a 40-year high of 9.1% in June 2022, the improvement has been slowed by sticky inflation in housing.
Shelter prices in April also nudged down a bit over the month, but they were up 5.5% from a year ago, compared with 2.2% for all other goods and services combined, according to data from the Bureau of Labor Statistics.
Earlier this year, economists were expecting that a bigger decline in overall inflation would prompt the Fed to begin the first of a series of interest rate cuts this spring. But now, with prices for housing and some other services remaining high, many analysts aren’t so sure.
“I just don’t see a catalyst for any kind of rate cut right now,” said Jack Ablin, chief investment officer at Cresset, an asset management and advisory firm. “Maybe if we’re lucky we get one cut this year.”
The Fed’s benchmark interest rate, which influences borrowing rates on homes, cars and credit cards, is at a 23-year high of about 5.3%. Higher interest rates have been felt especially hard in California’s economy, given the importance of interest-sensitive sectors such as high-tech, entertainment and real estate.
One result is that job growth in the state has lagged behind; California’s latest unemployment rate, 5.3% in March, is the highest in the land. The state’s employment report for April comes out Friday.
Experts had been more optimistic about inflation falling faster after seeing signs of declining rents last year. But average rents have begun creeping higher again in recent months, thanks in part to bigger increases for rental houses.
U.S. rents for all housing rose on average 0.6% in April from March, and now stand at a whisker below $2,000 per month, according to Zillow. That’s up 31% since the start of the COVID-19 pandemic.
In high-priced markets such as California, steep home prices and high mortgage rates have made homeownership more elusive and soured people’s mood about the economy, with much of the blame falling on President Biden. Surveys indicate renters are among the least happy in the state and that many are considering moving out of Los Angeles.
Chris Salviati, housing economist at Apartment List, which tracks new leasing activity, said rents have come down significantly from double-digit levels but not fast enough. “It’s still moving in the right direction, but it’s a gradual decline. Certainly it’s been frustrating for folks.”
Why is housing inflation so sticky?
One factor is that most people sign yearlong leases, so there’s a lag and it takes time for changes in rents to show up. When home prices plummeted during the Great Recession, it took about 18 months for the shelter component in the CPI to moderate, said Chris Rupkey, chief economist at Fwdbonds, a financial research firm.
CPI figures on shelter also tend to understate what many consumers are experiencing. The data show that rents for primary residences in Los Angeles and Orange counties rose 4.4% in 2022, even though prices for all other goods and services combined jumped 9.3% that year. Since then, the trend has reversed: inflation for rents and shelter have been growing much faster than for all other items.
Experts say the recent upturn in rents may be due partly to apartment owners trying to recoup their higher costs, as the broader inflationary climate has meant they’re paying more for maintenance, supplies and labor.
“Landlords are trying to catch up,” said Erica Groshen, an economist affiliated with Cornell University and former commissioner of the U.S. Bureau of Labor Statistics, which publishes the CPI reports.
Some experts say that one possible answer to housing inflation is for the Fed to cut rates. While it may seem counterintuitive for policymakers to take such action when the economy and job market are still strong, lowering interest rates could spur mobility and also make it easier for builders to start more projects and thus boost supply.
But boosting demand for home purchases could also add more juice to home prices, at least in the short term, increasing risks of creating housing bubbles.
“For the Fed,” said Rupkey, “it’s damned if you do, and damned if you don’t.”
Business
Erewhon opens new Southern California location
Erewhon opened its newest location in Glendale on Wednesday, marking the luxury grocer’s 14th store in Southern California with more set to open soon.
The new store, located at 520 N. Glendale Ave., includes the chain’s signature cafe and tonic bar as well as an indoor-outdoor patio space.
Known for its upscale, trendy products and high prices, Erewhon has grown into a tourist destination in Los Angeles and a hot spot for celebrities and influencers.
The Glendale location will bring Erewhon staples to trendy consumers in the area, including the beloved Strawberry Glaze Skin Smoothie, which until last year was named after the model Hailey Bieber.
Employees at the store handed out complimentary gift bags and fresh flowers during the grand opening Wednesday morning.
“This location was designed to reflect the spirit of the neighborhood while creating a welcoming space to gather, centered around wellness, connection, and a commitment to the quality standards that define Erewhon,” Erewhon President Josephine Antoci said in a statement.
The company purchased the space, which was formerly a hardware store, in 2024.
Erewhon has locations in several of Southern California’s wealthiest areas, including Calabasas and Beverly Hills. It also has stores in Venice, Manhattan Beach and at the Grove.
“Erewhon’s decision to invest in Glendale reflects confidence in our city’s economic future,” Glendale Mayor Ardashes Kassakhian said in a news release.
The grocer was founded in 1966 by Japanese immigrants Michio and Aveline Kushi — pioneers of the natural-foods macrobiotic movement — who began selling imported organic goods out of their Boston home. In 1969, the company opened its first Los Angeles location on Beverly Boulevard.
Josephine and Tony Antoci bought the company in 2011 and helped launch it to its luxury status with a cult-like following. Tony serves as chief executive while Josephine handpicks much of the store’s merchandise.
By the mid-2010s, Erewhon had become a watering hole for celebrities such as the Kardashians and the Beckhams.
The company has its eye on further expansion. A Thousand Oaks location is slated to open this August and stores in Costa Mesa and downtown Los Angeles are planned for 2027. An Erewhon cafe opened in the Los Angeles County Museum of Art’s new David Geffen Galleries earlier this month.
The Pacific Palisades location, which shut down after the wildfires last year, is set to reopen in January.
The Glendale Erewhon takes the place of Virgil’s Hardware Home Center, which opened in 1932 and closed in 2019.
Business
Volvo to pay $197 million after hidden pollution device found in California truck engines
Volvo Group North America has agreed to pay nearly $197 million to resolve allegations from California regulators that company’s heavy-duty truck engines violated California emissions standards and certification requirements.
About 10,000 diesel truck engines manufactured by Volvo were equipped with an undisclosed device, causing them to release excessive levels of smog-forming pollution across California, according to the California Air Resources Board, the state agency that regulates air pollution and greenhouse gases.
Volvo is developing a software fix to repair many of these vehicles and extend their warranties at no cost to the owners. Eligible truck owners are expected to be notified of a non-mandatory recall on these trucks next year.
CARB found inconsistencies in the Swedish automaker’s data while testing trucks with Volvo engines from model year 2010 to 2016, which resulted in the investigation and ensuing settlement.
“This case underscores why CARB’s compliance testing and strong enforcement are essential to protecting the state’s air quality and public health,” said Lauren Sanchez, chair of the state Air Resources Board. “Our responsibility goes beyond adopting regulations — we are committed to upholding them by identifying violations and holding companies accountable for meeting emissions standards.”
Under the settlement, Volvo will pay $17.5 million in civil penalties to reimburse the state for the cost of the investigation and support its vehicle-testing operations. Another $179 million will go toward investing in clean-air initiatives, such as electric vehicle incentive programs, to offset air pollution that resulted from the alleged violations.
Business
Commentary: A surge in Nevada data center construction threatens the electricity supply for 49,000 Californians
Local opposition has blocked or delayed more than a dozen huge data center projects around the country. But these Californians don’t get a vote on Nevada projects that could affect their electricity supply.
Those big data centers being built for artificial intelligence firms are in bad odor nationwide.
Seven in 10 Americans oppose projects in their local communities, according to a recent Gallup poll. More than a dozen, valued at some $64 billion, have been blocked or delayed by local opposition in recent years.
But what happens when the people directly affected by these project plans don’t get a vote?
Data centers did not influence this decision.
— NV Energy, explaining its move to end service to 49,000 California customers. But is it telling the truth?
That’s the quandary faced by 49,000 residents living on the California side of Lake Tahoe, mostly in the city of South Lake Tahoe. The surge in construction of data centers in Nevada is prompting the Nevada utility that supplies 75% of the Californians’ electricity to cut them off next year.
The California-regulated utility that carries the electricity over the state line to their homes and businesses has assured them that it will find alternative sources to protect them from losing service — but hasn’t promised that their rates won’t increase because of the transition.
“It’s like we don’t exist,” Danielle Hughes, the head of a local energy nonprofit and an advocate for the customers, told me. The crisis facing those residents is just the latest in a long line of indignities they have suffered thanks to several unique characteristics of their energy market, Hughes says.
For one thing, they are permanent residents of the community — teachers, firefighters, police, and service workers at the hotels, restaurants and resorts that bring in a tidal wave of visitors every winter. The latter, as well as vacation-home owners and renters, generate seasonal electricity demands that drive up power costs year-round.
That means that the permanent residents are in effect subsizing the visitors, even though they’re lower-income ratepayers than the generally well-heeled vacationers.
Before delving deeper into the issues for the permanent residents, let’s examine the effect of the large-scale data centers being built and proposed in Nevada, and more generally coast to coast.
Nevada has emerged as a prime location for data centers, in part due to the wide open, undeveloped acreage available for construction. More than 60 data centers have sprung up around Reno and Las Vegas, with many more slated to rise in the northern part of the state, according to a survey by the Desert Research Institute, a Nevada nonprofit.
“We’re right at the epicenter for global expansion” of data centers, observed Sean McKenna, a co-author of the report.
The existing data centers consumed 22% of Nevada’s electric generating capacity in 2024, DRI calculated. If all those under construction and on the drawing board are completed, that figure would rise to 35% by 2030. NV Energy, the Nevada utility that provides the electricity for the California side of Lake Tahoe, estimates that the electricity demand for just the 12 projects being planned would come to 5,900 megawatts — nearly three times the generating capacity of Hoover Dam.
That construction frenzy is likely to bring some of the same drawbacks that have provoked local communities to militate against data centers — not only pressure on existing electricity capacity, but also a voracious appetite for water due to the cooling needs of the computerized equipment managing the data for AI applications. Residents in the neighborhoods of data centers have also complained of incessant noise coming from their 24/7 operations.
With global warming driving up temperatures in Nevada’s semiarid and desert zones, they add, residents will find themselves in a contest with data center owners for an already inadequate supply of power in the state. DRI warns: “Local utilities and ratepayers in data center cluster regions like Northern Nevada also risk bearing the costs of subsidizing AI and computing services as power grids expand their infrastructure.”
In many communities, the result has been a vigorous and vocal backlash, including in California. They’ve packed town halls, prompted state and local political leaders to legislate limits on their growth or even to ban them.
That brings us back to the situation around Lake Tahoe.
In terms of its electric utility service, the region has long been an outlier. About 25% of its power comes from two solar farms operated by Liberty Utilities, but the rest comes from NV Energy; the reason is that it’s unconnected with the California transmission grid but accessible via a line from Nevada.
As a result, it falls into the cracks among energy regulators. Because it’s not part of the California grid, the California Public Utilities Commission has only limited jurisdiction over its service, although it has the authority to approve its electricity rates. The Nevada Public Utilities Commission doesn’t oversee the customers’ service at all, because they’re not Nevada residents.
The region is also unusual because its peak energy demand comes in the winter; most of the rest of California peaks in the summer, when air conditioners are on full blast.
Hughes and other residents have maintained that because the CPUC hasn’t modeled electricity demand for their small region, they have been paying for infrastructure that doesn’t serve them.
“We’ve been paying for assets in Nevada,” Hughes says, “without it being tracked by the state of California.”
Liberty does charge permanent residents in the Tahoe area about 2% less than the rate for part-time residents, but the discount should be much larger, Hughes says. Liberty didn’t respond to my request for comment.
Earlier this year, NV Energy informed Liberty that it would no longer serve as its wholesale energy provider after mid-May next year, and urged Liberty to make haste to secure an alternate supplier.
Liberty promised its customers in a recent statement that they “will not be left without service” as a result of the change. “This does not mean the power is shutting off,” Eric Schwarzrock, president of Liberty Utilities, said at a South Lake Tahoe City Council meeting last month, according to the news site SFGate. “Energy companies, utilities, large customers change energy supply frequently.”
Liberty and NV Energy both attributed the change to a preexisting agreement that anticipated that NV Energy would eventually cease providing power to Liberty’s customers, although their interpretations of the deal and the impetus for the change appear to be at odds.
The “long-standing agreements and planning assumptions … date back more than a decade,” NV Energy said in a May 14 statement. That was “well before data center growth became a factor,” the utility said. “Data centers did not influence this decision.”
That is, to be charitable, dubious. How do we know? Liberty said so in a March 6 letter to the California Public Utilities Commission, requesting permission to take “immediate action” to find alternative providers.
The letter stated that Liberty had expected its arrangement with NV Energy to “continue indefinitely.” During their last negotiations for an extension of the deal, however, NV Energy informed Liberty that it would cease serving Liberty on May 31, 2027, with a possible extension to Dec. 31.
“This change of stance by NV Energy was a surprise to Liberty,” the letter said. Liberty ascribed NV Energy’s decision to new “market circumstances” in the latter’s home service region. Among them: “A number of entities are seeking to add large loads such as data centers into the area.”
NV Energy says it will continue serving Liberty’s customers until Liberty secures a new supplier, even if it misses the May 2027 deadline; the ultimate deadline is Dec. 31, 2027, when NV Energy expects to complete its 350-mile Greenlink West transmission line between Las Vegas and the Reno area, part of a $4.2-billion infrastructure upgrade.
Yet that still leaves an open question that should make those customers nervous: How much will they be paying for power?
In its recent statement to customers, Liberty made only the vaguest of promises. “While no utiulity can predict the exact future cost of energy,” it said, “affordability is a primary goal” in its search for new suppliers. “With a competitive bidding process, we aim to find a cost-effective solution for your monthly bill.”
But any new supplier would have to come from outside California, because of the region’s lack of any connection with the state’s grid. And generators in nearby states face their own rising demands from data centers, drought and global warming.
The drawbacks of these massive industrial installations are beginning to be felt by their neighbors, including higher electricity prices and dwindling water supplies. They’re only going to get worse.
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