Evelyn Reynolds

The Consumer Price Index picked up by 8.6 percent, as price increases climbed at the fastest pace in more than 40 years.A surge in prices in May delivered a blow to President Biden and underscored the immense challenge facing the Federal Reserve as inflation, which many economists had expected to show signs of cooling, instead reaccelerated to climb at its fastest pace since late 1981.Consumer prices rose 8.6 percent from a year earlier and 1 percent from April — a monthly increase that was more rapid than economists had predicted and about triple the previous pace. The pickup partly reflected surging gas costs, but even with volatile food and fuel prices stripped out the climb was 0.6 percent, a brisk monthly rate that matched April’s reading.Friday’s Consumer Price Index report offered more reason for worry than comfort for Fed officials, who are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal. A broad array of products and services, including rents, gas, used cars and food, are becoming sharply more expensive, making this bout of inflation painful for consumers and suggesting that it might have staying power. Policymakers aim for 2 percent inflation over time using a different but related index, which is also elevated.The quick pace of inflation increases the odds that the Fed, which is already trying to cool the economy by raising borrowing costs, will have to move more aggressively and inflict some pain to temper consumer and business demand. The central bank is widely expected to raise rates half a percentage point at its meeting next week and again in July. But Friday’s data prompted a number of economists to pencil in another big rate increase in September. A more active Fed would increase the chances of a marked pullback in growth or even a recession. More

The visit to the nation’s busiest entry point for goods comes as President Biden struggles to show progress on resolving supply chain issues that are fueling inflation.LOS ANGELES — President Biden on Friday defended his administration’s efforts to deal with inflation, just hours after a new report showed a surprise spike in prices that puts new pressure on the White House to ease the burden on consumers.Mr. Biden used the Port of Los Angeles as a backdrop to highlight his fight against inflation, delivering a speech about how his team has tried to speed up the delivery of goods disrupted by the coronavirus pandemic.“The job market is the strongest it’s been since World War II, notwithstanding inflation,” Mr. Biden said, standing on the battleship Iowa, a decommissioned warship that has been turned into a museum.With shipping containers piled up behind him, Mr. Biden emphasized that his administration had taken action last year to reduce congestion at ports, allowing 97 percent of all packages to be delivered on time during the holiday shopping season.But six months later, serious problems remain and persistent inflation has become a major political liability for Mr. Biden.The war in Ukraine has disrupted flows of food, fuel and minerals, adding to pandemic-related shortages and pushing inflation to multidecade highs. Data released on Friday morning showed inflation picking up again, rising 1 percent from the previous month. Compared with one year ago, consumer prices rose 8.6 percent, the largest annual increase since 1981.While some clogs in the supply chain look to be clearing, analysts say that trend may yet stall — or even reverse — in the months to come, as retailers enter a busier fall season and dockworkers on the West Coast renegotiate a labor contract that could lead to work slowdowns or a strike.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.Mr. Biden said he understands that Americans are anxious.“They are anxious for good reason,” he said. But he stressed that inflation is largely the result of increases in the price of gasoline and food, and he blamed the price hikes in those goods on Russia’s invasion of Ukraine.Mr. Biden argued that large price increases in the United States were part of a global problem with inflation and that Americans were in better shape than their counterparts elsewhere because of a strong jobs market and a declining budget deficit.He also lashed out at nine shipping companies that he said had used the global economic situation to increase prices by 1,000 percent, artificially adding to the cost of goods around the world. He did not name the companies.But he said they “have raised their prices by as much as 1,000 percent.”He called on Congress to crack down on shipping companies that raise prices.“The rip-off is over,” he said.Mr. Biden is correct that soaring inflation is a global problem. In a note to clients on Friday, Deutsche Bank Research said the United States ranked 48th for its inflation rate on a list of 111 countries, just above the middle of the pack.But that is little comfort to U.S. households struggling with rising costs.Analysts say the U.S. logistics industry is heading into its busier fall season, when retailers bring in products for back-to-school shopping and the holidays. Chinese exports are also on the rise as an extended coronavirus lockdown lifts in Shanghai.And, most crucially, dockworkers on the West Coast are renegotiating a labor contract with port terminal operators that expires at the end of this month. If they fail to reach an agreement, West Coast ports may see slowdowns or shutdowns that would delay deliveries and add to supply chain gridlock.Over the past two decades, labor negotiations led to at least three such slowdowns or stoppages that resulted in delays. In recent weeks, some companies that typically ship into the West Coast have begun routing some goods to the East or Gulf Coasts to try to avoid any logjams.Gene Seroka, the executive director of the Port of Los Angeles, said he expected labor talks to go beyond the July 1 contract expiry date, but downplayed the risks to trade.“It’s important to know, with all this cargo on the way, the rank-and-file dockworkers will be out on the job every day,” he said.“And the employers know they’ve got to get these products to market,” he added. “So we’re going to give these people some room. Let them negotiate in their space, and the rest of us are going to work on keeping the cargo and the economy moving.”Dockworkers on the West Coast, including at the Port of Los Angeles, are renegotiating a labor contract with port terminal operators that expires at the end of this month. Failure to reach an agreement could further delay deliveries.Stella Kalinina for The New York TimesMr. Biden has kept close relationships with labor unions and may hesitate to put pressure on dockworkers to conclude any talks. But a work slowdown or strike would be bad news for the administration, which has frequently come under attack about rising prices.By some metrics, supply chain pressures have been easing in recent weeks. The average global price to ship a 40-foot container of goods fell to $7,370 as of June 3, down from a peak of more than $11,000 in September, though that was still five times higher than before the pandemic began, according to the Freightos Baltic Index.Inflation F.A.Q.Card 1 of 5What is inflation? More

Investors and economists had expected to see some moderation in inflation. Instead, prices accelerated again in May, delivering an unwanted surprise.Friday’s inflation report delivered an unwanted surprise for the White House, Federal Reserve and investors.While many economists and some administration officials had expected prices to show some signs of cooling, they got the opposite: a re-acceleration in price growth that makes it more likely the Fed is going to have to slam the brakes on the economy as it looks to slow the fastest pace of inflation in 40 years.As one left-leaning think tank put it, the report was “pretty ugly.”The news dispelled the notion that inflation may already have peaked and poured more fuel on the Biden administration’s biggest domestic policy vulnerability, politically and economically, as midterm elections approach in the fall.It also raised the chances that the Fed, which has already started raising borrowing costs to tamp down demand, will have to make a series of larger interest rate increases over the next few months.The Consumer Price Index data showed mounting evidence that the war in Ukraine was continuing to push the prices of food, gasoline, electric power and other staples higher. Inflation in services, like housing, remained high. Inflation in consumer goods — which administration officials had hoped was slowing as supply chain snarls are worked out in sectors like automobile manufacturing — surged anew after a spring slowdown. Costs for staples like eggs, meat and bread soared, with an index measuring the price of food at home registering its largest annual increase since 1979.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.The “1970s called and it wants its inflation back. There is no room to sugar coat this,” analysts at TD Securities wrote in a report shortly after the release. “The report should be of great concern for the Fed.”After a senior White House official expressed hope to reporters on Thursday that the report would show indications of an economy that was beginning to shift toward what the president has said is his goal of slower, more stable economic growth with lower inflation, administration officials and their allies did little on Friday to dispel the idea that the numbers were challenging and disappointing.The White House Council of Economic Advisers wrote in a series of Twitter posts that “price increases were broad-based,” while noting that core inflation — which excludes volatile commodities like energy and food — had fallen slightly from its average at the beginning of the year.Outside allies were more blunt. The liberal Economic Policy Institute in Washington wrote on Twitter that the report was “pretty ugly — and shows the pain workers and their families are experiencing.”Republicans blamed the president, as they have for more than a year, for the increases, saying his 2021 economic rescue bill effectively overheated the economy. “The truth is that inflation did not just sneak up on the Biden White House,” Representative Jason Smith of Missouri, the top Republican on the Budget Committee, said on Friday. “The warning signs were there all along.”Mr. Biden and his team have been trying to make a delicate pivot on the inflation issue, calling it his top economic priority and increasingly expressing sympathy for the households struggling to cope with rising prices. They have sought to reassure markets by leaning into a message of trust in the Fed to manage inflation with interest rate increases, while attempting to project a sense of urgency with actions that officials concede will have a small effect, at best, on broad prices — like an announcement this week that the administration was pausing tariffs on some imported solar panels.Inflation F.A.Q.Card 1 of 5What is inflation? More

The Treasury Department declined to label any country a currency manipulator, but singled out Switzerland as an offender in its semiannual foreign exchange report.WASHINGTON — The Treasury Department said on Friday that it was concerned that some of America’s trading partners were taking actions to weaken their currencies and gain unfair trade advantages against the United States — but declined to label any country a currency manipulator.In its semiannual foreign exchange report, the department singled out Switzerland, which in 2020 was deemed a manipulator, as a worst offender and said it was closely watching the foreign exchange practices of Taiwan and Vietnam. Department officials have been involved in “enhanced bilateral engagement” with all three countries in recent months.“The administration continues to strongly advocate for our major trading partners to carefully calibrate policy tools to support a strong and sustainable global recovery,” Treasury Secretary Janet L. Yellen said in a statement. “An uneven global recovery is not a resilient recovery.”The United States uses three sets of thresholds to determine if a country is weakening the value of its currency. It has broad discretion to determine if a country is manipulating the exchange rate between its currency and the dollar to gain a competitive advantage in international trade.A government can suppress the value of its currency by selling it in foreign exchange markets and stockpiling dollars. By depressing the value of its own currency, a country can make its exports cheaper and more competitive to sell on global markets.The Trump administration labeled Switzerland and Vietnam currency manipulators in 2020, but the Biden administration, seeking a more diplomatic approach, removed the designation.A Treasury official said the United States has had constructive talks with Switzerland over the last year, noting that its economy is facing unusual factors because it is a small and open European economy with a currency, the franc, that is considered a safe haven.Currency manipulation labels are supposed to set off talks with the United States and can involve input from the International Monetary Fund. If the concerns of the Treasury Department are not resolved, the United States can impose an array of penalties, including tariffs.Mark Sobel, the chairman of the Official Monetary and Financial Institutions Forum, noted that the more pressing issue in global currency markets was the strength of the dollar.“The real issue these days is the sharp dollar appreciation, which has clearly been generated by monetary policy divergences between a tightening Fed and others who are less aggressive,” Mr. Sobel said. “It would be hard to fault others.”The United States added Vietnam and Taiwan to its currency “monitoring lists,” a tally that includes China, Japan, South Korea, Germany, Italy, India, Malaysia, Singapore, Thailand and Mexico.The Treasury Department said it was closely watching the foreign exchange activities of China’s state-owned banks. It criticized China for providing “very limited transparency” over how it managed its currency. More

The cost of renting an apartment or home is climbing quickly, keeping inflation high and making life tougher for households on a tight budget.The price of renting a primary residence climbed by 5.2 percent in the year through May, with the cost rising 0.6 percent compared with the prior month, matching its quick pace in April. A measure that uses rents to estimate the consumption value of owning a home is also picking up rapidly, and actually accelerated slightly on a monthly basis.Housing costs make up a big part of the overall inflation index, so they are keeping pressure on prices overall even as the Federal Reserve raises interest rates to cool inflation down. In fact, there could be a period when higher mortgage rates prevent renters from moving into homeownership, keeping the rental market stretched.Further rent inflation is a near inevitability. Market rents increased sharply throughout 2021, and those trends seep slowly into the official inflation data, since they measure not just new leases but also existing rentals. “The rental market feels very tight: Vacancies are very low, and because of that rents are raising at a strong clip,” Igor Popov, the chief economist at Apartment List, a listing site, said ahead of the inflation report. “Rent growth and occupancy are off of Everest peak and back at base camp, but we’re still a long way from the sea.” More

Prices climbed 8.6 percent in the year through May, a re-acceleration of inflation that makes it increasingly difficult for consumers to afford everyday purchases and poses a major challenge for the Federal Reserve and White House as they try to secure a strong and stable economy.The Consumer Price Index climbed 1 percent from April — far more quickly than in the previous month — and by 0.6 percent after stripping out food and fuel prices, which can be volatile. That so-called core inflation reading matched April’s reading.Fed officials are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal, but Friday’s report offered more reason for worry than comfort. The headline inflation rate was the fastest since late 1981, as a broad array of products and services including rents, gas, used cars, and food became sharply more expensive.Policymakers aim for 2 percent inflation over time using a different but related index, which is also sharply elevated. Central bankers are raising interest rates to make borrowing money more expensive, hoping to cool off consumer and business demand and give supply a chance to catch up, setting the stage for more moderate inflation.The Fed’s attempt to temper inflation by slowing down the economy is contributing to an already sour economic mood. Consumer confidence has been sinking all year as households shoulder the burden of higher prices, and President Biden’s approval ratings have also suffered. Both Wall Street economists and small business owners increasingly worry that a recession is possible in the next year.That glum attitude spells trouble for Mr. Biden and Democrats as November midterm elections approach. As climbing prices weigh on voters’ wallets and minds, policymakers across the administration have been clear that helping to return inflation to a more sustainable pace is their top priority, but that doing so mainly falls to the Fed.Economists warn that wrestling inflation lower could be a slow and painful process. Production and shipping snarls tied to the pandemic have shown early signs of easing but remain pronounced, keeping products like cars and trucks in short supply. The war in Ukraine is elevating food and fuel prices, and its trajectory is unpredictable. And consumer demand remains strong, buoyed by savings amassed during the pandemic and wages that are rising quickly, albeit not enough to fully offset inflation.“There does seem to be considerable resilience in consumer spending,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said ahead of the report, explaining that he expects consumer prices to still be climbing at 7.3 percent over the year as of December.While uncertainty is high, economists in a Bloomberg survey expect inflation as measured by the Consumer Price Index to remain at 6.3 percent — lower than today, but still sharply elevated — in the final quarter of 2022. More

To stop 40-year highs in price increases, the economy will have to slow, supply chains will need to get fixed and demand will have to come back in line with pre-pandemic norms.
Friday’s highly anticipated CPI inflation report for May is likely to show only modest relief, if any.
A recent paper by former Treasury secretary and Obama administration advisor Larry Summers suggests harsh interest rate hikes may be needed.
President Joe Biden himself noted that much of the heavy lifting has to be done by the Fed.

Products are seen in a supermarket, in Los Angeles, California, May 27, 2022.
Lucy Nicholson | Reuters

Tackling runaway inflation won’t be easy and it won’t be quick, and it may carry a steep price tag that is just beginning to be paid.
To stop 40-year highs in price increases, the economy will have to slow. The ability of producers to get their goods to the marketplace will have to get a lot better, and demand and supply will have to come back into balance. Most troublingly, until the Ukraine war settles, these factors will have a limited impact on fixing the economy.

Even under the best of conditions, a trend that has seen gasoline reach nominal new highs near $5 a gallon, the price of everyday foods like cereal, eggs and hamburger jump by double-digit percentages over the past year and housing costs rise ever higher, will ease only incrementally. That means little relief for consumers anytime soon.
“Slow descent” is how Wells Fargo senior economist Sarah House described the likely downward trajectory of inflation from here. “If you think about inflation, a lot of it is momentum driven. Price setting is slow moving. Companies don’t just change their prices on a dime.”
Indeed, Friday’s highly anticipated inflation report is likely to show only modest relief, if any.

The consumer price index, a measure that encompasses the cost of a massive basket of goods and services, is expected to show inflation increasing at an 8.3% pace over the past year, same as in April, according to Dow Jones estimates. Excluding food and energy prices, so-called core CPI is expected to show growth of 5.9%, slightly off the 6.2% pace from the previous month.
What’s more, the monthly gains are expected to accelerate — 0.7% for headline inflation versus a gain of just 0.3% in April. Core is expected to be little changed, up 0.5%, which would be a one-tenth point month-over-month decline.

Peering through the numbers

Economists, though, will look beyond the headline numbers and try to find trends in the CPI components.
Food and energy, for instance, comprise about 22% of the index, so any slowdown there will be considered noteworthy. Shelter costs, a vital component, make up 32%. More broadly, services comprise about 60% of CPI compared to 40% for goods. Most of the current inflation wave comes from the goods component.
“Slowing the economy would help. Seeing weaker demand growth would take some of the pressure off,” House said. “It’s not just about a slowdown, though. Compositions effects are important. Some areas are more important than others. Goods inflation is one area where we could begin to see spending slow. That’s where a lot of the pressure points are.”
The Federal Reserve is hoping to help that process along by raising short-term interest rates, which had been anchored near zero as the economy recovered from pandemic-related restrictions.
Markets widely expect the Fed to keep raising its benchmark borrowing rate to around 2.75%-3% from the current range of 0.75%-1%.
However, the Fed may have even more work to do than that.

A lesson from the ’80s

A National Bureau of Economic Research working paper released recently by former Treasury secretary and Obama administration advisor Larry Summers, along with a team of other economists, suggests that the Fed could need to raise rates by considerably more to bring inflation down to its 2% goal.
The paper compared the current run of inflation to the early 1980s, which was the last time price increases were of a similar concern. During that time, the Paul Volcker-led Fed took the funds rate up to 19%, causing a recession that eventually helped send inflation on a downward spiral that would last almost 40 years, until the current run-up in prices.
Many economists say that kind of tightening won’t be necessary because inflation was running at 14.8% back then.
But the Summers paper said CPI was calculated differently then, primarily in the way it accounted for housing costs. Using the same methodology would bring core CPI to about 9.1% now.
“To return to 2 percent core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker,” the Summers team wrote.

Biden’s plan

President Joe Biden recently released his plan to help bring down inflation.
In a Wall Street Journal op-ed, Biden said he would take measures to fix supply chain problems and bring down the budget deficit, which ran to nearly $2.8 trillion in fiscal 2021 but is on track to be a fraction of that this year — at just $360 billion through seven months, due largely to Congress not approving additional Covid-19 relief money.
But those measures are likely to just nibble at the edges of inflation, and the president himself noted that much of the heavy lifting has to be done by the Fed.
“They have the primary role on bringing inflation down,” Treasury Secretary and former Fed Chair Janet Yellen said at a congressional hearing earlier this week. “It’s up to them in how they go about doing it.”
But Fed hikes also take time to work through the system and, until then, economists will be looking at other factors.
Recent announcements from Target and other retailers saying they will work to bring down excess inventory also could be deflationary. But with apparel carrying just a 2.5% weighting in the CPI, those kinds of moves won’t make a big dent in the potentially scary headline numbers.
“If someone tells you recent news that some retailers are discounting clothes will have any measurably effect on CPI, ignore them,” DataTrek Research co-founder Nicholas Colas wrote in his daily market note. “Retailers could give clothes away for free and U.S. inflation would still be over 5 percent.”
Ultimately then, taming inflation will require a slow bleed of the forces that have led up to the current situation. That means a mix of lower growth, reduced strain on the labor market and a recipe of other things that will have to go right before measurable relief is possible.
“It’s not going to be easy,” said House, the Wells Fargo economist. “Given that you have decent consumer spending and business spending, that’s going to keep the pressure on inflation overall.”

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Jobless claims for the week ended June 4 totaled 229,000, well ahead of the 210,000 Dow Jones estimate.
The four-week moving average for continuing claims, which helps smooth out volatility in the numbers, remained around its lowest level since 1970.

A man walks past a “We’re Hiring” sign posted outside of a restaurant in Arlington, Virginia on June 3, 2022.
Olivier Douliery | AFP | Getty Images

Initial jobless claims spiked to their highest level since mid-January last week despite signs of an otherwise strong employment picture, the Labor Department reported Thursday.
First-time filings for the week ended June 4 totaled 229,000, an increase of 27,000 from the upwardly revised level in the prior period and well ahead of the 210,000 Dow Jones estimate. The period covered includes the Memorial Day holiday; seasonal adjustments normally would lead to a lower number.

The last time initial claims were that high was Jan. 15.
However, continuing claims, which run a week behind the headline number, were unchanged at just over 1.3 million, below the FactSet estimate of 1.35 million.
The four-week moving average for continuing claims, which accounts for volatility in the numbers, declined slightly to 1.32 million, the lowest level since Jan. 10, 1970.
The rise in claims comes less than a week after the Bureau of Labor Statistics reported that nonfarm payrolls increased by 390,000 in May, considerably better than expected.
Companies have continued to hire despite rising worries that the U.S. economy could be headed for a shallow recession as inflation flares and global supply chains remain clogged.
The Federal Reserve is in the early stages of a rate-hiking cycle aimed at bringing down inflation running around 40-year highs. Fed officials are hoping to slow the labor market without causing an uptick in the unemployment rate, which is at 3.6% and near its lowest level since 1969.

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