Economy

(Reuters) -Federal Reserve policymakers waiting for more evidence of easing price pressures before they cut interest rates may find themselves waiting a bit longer, after a government report on Tuesday showed consumer inflation stayed elevated last month.The consumer price index was up 3.1% in January from a year earlier, down from its 3.4% pace in December but more than the 2.9% economists polled by Reuters had been expecting. Underlying core inflation, which strips out energy and food prices, rose 3.9% from a year earlier for a second straight month. That stickiness is not going to add to Fed confidence that inflation, while down from its 40-year-high in mid-2022, is truly on a path to its 2% goal. The Fed last month kept its policy rate in the 5.25% to 5.5% range, where it has been since last July, and while Fed Chair Jerome Powell noted progress, he also said March, when the policymaking committee next meets, would likely be too soon for the Fed to be sure it has won the fight with inflation. With the job market still strong – U.S. employers added more than 350,000 jobs in January, a report earlier this month showed – still-too-high inflation gives the U.S. central bank little reason to rush on rate cuts. After Tuesday’s inflation report, traders previously betting on a rate cut at the Fed’s April 30-May 1 meeting now see June as more likely.“If this keeps up with another month or two of inflation staying high, you can kiss a June (rate cut) goodbye and we’re probably looking at September,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “It’s a hotter-than-expected report and it’s part of what the Fed has been alluding to when it says it’s too early to say that inflation has been beaten.”Speaking after the report both U.S. Treasury Secretary Janet Yellen and National Economic Council director Lael Brainard, both former top-ranking officials at the central bank, said they continued to see good progress on inflation.But while some of the more prominent pocketbook items did ease – gasoline prices fell 3.3% over the month – others, notably food, continued rising. A big part of the CPI’s strength in January was an acceleration in shelter costs, up 0.6% on the month from 0.4% a month earlier.The Fed targets 2% inflation by a different measure, the personal consumption expenditures price index, which gives less weight to the shelter component — moving some economists to predict that the CPI report won’t bust Fed confidence in inflation’s decline after all. Indeed the January report left some parts of the Fed’s disinflation story intact, with prices for goods continuing to fall. Excluding food and energy, goods prices dropped an overall 0.3% over the month, with clothing down 0.7% and used cars down 3.4%. But it also left Fed officials still waiting for a drop in housing inflation that many insist will arrive in coming months as new leases, less subject to the high rates of increase seen earlier in the pandemic, work their way into the government’s inflation index.The report also showed services inflation continuing to rise, with medical services up 0.7% and airfares up 1.4%.”This was a broad-based increase in core services that justifies the Fed’s “wait-and-see” decision,” said Inflation Insights’ Omair Sharif. “We had some good disinflation data over the second half of 2023, but it was never going to be a straight line down, and some bumps along the road were to be expected.” More

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The consumer price index increased 0.3% in January, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December.
Shelter prices accounted for much of the rise, climbing 0.6% on the month, contributing more than two-thirds of the headline increase. On a 12-month basis, shelter rose 6%.
Stocks slid sharply following the release and Treasury yields surged higher.

Inflation rose more than expected in January as stubbornly high shelter prices weighed on consumers, the Labor Department reported Tuesday.
The consumer price index, a broad-based measure of the prices shoppers face for goods and services across the economy, increased 0.3% for the month, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December.

Economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.
Excluding volatile food and energy prices, the so-called core CPI accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December. The forecast had been for 0.3% and 3.7%, respectively.

Shelter prices, which comprise about one-third of the CPI weighting, accounted for much of the rise. The index for that category climbed 0.6% on the month, contributing more than two-thirds of the headline increase, the BLS said. On a 12-month basis, shelter rose 6%.
Food prices moved higher as well, up 0.4% on the month. Energy helped offset some of the increase, down 0.9% due largely to a 3.3% slide in gasoline prices.
Stock market futures fell sharply following the release. Futures tied to the Dow Jones Industrial Average were off more than 250 points and Treasury yields surged higher.

Even with the rise in prices, inflation-adjusted hourly earnings increased 0.3% for the month. However, adjusted for the decline in the average workweek, real weekly earnings fell 0.3%. Real average hourly earnings rose 1.4% from a year ago.
“Inflation is generally moving in the right direction,” said Lisa Sturtevant, chief economist at Bright MLS. “But it’s important to remember that a lower inflation rate does not mean that prices of most things are falling — rather, it simply means that prices are rising more slowly. Consumers are still feeling the pinch of higher prices for the things they buy most often.”
The release comes as Federal Reserve officials look to set the proper balance for monetary policy in 2024. Though financial markets have been looking for aggressive interest rate cuts, policymakers have been more cautious in their public statements, focusing on the need to let the data be their guide rather than preset expectations.
Fed officials expect inflation to recede back to their 2% annual target in large part because they think shelter prices will decelerate through the year. January’s increase could be problematic for a central bank looking to take its foot off the brake for monetary policy at its tightest in more than two decades.
“The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later,” said Quincy Krosby, chief global strategist at LPL Financial. “Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.”
Generally, the inflation data had been encouraging, even if annual rates remain well above the Fed’s 2% target. Moreover, core inflation, which officials believe is a better guide of long-run trends, has been even more stubborn as housing costs have held higher than anticipated.
In recent days, policymakers including Chair Jerome Powell have said the broader strength of the U.S. economy gives the Fed more time to process data as it doesn’t have to worry about high rates crushing growth.
Market pricing before the CPI release indicated a tilt toward the first rate cut coming in May, with a likely total of five quarter-percentage point moves lower before the end of 2024, according to CME Group data. However, several Fed officials have said they think two or three cuts are more likely.
Outside of the jump in shelter costs, the rest of the inflation picture was a mixed bag.
Used vehicle prices declined 3.4%, apparel costs fell 0.7% and medical commodities declined 0.6%. Electricity costs rose 1.2% and airline fares increased 1.4%. At the grocery store, ham prices fell 3.1% and eggs jumped 3.4%.
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The survey also highlighted that growth pessimism in Europe is still notable, with 62% of respondents expecting a weaker European economy as a result of monetary tightening. However, this represents a decline from the 83% who held this view last month. Notably, a net 37% of participants view global fiscal policy as overly supportive, which is close to a record high. In contrast, a mere net 3% consider Europe’s fiscal stance to be too restrictive.The outlook for the global economy among fund managers appears cautiously optimistic, with 65% predicting a soft landing as the most probable scenario. The proportion of those in the ‘no-landing’ camp, indicating no significant economic downturn or upturn, has risen to 19% from 7% last month.In terms of European equities, 78% of survey participants see potential for upside over the next twelve months, marking the highest level of optimism in two years. Despite this, after a strong rally since October, 51% foresee near-term downside for the market, down from 56% the previous month. The expectation for lower European Earnings Per Share (EPS) has also decreased markedly, with only 54% anticipating a drop due to slowing growth and subsiding inflation, compared to 75% last month.Finally, the survey indicates a growing optimism for European cyclicals, with 46% of investors expecting further upside relative to defensives, a sharp increase from 22% in the prior month. However, a plurality of 35% still expects further downside for European value stocks compared to growth stocks, influenced by dovish central banks, though this is down from 50% last month. Insurance remains the most favored sector for overweights in Europe, followed by technology and healthcare, despite a general optimism for cyclicals.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

KYIV (Reuters) – Ukraine could consider forgoing the European Union’s agrarian subsidies in exchange for an easing of the bloc’s Green Deal requirements during accession talks starting next month, a senior Ukrainian official told Reuters.Ukraine, which has a huge agrarian complex capable of feeding hundreds of millions of people, was invited to join the EU last year and will start sectoral talks on its accession in March to harmonise its legislation with EU requirements. Integrating Ukraine’s vast agricultural sector, which before Russia’s full-scale invasion in 2022 was the world’s fourth-largest supplier of grain, into the European Union is likely to be highly sensitive, both politically and economically. Kyiv could be eligible for 96.5 billion euros ($103.95 billion) in subsidies from the EU’s Common Agricultural Policy over seven years, if current rules are applied to an expanded union. However, the EU’s Green Deal, which sets out agricultural regulations for the bloc’s 27 members for decades, could make business more difficult for Ukrainian farmers than working without the subsidies provided by the bloc, the source said. “It seems to me that the ideal negotiating strategy (is to achieve) fewer restrictions on trade, fewer restrictions on the environment (for Ukrainian farmers) and we are willing to trade this for subsidies,” the official said.The official requested anonymity to discuss sensitive matters. A European Commission spokesperson didn’t immediately return a request for comment. AVOIDING RED TAPE”We must protect our competitiveness, we must not make bureaucracy that would stop development especially in our conditions – for example, to get ten environmental certificates for some small thing.”The agricultural sector is crucial for Ukraine’s battered wartime economy and pre-war in value terms grain accounted for half of all Ukrainian exports. Ukraine already sells a significant part of its farming produce to the EU and as a member its exports would not be subject to tariffs or quotas.The talks come at a sensitive time, with farmers across Europe taking to the streets in protest in recent weeks at the EU’s Green Deal regulations on animal welfare and pesticide use, as well as the need to leave 4% of farmland fallow.The subsidy payouts to Kyiv could also force cuts in farm subsidies to existing member states of about 20%, the Financial Times reported last autumn.The EU’s decision to waive import duties on all Ukrainian food in 2022 has already fueled protests in neighbouring bloc members as farmers struggle to compete with cheaper Ukrainian farm products. The European Commission last month said it would extend the suspension of its import duties on Ukrainian exports. But it also proposed measures to limit agricultural imports from Ukraine and offer greater flexibility on rules for fallow land in a bid to quell protests by angry farmers in France and other EU members.WITHOUT SUBSIDIES?Easing tough environmental regulations, new subsidies and lower taxes are the key demands set out by protesting European farmers, who believe that such steps will protect them from outside competitors like Ukraine. Many Ukrainian farmers believe that joining the union would give them access to large-scale subsidies, which would increase their harvest and bring in more income. However, some officials say the subsidies could conversely play against Ukraine.”I think it is a problem. Subsidies in agriculture very often play a bad role when they become a painkiller and you get used to them,” the official said.Ukrainian farmers could become less dynamic, the source said. “When you live in a system of subsidies, you are tied to them. If you have a subsidy for carrots, then only carrots will be planted,” he noted.($1 = 0.9283 euros) More

Don Farrell also told the Australian Broadcasting Corporation (ABC) he would talk to Chinese Commerce Minister Wang Wentao about the suspended death sentence given to Australian writer Yang Hengjun this month. Farrell said the Australian government was “appalled” by the conviction and sentence over espionage charges but that it should not derail relations between the two countries. Beijing has removed most of the trade barriers it imposed on Australian goods after Canberra called for an inquiry into the origins of COVID-19. Restrictions remain only on wine, lobsters and meat from a small group of abattoirs. “The Australian Government continues to press for the removal of all remaining trade impediments affecting Australian exports to China,” Farrell said in a statement.”I look forward to continuing constructive dialogue with my Chinese counterpart, Minister Wang Wentao, at the World Trade Organization conference this month.”The WTO meeting in Abu Dhabi in the united Arab Emirates takes place from Feb. 26-29.Farrell told the ABC that if China does not remove its tariffs on Australian wine by March 31, when a review of them by Beijing is due to end, Canberra will renew its challenge against them at the WTO. “We will immediately resume our World Trade Organization dispute, and we’ve made that very clear to the Chinese authorities,” he said. On Yang, Farrell told the ABC: “The Australian government was appalled by the conviction and the penalty of Mr Yang, but we have embarked upon a project process of stabilising our relationship with the Chinese government. And we will continue that process.”Farrell’s office did not comment further. Calls to China’s commerce ministry and foreign ministry went unanswered as China is off for the Lunar New Year holiday. More