Daily Business Briefing
Aug. 11, 2021, 10:25 a.m. ET
Aug. 11, 2021, 10:25 a.m. ET
Consumer prices rose at a rapid clip again in July, gains that could be problematic for both Federal Reserve officials and the Biden White House.
Prices increased by 5.4 percent last month compared with a year earlier, the Labor Department’s Consumer Price Index showed on Wednesday. The inflation measure rose 0.5 percent from June.
The annual gain was slightly more than the 5.3 percent jump expected by economists, according to the median prediction of those surveyed by Bloomberg. The monthly gain matched the anticipated 0.5 percent increase.
The monthly figure did represent a moderation in the pace of increase — the C.P.I. rose 0.9 percent in June from May — but inflation is still faster than is typical.
Economists widely expected that price gains would pick up this year after slumping in 2020, but the extent of the jump has come as a surprise. Yearly price gains will almost surely moderate in the months ahead, as a data quirk that’s been helping exaggerate them fades. Monthly gains are also expected to continue cooling off as businesses find ways to cope with short-term disruptions to supply chains, which have pushed car prices sharply higher and led to part of the 2021 pop.
But the key question for the Fed, and the White House, is just how quickly that will happen.
For the Fed, which is charged with keeping price gains low and steady over time, temporary price jumps are tolerable — but persistent gains would be a problem. For the White House, climbing costs have become a political headache as Republicans use them to claim that the Biden administration is mismanaging the economy.
Here are a few things to know about Wednesday’s data.
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The pop is tied to pandemic reopening. The increase in inflation this year has come heavily from a few categories of goods and services in which supply has struggled to catch up with booming consumer demand.
Car production has been limited by a computer chip shortage, and rapid demand has sent the prices for used cars soaring this year. That moderated in July — the used car index climbed only slightly, at 0.2 percent from June (after rising 10.5 percent in June from May) — but costs of new vehicles continued to advance rapidly, climbing 1.7 percent from the prior month.
Shelter costs also increased, buoyed by a sharp increase in hotel rates. “Lodging away from home” costs were up 6 percent from the prior month, following a 7 percent gain between May and June.
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The C.P.I. is not the Fed’s target measure. The central bank aims for 2 percent inflation on average over time, and it defines that goal using the Personal Consumption Expenditures index, which has also been up this year but not quite as sharply as the measure reported on Wednesday. But the C.P.I. is more timely, and its data feeds into the Fed’s metric, which makes it very closely watched.
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Last year’s shutdown is less of a factor. A big factor behind gains earlier this year is something called the base effect. Prices for airline tickets and hotel rooms dropped last year when the economy locked down, so when today’s prices are measured against those figures, the increase looks outsized. But the base effect is now fading, because prices turned a corner after May 2020 as the economy reopened.
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Fast inflation will become a problem if it lasts. The increases this year have been driven by pandemic reopenings, and Policymakers are willing to tolerate that pickup, temporarily. It is a weird period.
“The question is more, what the inflation outlook is going to be into the next year, 2022, 2023?” Charles Evans, president of the Federal Reserve Bank of Chicago, said on a call with reporters on Tuesday.
Fed officials are watching wage increases and inflation expectations for a sign of whether the current burst of reopening-driven inflation will linger. If pay takes off on a sustained basis, employers may find that they need to charge more to cover their expenses. Likewise, if consumers and businesses start to expect rapid price increases, they may be more willing to accept higher prices, setting off a self-fulfilling prophesy.
For now, policymakers don’t expect that to happen.
“My best estimate is that this is something that will pass,” Jerome H. Powell, the Fed chair, said in a recent news conference. “It’s really a shock to the economy that will pass through.”
Ben Casselman contributed reporting.
Southwest Airlines no longer expects to turn a profit in the third quarter as a recent rise in coronavirus cases slows sales and drives an increase in cancellations.
In a securities filing on Wednesday, the company forecast revenue for the three months that end in September to be down 15 to 20 percent compared with the same period in 2019, a decline of three to four percentage points from its previous estimate.
The airline’s revised forecast represents a rapid turnaround from a few weeks ago, when Southwest and other major carriers said that business was booming and the highly contagious Delta variant of the virus was not yet affecting sales. In fact, Southwest said Wednesday that it was profitable again in July, but that it no longer expected to turn a profit for the current quarter, at least after excluding the effect of federal payroll aid to the industry.
Late last month, Scott Kirby, the chief executive of United Airlines, said that the Delta variant had not affected sales at all. “The most likely outcome is that the recovery in demand continues largely unabated,” he said on a call to discuss quarterly financial results with analysts and reporters.
After climbing for months, the number of people flying in the United States appears to have stagnated in recent weeks at about 80 percent of 2019 levels, according to Transportation Security Administration airport screening data. Still, more than 2.2 million people were screened on Aug. 1, the most relative to 2019 since the pandemic began. The rebound so far has mainly been driven by people traveling on vacations or visiting friends and family members.
Airlines had hoped that growing confidence in travel and a widespread return to offices in the fall would help to accelerate a recovery in business travel, which has lagged behind the leisure rebound. But the Delta variant has dashed those hopes as a growing number of companies delay their office reopenings. Share prices in Southwest and the other three large U.S. airlines were down 1 to 2 percent in premarket trading.
Robinhood, the popular trading app for small investors, announced on Tuesday that it agreed to acquire Say Technologies, which specializes in digitizing shareholder votes, for $140 million. The takeover speaks to Robinhood’s pledge to “democratize finance,” the DealBook newsletter reports.
Many retail investors buy shares but then don’t vote on things like executive pay packages and who sits on a company’s board. Nell Minow, a shareholder rights and corporate governance expert, said that making it easier for Robinhood’s users to vote their shares could shake up corporate boardrooms just like when millions of traders used the app to send meme stocks soaring this year.
“Robinhood was at the kindergarten stage when it came to democratizing Wall Street, and this moves it up to at least the first year of high school,” Ms. Minow said. Individuals acting together could compel companies to take the lead on environmental and social justice issues, she said.
But small investors tend to side with management more than institutional investors do, said Jonathon Zytnick, a research fellow at the Institute of Corporate Governance and Finance at N.Y.U. Law School. “Voting methods matter a ton getting retailer shareholders to vote,” Mr. Zytnick said. “And retail investors can perform a monitoring role, but at least right now, it is almost certainly wrong to think of this as a means of environment and social change.”
But if there’s anything that the past few months have taught us, the behavior of big crowds of small investors is hard to predict.
YouTube on Tuesday removed a video by Senator Rand Paul of Kentucky for the second time and suspended him from publishing for a week after he posted a video that disputed the effectiveness of wearing masks to limit the spread of the coronavirus.
A YouTube representative said the Republican senator’s claims in the three-minute video had violated the company’s policy on Covid-19 medical misinformation. The company policy bans videos that spread a wide variety of misinformation, including “claims that masks do not play a role in preventing the contraction or transmission of Covid-19.”
“We apply our policies consistently across the platform, regardless of speaker or political views, and we make exceptions for videos that have additional context such as countervailing views from local health authorities,” the representative said in a statement.
In the video, Mr. Paul says: “Most of the masks you get over the counter don’t work. They don’t prevent infection.” Later in the video, he adds, “Trying to shape human behavior isn’t the same as following the actual science, which tells us that cloth masks don’t work.”
In fact, masks do work, according to the near-unanimous recommendations of public health experts.
On Tuesday, Twitter suspended Representative Marjorie Taylor Greene, Republican of Georgia, for seven days after she posted that the Food and Drug Administration should not give the coronavirus vaccines full approval and that the vaccines were “failing.”
On Twitter, Mr. Paul called his suspension “a badge of honor” and blamed “left-wing cretins at YouTube,” while linking to an alternative site to watch the video.
The senator said in a statement that private companies had the right to bar him, but that YouTube’s decision was “a continuation of their commitment to act in lock step with the government.”
“I think this kind of censorship is very dangerous, incredibly anti-free speech and truly anti-progress of science, which involves skepticism and argumentation to arrive at the truth,” he said.
Last week, YouTube removed from his channel an eight-minute Newsmax interview in which the senator said that “there’s no value” in wearing masks. According to YouTube policy, the company issues a warning for a first offense, then the weeklong suspension is part of its “first strike” response to a second offense.
The strike will be removed from his account after 90 days if there are no more violations. A second-strike in the 90 days would result in a two-week suspension, and the account would be permanently banned after a third strike.
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U.S. stocks rose on Wednesday after data showed monthly inflation in the United States rose in July roughly in line with economists’ expectations. The S&P 500 index was up 0.2 percent in early trading.
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The Consumer Price Index rose 0.5 percent from the previous month and 5.4 percent compared with a year earlier.
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The yield on 10-year U.S. Treasury notes were little changed at 1.35 percent after the inflation data was released. The price increases this year have been driven by pandemic reopenings, and policymakers are willing to tolerate that pickup, temporarily.
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Companies set to gain from a Federally funded infrastructure push rose on Wednesday. Asphalt makers Vulcan Materials and Martin Marietta Materials both rose about 2 percent, as did companies that provide machinery for road and bridge building like United Rentals. The steelmaker Nucor also rose more than 4 percent, helping to make the materials sector a top-performing part of the S&P 500.
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Coinbase, the cryptocurrency exchange, rose about 6 percent after the company said on Tuesday that its quarterly revenue soared by more than 1,000 percent and profit skyrocketed nearly 4,900 percent from a year earlier.
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WW International, formerly known as Weight Watchers, fell more 23 percent in early trading after reporting a slowdown in subscriber growth during the second quarter.
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Instagram is rolling out new features on Wednesday to make racist material harder to view.
Among them, one will let users hide potentially harassing comments and messages from accounts that either don’t follow or recently followed them, Ryan Mac and Tariq Panja report for The New York Times.
The actions follow a more than two-year campaign by English soccer to pressure Facebook and other social media companies to rein in online hate speech against their players.
Soccer officials have since met numerous times with the platforms, sent an open letter calling for change and organized social media boycotts. Facebook’s employees have joined in, demanding that it to do more to stop the harassment.
“The unfortunate reality is that tackling racism on social media, much like tackling racism in society, is complex,” Karina Newton, Instagram’s global head of public policy, said in a statement. “We’ve made important strides, many of which have been driven by our discussions with groups being targeted with abuse, like the U.K. football community.”
But Facebook executives also privately acknowledge that racist speech against English soccer players is likely to continue. “No one thing will fix this challenge overnight,” Steve Hatch, Facebook’s director for Britain and Ireland, wrote last month in an internal note that The Times reviewed.
Recovery in some of the world’s major economies appears to be slowing down as people spooked by the Delta variant spend less, travel less and dine out less, according to new report by the Organization for Economic Development and Cooperation, the research and policy group of the world’s richest countries.
In recent months, as vaccination rates increased globally, optimism that life appeared to be returning to normal helped spur consumer spending from Ohio to Paris to Beijing.
But that renewed sense of confidence may be ebbing amid news of breakout infections, lockdowns and other requirements. In countries like France and Italy, people now need health passes — paper or digital proof of being fully vaccinated, a recent negative test or recent Covid-19 recovery — to attend big concerts and to enter cinemas, museums and theaters.
The O.E.C.D., a Paris-based organization, looked at economic indicators including employment, retail sales, manufacturing output and wage growth in 38 member countries. It said the indicators suggested that growth in major economies like the United States and China may be slowing down, with similar signs of sputtering in Europe, including in Britain, France and Germany.
The group said that there might be higher than usual fluctuations in how economic recoveries are playing out because of persistent uncertainties, “despite the gradual lifting of Covid-19 containment measures in some countries and the progress of vaccination campaigns.”
The report also said that growth was slowing in Russia and Brazil, where the pandemic has buffeted society and industry. In Brazil, millions have gone hungry in recent months, with scenes of undernourished teenagers holding placards at traffic stops with the word hunger in large print.
China, a manufacturing powerhouse, has played a leading role in an upward global economic trend. But some economists say that its growth has started to level off in recent months and that the government’s tougher pandemic restrictions could undermine it.
There have been some cautiously encouraging signs, however. Since the pandemic recession bottomed out in the United States in the spring of 2020, the nation’s economic output has been resilient, with second-quarter output 0.8 percent higher than before coronavirus.
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Coinbase, the cryptocurrency exchange, said on Tuesday that its quarterly revenue soared by more than 1,000 percent and profit skyrocketed nearly 4,900 percent from a year earlier, in its second earnings report as a publicly traded company. Revenue totaled $2.2 billion in the three months ending in June, up from $186 million a year ago. Profit was $1.6 billion, compared with $32 million a year earlier.
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The Biden administration said on Tuesday that it had reached an agreement with Tridonex auto parts factories in Mexico to address accusations that workers had been harassed and fired for trying to organize with an independent union in place of a company-controlled union. Under the deal, Tridonex agreed to provide severance and back pay to workers who had been dismissed. It also agreed to a number of steps to help ensure workers’ collective bargaining rights. The case posed an early test of the labor protections in the United States-Mexico-Canada Agreement.
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August 11, 2021 at 02:45PM
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Consumer prices rose quickly again in July. - The New York Times
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