Aurelia Butler

David Glaymon is a former partner at Kynikos Associates and financial analyst. The last US inflation report was another shocker, coming at a seasonally adjusted rate of 8.3 per cent in April. But it is the detailed expenditure category table that highlights just how tricky the situation is.For example, consider the humble chicken, America’s most popular meat. According to the BLS report, the price of a fresh whole chicken was up 4 per cent seasonally adjusted from March, while fresh and frozen chicken parts were up 3.5 per cent. The unadjusted year-over-year price increases were 14.6 per cent and 17.9 per cent, respectively. Similarly, egg inflation was up 10.3 per cent seasonally adjusted from March and 22.6 per cent unadjusted year-over year. We can debate what inflation came first, the chicken or the egg, but the impact on America’s poultry-loving households is undeniable.

But the inflation in chicken and egg prices highlights the Federal Reserve’s intractable position. Clearly, economic stimulus has not led to a mammoth boost in demand for scrambled eggs, chicken nuggets, hot wings and Kung Pao relative to 2019. The wave of inflation buffeting economies is to a large extent supply-driven. The shift to a globalised, just-in-time management systems left supply chains vulnerable to the unexpected shocks from Covid-19 and the Russian invasion of Ukraine. China’s zero-Covid policy and protracted lockdowns is now making things worse.With few other tools to tackle this, the Federal Reserve has embarked on a series of interest rate rises to reduce demand even though the inflation issue is supply-driven. The Fed is like a patient treating a sprained ankle by punching themselves in the face.The challenge of using interest rate activity to reduce demand is that it takes roughly three-quarters of an interest rate hike to take effect within the economy. A look back at the 1978 to 2007 period shows the lag in peaks of unemployment levels to peak interest rates.

A clue to how long this supply-driven inflation has come can be found in the US Agriculture Department’s Monthly Chicken and Eggs report: In the March 2022 report, table egg production was down 1.8 per cent year-over-year. Cal-Mine Foods, a publicly traded egg company, announced an $82mn investment on March 30th to increase its cage-free production levels, which is expected to be completed by the fall of 2023 in its Delta, Utah facility and by the spring of 2025 in its Guthrie, Kentucky facility.The egg investment timeline is similar in many other parts of the economy. For example, look at what Jim Taiclet, CEO of Lockheed Martin indicated on the television show Face the Nation last month. He said that increasing Javelin production capacity to 4,000 per year from 2,100 “will take a number of months, even a couple of years because we have to get our supply chain to also crank up.”. Investors want this market decline to be over, but the Fed is just at the start of its interest rate cycle, and unemployment is expected to have fallen to a pre-pandemic low of 3.5 per cent in May (non-farm payrolls are out later today). It will take some time for the rate increases to dampen consumer behaviour, given that the hottest of inflation is in consumer-related activities. Whether it is eggs or anti-tank missiles, by then it is very likely that supply will have caught up, complicating the situation. More

The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 52.6 from the prior month’s final of 50.7, with activity coming in well above the 50-mark that separates contraction from expansion.The figure marked the fastest rate of expansion since November 2021 and was better than a seasonally adjusted 51.7 flash reading.”Activity over the coming months looks set to be strong, as the levels of outstanding business rose at the sharpest rate since September 2019,” said Usamah Bhatti, economist at S&P Global (NYSE:SPGI) Market Intelligence, which compiles the survey.”That said, rising prices remained a slight drag on demand, as cost burdens rose at a record rate.”Business in the sector saw overall input prices rise for the 18th straight month, citing a wide range of factors such as increased fuel and raw material costs.The input price pressures lead them to charge more for services, partially passing on the higher cost to consumers, the survey showed.The composite PMI, which is calculated using both manufacturing and services, rose to 52.3 from April’s final of 51.1 to mark the fastest pace of expansion in five months.After seeing a contraction in January-March, the world’s third-largest economy is expected to rebound this quarter, likely growing an annualised 4.5% as the pandemic’s drag on consumer sentiment wears off.The economy still faces risks from price rises of food and a wider range of consumer products that could crimp household spending and parts and high-tech chip supply disruptions that are hurting manufacturers. More

NEW YORK (Reuters) -Frontier Group Holdings Inc has agreed to pay a break-up fee of $250 million in a bid to secure its acquisition of Spirit Airlines (NYSE:SAVE) Inc, the companies said on Thursday.The sweetening of the terms comes after proxy advisory firm Institutional Shareholder Services Inc (ISS) urged Spirit shareholders to vote against the deal with Frontier, in part because Spirit failed to negotiate a break-up fee should U.S. antitrust regulators shoot down their deal.The announcement confirms a Reuters exclusive earlier in the day that Frontier had agreed to pay a reverse termination fee to Spirit if the deal falls apart. “Given our conviction that regulators will find this combination to be pro-competitive, we have agreed to institute a reverse termination fee”, Chair of Frontier’s Board of Directors William Franke said.Frontier and Spirit Airlines’s potential $2.9 billion tie-up would create the fifth-largest U.S. airline, and could likely tighten competition against traditional carriers.JetBlue Airways (NASDAQ:JBLU) Corp is trying to gatecrash the deal with a hostile $3.3 billion offer for Spirit that the latter has rejected, arguing regulators will not greenlight it unless JetBlue makes more concessions. More

WASHINGTON (Reuters) -The Biden administration is considering “all options” as it reviews potential changes to U.S. duties on Chinese imports, including tariff relief and new trade investigations in a shift of focus to strategic concerns with Beijing, Deputy U.S. Trade Representative Sarah Bianchi said on Thursday.Bianchi told Reuters in an interview that the agency is seeking to address long-term challenges from China and “getting a tariff structure that really makes sense.” “We’re looking at everything and what we’re focused on is making sure that we have again, a long term realignment of the relationship with China, focusing on some of the concerns … such as non-market practices and economic coercion,” Bianchi said.U.S. President Joe Biden has said he is considering removing some of the tariffs imposed on hundreds of billions of dollars worth of Chinese goods by predecessor Donald Trump in 2018 and 2019 amid a bitter trade war between the world’s two largest economies. His administration is seeking ways to cool inflation, and industry groups have called for tariff cuts to reduce costs for businesses and consumers.While an initial round of tariffs on $50 billion worth of strategic and industrial goods from China resulted in a so-called Section 301 investigation of Beijing’s misappropriation of U.S. technology, dueling rounds of retaliation heaped U.S. duties on $300 billion more of imports, including consumer products, from bicycles to apparel to Bluetooth devices.U.S. Treasury Secretary Janet Yellen has argued that some duties hurt consumers and should be removed, while U.S. Trade Representative Katherine Tai has argued that the tariffs should be considered as part of an overall strategy to push China to meet its trade commitments and end abusive economic practices..China has also been arguing that tariff reductions would cut costs for American consumers. China’s ambassador to the United States Qin Gang has said the tariffs “not only hurt China, but hurt America.”Bianchi, asked whether the tariff decision could result in both removal of some tariffs on consumer goods and launching a new investigation into China’s industrial subsidies and other practices, said: “Everything is on the table right now.”She said that USTR has provided some relief from the China tariffs by reinstating 352 expired product-specific exclusions from the duties of up to 25%. More than 140 members of Congress have called for the list to be expanded.USTR is conducting a statutory four-year review of the Section 301 tariffs that could last for several more months. The agency is collecting comments from industry participants in two batches, ending July 5 and Aug. 22. More

SEOUL (Reuters) -South Korea’s consumer inflation picked up more than expected in May to a near 14-year high on a global surge in materials and food costs, data showed on Friday, cementing the case for further interest rate raises.The consumer price index (CPI) rose 5.4% in May from a year before, the Statistics Korea data showed, speeding up from a 4.8% rise the previous month and faster than 5.1% tipped in a Reuters poll.It even topped the highest forecast of 5.2% in the survey and was the fastest annual growth since August 2008, while standing above the central bank’s 2% target for a 14th consecutive month.”We don’t expect interest rates to be raised faster because of today’s figures, but the central bank will need to keep the tightening stance while watching for any sign of inflation peaking out around July,” said Kong Dong-rak, an economist at Daishin Securities, who expects the central bank to raise rates two more times this year.Both the central bank chief and the finance minister have said inflation would stay above 5% for a few months. The Bank of Korea sharply raised this year’s inflation projection to 4.5% last week from the previous 3.1%.The BOK has raised policy rates by a total of 1.25 percentage points in five steps since August last year, including a 25 basis-point hike last week, and has warned of more increases to fight the inflation.The core CPI, which excludes volatile food and energy prices, rose 3.4%, marking the fastest rise since February 2009. More

WASHINGTON/NEW YORK (Reuters) – The United States on Thursday added 71 Russian and Belarusian entities to its trade blacklist including several aircraft factories and shipbuilding and research institutes in its latest effort to deprive the Russian military of U.S. technology and other items.The export restrictions are among a raft of new sanctions the Washington imposed on Thursday in response to Russia’s war in Ukraine, including prohibitions on additional Russian oligarchs and members of the country’s elite.They include 70 Russian companies and other entities like several units of the Russian Academy of Sciences, including A.A. Kharkevich Institute for Information Transmission Problems and the V.A. Trapeznikov Institute of Control Sciences and one Belarus entity.The companies added include several aircraft plants and the Voronezh Joint Stock Aircraft Company, one of the largest Russian factories for passenger and cargo aircraft, according to several research reports.Also added was the Irkutsk Aviation Plant, which has manufactured nearly 7.000 aircraft of more than 20 types since 1934 and produces the MC-21 family of airliners.In total the Commerce Department has now added 322 entities to its economic blacklist for support of Russia’s military since February.”The U.S. and our international partners have put in place strong, sweeping restrictions on Russia’s ability to obtain the items and technologies it needs to sustain its military aggression,” said Under Secretary of Commerce for Industry and Security Alan Estevez. Of the 71, 66 were determined to be military end users. Also added were the Ilyushin Aviation Complex Branch, the St. Petersburg Shipbuilding Institution and the Special Research Bureau for Automation of Marine Researches Far East Branch Russian Academy of Sciences. More