Economy

Soaring coronavirus caseloads, rising prices and a falloff in government aid combined to take a bite out of Americans’ incomes in January.After-tax income rose just 0.1 percent last month, the Commerce Department said Friday. That was the slowest growth since June. Adjusted for inflation, after-tax income fell 0.5 percent, the sixth consecutive monthly decline.Incomes were affected by the spike in coronavirus cases associated with the Omicron variant, which kept millions of employees home from work in January. Earlier data from the Labor Department showed that total hours worked fell early in the month, despite continued job growth.January was also the first month since mid-2021 in which parents did not receive payments under the expanded child tax credit, which expired at the end of last year. Income from government programs fell 1.3 percent last month.Yet despite the crimp in incomes, Americans continued to spend. Consumer spending rose 2.1 percent in January. Even after adjusting for inflation, spending was up 1.5 percent.Spending on goods was particularly strong, continuing the pandemic-era pattern that has put pressure on global supply chains. But spending on services also rose modestly, suggesting that the Omicron wave did not derail the recovery on the services side of the economy. More

Volkswagen has been forced to idle two of its German plants after failing to obtain parts from Ukraine, in the clearest sign yet that Russia’s invasion of its neighbour is disrupting the European car industry’s supply chains. The carmaker’s Zwickau plant in east Germany will be idle for four days from next week, and the nearby Dresden plant will be closed for three days, a spokesman confirmed, adding it was impossible to say how long the shutdowns would last.VW has been unable to secure electrical wires from manufacturers in Ukraine, according to people familiar with the matter, and realised late on Thursday that it would have to cut back production. VW declined to name the supplier.On Friday evening, VW said its global network “includes a number of suppliers in western Ukraine” and may experience “disruptions in the supply chain”.It is “reviewing alternatives” to its Ukrainian suppliers. Wiring harnesses, electric cabling inside the car, are a specialism of Ukraine and are also made in north Africa. Most Ukrainian factories, which had contingency plans in place earlier this week for an invasion, have shut. Bosch, which has 350 staff in the country and a factory supplying local garages, said it was looking at “measure to support and protect” its workers.VW’s closures will lead to roughly 1,200 fewer cars being produced every day, and will particularly affect the manufacturing of VW’s electric ID models, made in Zwickau. Demand for the vehicles has been so high that VW’s own staff have been asked to drive petrol models for the moment to increase the available supply of battery-powered vehicles.Earlier on Friday, Volkswagen chief executive Herbert Diess said it was “too early to assess the impact” of the war in Ukraine on VW’s business. VW had already offered to fly Ukraine-based staff out of the country a few weeks ago, he added.As of Friday evening, Mercedes-Benz, Ford, Renault, Toyota and Jaguar Land Rover all also said they were so far unaffected by stoppages in the country.Mercedes said it was “monitoring the situation closely since it is still early to assess the full impact of this escalation on our business”.General Motors, which does not operate in Europe, told the FT on Thursday it had “limited supply chain exposure” to Ukraine.Although Russia and Ukraine are small markets for Volkswagen, which sold 9m cars globally in 2021, both countries provide raw materials and components that are crucial to the industry’s supply chain. One large car manufacturer told the Financial Times its employees were trying to work out whether rail deliveries that come via Russia would be disrupted.The temporary closure of VW’s factories echoes a similar move taken by the carmaker towards the end of 2020, caused by a shortage of semiconductors. The bottlenecks soon escalated into a serious crisis, leading to millions fewer vehicles being produced across the industry in 2021. Shifts at some VW plants are still cancelled because of a lack of chips. More

Even before Russian tanks rolled into Ukraine on Thursday, western governments were struggling with rising energy prices that threatened to derail economies emerging from two years of pandemic. Vladimir Putin’s aggression could now turn that threat into a reality. From crude oil to diesel to natural gas, the fossil fuels that power the global economy are trading at or towards record levels, threatening to redraw geopolitical relations between producers and consumers, drive up inflation and potentially even disrupt the fight against climate change.On Thursday, Brent crude, the international benchmark, almost hit $106 a barrel, its highest price since 2014, as traders digested the news that the world’s second biggest oil exporter had gone to war with a country at the centre of a web of energy export infrastructure. European natural gas prices also spiked this week, reflecting fears that Russia could retaliate by withholding exports accounting for about a third of the continent’s gas needs in retaliation for new sanctions and Germany’s decision to indefinitely suspend certification of the Nord Stream 2 pipeline.

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Putin, Russia’s president, has not only led Europe into one of its worst conflicts since the second world war, but also worsened an unfolding energy crisis. “The next stage is an economic war,” says Daniel Yergin, vice-chair of IHS Markit and author of The New Map, a recent book on energy politics. “The ultimate consequence of this can be a big negative shock to the global economy.”Oil and gas-exporting autocracies in the Middle East are likely to gain, as they did in the great oil market bull run of 2005-08, which underpinned the Gulf’s economic and construction booms and entrenched the region’s autocracies. Russia also stands to benefit, as surging oil revenue fills the Kremlin’s coffers and enriches anew many of the same oligarchs that are now under western sanctions. Russia’s national wealth fund, worth $32bn in 2008, had a value of $175bn at the start of February, or about 10 per cent of gross domestic product — a useful buffer as western economic sanctions tighten.In western capitals, the crisis in fossil fuel markets could have been an opportunity for politicians to accelerate their green energy plans. But fears of inflation and energy security anxieties seem instead destined to trump climate policies, including the clean energy revolution promised by US president Joe Biden as he entered the White House last year. With midterm elections looming and his approval ratings sinking, petrol prices are the president’s priority. Fuel prices are displayed in New York. Brent crude this week hit $106 a barrel, its highest price since 2014 © Caitlin Ochs/Reuters“Even modest fuel price rises have significant political ramifications,” says Morgan Bazilian, a former EU climate negotiator and now head of the Payne Institute at the Colorado School of Mines. “There are compelling reasons to move towards a low-carbon economy . . . but those have little sway in the myopic political discussions of the day.”A ‘crisis-prone market’ The Russian offensive may have been the trigger for Brent’s leap above $100 a barrel — but deeper supply and demand fundamentals are behind the more than doubling of oil prices in the past 15 months. A little under two years ago, as coronavirus-induced lockdowns shattered global crude demand, even oil executives wondered if global consumption had peaked in the face of an accelerating energy transition to lower-carbon fuels. It was a gross misreading. The colossal pandemic stimulus undertaken by governments has put a huge tailwind behind an oil and gas demand recovery. Consumption in the US is running at record highs of near 23mn barrels a day, almost a quarter of the global total. The International Energy Agency says the world will burn 100.6mn b/d this year, a new high. “Demand has by no means adjusted to a low-carbon world,” says Amrita Sen, chief oil analyst at Energy Aspects. The pandemic did not cut demand, it only suppressed it, she says, leaving an explosion to come as economies reopened. “People want to get out and about and travel.”Supplies of oil and gas are not keeping up. Between 2016 and 2019, spectacular growth in US oil output more than met the world’s extra annual demand. That is no longer the case. The 2020 oil crash slammed into an American shale patch from which investors were already fleeing. To win them back, companies have promised to prioritise profits over new drilling — a capital discipline mantra that is repairing balances sheets but slowing production growth. “We all learned some lessons,” says Rick Muncrief, chief executive of Devon Energy, one of the biggest shale oil producers in the US. “We’ll keep this discipline going . . . and I believe a lot of my colleagues feel the same way.”US production is rising, but remains 11 per cent below its pre-pandemic high and is far from matching global needs. ExxonMobil, BP and other oil groups have also held back capital spending — a reaction to shareholder pressure, in some cases, but also to models, such as last year’s 2050 net zero road map from the IEA, which said big new oil projects would not be needed in a decarbonising world.“Against that backdrop oil companies are saying, ‘are we really going to build a 20 to 30-year oilfield for the next three years? Clearly not’,” says Martijn Rats, a managing director at Morgan Stanley.

Cost of living protesters rally in London. High fuel prices are helping to push inflation higher in most advanced economies to levels not seen in more than 30 years © Chris J Ratcliffe/Getty Images

Opec, the oil producer group led by Saudi Arabia, could step into the growing supply breach. But despite huge political pressure from Washington, Riyadh has balked at upping the pace of supply additions.Some analysts wonder if Opec is able to restore all the oil supply that was cut over the past 18 months in a bid to prop up prices. In earlier years, the cartel’s problem was producers busting through their quotas. Now some west African countries and even Russia and Iraq are struggling to pump enough. This is troubling an oil market that always banked on Opec maintaining an ample buffer of spare capacity in case of emergency. Christyan Malek, an analyst at JPMorgan, reckons that buffer could shrink to about 4 per cent of total global capacity, “well below the 10 per cent comfort level sought by consumers”. The lack of spare production capacity has left the oil market exceptionally tight, say traders, as reflected in the steep backwardated structure of its futures curve, with contracts for oil to be delivered immediately trading at a steep premium to those for delivery months hence. “The market is paying a huge premium for prompt barrels,” says Ben Luckock, co-head of oil trading at Trafigura. It would be “nigh on impossible” for the industry to supply enough oil in time to stop further inflation. “There are plenty of scenarios where oil, come summer, is $150/b,” he adds.Some analysts argue that a nuclear deal with Iran would allow the return of its oil to the market. They also predict that high crude prices will coax shale producers to pump more quickly than planned. But Luckock, Rats, and others say today’s market dynamics — including the raging thirst for diesel and other “middle distillates” — echo those of 2008, when Brent hit an all-time record of $147/b.Another lesson from 2008 — when Moscow’s preparations to invade Georgia added bullish momentum to crude prices — is that geopolitical eruptions, such as Russian tanks entering Ukraine, can take on outsized importance in a jumpy market. Oil pumps at work near Neftekamsk, Russia, which stands to benefit from high energy prices as surging oil revenue fills the Kremlin’s coffers © Andrey Rudakov/BloombergUS officials have so far tried to downplay the physical threats to energy infrastructure in Ukraine. Biden explicitly spared Russia’s energy trade from the latest raft of “severe” sanctions announced on Thursday in what looked like an uncomfortable non-aggression pact with an industry that bankrolls the Kremlin. The US’s own modest imports of Russian oil have risen in the past two years, but the White House’s main concern is the global market. The sanctions concession pushed prices back below $100 a barrel on Friday. Traders remain concerned that the targeting of Russian banks involved in the oil trade will create counterparty risk. Trading in Urals, Russia’s main exported crude, was said to be “complete chaos” on Thursday, forcing barrels to trade at a record discount to Brent this week to entice buyers, according to pricing agency Platts. “The tightening of supply and demand made this a crisis-prone market,” says Yergin. “And the crisis is now here.”Supply too tight to mention The same may be true for natural gas. Such is Europe’s dependence on Russian imports — which account for about a third of the continent’s gas needs — that European gas futures jumped almost 70 per cent to €142 per megawatt hour after the invasion began. A year ago they were €16.Tom Marzec-Manser, head of global gas analytics at consultancy ICIS, says that for now he expects Russian supplies to Europe to continue, saying the Kremlin has signalled that long-term contracts with customers in the continent would be honoured. But sharp reductions in its exports last year drove prices to record highs — and appeared politically motivated to some analysts. On Tuesday, after Germany cancelled its certification of the controversial Nord Stream 2 gas pipeline, Dmitry Medvedev, the former Russia president and currently deputy chair of its security council, tweeted a thinly veiled threat about a forthcoming natural gas price shock.Any disruption of Russian supplies could not easily be fixed. As prices soared last year, liquefied natural gas shipments arrived in Europe from Australia, the US, Qatar and elsewhere. But those export plants are now running flat out.One new American project, Venture Global LNG’s Calcasieu Pass, is due to start exporting in the coming days, with most of its gas heading to Europe, including Poland. But as in the oil market, under-investment in new LNG output capacity in recent years has now left supplies trailing fast-rising demand, especially in Asia.

Policymakers and clean energy advocates were “pushing hard” on a transition away from gas, says Mike Sabel, chief executive of Venture Global, “but they didn’t think through the implications of scarcity of supply and skyrocketing prices”. Europe has also lagged behind Asia in building new terminals to receive more shipments, hindering importers’ ability to secure more LNG if Russian pipeline exports were to be cut, say people in the industry. Qatar, another big producer, is also expanding its export capacity. But its new megaprojects won’t be online until around 2026. “There is very little flexibility in the supply side,” says Marzec-Manser.Inflationary pressure The rise in oil and gas prices comes at a difficult time for the global economy. Advanced economies in Europe, North America and Asia have grown much faster than expected since the worst moments in the pandemic, helped by unprecedented government support and vaccine rollouts. Rapid growth, a reconfiguration of spending towards goods and efforts to limit the burning of coal had already raised gas and oil demand in 2021, pushing inflation higher in most advanced economies to levels not seen in more than 30 years and creating the need to slow growth to control price rises. The Nord Stream 2 pipeline during construction. Germany has indefinitely suspended certification of the pipeline, which brings Russian gas to Europe, in retaliation at Moscow’s invasion of Ukraine © Axel Schmidt/AvalonThe IMF forecast in January that growth rates in advanced economies would drop from 4.4 per cent last year to 3.5 per cent during 2022. Those predictions were based on oil prices declining almost 5 per cent this year and averaging $77 a barrel. This week’s sharp rise in oil and gas prices will amplify the already difficult trade-offs between growth and recovery, especially in Europe, which is a significant net importer of oil and gas. Neil Shearing, chief economist of Capital Economics, says oil at $120 to $140 a barrel this year with corresponding increases in gas prices could raise inflation in advanced economies by a further 2 percentage points — pushing rates in many countries close to 10 per cent. From Whitehall to the White House, fears of higher inflation are leading western leaders into political compromises. Biden, who talked as a presidential candidate of making Saudi Arabia a “pariah” for its role in the murder of Jamal Khashoggi, has in recent months sent emissaries to Riyadh to plead for more oil.

The White House has already released stored oil from the US emergency stockpile and has considered possible cuts to federal petrol taxes — efforts to make it cheaper for motorists to burn gasoline that sit awkwardly with Biden’s pledge to lead an American clean energy revolution. In the UK, where petrol prices have hit fresh highs and households face rocketing heating and electricity bills, a government that touted its “green recovery” strategy now calls for more oil and gas drilling. France and Spain have reintroduced fossil fuel subsidies, just three months after pledging at the COP26 climate summit to eradicate them. Analysts say this simply reflects the political realities of a transition away from fossil fuels led by leaders who must win votes from drivers, in a world where geopolitics can still deliver energy price shocks. “Regime change appears to be crowding out climate change, and for good reason,” says Kevin Book, managing director at Washington consultancy ClearView Energy Partners. “The world is warming slowly, but Ukraine is boiling over.” Additional reporting by Amanda Chu in Washington More

A senior Bank of England official has indicated that the central bank is likely to undertake a “very gradual” sale of the £895bn of assets it has bought in the past 13 years of quantitative easing. Speaking at the first Bank of England Agenda for Research (BEAR) conference, Ben Broadbent, deputy governor for monetary policy, said it was possible that the BoE would continue selling assets under a new quantitative tightening programme, even if the central bank was simultaneously cutting rates. “Quite conceivably it is possible that the balance sheet will go through this very gradual reduction, even as bank rate potentially at times moves both up and down,” Broadbent said.The BoE in February initiated a passive programme of quantitative tightening, in which it will no longer reinvest the proceeds of its government bonds when they mature. Some £28bn of UK gilts it holds are maturing early next month and the BoE will not reinvest the proceeds it receives. The bank has started a gradual programme of selling the £20bn of corporate bonds it owned under the QE scheme, but will only begin active sales of its remaining gilts when it has raised interest rates to at least 1 per cent. Broadbent’s comments suggest the BoE is planning to sell assets slowly and not use the quantitative tightening programme to manage the economy. His views were echoed by senior European central bankers. Isabel Schnabel, member of the executive board of the European Central Bank, told conference delegates that she agreed with the BoE stance, although the ECB has not yet considered QT. “Our key policy rates are best suited for influencing output and prices in the euro area during the normalisation process,” she said.Both central banks face inflation rising at more than twice their 2 per cent inflation target. In the UK, it rose to a 30-year high of 5.5 per cent in January, while in the eurozone, prices rose at an annual rate of 5.1 per cent, the highest since the single currency was introduced in 1999. After Russia invaded Ukraine on Thursday, economists revised up their inflation forecast for both the UK and the eurozone. Schnabel said borrowing costs are a better tool to control inflation because most loans to businesses are short-term and therefore will be directly affected by changes in central bank interest rates. In contrast, balance sheet adjustments, such as quantitative tightening or the release of bonds purchased by central banks, have only a partial effect on long-term rates, which are also influenced by other factors, such as inflation uncertainty and global demand.“Balance sheet adjustments may thus not be well-suited as the main instrument for controlling the overall stance [of monetary policy],” said Schnabel.She tweeted that all the panellists at that session of the conference “agreed that policy rates, not quantitative tightening, should be the main active instrument in the normalisation or tightening phase.”She also emphasised the importance of ending QE as the first element of tightening monetary policy because asset purchases had unpleasant side effects such as “the measurable rise in residential real estate prices”.The BEAR conference aims to bring together academics and policymakers to debate the “challenging environment that central banks face today”, according to Andrew Bailey, the BoE governor. More

War in the heart of Europe comes at an already difficult time for the global economy. The recovery from the coronavirus pandemic is not yet complete. Inflation is high and central banks are concerned that temporary, pandemic-related, supply chain blockages could set off a self-sustaining cycle of persistently higher inflation. Russia’s invasion of Ukraine, and its attendant impact on global commodity prices, will make every aspect of this outlook harder to deal with. The parallels with the 1970s, when the oil price shock from the Yom Kippur war combined with existing inflationary dynamics, raise the worrying spectre of stagflation. For the moment, the order of the day in markets is volatility. Asset prices have swung dramatically as traders attempt to understand the latest news. Gold and stock prices, as well as oil, have whipsawed. That will probably continue as more details emerge from the fog of war and investors digest what they mean for the outlook. Indeed, natural gas prices fell on Friday as US and European sanctions packages focused on oligarchs and banks rather than energy. That reluctance to target energy is understandable, if morally regrettable, given the dependence of much of Europe, and especially Germany, on natural gas from Russia — and the political sensitivity of US president Joe Biden’s re-election chances on petrol prices. Nevertheless, prices have still risen overall as traders anticipate disruptions to supply, whether accidental or deliberate, from the fighting. They are factoring in, too, the possibility that pressure will mount for even more aggressive sanctions such as cutting Russia off from the Swift interbank payments network. Benchmark oil prices reached $106 on Thursday, the first time they have risen above $100 since 2014, before falling back. That will add fuel to the inflationary fire. The war amounts to a supply shock — reducing the capacity of the global economy to produce goods and services. Such crises hit growth while raising inflation. That is harder for central banks to deal with than a fall in aggregate demand, when spending retrenches. Lower interest rates may be able to encourage investment and consumption in the short term, but they cannot do much to get more fossil fuels out of the ground. There will be some, smaller, offsetting impact on consumer and business confidence. Central banks are likely to continue to pursue tighter monetary policy, to prevent inflation from feeding off itself. But a pause in their plans, to see how the situation develops, would be sensible for the short term. Fiscal policy will ultimately have to take most of the burden of shielding the most vulnerable from the impact of higher prices. Government spending cannot ameliorate the effect of higher commodity costs but it can ensure they are shared between the whole of society rather than leaving just a few to shiver and starve from the combined impact of higher food and fuel prices — Ukraine is a major wheat exporter as well as playing host to gas pipelines. Transfer payments, funded by general taxation, will be needed.In the longer term, the invasion will shift the composition of government spending. Not only should it accelerate attempts by western economies to wean themselves off fossil fuels, especially those imported from Russia, but it likely means the end of the post cold war “peace dividend”. Defence investment will be added to an already long list of priorities for government spending. Investors have long feared a return to the stagflation of the 1970s; few, however, anticipated that it would come alongside a return to war. More

Mortgage lenders put up rates across a swath of home loans this week, in the latest sign of expectations of inflation-driven rate rises to come at the Bank of England.Santander, NatWest, TSB, Royal Bank of Scotland, Virgin Money, Yorkshire Building Society, Accord and the Co-operative Bank were among lenders to lift mortgage rates by as much as 0.6 percentage points across a selection of residential loans. Santander added up to 0.5 percentage points to interest rates on a number of its mortgages, leaving its cheapest two-year fixed rate loan for those with a deposit of 25 per cent at 1.89 per cent, with a fee of £999. Yorkshire Building Society raised rates across its range by as much as 0.63 percentage points. Aaron Strutt, product director at mortgage broker Trinity Financial, said lenders were “anticipating another base rate rise” but also coping with high demand for mortgages for purchase and remortgage as home movers and borrowers attempt to lock in low rates.Strutt said: “A lot of people are worried about what’s going to happen to their mortgage as rates rise. Lenders are also incredibly busy, so some of them are trying to reduce the number of applications that they get while they catch up with the backlog.”The Bank of England raised its main interest rate in December from 0.1 to 0.25 per cent and earlier this month from 0.25 to 0.5 per cent — the first successive rises since 2004. Markets expect the Bank’s efforts to curb inflation, which hit 5.5 per cent in January, to lead to further rises this year. Average mortgage rates on two-year fixed-rate deals across all loan-to-value ratios have risen from 2.44 per cent to 2.61 per cent from the beginning of February, according to finance website Moneyfacts. Eleanor Williams, finance expert at Moneyfacts, said: “There have been a variety of updates from lenders across the mortgage sector recently, fuelling rises across the majority of the average fixed rates as providers revise their product ranges and a number withdraw selected deals from the market.” 

Mortgage brokers said borrowers looking to fix a rate were having to reassess the leisurely approach that many had adopted over the past few years of ultra-low interest rates. Mark Harris, chief executive of SPF Private Clients, said that when lenders were competing hard on rates, people could afford to wait. Now the upward movement on rates was forcing them to take action before lenders pull deals and replace them with more expensive options. “I’d suggest the bottom on rates has been and gone. That is making people come to a decision,” he said. Housing market activity remains buoyant, with property website Rightmove this week reporting that strong demand for homes in London in February and a shortage of stock was pushing up asking prices. Brokers said demand for purchase as well as remortgage deals remained high after a big surge in activity last year. Leeds Building Society on Friday reported its busiest-ever year for mortgage applications in 2021, with gross lending reaching a record £4.4bn.But some brokers said lenders may rethink the way they assess borrowers’ affordability as pressure grows on household finances amid a cost of living crunch. Energy bills are rising fast, while rail fares and national insurance contributions are set to rise in the next two months. Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “With several lenders, affordability is based on income rather than considerations in the costs of living. But, as the costs continue to escalate, we could see lenders exercise caution and start to consider other factors to ensure the mortgage remains affordable.” More

Inflation as gauged by the Fed’s preferred core PCE measure rose 5.2% in January from a year ago. That was the biggest rise since April 1983.
Consumer spending popped 2.1% for the month, considerably more than the 1.6% estimate.
Orders for durable goods reflected the buoyant spending, rising 1.6% or double the expectation.

A key inflation measure showed that prices rose at their fastest level in nearly 39 years, but it didn’t deter consumers from spending aggressively, the Commerce Department reported Friday.
The core personal consumption expenditures price index, the Federal Reserve’s primary inflation gauge, rose 5.2% from a year ago, slightly more than the 5.1% Dow Jones estimate. It was the highest level since April 1983.

Including food and energy prices, headline PCE was up 6.1%, the strongest gain since February 1982.
On a monthly basis, core PCE rose 0.5%, in line with estimates, while the headline gain was up 0.6%.
The same report showed that consumer spending accelerated faster than expected, rising 2.1% on the month against the 1.6% estimate. The spending increase reversed a 0.8% decline in December.
That came even though personal income was flat for the month, which was better than the expectation for a drop of 0.3%. After-tax, or real disposable, income fell 0.5% as the expiration of a child tax credit offset wage gains and a large adjustment to Social Security checks.
Personal savings totaled $1.17 trillion, which translated into a 6.4% rate, the lowest December 2013.

A separate report also brought more better-than-expected news: Orders for long-lasting goods jumped 1.6% in January, compared with the outlook for a 0.8% gain.
For markets, inflation has been front and center as price gains have persisted at the strongest levels since the runaway increases in the 1970s and early 1980s. Back then, the Fed had to institute a string of stifling interest rate rises that dragged the economy into a recession.
In the current case, policymakers also have indicated that hikes are coming, though they are hoping to tighten in a more deliberate way. Virtually all central bank officials have said they expect to start the increases in March, and markets expect hikes to come at most if not all the ensuing six meetings this year.
“Overall, the real economy appears to be in stronger health than we feared, suggesting that the Fed will push on with its planned rate hikes starting in March, although the Ukraine conflict makes a 50 [basis point] hike less likely,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.
The data released Friday showed that energy increased at a 1.1% pace in January, while food costs rose 0.9%. Services inflation cooled off slightly, rising 0.4%.
Inflation fed through to worker pay, with wages and salaries surging 9.3% in 2021 after increasing just 1.3% the year before. Those costs rose another 0.5% in January, a slightly slower rate than the 0.7% increase the month before.
That infusion of money has kept demand for goods high.
Excluding transportation, new orders still rose 0.7%. Ex-defense orders were up 1.6%.

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Americans have collectively saved trillions of dollars since the pandemic began. But they aren’t exactly feeling flush with cash — and now there are signs that the pandemic-era savings boom may be coming to an end.Savings soared during the first year of the pandemic as the federal government handed out hundreds of billions of dollars in unemployment benefits, economic impact payments and other forms of aid, and as households spent less on vacations, concerts and other in-person activities. The saving rate — the share of after-tax income that is invested or saved, rather than spent — topped 33 percent in April 2020 and remained elevated through late last year.But the saving rate fell in the second half of 2021, returning roughly to its prepandemic level of about 7 percent last fall. In January, Americans saved just 6.4 percent of their after-tax income, the lowest monthly saving rate since 2013, as millions of employees lost hours because of the latest coronavirus wave, and this time the government did not step in to provide aid.Still, Americans in the aggregate have roughly $2.7 trillion in “excess savings” accumulated since the pandemic began, by some estimates.In a survey conducted this month for The New York Times by the online research firm Momentive, however, only 16 percent of respondents said they had more in savings than before the pandemic, and 50 percent said they had less. Among lower-income households, just 9 percent said they had more in savings, and 64 percent said they had less.The government measures the total savings of all households, which can be skewed by a relative handful of rich people. And it uses a broader definition of “saving” than most laypeople probably do — paying down debt, for example, is considered “saving” in official government statistics.But those factors can’t fully explain the disconnect. According to anonymous banking records reviewed by researchers at the JPMorgan Chase Institute, for example, median checking account balances remained significantly above their prepandemic level at the end of December, though they have fallen since their peak last spring. And while high-income households had far more money in their accounts on average, low-income households had experienced a bigger jump in savings on a percentage basis.“We’re still seeing this picture that cash balances are still elevated in general, and they’re elevated more so for low-income families,” said Fiona Greig, co-president of the institute.Dr. Greig said it was possible that balances had shrunk further since December, when monthly child tax credit payments ended. Brianna Richardson, a research scientist at Momentive, said it was also possible that survey respondents were misremembering how much money they had before the pandemic, perhaps because their savings grew so much earlier in the crisis. Inflation could also be affecting people’s assessments, because the same dollar amount in savings won’t go as far as prices rise. More