Economy

WASHINGTON (Reuters) – Major retailers like Target Corp (NYSE:TGT) and Walmart (NYSE:WMT) Inc may be cutting prices to clear overstocked warehouses, but for hotel operators the revenue is pouring in with daily room rates and occupancy that have broken above pre-pandemic levels.The pace of used car price increases has eased from the chart-topping levels that drove an initial surge of COVID-era inflation; but airline fares as of April were rising at a similarly stratospheric 33% annual rate.The price of restaurant meals is accelerating with no break apparent yet in demand, according to data from reservation site OpenTable.In the battle against inflation, now front of mind for the Federal Reserve and the Biden administration, the expected rotation of spending from a COVID-lockdown splurge on goods to in-person services was supposed to also take the edge off of prices. Services, after all, are more immune to the supply-chain bottlenecks that kept goods off of shelves and fueled price rises through scarcity.Instead, the two sides of American consumption are also seeing a handoff in inflation pressure – at least so far – with the more wage-senstive service industry competing for workers to fill vacancies that remain well above the national job opening rate.For the Fed, as well as Democrats worried inflation will cost them at the mid-term polls in November, the “great rotation” so far is providing no easy fix. Graphic: As goods inflation eases, services step in – https://graphics.reuters.com/USA-FED/INFLATION/lbvgndazapq/chart.png “A rise in consumption back towards services may not help much,” given higher labor demand and higher wage growth in the service industry, said Harry Holzer, a Georgetown University economics professor and Brookings Institution fellow. “Wage inflation there is stronger in a range of sectors from the low end…to the high end” – from restaurant workers to well-paid professionals.New consumer inflation data due Friday is expected to show headline prices continued to rise by 8.3% annually, a multi-decade price shock that has cut Americans’ purchasing power and led to challenging increases in food costs and gasoline nearing $5 a gallon.The Fed uses a slightly different measure for its 2% inflation target, but it is running at 6%, causing the Fed to engineer one of its fastest-ever turns toward tighter monetary policy – all with President Joe Biden’s blessing in hopes prices will ease soon.’OPTIMISTIC FOR THE CONSUMER’Within the headline number, however, the subtext may be even more troublesome.Inflation for goods has eased as expected, with demand falling and growing evidence that the supply-chain problems that bedeviled the global economy last year are improving.Shipping costs and port backlogs are easing, and a New York Fed index of overall supply chain stress eased through May, resuming improvement seen at the start of the year. Monthly e-commerce data from Adobe (NASDAQ:ADBE), released Thursday, showed inflation for goods purchased online eased in May to a 2% annual rate, down from a March peak of 3.6%. Prices fell on a month to month basis for 10 of the 18 categories tracked by the company. Rising online prices were a hallmark of the COVID goods binge. Graphic: Supply chain pressures ease – https://graphics.reuters.com/USA-FED/SUPPLY-CHAIN/gdvzybkljpw/chart.png But services are taking up the slack. Excluding energy-related services, inflation for “core” services has accelerated for eight months straight, and their share of overall inflation has risen also. So far that has not clearly dented consumer spending, though “real” purchases adjusted for inflation may have slipped a bit, according to a Bank of America (NYSE:BAC) Institute study of credit card spending. “As we hunt around the data for bearish signs, we are still struck by strong momentum in service sector spending,” the report said. “Additionally, households’ median checking and savings accounts are higher than pre-pandemic…Overall, we remain cautiously optimistic for the consumer.”The financial buffers built during the pandemic indeed may prove a key factor in the success or failure of efforts to tame inflation, with households by some estimates still sitting on a few trillion dollars of extra cash from pandemic-era transfer payments or spending trimmed during the health crisis. That’s firepower to keep consumption underway – whether meeting the higher mortgage payments home buyers must shoulder as interest rates rise or, as Bank of America noted, funding higher gas prices at the expense of things like consumer durables where demand was expected to wane anyway.FAST ENOUGH?It’s not a clear-cut picture. In a presentation in late May, Pantheon Macroeconomics Chief Economist Ian Shepherdson laid out the case that has placed him among the inflation optimists: A combination of improving supply chains, an expected slowing of home price appreciation, pressure on profits due to rising inventories, and slower wage growth could cause CPI to fall below 3% by early next year.Signs of that, he maintains, could show up in time for the Fed to slow its current half-point pace of rate increases to a quarter point by this fall, and perhaps as soon as the central bank’s July meeting.“If you were building an inflation model from the bottom up, all these variables that you would consider are starting to move in the right direction,” he said.But the pace of improvement will matter. Fed officials have said they want convincing, month-to-month proof inflation is easing before slowing their rate increases. For politicians, $5 dollar gas heading into the summer driving season and ahead of midterm congressional elections is a painful campaign statistic.Change may not happen fast, Citi economists Veronica Clark and Andrew Hollenhorst wrote.They see prices continuing to rise around 8.3% annually in Friday’s upcoming report, “with upside risks and a continued pick-up in services prices. A pick up in services inflation would be a further sign that too-tight labor markets are a key factor driving high inflation” that could prompt the Fed to keep its faster rate hikes intact. More

Rising prices for basic food staples is fuelling protests from Indonesia to Iran.European wheat prices have jumped 52% and benchmark palm oil futures went up 25% since January.The trend is growing and is alarming policymakers, with United Nations agencies warning that the price hikes will worsen an existing food crisis in Africa and could cause “catastrophic” child malnutrition.Following are protests in alphabetical order that have erupted over food prices over the past few months.ARGENTINA: Thousands of farmers protested in Buenos Aires on April 23 against President Alberto Fernandez, whose policies to contain food prices to curb rampant inflation have been criticized by the agricultural sector.CHILE:Thousands of students marched through the Chilean capital Santiago on March 25 demanding higher food stipends.CYPRUS:Cypriot farmers dumped tonnes of milk and lit bales of hay outside the presidential palace in the capital Nicosia on May 18, in protest at high prices and production issues.GREECE: Thousands of Greek workers protested in Athens in May Day rallies against surge in energy and food prices. Greece’s annual consumer inflation accelerated to 8.9% in March, hitting its highest level in 27 years.GUINEA: One person was killed in Guinea’s capital on June 2 during protests over fuel price hikes, in the most serious unrest since a military junta took power last year. Gunfire rang out in Conakry overnight as people barricaded streets and set tyres alight in protest over a 20% increase in the price of gasoline, a Reuters reporter and witnesses said.INDONESIA: Indonesian farmers protested in Jakarta on May 17 against rising cost of palm oil export ban. Smallholder farmers’ group APKASINDO estimates at least 25% of palm oil mills have stopped buying palm fruit from independent farmers since the ban started, sending the price of palm fruit 70% below a floor price set by regional authorities.IRAN: Price protests turn political in Iran as rallies spread. The protests began in early May sparked by the government’s subsidy cut decision that caused price hikes in Iran by as much as 300% for a variety of flour-based staples. The government also raised prices of some basic goods such as cooking oil and dairy products.Pensioners protested in Iran on June 6 in a fresh demonstration against soaring living costs, according to Fars news agency and social media reports, in a further challenge to authorities grappling with weeks of unrest. About 1,000 retirees gathered to protest peacefully and were escorted by the police in the city, Fars wrote.KENYA: Activists held a demonstration on May 17 in Nairobi, asking the government to lower costs of living, especially on food prices.LEBANON: Lebanese truck and bus drivers and others blocked roads in January to protest against soaring prices. The protesters accuse politicians of failure to address an ongoing economic crisis since 2019.PALESTINIAN TERRITORIES: Palestinian police made a number of arrests on June 6 as protests against soaring prices for food and other necessities spread a day ahead of a planned strike to demand action from the cash-strapped Palestinian Authority. Official figures released by the Palestinian Central Statistics Bureau put the food prices increase at between 15 and 18 percent.PERU: Peru deployed army on highways in April in response to road blockades spurred by anger over rising food and fuel prices. Peru is facing its highest inflation rate in a quarter century.SRI LANKA: Sri Lankan President Gotabaya Rajapaksa declared a state of emergency in May, following a day of anti-government strikes and protests over a worsening economic crisis. Sri Lanka’s economic crisis, unparalleled since its independence in 1948, has come from the confluence of the COVID-19 pandemic, rising oil prices and populist tax cuts by the Rajapaksas.SUDAN: In March, a protester was shot and killed in the Sudanese city of Madani, medics said, as demonstrators marched across the country to protest a military coup that has been followed by a steep economic downturn. Sudan’s currency has lost more than a third of its value since the military coup in October last year, rapidly driving up prices for fuel, food and other goods.TUNISIA: Tunisia said on May 11 it would raise the prices of some foods including milk, eggs and poultry, following protests by farmers against a jump in animal feed barley prices. More

With price growth surging last month to a record-high 8.1% and broadening quickly, the ECB is rolling back stimulus measures it has had in place for most of the last decade. It aims to stop rapid price growth from seeping into the broader economy and becoming perpetuated via a hard-to-break wage-price spiral. Following up on a long-promised move, the ECB said it would end its Asset Purchase Programme, its main stimulus tool since the euro zone debt crisis, and said it would raise rates by 25 basis points in July, then move rates again in September, possibly by a bigger margin. “The Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting,” the ECB said.”The Governing Council expects to raise the key ECB interest rates again in September,” it said. “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.”The ECB’s deposit rate now stands at minus 0.5% and ECB chief Christine Lagarde has said it could be back at zero or slightly above by the end of the third quarter. Markets, however, expect even more aggressive action, pricing in 135 basis points of hikes by the end of this year, or an increase at every meeting from July, with some of the moves in excess of 25 basis points. The bank has not raised rates in 11 years and the deposit rate has been in negative territory since 2014. Attention now turns to Lagarde’s 1230 GMT news conference. More

European gas prices jumped on Thursday after an explosion at one of the biggest US liquefied natural gas export terminals, highlighting the fragility of global supplies as many countries attempt to cut their reliance on Russian energy.Freeport’s LNG facility in Texas will be closed for at least three weeks after the explosion on Wednesday, cutting off roughly a fifth of US liquefaction capacity, a process by which natural gas is supercooled and loaded on to tankers for delivery overseas.European wholesale gas prices jumped more than 10 per cent to €88 per megawatt hour, while UK prices for delivery in July surged by a quarter to 163p per therm.“As a result of today’s fire, Freeport LNG’s liquefaction facility is currently shut down and will remain shut down for a minimum of three weeks,” the company said on Wednesday. US natural gas prices fell sharply following the incident as traders fretted over the loss of a significant slice of the market. US futures for July delivery were trading at about $8.28 per million British thermal units on Thursday morning, down 11 per cent from Tuesday’s settlement price, as traders contemplated domestic supplies being trapped onshore.The Freeport terminal’s three trains have the capacity to process 2.1bn cubic feet of natural gas per day. That represents about 17 per cent of total US liquefaction capacity of 13bn cu ft/d and 2 per cent of the country’s total natural gas production. Natural gas needs to be liquefied before it is transferred into tankers that ship it across the world.The cause of the explosion and extent of the damage remained unclear on Wednesday night. Freeport LNG confirmed “an incident” had occurred at about 11.40am local time, adding that there had been no injuries and there was no risk to the surrounding community. It declined to provide further details.Located on the Texas Gulf coast, Freeport LNG is one of just seven terminals operating in the US, all of which have been running flat-out to supply shipments of fuel to a tight global market. The US, the world’s biggest natural gas producer, is trying to increase exports to Europe as the continent seeks to cut its dependence on Russian imports.

Under a deal announced by President Joe Biden and European Commission president Ursula von der Leyen, the US pledged to ensure an additional 15bn cu metres reaches Europe this year. Brussels said it would aim to increase annual demand for American LNG by 50bn cu m, equivalent to 4.8bn cu ft/d, by the end of the decade. The optimistic demand outlook has sparked a flurry of investor interest in the sector. Michael Smith, Freeport LNG’s chief executive, told the Financial Times in April that “the future for US LNG is off the charts”.The local police department could not be reached for comment regarding Freeport LNG. In a statement carried by local media, law enforcement said the facility had experienced “some sort of explosion” but that there was no evacuation under way. More

The European Central Bank has said it will stop buying billions of euros of bonds in early July and raise interest rates by a quarter of a percentage point for the first time in more than a decade at its meeting a few weeks later.The announcement, made after the ECB governing council met in Amsterdam, is a major step towards ending the ultra-loose monetary policies of negative interest rates and massive bond purchases that it has pursued over the past eight years.The ECB said: “High inflation is a major challenge for all of us. The governing council will make sure that inflation returns to its 2 per cent target over the medium term.”The bank last raised rates in 2011 and its deposit rate now stands at minus 0.5 per cent. There is broad agreement among the ECB’s 25 governing council members on the need to raise rates to tackle eurozone inflation that has risen at a record rate of 8.1 per cent in the year to May, more than quadruple its target of 2 per cent. However, there is less consensus on the pace of tightening. ECB president Christine Lagarde and chief economist Philip Lane have signalled rate rises of a quarter of a percentage point as the benchmark for its meetings in July and September — the two that follow the June decision. The central bank said it expected to “raise the key ECB interest rates again in September”. It added: “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.”The pace at which price pressures have intensified over recent months has left hawks calling for more aggressive moves, in line with the Federal Reserve’s strategy of raising rates by 50 basis points at a time.With Russia’s invasion of Ukraine already driving up food and fuel prices for European consumers, there are growing fears among economists that if Russian gas supplies are cut off it could plunge the eurozone into recession.The ECB slashed its growth forecasts and raised its projections sharply for inflation. Eurozone inflation would increase from 2.6 per cent last year to 6.8 per cent this year, before declining to 3.5 per cent next year and 2.1 per cent the following year – remaining above the 2 per cent target for the entire forecast period.Growth would hit 2.8 per cent in 2022, 2.1 per cent in 2023 and 2.1 per cent in 2024.

In March, the central bank projected inflation would increase from 2.6 per cent last year to 5.1 per cent this year, before tailing off to 2.1 per cent next year and 1.9 per cent in two years’ time. The ECB had expected the economy to expand by 3.7 per cent in 2022, 2.8 per cent in 2023 and 1.6 per cent in 2024.There has been speculation about how quickly the ECB could start shrinking its balance sheet by not reinvesting the proceeds of maturing bonds. The ECB said such reinvestments would continue “for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance”.The euro was little changed after the announcement, trading at $1.073 against the dollar. Eurozone government bond prices weakened, pushing Germany’s 10-year yield up by 0.05 percentage points to 1.41 per cent.Investors will be watching the press conference with Lagarde, which is set to begin at 1.30pm UK time, for any clues on how fast it is likely to raise interest rates and whether its rate-setters are more worried about inflation staying high or a sharp downturn in growth.Additional reporting by Tommy Stubbington More

Armed with fresh forecasts signaling a faster path for euro-zone prices than previously thought alongside a weaker rebound from the pandemic, officials agreed to halt net bond-buying as of July 1 under a crisis-era program that began in 2015.The deposit rate — currently -0.5% — will then be lifted by a quarter-point next month, and again by either that amount or more if inflation warrants a tougher stance. Moves at the next two meetings would conclude an eight-year stint of subzero borrowing costs in the third quarter, affirming a plan laid out earlier by President Christine Lagarde.“Beyond September, based on its current assessment, the Governing Council anticipates that a gradual but sustained path of further increases in interest rates will be appropriate,” the ECB said in a statement.The euro fell against the dollar, sliding 0.2% to $1.0692, having traded little changed ahead of the policy outcome.While Thursday’s decisions crystallize the ECB’s exit from years of stimulus, they still leave it lagging behind the more than 60 other global central banks that have already raised rates this year.The announcements follow another unexpectedly steep surge in euro-area inflation, which stood at 8.1% in May — more than four times the official target. Soaring prices are squeezing households across the continent, with governments spending billions of euros to shield people from a spike in energy costs driven by Russia’s invasion of Ukraine.The relentless inflation is feeding a fierce debate among ECB officials over the size of July’s rate increase, with a sizable contingent pushing to consider a half-point hike matching the most recent move by the Federal Reserve. Lagarde may offer some insight into the Governing Council’s preference when she briefs reporters at 2:30 p.m.She’ll speak in Amsterdam as the ECB returns to holding one policy meeting a year outside its Frankfurt base following the pandemic.Follow the press conference on our live blogThe hawks may feel they have the momentum at present and have been vocal in recent weeks in floating an outsized rate move to keep inflation expectations in check. While Lagarde and her vice president, Luis de Guindos, are among officials who haven’t ruled out such a step, the majority seems to favor a smaller increase for now.Highlighting the uncertainty, investors this week priced the chance of a half-point hike in July at 50/50. As price pressures linger and the economy loses steam, the ECB’s new outlook showed medium-term inflation above or at target.This week has already seen World Bank and OECD forecasts reinforcing stagflation fears as the Ukraine war saps confidence and supply-chain disruptions in Asia restrain factories. While peak global inflation may have passed, Barclays predicts a mild euro-area recession after a splurge on summer vacations fades. Economists surveyed by Bloomberg are less gloomy, though they do expect sharp cuts to the ECB’s outlook for the next two years. During that time the currency bloc is poised to expand to 20 members as Croatia joins on Jan. 1.©2022 Bloomberg L.P. More

The ECB now sees inflation over its 2% target throughout its projection horizon, accepting that rapid price growth is not nearly as temporary as it had forecast for the past year.The ECB failed to predict the recent inflation surge and its projections have been raised sharply quarter after quarter, leading to criticism of the bank’s forecasting methods and a large internal study on how they got the outlook so wrong. Inflation is seen averaging 6.8% this year, well above the 5.1% predicted in March, while it is seen at 3.5% in 2023 and 2.1% in 2024.Inflation rose over 8% last month and could peak in the third quarter before a slow retreat. Sky-high energy prices are the key reason for the inflation surge but food prices are also rising quickly and underlying price growth, which filters out volatile food and fuel prices, is also well above 2% now. Expensive food and energy will be a drag on growth, holding back an economy which had just recovered from a deep, pandemic-induced recession. The following are the ECB’s quarterly growth and inflation projections through 2024. Figures in brackets are previous forecasts from March.The ECB targets inflation at 2%.2022 2023 2024GDP growth 2.8% (3.7%) 2.1% (2.8%) 2.1% (1.6%)Inflation 6.8% (5.1%) 3.5% (2.1%) 2.1% (1.9%) More

The price of food, energy and other necessities is soaring globally. But in Singapore, the rich still want luxury cars.People in the city-state are paying the highest amount in decades just for the right to own a premium car, official data showed on Wednesday. The cost of the most exclusive certificates of entitlement, which residents must obtain before they are allowed to purchase a car, breached six figures in June for the first time in at least 20 years, according to official data.Open category COEs, which allow the purchase of vehicles other than motorcycles, rose 5 per cent to S$100,697 ($73,230) in the most recent round of bidding, compared with the previous auction in mid-May. Certificates for larger cars increased by a similar margin to S$100,684.The car market is heating up as prices rise across Singapore, reflecting broader increases in the cost of living globally. Core inflation in the city-state reached 3.3 per cent in April, its highest level since 2012.The real income of households in Singapore has been hit particularly hard by regional events and the rise in commodity prices following Russia’s invasion of Ukraine.Malaysia imposed a sweeping ban on exports of live chickens to protect domestic stocks last week. Singapore imported more than a third of its chicken from Malaysia in 2021, so purveyors of chicken rice, the national dish, have been forced to increase prices as they rush to secure supplies, according to local media.The decision was made after Indonesia temporarily banned exports of palm oil, putting pressure on cooking oil prices in Singapore.Meanwhile, a wave of foreign professionals seeking to escape Hong Kong’s stricter pandemic restrictions has descended on the island in recent months, driving up demand and prices for homes. The vast majority of citizens and permanent residents live in public housing, leaving expats racing to compete for the much smaller selection of private properties.Singaporeans have long faced high fees to acquire COEs, which were introduced to curb traffic. As the price of these certificates can exceed the cost of a typical vehicle, many middle-income residents have been put off car ownership.“Everyone thinks it is cheaper” in Singapore, said Heather Thomas, a small-business owner who recently relocated from Hong Kong. “I don’t think that at all. I don’t think I would get close to buying a car.”But wealthy residents, who are particularly likely to purchase the open category COEs and certificates for larger vehicles, are still seeking out luxury cars. Certificates have to be renewed every decade and are sold through regular auctions, meaning prices fluctuate according to supply and demand. June’s auction took place three weeks after the previous one, instead of the usual two, so received more bids than normal.“I am not going to stop collecting,” said one multi-millionaire. It is still “beautiful for rich people” in Singapore. More