Category: Economy

Researchers applied the Inflation Reduction Act’s new 15% corporate minimum tax onto 2021 company earnings and found that the burden would only be felt by about 78 companies, with Berkshire Hathaway and Amazon paying up the most.

The study from the University of North Carolina Tax Center used past securities filings to map the tax, which goes into effect in January, onto companies’ 2021 earnings.

The researchers found that the 15% minimum would have taken a total of $31.8 billion from 78 firms in 2021. Berkshire led the estimated payout with $8.33 billion, and Amazon follows behind with $2.77 billion owed based on its 2021 earnings.

The study notes the limitations of looking solely at public company data within a single year. The researchers recognized that these estimates may be subject to change, especially as company operations change under the tax in 2023.

President Joe Biden signed the minimum book tax into law, along with the rest of the Inflation Reduction Act, in August. The tax is specifically meant to target companies earning more than $1 billion per year.

The Joint Committee on Taxation had previously estimated that it would affect around 150 firms, with the costs falling specifically on the manufacturing industry. The bipartisan JCT also predicted $34 billion in revenue in the first year of the tax, slightly more than the theoretical 2021 revenue estimated at UNC.

According to the study, the next-highest taxes would be paid by Ford, AT&T, eBay and Moderna, all of which would owe more than $1.2 billion in payments based on their 2021 financials.

LONDON — The Bank of England voted to raise its base rate to 2.25% from 1.75% on Thursday, lower than the 0.75 percentage point increase that had been expected by many traders.

Inflation in the U.K. dipped slightly in August but at 9.9% year-on-year remained well above the bank’s 2% target. Energy and food have seen the biggest price rises, but core inflation, which strips out those components, is still at 6.3% on an annual basis. 

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The BOE now expects inflation to peak at just under 11% in October, down from a previous forecast of 13%.

The smaller-than-expected hike came as the bank said it believed the U.K. economy was already in a recession, as it forecast GDP would contract by 0.1% in the third quarter, down from a previous forecast of 0.4% growth. It would follow a 0.1% decline in the second quarter.

Numerous analysts, along with business association the British Chambers of Commerce, have previously said they expect the U.K. to enter a recession before the end of the year. As well as energy price shocks, it faces trade bottlenecks due to Covid-19 and Brexit, declining consumer sentiment, and falling retail sales.

The BOE dropped its key rate, known as the bank rate, down to 0.1% in March 2020 in an attempt to prop up growth and spending at the onset of the coronavirus pandemic. However, as inflation began to rise sharply late last year, it was among the first major central banks to kick off a hiking cycle at its December meeting. 

This is its seventh consecutive rise and takes U.K. interest rates to a level last seen in 2008.

In a release explaining its decision, the bank noted volatility in wholesale gas prices but said announcements of government caps on energy bills would limit further increases in consumer price index inflation. However, it said there had been more signs since August of “continuing strength in domestically generated inflation.”

It added: “The labour market is tight and domestic cost and price pressures remain elevated. While the [energy bill subsidy] reduces inflation in the near term, it also means that household spending is likely to be less weak than projected in the August Report over the first two years of the forecast period.”

Five members of its Monetary Policy Committee voted for the 0.5 percentage point rise, while three voted for a higher 0.75 percentage point increase that had been expected by many. One member voted for a 0.25 percentage point hike.

The bank said it was not on a “pre-set path” and would continue to assess data to decide the scale, pace and timing of future changes in the bank rate. The committee also voted to begin the sale of U.K. government bonds held in its asset purchase facility shortly after the meeting and noted a “sharp increase in government bond yields globally.”

The bank’s decision comes against a backdrop of an increasingly weak British pound, recession forecasts, the European energy crisis and a program of new economic policies set to be introduced by new Prime Minister Liz Truss. 

Sterling hit fresh multidecade lows against the dollar this week, trading below $1.14 through Wednesday and dipping below $1.13 early Thursday. It has fallen precipitously against the greenback this year and was last at this level in 1985. It was up 0.2% after the BOE decision with the 0.5 percentage point rise fully priced in.

The devaluation of the pound has been caused by a combination of strength in the dollar — as traders flock to the perceived safe haven investment amid global market volatility and as the U.S. Federal Reserve hikes its own interest rates — and grim forecasts for the U.K. economy. 

Meanwhile, the country’s newly formed government has set out numerous significant economic policy proposals this month ahead of a “fiscal event,” dubbed a mini-budget, when they will be officially announced on Friday.

This is expected to include a reversal of the recent rise in the National Insurance tax, cuts in levies for businesses and homebuyers, and a plan for “investment zones” with low taxes.

Truss has repeatedly stressed a commitment to lowering taxes in a bid to boost economic growth.

However, the energy crisis has also meant the government has announced a huge spending package to curb soaring bills for households and businesses.

Data published Wednesday showed the U.K. government borrowed £11.8 billion ($13.3 billion) last month, nearly twice as much as forecast and £6.5 billion more than the same month in 2019, due to a rise in government spending.

David Bharier, head of research at business group the British Chambers of Commerce, said the bank faced a “tricky balancing act” in using the blunt instrument of rate rises to control inflation.

“The bank’s decision to raise rates will increase the risk for individuals and organisations exposed to debt burdens and rising mortgage costs – dampening consumer confidence,” he said in a note.

“Recent energy price cap announcements will have provided some comfort to businesses and households alike and should place downward pressure on the rate of inflation.”

“The bank, looking to dampen consumer demand, and government, looking to increase growth, could now be pulling in opposite directions,” he added, saying the coming economic statement from the finance minister Friday was a “critical moment.”

Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said the bank was hiking at a “sensible pace” given the lower inflation outlook and emerging slack in the economy.

Tombs forecast a 50 basis point increase at the bank’s November meeting, with risks titled toward a 75 basis point hike given the hawkishness of three committee members. He said this was likely to be followed by a 25 basis point rise in December, taking the bank rate to 3% at the end of the year, with no further hikes next year.

The U.K. is not alone in raising interest rates to combat inflation. The European Central Bank raised rates by 75 basis points earlier this month, while Switzerland’s central bank hiked by 75 basis points Thursday morning. The U.S. Federal Reserve increased its benchmark rate range by the same amount Wednesday.

Ukraine’s counteroffensive, which has seen vast swathes of Russian-occupied territory get recaptured, could be compounding Russia’s economic troubles, as international sanctions continue to hammer its fortunes.

Ukraine’s military has had stunning success in recent weeks, recapturing Russian-occupied territory in the northeast and south of the country. Now, Kyiv is hoping to liberate the Luhansk in the eastern Donbas region, a key area where one of two pro-Russian self-proclaimed “republics” is located.

Holger Schmieding, chief economist at Berenberg, said the recent Ukrainian military gains could hit Russia’s economy hard.

“Even more so than before, the Russian economy looks set to descend into a gradually deepening recession,” Schmieding said in a note last week. 

“The mounting costs of a war that is not going well for [Russian President Vladimir] Putin, the costs of suppressing domestic dissent and the slow but pernicious impact of sanctions will likely bring down the Russian economy faster than the Soviet Union crumbled some 30 years ago.”

He highlighted that Russia’s main bargaining chip when it comes to the international sanctions imposed by the West – its influence over the energy market, particularly in Europe – was also waning.

“Although Putin closed the Nord Stream 1 pipeline on 31 August, the EU continues to fill its gas storage facilities at a slightly slower but still satisfactory pace,” he noted, adding that even Germany — which was particularly exposed to Russian supplies — could even get close to its 95% storage target ahead of winter.

Europe’s rapid shift away from Russian energy is particularly painful for the Kremlin: the energy sector represents around a third of Russian GDP, half of all fiscal revenues and 60% of exports, according to the Economist Intelligence Unit.

Energy revenues fell to their lowest level in over a year in August, and that was before Moscow cut off gas flows to Europe in the hope of strong-arming European leaders into lifting the sanctions. The Kremlin has since being forced to sell oil to Asia at considerable discounts.

The decline in energy exports means the country’s budget surplus has been heavily depleted.

“Russia knows that it has no leverage left in its energy war against Europe. Within two or three years, the EU will have gotten rid of its dependency on Russian gas,” the EIU’s Global Forecasting Director Agathe Demarais told CNBC. 

This is a key reason why Russia has opted to cut off gas flows to Europe now, she suggested, with the Kremlin aware that this threat could carry far less weight in a few years’ time.

The EIU is projecting a Russian GDP contraction of 6.2% this year and 4.1% next year, which Demarais said was “huge, by both historical and international standards.”

“Russia did not experience a recession when it was first placed under Western sanctions in 2014. Iran, which was entirely cut off from Swift in 2012 (something that has not happened to Russia yet), experienced a recession of only around 4% in that year,” she said.

Statistics are scarce on the true state of the Russian economy, with the Kremlin keeping its cards relatively close to its chest. However, Bloomberg reported earlier this month, citing an internal document, that Russian officials are fearing a much deeper and more persistent economic downturn than their public assertions suggest.

Putin has repeatedly claimed that his country’s economy is coping with Western sanctions, while Russia’s First Deputy Prime Minister Andrei Belousov said last month that inflation will come in around 12-13% in 2022, far below the gloomiest projections offered by global economists earlier in the year.

Russian GDP contracted by 4% in the second quarter of the year, according to state statistics service Rosstat, and Russia upped its economic forecasts earlier this month, now projecting a contraction of 2.9% 2022 and 0.9% in 2023, before returning to 2.6% growth in 2024.

However, Demarais argued that all visible data “point to a collapse in domestic consumption, double-digit inflation and sinking investment,” with the withdrawal of 1,000 Western firms also likely to have implications for “employment and access to innovation.”

“Yet the real impact of sanctions on Russia will be felt mostly in the long term. In particular, sanctions will restrict Russia’s ability to explore and develop new energy fields, especially in the Arctic region,” she said. 

“Because of Western penalties, financing the development of these fields will become almost impossible. In addition, U.S. sanctions will make the export of the required technology to Russia impossible.”

In her State of the Union address last week, European Commission President Ursula von der Leyen lauded the impact of EU sanctions, claiming that Russia’s financial sector is “on life support.”

“We have cut off three quarters of Russia’s banking sector from international markets. Nearly one thousand international companies have left the country,” she said.

“The production of cars fell by three-quarters compared to last year. Aeroflot is grounding planes because there are no more spare parts. The Russian military is taking chips from dishwashers and refrigerators to fix their military hardware, because they ran out of semiconductors. Russia’s industry is in tatters.”

She added that the Kremlin had “put Russia’s economy on that path to oblivion” and vowed that sanctions were “here to stay.”

“This is the time for us to show resolve, not appeasement,” von der Leyen said.

As the Kremlin scrambles to strengthen security ties, having been shunned by the West, a top Russian official stated on a visit to Beijing last week that Moscow sees deepening strategic ties with China as a key policy aim. Putin also met Chinese President Xi Jinping in Uzbekistan last week as the two countries touted a “no limits” relationship.

However, several commentators have noted that as Russia’s bargaining power on the world stage wanes, China will hold most of the cards as the two superpowers attempt to cement further cooperation.

“In the long term, China will be the sole economic alternative for Russia to turn to, but this process will be tricky, too, as China will remain wary of becoming overdependent on Russian commodities,” the EIU’s Demarais added.

Turbulent times may be ahead for Hispanic workers, a new report from Wells Fargo found.

The firm expects Latino workers to take an outsized hit if a mild recession happens in 2023, like it is projecting.

“The Hispanic unemployment rate tends to rise disproportionately higher than the national average during economic downturns,” Wells Fargo chief economist Jay Bryson wrote.

For example, from 2006 to 2010, the Hispanic unemployment rate rose about 8 percentage points, while the non-Hispanic jobless rate climbed about 3 percentage points, the firm found. It also was higher than the non-Hispanic jobless rates in the early 1990s and in 2020, Bryson noted.

Job composition and age are to blame, the data indicates.

In construction, for instance, Hispanics account for one-third of workers, compared to 18% of total household employment. That interest rate sensitive sector will face “acute challenges in the year ahead,” Bryson said. Mortgage rates have jumped to over 6% and building permits have already fallen by more than 10% since the end of last year, he pointed out.

There will also be a steeper drop in goods spending over the next year as a consequence of the pent-up demand for services, he said. Right now, overall consumer spending is 14% higher than February 2020 and real services spending is up less than 1% during the same time period.

“The rotation in spending is likely to lead to sharper job cuts in goods-related industries beyond construction, including transportation and warehousing, retail and wholesale trade, and manufacturing — all industries in which Hispanics represent a disproportionate share of the workforce,” Bryson said.

However, job concentration in the leisure and hospitality sector, which was hit hard during the pandemic, may offset some of those losses.

Not only will consumers prioritize spending on missed vacations or eating out in the coming year, but employment in the industry is still about 7% below its pre-Covid levels, Bryson wrote.

The age factor also works against Hispanics, because workers tend to be younger than non-Hispanics.

“Junior workers tend to be laid off at a higher rate than workers with more seniority,” Bryson said. “Fewer years of experience makes it harder to find new employment in a weak jobs market.”

However, Bryson said he doesn’t expect the next downturn to be as damaging to the job market as the previous two recessions.

“Employers have spent the better part of the past five years struggling to find workers,” he said. “We anticipate employers will hold on more tightly to workers than during past recessions, having a better appreciation of how difficult it may be to hire them back.”

— CNBC’s Michael Bloom contributed reporting.

The U.S. economy is teetering on the brink of a serious downturn if the Federal Reserve doesn’t pump the brakes on its rate hikes, billionaire CEO Barry Sternlicht said.

The central bank has already raised interest rates four times this year and is widely expected to hike them by 75 basis points next week in an effort to tame inflation. Earlier this week, consumer prices rose 0.1% instead of the 0.1% decline economists surveyed by Dow Jones were expecting.

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However, Sternlicht believes the Fed was late to the game and is now being too aggressive.

“The economy is braking hard,” the chairman and CEO of Starwood Capital Group told CNBC’s “Squawk Box” on Thursday.

“If the Fed keeps this up they are going to have a serious recession and people will lose their jobs,” he added.

Consumer confidence is terrible and CEO confidence is “miserable,” Sternlicht said. Supply chain issues are being resolved, and inventories are now backing up in warehouses, which will lead to huge discounting, he said.

“The CPI, the data they are looking at is old data. All they have to do is call Doug McMillon at Walmart, call any of the real estate fellas and ask what is happening to our apartment rents,” he said, pointing out that the rate of rent growth is now slowing.

The continuation of rate hikes will also cause a “major crash” in the housing market, Sternlicht predicted. The once-hot real estate market is swiftly slowing down, with mortgage rates for a 30-year fixed loan over 6% — up from 3.29% at the start of the year, according to Mortgage News Daily.

While the Fed’s target is 2%, inflation should run at 3% to 4%, Sternlicht said.

“Inflation that is driven by wage growth is fabulous. We should want wages to go up,” he said.

“You can pay higher rents, you can buy your equipment, you can go to the restaurant if you have high wage growth.”

As for when the “serious recession” will hit, Sternlicht believes it is imminent.

“I think [in the] fourth quarter. I think right now,” he said. “You are going to see cracks everywhere.”

Correction: Doug McMillon is CEO of Walmart. An earlier version misspelled his name.

Retail sales numbers were better than expected in August as price increases across a multitude of sectors offset a considerable drop in gas station receipts, the Census Bureau reported Thursday.

Advance retail sales for the month increased 0.3% from July, better than the Dow Jones estimate for no change. The total is not adjusted for inflation, which rose 0.1% in August, suggesting that spending outpaced price increases.

Inflation as gauged by the consumer price index rose 8.3% over the past year through August, while retail sales increased 9.3%.

However, excluding autos, sales decreased 0.3% for the month, below the estimate for a 0.1% increase. Excluding autos and gas, sales rose 0.3%.

Sales at motor vehicle and parts dealers led all categories, rising 2.8%, helping to offset the 4.2% decline in gas stations, whose receipts tumbled as prices fell sharply. Online sales also decreased 0.7%, while bar and restaurant sales rose 1.1%.

Revisions to the July numbers pointed to further consumer struggles, with the initially reported unchanged but to a decline of 0.4%.

Also, the “control” group that economists use to boil down retail sales, was unchanged from July. The group excludes sales from auto dealers, building materials retailers, gas stations, office supply stores, mobile homes and tobacco stores, and is what the government uses to calculate retail’s share of GDP.

“Higher inflation drove the top line sales figure but volumes are obviously falling because on a real basis, sales are negative,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Core retail sales being well below expectations will result in a cut to GDP estimates for Q3 as stated.”

Ian Shepherdson, chief economist at Pantheon Macroeconomics, called the release “a mixed report, but we see no cause for alarm.” He said the slump in housing will depress some related sales numbers, but overall spending should up as real incomes rise.

The retail numbers led a busy day for economic data.

Elsewhere, initial jobless claims for the week ended Sept. 10 totaled 213,000, a decrease of 5,000 from the previous week and better than the 225,000 estimate. Import prices in August fell 1%, less than the expected 1.2% decline.

Two manufacturing gauges showed mixed results: The New York Federal Reserve’s Empire State Manufacturing Index for September showed a reading of -1.5, a massive 30-point jump from the previous month. However, the Philadelphia Fed’s gauge came in at -9.9, a big drop from the 6.2 in August and below the expectation for a positive 2.3 reading.

The two Fed readings reflect the percentage of companies reporting expansion versus contraction, suggesting manufacturing was broadly in a pullback for the month.

The reports, however, pointed to some softening in price pressures. For New York, the prices paid and prices received indexes respectively declined 15.9 and 9.1 points, though both remained solidly in growth territory with readings of 39.6 and 23.6. In Philadelphia, prices paid fell nearly 14 points but prices received increased 6.3 points. Those indexes respectively were 29.8 and 29.6, indicating that prices are still rising overall but at a slower pace.

The prices that producers receive for goods and services declined in August, a mild respite from inflation pressures that are threatening to send the U.S. economy into recession.

The producer price index, a gauge of prices received at the wholesale level, fell 0.1%, according to a Bureau of Labor Statistics report Wednesday. Excluding food, energy and trade services, PPI increased 0.2%.

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Economists surveyed by Dow Jones had been expecting headline PPI to decline 0.1%.

On a year-over-year basis, headline PPI increased 8.7%, a substantial pullback from the 9.8% rise in July and the lowest annual gain since August 2021. Core PPI increased 5.6% from a year ago, matching the lowest rate since June 2021.

As has been the case over the summer, the drop in prices came largely from a decline in energy.

The index for final demand energy slid 6% in August, which saw a 12.7% drop in the gasoline index that was responsible for more than three-quarters of the 1.2% decline in prices for final demand goods. That helped feed through to consumer prices, which fell sharply after briefly surpassing $5 a gallon at the pump earlier in the summer.

Wholesale services prices increased 0.4% for the month, indicating a further transition for a Covid pandemic-era economy where goods inflation soared. Final demand services prices rose 0.4% for the month, with the balance of that coming from a 0.8% increase in trade services.

Those numbers come a day after the BLS reported consumer price index data for August that was higher than expected. The two reports differ in that the PPI shows what producers receive for finished goods, while the CPI reflects what consumers pay in the marketplace.

“The PPI report fleshes out the picture on inflation in the US, and makes it look not quite as bad as the August CPI report did,” said Bill Adams, chief economist for Comerica Bank. “Inflation is clearly slowing as gas prices fall. But the process is slow, and inflation looks set to stay well above the Fed’s target for at least a few more quarters.”

The PPI can be a leading indicator for inflation as wholesale prices feed through the economy. However, it’s importance has been tempered over the years as manufactured goods make up less of a share of total spending.

Following the Tuesday report, stocks tanked and expectations surged for Federal Reserve action at its meeting next week. Stock market futures were positive after the PPI report while Treasury yields were higher as well.

Markets were debating between a half percentage point and three-quarter point interest rate increase. After the release, the market fully priced in a three-quarter point move, and there is now a 1-in-3 chance of a full percentage point hike, according to fed funds futures data tracked by the CME Group.

For the better part of a year, the inflation narrative among many economists and policymakers was that it was essentially a food and fuel problem. Once supply chains eased and gas prices abated, the thinking went, that would help lower food costs and in turn ease price pressures across the economy.

August’s consumer price index numbers, however, tested that narrative severely, with broadening increases indicating now that inflation could be more persistent and entrenched than previously thought.

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CPI excluding food and energy prices — so-called core inflation — rose 0.6% for the month, double the Dow Jones estimate, bringing year-over-year cost-of-living increases up 6.3%. Including food and energy, the index rose 0.1% monthly and a robust 8.3% on a 12-month basis.

At least as important, the source of the increase wasn’t gasoline, which tumbled 10.6% for the month. While the summertime decline in energy prices has helped temper headline inflation numbers, it hasn’t been able to squelch fears that inflation will remain a problem for some time.

Rather than fuel, it was food, shelter and medical services that drove costs higher in August, slapping a costly tax on those least able to afford it and raising important questions about where inflation goes from here.

“The core inflation numbers were hot across the board. The breadth of the strong price increases, from new vehicles to medical care services to rent growth, everything was up strongly,” said Mark Zandi, chief economist at Moody’s Analytics. “That was the most disconcerting aspect of the report.”

Indeed, new vehicle prices and medical care services both increased 0.8% for the month. Shelter costs, which include rents and various other housing-related expenses, make up nearly a third of the CPI weighting and climbed 0.7% for the month.

Food costs also have been nettlesome.

The food at home index, a good proxy for grocery prices, has increased 13.5% over the past year, the largest such rise since March 1979. Prices continued their meteoric climb for items such as eggs and bread, further straining household budgets.

For medical care services, the monthly increase of 0.8% is the fastest monthly gain since October 2019. Veterinary costs rose 0.9% on the month and were up 10% over the past year.

“Even things like apparel prices, which often decline, were up a little bit [0.2%]. My view is that with these lower oil prices, they stick and assuming they don’t go back up, that will see a broad moderation of inflation,” Zandi said. “I have not changed my forecast for inflation to get back to [the Federal Reserve’s 2% target] by early 2024, but I’d say I hold that forecast with less conviction.”

On the positive side, prices came down again for things such as airline tickets, coffee and fruit. A survey released earlier this week by the New York Fed showed consumers are growing less fearful about inflation, though they still expect the rate to be 5.7% a year from now. There also are signs that supply chain pressures are easing, which should be at least disinflationary.

But about three-quarters of the CPI remained above 4% in year-over-year inflation, reflecting a longer-term trend that has refuted the idea of “transitory” inflation that the White House and the Fed had been pushing.

And energy prices staying low is no given.

The U.S. and other G-7 nations say they intend to slap price controls on Russian oil exports starting Dec. 5, possibly inviting retaliation that could see late-year price increases.

“Should Moscow cut off all natural gas and oil exports to the European Union, United States and United Kingdom, then it is highly probable that oil prices will retest the highs set in June and cause the average price of regular gas to move well back above the current $3.70 per gallon,” said Joseph Brusuelas, chief economist at RSM.

Brusuelas added that even with housing in a slump and possible recession, he thinks price drops there probably won’t feed through, as housing has “a good year or so to go before the data in that critical ecosystem improves.”

With so much inflation still in the pipeline, the big economic question is how far the Fed will go with interest rate increases. Markets are betting the central bank raises benchmark rates by at least 0.75 percentage point next week, which would take the fed funds rate to its highest level since early 2007.

“Two percent represents price stability. It’s their goal. But how do they get there without breaking something,” said Quincy Krosby, chief equity strategist at LPL Financial. “The Fed isn’t finished. The path to 2% is going to be difficult. Overall, we should start to see inflation continue to inch lower. But at what point do they stop?”

Lower gas prices are raising optimism that inflation is on the decline, according to a survey Monday from the New York Federal Reserve.

Respondents to the central bank’s August Survey of Consumer Expectations indicated they expect the annual inflation rate to be 5.7% a year from now. That’s a decline from 6.2% in July and the lowest level since October 2021.

Three-year inflation expectations dropped to 2.8% in August from 3.2% the previous month. That was tied for the lowest level for that measure since November 2020.

The lowered outlook came amid a tumble in gasoline prices from more than $5 a gallon earlier in the summer, a nominal record high. The current national average is about $3.71 a gallon, still well above the price from a year ago, but about a 26-cent decline from the same point in August, according to AAA.

Along those lines, consumers now expect gas prices to be little changed a year from now, according to the Fed survey. Food prices are expected to continue to climb, but the 5.8% anticipated increase a year from now is 0.8 percentage point lower than it was in July.

Rents are projected to increase 9.6%, but that is a 0.3 percentage point drop from the July survey.

Those numbers come as the Fed is using a series of aggressive interest rate hikes to battle inflation that is still running close to a more than 40-year high. The central bank is widely expected to approve a third consecutive 0.75 percentage point increase when it meets again next week.

While consumers expect inflation pressures to ease somewhat, they still think the cost of living will escalate.

Median expectations for household spending over the next year rose 1 percentage point to 7.8% in August, an increase in outlook driven largely by those holding a high school education or less and a group largely composed of lower earners.

Moreover, respondents said credit is harder to come by now. Those reporting that it’s more difficult now to get credit rose to a series high, with 57.8% saying that it’s either harder or much harder, the New York Fed reported.

Also, those expecting to miss a minimum debt payment over the next three months rose 12.2%, a 1.4 percentage point gain that was the highest reading since May 2020.

The Bureau of Labor Statistics on Tuesday will release the August consumer price index reading. Economists surveyed by Dow Jones expect CPI to have risen 8% from a year ago, though they see a decline of 0.1% from July. Excluding food and energy, core CPI is projected to rise 6% year over year and 0.3% month over month.

Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.

Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson said the catalyst events had already occurred to spark a repeat of the 70s, a period characterized by financial shocks, political clashes and civil unrest. Yet this time, the severity of those shocks was likely to be greater and more sustained.

“The ingredients of the 1970s are already in place,” Ferguson, Milbank Family Senior Fellow at the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.

“The monetary and fiscal policy mistakes of last year, which set this inflation off, are very alike to the 60s,” he said, likening recent price hikes to the 1970’s doggedly high inflation.

“And, as in 1973, you get a war,” he continued, referring to the 1973 Arab-Israeli War — also known as the Yom Kippur War — between Israel and a coalition of Arab states led by Egypt and Syria.

As with Russia’s current war in Ukraine, the 1973 Arab-Israeli War led to international involvement from then-superpowers the Soviet Union and the U.S., sparking a wider energy crisis. Only that time, the conflict lasted just 20 days. Russia’s unprovoked invasion of Ukraine has now entered into its sixth month, suggesting that any repercussions for energy markets could be far worse.

“This war is lasting much longer than the 1973 war, so the energy shock it is causing is actually going to be more sustained,” said Ferguson.

Politicians and central bankers have been vying to mitigate the worst effects of the fallout, by raising interest rates to combat inflation and reducing reliance on Russian energy imports.

But Ferguson, who has authored 16 books, including his most recent “Doom: The Politics of Catastrophe,” said there was no evidence to suggest that current crises could be avoided.

“Why shouldn’t it be as bad as the 1970s?” he said. “I’m going to go out on a limb: Let’s consider the possibility that the 2020s could actually be worse than the 1970s.”

Among the reasons for that, he said, were currently lower productivity growth, higher debt levels and less favorable demographics now versus 50 years ago.

“At least in the 1970s you had detente between superpowers. I don’t see much detente between Washington and Beijing right now. In fact, I see the opposite,” he said, referring to recent clashes over Taiwan.

Humans like to believe that global shocks happen with some degree of order or predictability. But that, Ferguson said, is a fallacy.

In fact, rather than being evenly spread throughout history, like a bell curve, disasters tend to happen non-linearly and all at once, he said.

“The distributions in history really aren’t normal, particularly when it comes to things like wars and financial crises or, for that matter, pandemics,” said Ferguson.

“You start with a plague — or something we don’t see very often, a really large global pandemic — which kills millions of people and disrupts the economy in all kinds of ways. Then you hit it with a big monetary and fiscal policy shock. And then you add the geopolitical shock.”

That miscalculation leads humans to be overly optimistic and, ultimately, unprepared to handle major crises, he said.

“In their heads, the world is kind of a bunch of averages, and there aren’t likely to be really bad outcomes. This leads people … to be somewhat overoptimistic,” he said.

As an example, Ferguson said he surveyed attendees at Ambrosetti — a forum in Italy attended by political leaders and the business elite — and found low single-digit percentages expect to see a decline in investment in Italy over the coming months.

“This is a country that’s heading towards a recession,” he said.