Tag Archives: consumer prices

As prices increase consumers set priorities

Rev 6:6 NAS “And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.”

Important Takeaways:

  • Surging prices force consumers to ask: Can I live without it?
  • Spending habits are starting to shift as consumers set their priorities.
  • Consumer prices have risen at the fastest clip in four decades.
  • Some companies like airlines have benefitted, while Amazon is seeing a slowdown.
  • Amazon’s most recent quarterly sales grew at the slowest pace since the 2001 dot-com bust.
  • Netflix lost subscribers in the last quarter for the first time in more than a decade.
  • Video game maker Activision Blizzard, home appliance giant Whirlpool and 1-800-Flowers all reported weaker sales in the last quarter.

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25.9% Largest spike in energy prices since 1949

Rev 6:6 NAS And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.”

Important Takeaways:

  • German producer prices jump by record 25.9%
  • The jump in factory gate costs, considered a leading indicator for consumer prices, was the biggest since 1949, the statistics office said.
  • February’s producer prices did not take into account the effects of Russia’s attack on Ukraine.
  • Energy prices were up 68% from February 2021, the statistics office said. Stripping out energy prices, producer prices rose 12.4% year on year.

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Inflation Highest in Four Decades. Surge in Oil, Gas Will Push Inflation Even Higher

Rev 6:6 NAS And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.”

Important Takeaways:

  • Inflation Reaches New High as Consumer Prices Jump 7.9%, Highest in Four Decades
  • The Department of Labor said that the consumer price index rose 7.9 percent compared with a year ago. Prices were up 0.8 compared with the prior month.
  • This is the ninth straight month of inflation above 5 percent. Prices rose at an annual rate of 7.5 percent in January, jumping 0.6 percent from December.
  • Compared with a year ago, core prices were up 6.4 percent, the fastest pace for this measure since August 1982.
  • Surge in oil and gasoline prices. Those are likely to push inflation even higher in March.

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As U.S. inflation hits 31-year high, banks assess risks and opportunities

By Matt Scuffham

NEW YORK (Reuters) – Wall Street banks are planning for a sustained period of higher inflation, running internal health checks, monitoring whether clients in exposed sectors could pay back loans, devising hedging strategies and counseling caution when it comes to deals.

U.S. consumer prices this month posted their biggest annual gain in 31 years, driven by surges in the cost of gasoline and other goods.

Senior bank executives have become less convinced by central bankers’ arguments that the spike is a temporary blip caused by supply chain disruption and are stepping up risk management.

Higher inflation is generally seen as a positive for banks, raising net interest income and boosting profitability. But if it jumps high too quickly, inflation could become a headwind, top bankers warn.

Goldman Sachs Chief Operating Officer John Waldron last month identified inflation as the No. 1 risk that could derail the global economy and stock markets.

JPMorgan Chief Executive Officer Jamie Dimon told analysts last month that banks “should be worried” that high inflation and high interest rates increase the risk of extreme price movements.

A sustained period of higher inflation would pose both credit and market risk to banks, and they are assessing that risk in internal stress tests, said one senior banker at a European bank with large U.S. operations.

Risk teams are also monitoring credit exposures in sectors most affected by inflation, another banker said. They include firms in the consumer discretionary, industrial and manufacturing sectors.

“We are very active with those clients, offering hedging protections,” said the banker, who asked not to be named as client discussions are confidential.

Clients that may need extra funding to get them through a period of higher inflation are being advised to raise capital while interest rates remain relatively low, the banker said.

“It’s still a very beneficial environment to be in if you need funding, but that won’t last forever.”

Investment bankers are also assessing whether higher inflation and monetary tightening could disrupt record deals and public offering pipelines.

“We expect a sustained period of higher inflation, and monetary tightening could slow the momentum in the M&A market,” said Paul Colone, U.S.-based managing partner at Alantra, a global mid-market investment bank.

Alantra is advising clients in the early stages of M&A discussions “to review the risks sustained inflation could bring to both valuation and business results,” Colone said.

Sales and trading teams, meanwhile, are taking more calls from clients looking to reposition portfolios, which are vulnerable to a loss in value. When inflation ran out of control in the 1970s, U.S. stock indices were hit hard.

“We’re seeing more interest from clients in finding some manner of inflation protection,” said Chris McReynolds, Barclays’ head of U.S. inflation trading.

Treasury Inflation Protected Securities, which are issued and backed by the U.S. government, are proving popular, he said. The securities are similar to Treasury bonds but come with protection against inflation.

Traders are also seeing demand for derivatives that offer inflation protection such as zero-coupon inflation swaps, in which a fixed rate payment on an investment is exchanged for a payment at the rate of inflation.

“People are realizing they have inflation exposure and it makes sense for them to hedge their assets and liabilities,” McReynolds said.

Banks with diversified businesses are likely to fare best during a sustained period of inflation, most analysts say.

They expect that a steepening yield curve will boost overall profit margins, while trading businesses can benefit from increased volatility and the strength of deals, and initial public offering pipelines mean investment banking activity will remain healthy.

But Dick Bove, a prominent independent banking analyst, takes a different view. He anticipates the yield curve will flatten as higher rates reduce inflation expectations, crimping profit margins.

“Perhaps for as long as 12 to 18 months, bank stock prices will rise,” he said. “At some point, however, if inflation continues to rise, the multiples on bank stocks will collapse and so will bank stock prices.”

(Reporting by Matt Scuffham; Editing by Dan Grebler)

Soaring gasoline, food prices boost U.S. inflation; labor market tightening

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer prices accelerated in October as Americans paid more for gasoline and food, leading to the biggest annual gain in 31 years, suggesting inflation could stay uncomfortably high well into 2022 amid snarled global supply chains.

Inflation pressures are also brewing in the labor market, where an acute shortage of workers is driving wages higher. The number of Americans filing claims for unemployment benefits fell to a 20-month low last week, other data showed on Wednesday.

High inflation is eroding the wage gains, adding to political risk for President Joe Biden, whose approval rating has been falling as Americans grow more anxious about the economy. The White House and the Federal Reserve, which views high inflation as transitory, have maintained that prices will fall once supply bottlenecks start easing.

“There is increasing evidence that inflationary pressures are broadening out, underlining that inflation will remain elevated for much longer than Fed officials expect,” said Andrew Hunter, a senior economist at Capital Economics.

The consumer price index jumped 0.9% last month after climbing 0.4% in September, the Labor Department said on Wednesday. The largest gain in four months boosted the annual increase in the CPI to 6.2%. That was the biggest year-on-year rise since November 1990 and followed a 5.4% increase in September.

The broad-based increase in prices last month was led by gasoline prices, which surged 6.1% after rising 1.2% in September. Food prices advanced 0.9%, with meat, eggs, fish, vegetables, cereals and bakery products becoming more expensive. But prices for alcoholic beverages declined. Rents increased a solid 0.4% and prices for both new and used motor vehicles rose.

Excluding the volatile food and energy components, the CPI gained 0.6% after climbing 0.2% in September. The so-called core CPI jumped 4.6% on a year-on-year basis, the largest increase since August 1991, after being steady at 4.0% for two straight months. Economists polled by Reuters had forecast the overall CPI shooting up 0.6% and the core CPI rising 0.4%.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury yields rose.

WORKER SHORTAGES

Inflation is heating up again as the economic drag from the summer wave of COVID-19 infections, driven by the Delta variant, fades and supply bottlenecks persist. Trillions of dollars in pandemic relief from governments across the globe fueled demand for goods, leaving supply chains overstretched.

The nearly two-year long pandemic has upended labor markets, causing a global shortage of workers needed to produce raw materials and move goods from factories to consumers. The government reported on Tuesday that producer prices increased strongly in October, reversing a slowing trend in the monthly PPI that had become entrenched since spring.

Though the Fed last week restated its belief that current high inflation is “expected to be transitory,” most economists are skeptical, also noting that wages are rising strongly as companies scramble for workers.

The U.S. central bank this month started reducing the amount of money it is injecting into the economy through monthly bond purchases. The Fed’s preferred inflation measure for its flexible 2% target increased 3.6% year-on-year in September.

With labor scarce, companies are holding on to their workers. In another report on Wednesday, the Labor Department said initial claims for state unemployment benefits fell 4,000 to a seasonally adjusted 267,000 for the week ended Nov. 6.

That was the lowest level since the middle of March in 2020, when the economy almost ground to a halt under the onslaught of mandatory business closures aimed at slowing the first wave of COVID-19 infections. Claims, which have now declined for six straight weeks, are within striking distance of their pre-pandemic level.

The report was published a day early because the federal government is closed on Thursday for the Veterans Day holiday.

The government reported last Friday that the economy added 531,000 jobs in October, with annual wage growth the largest in eight months. The labor force is down 3 million from its pre-pandemic level, making it harder to fill the 10.4 million job openings as of the of August.

“Businesses facing labor shortages are likely retaining rather than laying off workers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “Even so, for the labor market, supply remains a constraint that is a headwind for the recovery for now.”

(Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci)

Biden says inflation temporary; Fed should do what it deems necessary for recovery

By Steve Holland and Andrea Shalal

WASHINGTON (Reuters) -U.S. President Joe Biden on Monday said an increase in prices was expected to be temporary, but his administration understood that unchecked inflation over the longer term would pose a “real challenge” to the economy and would remain vigilant.

Biden said he told Federal Reserve Board Chair Jerome Powell recently that the Fed was independent and should take whatever steps it deems necessary to support a strong, durable recovery.

“As our economy comes roaring back, we’ve seen some price increases,” Biden said, while rejecting concerns the recent increases could be a sign of persistent inflation.

He said his administration was doing all it could to address supply chain bottlenecks that had pushed up the price of cars, and noted that lumber prices were now easing after spiking higher early in the recovery.

“I want to be clear: my administration understands that were we ever to experience unchecked inflation in the long term, that would pose a real challenge for our economy,” he said. “While we’re confident that isn’t what we’re seeing today, we’re going to remain vigilant about any response that is needed.”

Biden said he had also made that point clear to Powell: “The Fed is independent. It should take whatever steps it deems necessary to support a strong, durable economic recovery.”

Growing concerns about inflation dragged U.S. consumer sentiment in early July to its lowest level in five months, a survey showed Friday, after a 0.9% jump in consumer prices in June, the biggest increase in 13 years, but economists continue to believe that higher inflation is transitory.

The Democratic president said his plans to invest more in infrastructure, as well as better care for older people and children, would help reduce inflationary pressures in the future by boosting productivity.

“These steps will enhance our productivity, raising wages without raising prices,” he said. “It will take the pressure off of inflation, give a boost to our workforce which leads to lower prices in the years ahead.”

He said critics had warned repeatedly that his economic policies would lead to an end to capitalism, but economists were now predicting the United States would hit its highest economic growth rate in 40 years.

“It turns out capitalism is alive and very well,” he said. “We’re making serious progress to ensure that it works the way it’s supposed to work for the good of the American people.”

(Reporting by Steve Holland and Andrea Shalal; Editing by Andrea Ricci)

Pent-up demand, shortages fuel U.S. inflation

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices surged in April, with a measure of underlying inflation blowing past the Federal Reserve’s 2% target and posting its largest annual gain since 1992, because of pent-up demand and supply constraints as the economy reopens.

The strong inflation readings reported by the Commerce Department on Friday had been widely anticipated as the pandemic’s grip eases, thanks to vaccinations, and will have no impact on monetary policy. Fed Chair Jerome Powell has repeatedly stated that higher inflation will be transitory.

The U.S. central bank slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases. It has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its target, a flexible average.

The supply constraints largely reflect a shift in demand towards goods and away from services during the pandemic. A reversal is underway, with Americans flying to vacation destinations and staying at hotels among other activities. Year-on-year inflation is also accelerating as last spring’s weak readings drop from the calculation.

“Many goods are in short supply amid very strong demand and supply chain disruptions, and some services prices are up sharply as consumers start to go out again,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “Shortages of labor in some industries are also contributing to higher prices. But many of these factors will prove transitory, and inflation will slow in the second half of 2021.”

Consumer prices as measured by the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 0.7% last month amid strong gains in both goods and services. That was the biggest rise in the so-called core PCE price index since October 2001 and followed a 0.4% gain in March.

In the 12 months through April, the core PCE price index vaulted 3.1%, the most since July 1992, after rising 1.9% in March. Economists polled by Reuters had forecast the core PCE price index rising 0.6% in April and surging 2.9% year-on-year.

The core PCE price index is the Fed’s preferred inflation gauge.

Stocks on Wall Street were trading higher, though gains were capped by the rising price pressures. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.

“Inflation is up, but real yields are still low,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia. “This is basically the transitory sweet spot.”

INCOME PLUNGES

Some economists are not convinced that higher inflation will be temporary.

A survey from the University of Michigan on Friday showed consumers’ one-year inflation expectations shot up to 4.6% in May from 3.4% in April, hurting household sentiment. Their five-year inflation expectations rose to 3.0% from 2.7% last month.

“Concerns about the future can cause households to become more conservative in their spending,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “The Fed is guessing that the rise in inflation will be temporary, and it better be correct.”

Though consumer spending moderated last month as the boost to incomes from stimulus checks faded, households have accumulated at least $2.3 trillion in excess savings during the pandemic, which should underpin demand. Wages are also rising as companies seek to attract labor to increase production.

Generous unemployment benefits funded by the government, problems with child care and fears of contracting the virus, even with vaccines widely accessible, as well as pandemic-related retirements have left companies scrambling for labor.

That is despite nearly 10 million Americans being officially unemployed. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month. Data for March was revised higher to show spending surging 4.7% instead of 4.2% as previously reported.

The rise in spending was in line with expectations. Spending was held back by a 0.6% drop in outlays on goods. Though purchases of long-lasting goods such as motor vehicles rose 0.5%, spending on nondurable goods tumbled 1.3%. Outlays on services increased 1.1%, led by spending on recreation, hotel accommodation and at restaurants.

When adjusted for inflation, consumer spending slipped 0.1% after jumping 4.1% in March. Despite last month’s dip in the so-called real consumer spending, March’s solid increase put consumption on a higher growth trajectory in the second quarter.

Personal income plunged 13.1% after surging 20.9% in March. With spending exceeding income, the saving rate dropped to a still-high 14.9% from 27.7% in March. Wages increased 1.0% for a second straight month.

Consumer spending powered ahead at a 11.3% annualized rate in the first quarter, contributing to the economy’s 6.4% growth pace. Most economists expect double-digit growth this quarter, which would position the economy to achieve growth of at least 7% this year, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

Growth prospects for the second quarter were bolstered by another report from the Commerce Department showing the goods trade deficit narrowed 7.3% to $85.2 billion in April, with exports rising and imports declining.

But inventory at retailers fell 1.6%, pulled down by a 7.0% plunge in automobile stocks as the sector struggles with a global semiconductor shortage.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Chizu Nomiyama)

U.S. consumer prices post biggest gain in nearly 12 years as inflation pressures build

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints, which could fuel financial market fears of a lengthy period of higher inflation.

The report from the Labor Department on Wednesday also showed a strong building up of underlying price pressures. Demand is being driven by nearly $6 trillion in government relief since the COVID-19 pandemic started in the United States in March 2020 and the vaccination of more than a third of the population.

Federal Reserve Chair Jerome Powell and many economists largely view higher inflation as transitory, with supply chains expected to adapt and become more efficient. But there are concerns that inflation could linger amid reports that companies are raising wages as they compete for scarce workers.

Though job openings are at a record 8.1 million and nearly 10 million people are officially unemployed, companies are scrambling for labor. Generous unemployment benefits, fears of contracting COVID-19, parents still at home caring for children and pandemic-related retirements have been blamed for the disconnect. Average hourly earnings jumped in April.

The consumer price index jumped 0.8% last month, the largest gain since June 2009. The CPI rose 0.6% in March. Food prices increased 0.4%. The cost of food consumed at home also gained 0.4%. The cost of food consumed away from home rose 0.3%. Gasoline prices fell 1.4% after accelerating 9.1% in March.

Economists polled by Reuters had forecast the CPI climbing 0.2% in April.

In the 12 months through April, the CPI shot up 4.2%. That was the largest gain since September 2008 and followed a 2.6% increase in March. The jump mostly reflected the dropping of last spring’s weak readings from the calculation.

Those so-called base effects are expected to push annual inflation even higher in the months ahead.

U.S. stock index futures extended losses on the data, which investors feared could force the Fed to raise interest rates sooner than expected. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.

The Fed slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through monthly bond purchases. The U.S. central bank has signaled it could tolerate higher inflation after years of lower inflation.

Excluding the volatile food and energy components, the CPI soared 0.9%, the largest gain since April 1982. The so-called core CPI rose 0.3% in March. There were increases in prices for used cars and trucks, shelter, airline fares, recreation, motor vehicle insurance as well as household furnishings.

In the 12 months through April, the core CPI jumped 3.0% after increasing 1.6% in March.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target, a flexible average. The core PCE price index is at 1.8%.

(Reporting by Lucia Mutikani; Editing by Andrew Heavens and Andrea Ricci)

U.S. producer prices post biggest rise in five months

FILE PHOTO: A customer shops for a turkey at a Walmart store in Chicago, Illinois, U.S., November 20, 2018. REUTERS/Kamil Krzaczynski/File Photo

WASHINGTON, (Reuters) – U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was tame.

The Labor Department said on Thursday its producer price index for final demand rose 0.6 percent last month, lifted by a surge in the cost of gasoline. That was the largest increase since last October and followed a 0.1 percent gain in February.

In the 12 months through March, the PPI rose 2.2 percent after advancing 1.9 percent in February. Economists polled by Reuters had forecast the PPI would climb 0.3 percent in March and increase 1.9 percent on a year-on-year basis.

A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month after ticking up 0.1 percent in February. The so-called core PPI increased 2.0 percent in the 12 months through March. That was the smallest annual increase since August 2017 and followed a 2.3 percent rise in February..

Data on Wednesday showed consumer prices rose by the most in 14 months in March, driven by more expensive gasoline. But core inflation remained muted amid a plunge in the cost of apparel.

Slowing domestic and global growth are keeping inflation contained. Wage inflation has also been moderate despite a tight labor market.

Minutes of the Federal Reserve’s March 19-20 policy meeting published on Wednesday described inflation as “muted,” though officials expected it to rise to or near the U.S. central bank’s 2 percent target. The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, is currently at 1.8 percent.

Last month, wholesale energy prices jumped 5.6 percent, with gasoline prices shooting up 16.0 percent, the most since August 2009. Energy prices rose 1.8 percent in February.

Gasoline accounted for over 60 percent of the 1.0 percent rise in goods prices last month. Goods prices increased 0.4 percent in February.

Wholesale food prices rose 0.3 percent in March, reversing a 0.3 percent drop in the prior month. Core goods prices rose 0.2 percent after edging up 0.1 percent in February.

The cost of services increased 0.3 percent in March after being unchanged in the prior month. Prices for healthcare services fell 0.2 percent last month. There was a sharp drop in the cost of hospital outpatient services. Those healthcare costs feed into the core PCE price index.

(Reporting by Lucia Mutikani Editing by Paul Simao) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net)

IMF projects Venezuela inflation will hit 1,000,000 percent in 2018

A worker counts Venezuelan bolivar notes at a parking lot in Caracas, Venezuela May 29, 2018. REUTERS/Marco Bell

(Reuters) – Venezuela’s inflation rate is likely to top 1,000,000 percent in 2018, an International Monetary Fund official wrote on Monday, putting it on track to become one of the worst hyperinflationary crises in modern history.

The South American nation’s economy has been steadily collapsing since the crash of oil prices in 2014 left it unable to maintain a socialist system of subsidies and price controls.

“We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s,” Alejandro Werner, director of the IMF Western Hemisphere department, wrote in a post on the agency’s blog.

Venezuela’s Information Ministry did not immediately reply to a request for comment.

Consumer prices have risen 46,305 percent this year, according to the opposition-run legislature, which began publishing its own inflation data in 2017 because the nation’s central bank had halted the release of basic economic data.

President Nicolas Maduro says the country is victim of an “economic war” waged by opposition businesses with the support of Washington.

His government routinely dismisses the IMF as a pawn of Washington that puts the interests of wealthy financiers before those of developing nations.

Opposition critics have said Venezuela’s problems are the result of bad policy decisions, including unchecked expansion of the money supply and currency controls that leave businesses unable to import raw materials and machine parts.

(Reporting by Brian Ellsworth; Editing by Bill Berkrot)