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    This week provided a reminder that inflation isn’t going away anytime soon

    From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders that inflation it isn’t going away anytime soon.
    The stubbornly high prices appeared to take their toll on consumer behavior and expectations.
    On a policy level, that could mean the Fed may hold rates higher for longer than the market expects.

    Gas prices are displayed at a gas station on March 12, 2024 in Chicago, Illinois. 
    Scott Olson | Getty Images

    From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders this week that inflation isn’t going away anytime soon.
    Data across the board showed pressures increasing at a faster-than-expected pace, causing concern that inflation could be more durable than policymakers had anticipated.

    The bad news began Monday when a New York Federal Reserve survey showed the consumer expectations over the longer term had accelerated in February. It continued Tuesday with news that consumer prices rose 3.2% from a year ago, and then culminated Thursday with a release indicating that pipeline pressures at the wholesale level also are heating up.
    Those reports will provide a lot for the Fed to think about when it convenes Tuesday for a two-day policy meeting where it will decide on the current level of interest rates and offer an updated look on where it sees things heading longer term.
    “If the data keep rolling in like this, it becomes increasingly difficult to justify a pre-emptive rate cut,” wrote Steven Blitz, chief U.S. economist at TS Lombard. Taken together, the numbers show “the great disinflation has stalled and looks to be reversing.”

    CNBC reports on inflation

    The latest jolt on inflation came Thursday when the Labor Department reported that the producer price index, a forward-looking measure of pipeline inflation at the wholesale level, showed a 0.6% increase in February. That was double the Dow Jones estimate and pushed the 12-month level up 1.6%, the biggest move since September 2023.
    Earlier in the week, the department’s Bureau of Labor Statistics said the consumer price index, a widely followed gauge of goods and services costs in the marketplace, increased 0.4% on the month and 3.2% from a year ago, the latter number slightly higher than forecast.

    While surging energy prices contributed substantially to the increase in both inflation figures, there also was evidence of broader pressures from items such as airline fares, used vehicles and beef.
    In fact, at a time when the focus has shifted to services inflation, goods prices leaped 1.2% in the PPI reading, the biggest increase since August 2023.
    “There continue to be signs in PPI data that the disinflation in goods prices is largely coming to an end,” Citigroup economist Veronica Clark wrote after the report’s release.
    Taken together, the stubbornly high prices appear to have taken their toll on both consumer expectations and behavior. While substantially lower than its mid-2022 peak, inflation has proved resilient despite the Fed’s 11 rate hikes totaling 5.25 percentage points and its moves to cut its bond holdings by nearly $1.4 trillion.
    The New York Fed survey showed that three- and five-year inflation expectations respectively moved up to 2.7% and 2.9%. While such surveys often can be especially sensitive to gas prices, this one showed energy expectations relatively constant and reflected doubt from consumers that the Fed will achieve its 2% mandate anytime soon.
    On a policy level, that could mean the Fed may hold rates higher for longer than the market expects. Traders in the fed funds futures market earlier this year had been pricing in as many as seven cuts totaling 1.75 percentage points; that since has eased to three cuts.
    Along with the surprisingly strong inflation data, consumers are showing signs of letting up on their massive shopping spree over the past few years. Retail sales increased 0.6%, but that was below the estimate and came after a downwardly revised pullback of 1.1% in January, according to numbers adjusted seasonally but not for inflation.
    Over the past year, sales increased 1.5%, or 1.7 percentage points below the headline inflation rate and 2.3 points below the core rate that excludes food and energy.
    Investors will get a look at how policymakers feel when the rate-setting Federal Open Market Committee convenes next week. The FOMC will release both its rate decision — there’s virtually no chance of a change in either direction — as well as its revised outlook for longer-term rates, gross domestic product, inflation and unemployment.
    Blitz, the TS Lombard economist, said the Fed is correct to take a patient approach, after officials said in recent weeks that they need more evidence from the data before moving to cut rates.
    “The Fed has time to watch and wait,” he said, adding that “odds of the next move being a hike [are] greater than zero.” More

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    Wholesale inflation rose 0.6% in February, more than expected

     A customer shops for food at a grocery store on March 12, 2024 in San Rafael, California. 
    Justin Sullivan | Getty Images News | Getty Images

    Wholesale prices accelerated at a faster than expected pace in February, another reminder that inflation remains a troublesome issue for the U.S. economy.
    The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January.

    Excluding food and energy, core PPI accelerated by 0.3%, compared to the estimate for a 0.2% increase. Another measure that also excludes trade services increased 0.4%, compared to the 0.6% gain in January.
    On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023.
    A busy morning for economic data also showed that retail sales rebounded, up 0.6% on the month according to Commerce Department data that is adjusted seasonally but not for inflation. The increase helped reverse a downwardly revised 1.1% slump in January but was still below the estimate for a 0.8% increase.
    Also, initial filings for unemployment insurance nudged lower to 209,000 last week, a decrease of 1,000 and below the estimate for 218,000, the Labor Department reported.
    The market focused on the PPI release, which comes two days after the consumer price index, which measures what consumers pay in the marketplace, showed that inflation was slightly higher than anticipated on a year-over-year basis.

    PPI is considered a leading indicator for inflation as it indicates costs early in the supply chain.
    The BLS reported that about two-thirds of the rise in headline PPI came from a 1.2% surge in goods prices, the biggest increase since August 2023. As with CPI, the acceleration was traced to energy prices, with saw a 4.4% increase in the final demand measure. Gasoline prices jumped 6.8% at the wholesale level.
    Services costs increased 0.3%, boosted by a 3.8% surge in traveler accommodation services.

    Retail shows rebound

    On the retail sales side, the data indicated that consumers kept ahead of CPI inflation, which increased 0.4% on the month, though sales were still sluggish.
    Excluding auto, retail sales rose 0.3%, one-tenth of a percentage point below expectations. Motor vehicle parts and dealers saw an increase of 1.6%, second only to the 2.2% gain for building material and garden centers on the month.
    Despite slumping prices, gasoline stations reported an increase of 0.9%. Electronics and appliance sales rose 1.5% while miscellaneous store sales increased 0.6% and restaurants and bars were up 0.4%.
    Retail sales posted a 1.5% gain on a year-over-year basis, below the 3.2% increase in the CPI.
    This is breaking news. Please check back here for updates. More

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    European Central Bank chief economist: Must ‘take our time’ on rate cuts, clearer picture due in June

    European Central Bank Chief Economist Philip Lane told CNBC that while March data showed progress on inflation, it was important to take time to decide when to ease monetary policy.
    “We need to see workers’ real incomes improve, to rebuild, not just this year, the year after … But we also need to see, essentially, firms absorbing a fair amount of that in lower profits,” Lane also said.

    The European Central Bank must take its time to get interest rate cuts right and will have a clearer picture of inflationary pressures in June, the institution’s chief economist told CNBC.
    “A lot of evidence is accumulating, but what’s also fair to say is that the transition from this holding phase, we’ve been on hold since last September since a substantial hiking cycle, we do have to take our time to get that right, from holding to dialing back restrictions,” Philip Lane told CNBC’s Steve Sedgwick on Thursday.

    Lane, a Governing Council member, said the euro zone central bank’s March meeting had been an “important milestone” in the accumulation of evidence, and showed the “disinflation process has been ongoing.” During the meeting, the ECB held rates and released updated macroeconomic projections, which lowered its inflation forecast for this year to 2.3% from 2.7%.
    Inflation in the 20-nation bloc eased to 2.6% in February.
    In line with the ECB’s March messaging, Lane said that more data was required, particularly around wages, and that the Governing Council would “learn a lot by April, a lot more by June” — the dates of its next two meetings.
    In a press conference following the March meeting, ECB President Christine Lagarde said market pricing on the timing of rate cuts — which indicate a start in June as of Thursday — “seems to be converging better” with the central bank’s view.

    June emerged as a key date in market commentary, as it’s set to mark the first meeting where the ECB can assess spring data on wage negotiations for the year.

    Asked about other colleagues on the ECB’s Governing Council who have suggested rate cuts could take place before the summer, Lane said he believed this was a reference to the second quarter, which would include June.
    “I think Q2 is a time when we will be far enough into 2024 to see more of the wage dynamic, to see more of the price pressures.”
    He stressed that it was important, in his own role, to “avoid trying to provide calendar guidance to the market.”
    “Once we are sufficiently confident that we will get back to target in a sustainable manner, in a timely manner, that’s the right time to move to the next phase,” he said.

    Room for profits to come down

    Policymakers have repeatedly stressed that many of the causes of the inflationary cycle have subsided, such as the energy price spike and supply chain issues. But they remain concerned about domestic inflationary pressures from corporate profits and wage rises.
    Bank of England Governor Andrew Bailey caused controversy in 2022 for suggesting workers should not ask for a pay rise in order to avoid stoking inflation.
    Lane said Thursday that, while the ECB’s forecast relied on some moderation in wage growth, it was “important” for people’s inflation-adjusted salaries to improve, and that companies should shoulder lower profits to allow this to happen.
    “Wages were not the source of this inflation problem. But in terms of making sure we get back to target, the interplay between wages and profits, our forecast is built on a degree of wage deceleration,” he said.
    “It’s important to say, we need to see workers’ real incomes improve, to rebuild, not just this year, [but] the year after. So we allow for higher to normal wage increases.”
    Lane added, “But we also need to see, essentially, firms absorbing a fair amount of that in lower profits. Profits were quite high in 2022, there is some room for profits to come down. And that is part of the open questions we have.” More

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    Can Europe Save Forests Without Killing Jobs in Malaysia?

    The European Union’s upcoming ban on imports linked to deforestation has been hailed as a “gold standard” in climate policy: a meaningful step to protect the world’s forests, which help remove planet-killing greenhouse gases from the atmosphere.The law requires traders to trace the origins of a head-spinning variety of products — beef and books, chocolate and charcoal, lipstick and leather. To the European Union, the mandate, set to take effect next year, is a testament to the bloc’s role as a global leader on climate change.The policy, though, has gotten caught in fierce crosscurrents about how to navigate the economic and political trade-offs demanded by climate change in a world where power is shifting and international institutions are fracturing.Developing countries have expressed outrage — with Malaysia and Indonesia among the most vocal. Together, the two nations supply 85 percent of the world’s palm oil, one of seven critical commodities covered by the European Union’s ban. And they maintain that the law puts their economies at risk.In their eyes, rich, technologically advanced countries — and former colonial powers — are yet again dictating terms and changing the rules of trade when it suits them. “Regulatory imperialism,” Indonesia’s economic minister declared.The view fits with complaints from developing countries that the reigning international order neglects their concerns.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Recession-hit Britain swings to economic growth in January, helped by construction bounce

    The headline figure was in line with the forecast from economists polled by Reuters.
    It follows a 0.1% contraction in December, while the U.K. economy entered a shallow recession in the second half of last year.

    LONDON — U.K. gross domestic product grew 0.2% in January, the Office for National Statistics said Wednesday, as construction output jumped more than expected.
    The headline figure was in line with the forecast from economists polled by Reuters.

    It follows a 0.1% contraction in December, while the U.K. economy entered a shallow recession in the second half of last year.
    Construction output rebounded from contraction to grow 1.1% in January, the ONS said, but fell 0.9% over a three-month period. The U.K.’s dominant services sector recorded a 0.2% rise in January, providing the biggest contribution to growth, as production output fell 0.2%.
    Despite recording monthly growth, GDP was estimated to have shrunk 0.3% compared with a year ago in January, and fallen 0.1% over the three months to January 2024.

    Jack Meaning, chief U.K. economist at Barclays, described the figures as “not a hugely positive picture, but it’s ahead of where we were at the end of last year.”
    “Industrial and manufacturing have been weak for the last few prints, you’d expect some bounce-back from that in the end,” Meaning told CNBC’s “Squawk Box Europe” Wednesday.

    “This is good to see, but we’ll have to see it on a more prolonged basis to know that it is something sustained.”
    The latest figures are consistent with a forecast for a “gradual recovery in activity” in the coming months, said James Smith, developed markets economist at ING.
    “We think the decline in overall fourth quarter GDP, which marked the second consecutive quarter of negative growth and therefore a technical recession, is unlikely to be repeated in the first quarter of 2024,” Smith said in a note.
    The British pound was slightly lower against the U.S. dollar and the euro following the release. More

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    Biden Budget Lays Out Battle Lines Against Trump

    President Biden and former President Donald J. Trump offer vastly different policy paths on almost every aspect of the economy.President Biden in his budget this week staked out major economic battle lines with former President Donald J. Trump, the presumptive Republican presidential nominee. The proposal offers the nation a glimpse of the diverging directions that retirement programs, taxes, trade and energy policy could take depending on the outcome of the November election.During the past three years, Mr. Biden has enacted key pieces of legislation aimed at bolstering the green energy economy, making infrastructure investments and reinforcing America’s domestic supply chain with subsidies for microchips, solar technology and electric vehicles. Few of those priorities are shared by Mr. Trump, who has pledged to cut more taxes and erect new trade barriers if re-elected.The inflection point will be arriving as the economy enters the final stretch of what economists are now expecting to be a “soft landing” after two years of high inflation. However, the prospect of a second Trump administration has injected increased uncertainty into the economic outlook, as companies and policymakers around the world brace for what could be a dramatic shift in the economic stewardship of the United States.Here are some of the most striking differences in the economic policies of the two presidential candidates.Sparring over the social safety netAt first glance, Mr. Biden and Mr. Trump might appear to have similar positions on the nation’s social safety net programs. In 2016, Mr. Trump broke with his fellow Republicans and refused to support cuts to Social Security or Medicare. Mr. Biden has long insisted that the programs should be protected and has hammered Republicans who have suggested cutting or scaling back the programs.In his budget proposal on Monday, Mr. Biden reiterated his commitment to preserving the nation’s entitlement system. He called for new efforts to improve the solvency of Social Security and Medicare, including making wealthy Americans pay more into the health program. However, his plans were light on details regarding how to ensure both programs’ long-term sustainability.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Consumer prices rose 0.4% in February and 3.2% from a year ago

    The consumer price index, a broad measure of goods and services costs, increased 0.4% for the month and 3.2% from a year ago. The monthly measure was in line with expectations while the 12-month reading was slightly higher.
    The core CPI rose 0.4% on the month and was up 3.8% on the year. Both were one-tenth of a percentage point higher than forecast.
    A 2.3% increase in energy costs helped boost the headline inflation number. Food costs were flat on the month, while shelter climbed another 0.4%.

    Fresh chicken breasts are displayed for sale in the meat area of a Sprouts Farmers Market grocery store in Redondo Beach, California on February 23, 2024. 
    Patrick T. Fallon | AFP | Getty Images

    Inflation rose again in February, keeping the Federal Reserve on course to wait at least until the summer before starting to lower interest rates.
    The consumer price index, a broad measure of goods and services costs, increased 0.4% for the month and 3.2% from a year ago, the Labor Department’s Bureau of Labor Statistics reported Tuesday. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.

    Excluding volatile food and energy prices, the core CPI rose 0.4% on the month and was up 3.8% on the year. Both were one-tenth of a percentage point higher than forecast.

    While the 12-month pace is off the inflation peak in mid-2022, it remains well above the Fed’s 2% goal as the central bank approaches its two-day policy meeting in a week.
    A 2.3% increase in energy costs helped boost the headline inflation number. Food costs were flat on the month, while shelter rose another 0.4%.
    The BLS reported that the increases in energy and shelter amounted to more than 60% of the total gain. Gasoline jumped 3.8% on the month while owners’ equivalent rent, a hypothetical gauge of what homeowners could get renting their properties, rose 0.4%.
    “Inflation continues to churn above 3%, and once again shelter costs were the main villain. With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue any time soon,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Reports like January’s and February’s aren’t going to prompt the Fed to lower rates quickly.”

    Airline fares posted a 3.6% increase, apparel prices rose 0.6% and used vehicles were up 0.5%. Medical care services, which helped feed a higher-than-expected CPI increase in January, decreased 0.1% last month.
    The year-over-year increase for headline CPI was 0.1 percentage point higher than January, while core was one-tenth of a point lower.

    Markets showed little initial reaction after the news broke, with futures tied to major stock averages as well as Treasury yields slightly higher.
    While the 12-month pace is off the inflation peak in mid-2022, it remains well above the Fed’s 2% goal as the central bank approaches its two-day policy meeting in a week.
    Fed officials in recent weeks both have signaled that rate cuts are likely at some point this year and expressed caution about letting up too soon in the battle against high prices. The statement after the January meeting indicated that policymakers need “greater confidence” that inflation is moving back to target.
    Chair Jerome Powell, in congressional testimony last week, echoed those concerns, though he did mention that the Fed is probably “not far” from the point where it can start easing up on monetary policy.
    Tuesday’s report “leaves Fed officials some way from attaining the ‘greater confidence’ needed to begin cutting interest rates,” said Paul Ashworth, chief North America economist at Capital Economics.
    For financial markets, the shift in the Fed stance from its apparent policy pivot in late 2023 has meant a repricing on the pace of rate cuts. Where futures traders entered the year expecting cuts to start coming in March, with six or seven total on the year, they have pushed out the first reduction to June, with three to follow, assuming cuts in quarter percentage point increments.
    A bustling economy has helped the Fed focus on incoming data and allowed policymakers to avoid having to rush to lower rates. Gross domestic product expanded at a 2.5% annualized pace in 2023 and is on pace to increase at a 2.5% pace in the first quarter of 2024, according to the Atlanta Fed’s GDPNow tracker.
    One key ingredient in that growth has been a resilient consumer boosted by a strong labor market. The economy added another 275,000 nonfarm jobs in February, though the increase skewed heavily to part-time jobs and the unemployment rate rose to 3.9%.
    Such strength can be a double-edged sword: While the growth in the face of aggressive rate hikes has bought the Fed time on policy, it also raises concerns that inflation could be more durable than expected.
    Housing costs in particular have caused concern.
    Shelter comprises about one-third of the CPI weighting and has been slow to decelerate, at least according to the BLS measure. Fed officials see rental prices coming down through the year, and other measures outside the CPI computation of owners-equivalent rent have shown easing price pressures.

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    Consumer spending rebounded in February, according to the CNBC/NRF Retail Monitor

    The CNBC/NRF Retail Monitor rose 1.06% in February, when excluding autos and gas, and increased 0.95% when taking out restaurants as well, the Retail Monitor’s core measure.
    Removing the effect of the Leap Day, sales rose 0.4%, or less than half of the unadjusted gain, but they were still up from the 0.2% decline in January.
    The Retail Monitor uses actual, anonymized credit and debit card purchase data compiled by Affinity Solutions.

    People shop at the Macy’s store on Herald Square on January 19, 2024 in New York City. 
    Michael M. Santiago | Getty Images News | Getty Images

    Consumer spending bounced back in February from a January dip, with a little help from Leap Day. But sales still registered good gains even after correcting for that extra spending day.
    The CNBC/NRF Retail Monitor, derived from actual credit card spending data from Affinity Solutions, rose 1.06% in February, when excluding autos and gas. It increased 0.95% when taking out restaurants as well, the Retail Monitor’s core measure.

    Removing the effect of the Leap Day, sales rose 0.4%, or less than half of the unadjusted gain, but they were still up from the 0.2% decline in January. Taking out restaurants, the Retail Monitor adjusted for the Leap Day was up 0.3%, compared with a 0.04% gain in January.
    “While the future direction of interest rates and inflation remains uncertain, it’s clear that a strong job market and increases in real wages are continuing to support spending,” said Matt Shay, the president of the National Retail Federation.
    Looking at individual sectors, not adjusted of the Leap Day:

    Online and other non-store sales were up 0.8% month over month seasonally adjusted and up 18.08% year over year.
    Sporting goods, hobby, music and bookstores were up 2.29% month over month seasonally adjusted and up 13.67% year over year.
    Health and personal care stores were up 0.96% month over month seasonally adjusted and up 11.18% year over year.
    Clothing and accessories stores were up 0.51% month over month and up 8.05% year over year unadjusted.

    The sector data was also impacted by the Leap Day and the index overall could differ more sharply this month from the Census retail data than it normally does.

    Unlike survey-based numbers collected by the Census Bureau, the Retail Monitor uses actual, anonymized credit and debit card purchase data compiled by Affinity and is not revised monthly or annually.
    Economists are looking for a 0.8% gain in the Census retail report on Thursday, a complete reversal of the 0.8% decline in January. So both that forecast, if accurate, and the CNBC/NRF Monitor for February, suggest January was the not the beginning of the long-awaited consumer spending slowdown. More