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    The Car Market 'Is Insane': Dealers Can't Keep Up With Demand

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    Rick Ricart is expecting nearly 40 Kia Telluride sport utility vehicles to arrive at his family’s dealership near Columbus, Ohio, over the next three weeks. Most will be on his lot for just a few hours.“They’re all sold,” Mr. Ricart said. “Customers have either signed the papers or have a deposit on them. The market is insane right now.”In showrooms across the country, Americans are buying most makes and models almost as fast as they can be made or resold. The frenzy for new and used vehicles is being fed by two related forces: Automakers are struggling to increase production because of a shortage of computer chips caused in large part by the pandemic. And a strong economic recovery, low interest rates, high savings and government stimulus payments have boosted demand.The combination has left dealers and individuals struggling to get their hands on vehicles. Some dealers are calling and emailing former customers offering to buy back cars they sold a year or two earlier because demand for used vehicles is as strong as it is for new cars, if not stronger. Used car prices are up about 45 percent over the past year, according to government data published this week. New car and truck prices are up about 5 percent over the past year.Those price increases have fed a debate in Washington about whether President Biden’s policies, particularly the $1.9 trillion American Rescue Plan he signed in March, are responsible for the sharp rise in inflation. The government said this week that consumer prices across the economy rose 5.4 percent in the last year through June.Republican lawmakers have argued that the March legislation is overheating the economy and are citing the rise in prices to oppose additional government spending. But Biden administration officials have pointed out that temporary supply shortages are largely responsible for the surge in prices of cars and other goods.Government stimulus may have helped some consumers, but it is hard to say how much. Several large forces are at play.The chip shortage, for example, is affecting automakers all over the world and is not directly related to U.S. policies. Industry officials blame limited production capacity for semiconductors and pandemic-related disruptions in supply and demand for the shortage.To make the most of limited chip supplies, General Motors has temporarily done away with certain features in some models, like stop-start systems that automatically turn off engines when cars stop for, say, a traffic light. And the French carmaker Peugeot has replaced digital speedometers with analog ones in some cars.Rental car companies that sold off thousands of cars during the pandemic to survive are now in the market to buy cars and trucks. They want to take advantage of a summer travel boom that has driven up rental rates to several hundred dollars a day in some places.“The industry has had strikes and material shortages before that have left us short of inventory, but I’ve never seen anything like this,” said Mark Scarpelli, the owner of two Chevrolet dealerships near Chicago. “Never, never, never.”His dealerships normally have 600 to 700 cars in stock. Now, he has about 50. Once or twice a week, a truck arrives with five or 10 vehicles. The cars disappear quickly because of customer waiting lists, Mr. Scarpelli said.Industry executives said the last time demand and supply were this out of sync was most likely after the end of World War II, when U.S. auto plants returned to making cars after years of churning out tanks and planes.Dealers said virtually everything was selling, from luxury vehicles and sports cars that cost more than $100,000 to basic used cars that many parents buy for teenagers.Even though the unemployment rate is still higher than before the pandemic, many people have money to spend. Government payments have helped lots of people, but many Americans, kept from vacationing or eating out, saved money. Financing cars is also relatively cheap — at least for people with good credit. Some automakers like Toyota, which has been less affected by the chip shortage than others, are advertising zero-interest loans on some cars.Mr. Ricart’s family businesses include a custom shop that sells high-end, special-edition trucks and sports cars. “We had a $125,000 Shelby pickup, and I said, ‘Who’s going to buy that?’” he recalled. “The next day it was gone. There’s so much free cash in the market. People are paying full price, even for the most expensive vehicles we have.”Buyers often have to take vehicles that don’t meet their specifications, and move fast when they find one close enough.Gary Werle, a retiree in Lake Worth, Fla., recently traded in a 2017 Buick Encore for a 2021 version, drawn by its safety features such as blind-spot monitoring and automatic braking. “I’m 80, and I thought it would be good to have those,” he said.On Memorial Day, his dealer called, and Mr. Werle didn’t hesitate. “I was at a party and left to buy the car,” he said. “I’d heard about the shortages, so I wasn’t sure the car would be there the next day.”Dealers are selling fewer vehicles, but their profits are up a lot. That’s a huge change from the spring of 2020, when most dealerships shut down for roughly two months and they had to lay off workers to survive.“The strong demand from consumers paired with a lack of supply from the manufacturers has created a gusher of profits for dealers,” said Alan Haig, president of Haig Partners, an automotive consultant.Now, dealers typically dictate the price of new or used cars. New cars typically sell for the manufacturer’s suggested retail price or, in some cases, thousands of dollars more for models in very high demand. Haggling over used cars is a distant memory.“There’s not a lot of negotiating that goes on right now on price,” said Wes Lutz, owner of Extreme Dodge in Jackson, Mich.Some customers have balked at paying top dollar for new cars and have opted to make do with older vehicles. That has increased demand for parts and service, one of the most profitable businesses for car dealers. Many dealers have extended repair-shop hours. Mr. Ricart said he had some repair technicians putting in 10- or 12-hour days three or four days in a row before taking a few days off.Of course, the shortage of cars will end, but it isn’t clear when.As Covid-19 cases and deaths rose last spring, automakers shut down plants across North America from late March until mid-May. Since their plants were down and they expected sales to come back slowly, they ordered fewer semiconductors, the tiny brains that control engines, transmissions, touch screens, and many other components of modern cars and trucks.At the same time, consumers confined to their homes began buying laptops, smartphones and game consoles, which increased demand for chips from companies that make those devices. When automakers restarted their plants, fewer chips were available.Many automakers have had to idle plants for a week or two at a time in the first half of 2021. G.M., Ford Motor and others have also resorted to producing vehicles without certain components and holding them at plants until the required parts arrive. At one point, G.M. had about 20,000 nearly complete vehicles awaiting electronic components. It began shipping them in June.Ford has been hit harder than many other automakers because of a fire at one of its suppliers’ factories in Japan. At the end of June, Ford had about 162,000 vehicles at dealer lots, fewer than half the number it had just three months ago and roughly a quarter of the stock its dealers typically hold.This month, Ford is slowing production at several North American plants because of the chip shortage. The company said it planned to focus on completing vehicles.Mr. Ricart recently took a trip on his Harley-Davidson to Louisville, Ky., and got a look at the trucks and S.U.V.s at a Ford plant that are waiting to be finished. He said he had seen “thousands of trucks in fields with temporary fencing around them.”He said he hoped to get some of those trucks soon because Ricart Ford had only about 30 F-150 pickup trucks in stock. “We’re used to selling a couple hundred a month.” More

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    Federal Reserve Chair to Testify Before Congress

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    When Jerome H. Powell, the Federal Reserve chair, appears before the Senate Banking Committee on Thursday, he will be testifying at a fraught moment both politically and economically, given the recent rise in inflation.The Consumer Price Index jumped 5.4 percent in June from a year earlier, the biggest increase since 2008 and a larger move than economists had expected. Price pressures appear poised to last longer than policymakers at the White House or Fed anticipated.In testimony on Wednesday before the House Financial Services Committee, Mr. Powell attributed rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.He acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.For now, he voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.”He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.” More

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    Inflation? Not in Japan. And That Could Hold a Warning for the U.S.

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    If the United States’ current bout of rising prices soon eases, its economy could fall back into the cycle of weak inflation that preceded the pandemic — a situation much like Japan’s.TOKYO — In the United States, everyone is talking about inflation. The country’s reopening from the coronavirus pandemic has unleashed pent-up demand for everything from raw materials like lumber to secondhand goods like used cars, pushing up prices at the fastest clip in over a decade.Japan, however, is having the opposite problem. Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen. While in the United States average prices have jumped by 5.4 percent in the past year, the Japanese economy has faced deflationary pressure, with prices dipping by 0.1 percent in May from the previous year.To some extent, the situation in Japan can be explained by its continued struggles with the coronavirus, which have kept shoppers at home. But deeper forces are also at play. Before the pandemic, prices outside the volatile energy and food sectors had barely budged for years, as Japan never came close to meeting its longtime goal of 2 percent inflation.It wasn’t for lack of trying. Over nearly a decade, Japanese policymakers have wielded nearly every trick in the economist’s playbook in an effort to coax prices higher. They have juiced the economy with cheap money, spent huge sums on fiscal stimulus like public works, and lowered interest rates to levels that made borrowing nearly free.But as Japan has learned the hard way, low inflation can be an economic quagmire. And that experience carries a warning for the United States if its current bout of inflation eases, as many economists expect, and its economy falls back into the cycle of weak inflation that preceded the pandemic.“Most economists, me included, are pretty confident that the Fed knows how to bring inflation down,” including by raising interest rates, said Joshua Hausman, an associate professor of public policy and economics at the University of Michigan who has studied Japan’s economy.However, “it’s much less clear, partly because of Japan’s experience, that we’re very good at bringing inflation up,” he added.For consumers, falling prices sound like a good thing. But from the perspective of most economists, they are a problem.Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen.Kazuhiro Nogi/Agence France-Presse — Getty ImagesInflation, they like to say, greases the economy’s gears. In small amounts, it increases corporate profits and wages, stimulating growth. It can also reduce the burden of debt, bringing down the relative costs of college loans and mortgages.Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue.One popular explanation for the country’s trouble is that consumers’ expectations of low prices have become so entrenched that it’s basically impossible for companies to raise prices. Economists also point to weakening demand caused by Japan’s aging population, as well as globalization, with cheap, plentiful labor effectively keeping costs low for consumers in developed countries.The picture once looked very different. In the mid-1970s, Japan had some of the highest inflation rates in the world, approaching 25 percent.It wasn’t alone. Runaway prices set off by the 1970s oil crisis defined the era, including for a whole generation of economists who were groomed to believe that the most likely threat to financial stability was rapid inflation and that interest rates were the best tool to combat it.But by the early 1990s, Japan began experiencing a different issue. An economic bubble, fueled by a soaring stock market and rampant property speculation, burst. Prices began to fall.Japan attacked the problem with innovative policies, including using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing.Shops and restaurants closed during a state of emergency in Osaka, Japan, in May. To some extent the situation in Japan can be explained by its continued struggles with the coronavirus.Carl Court/Getty ImagesIt seemed to do little good. Still, economists at the time saw Japan’s experience not as a warning to the world, but as an anomaly produced by bad policy choices and cultural quirks.That began to change with the financial crisis of 2008, when inflation rates around the world plummeted and other central banks adopted quantitative easing.The problem has been most notable in Europe, where inflation has averaged 1.2 percent since 2009, economic growth has been weak and some interest rates have been negative for years. During the same period, U.S. inflation averaged just below 2 percent. The Federal Reserve has kept its main interest rate at close to zero since March 2020.Some prominent economists viewed the low inflation as a sign that the U.S. and E.U. economies might be on the brink of so-called secular stagnation, a condition marked by low inflation, low interest rates and sluggish growth.They have worried that those trends will deepen as both economies begin to gray, potentially reducing demand and pushing up savings rates.In 2013, under newly elected Prime Minister Shinzo Abe, Japan began its most ambitious effort to tackle its weak economic growth and low inflation.The government embarked on a grand experiment of huge monetary and fiscal stimulus, buying enormous quantities of equities and lowering interest rates in hopes of encouraging borrowing and putting more money into the economy. As the supply of cash increased, the thinking went, its relative value would decline, effectively driving up prices. Flush with money, consumers and companies alike would spend more. Voilà, inflation.Former Prime Minister Shinzo Abe leaving his last cabinet meeting in Tokyo last year. Under Mr. Abe, Japan began an ambitious but unsuccessful effort to tackle its weak inflation.Kazuhiro Nogi/Agence France-Presse — Getty ImagesTo encourage spending, Japan adopted a policy, known as forward guidance, aimed at convincing people that prices would go up as it pledged to do everything in its power to achieve its inflation target of 2 percent.But the government’s efforts at persuasion fell short, so there was little urgency to spend, said Hiroshi Nakaso, a former deputy governor of the Bank of Japan and head of the Daiwa Institute of Research.Japan found itself in a vicious circle, said Takatoshi Ito, a professor of international and public affairs at Columbia University, who served on Japan’s Council on Economic and Fiscal Policy.Consumers came to expect “stable prices and zero inflation,” he said, adding that as a result, “companies are afraid of raising prices, because that would attract attention, and consumers may revolt.”The sluggish economy made companies reluctant to raise wages, he said, “and because real wages didn’t go up, probably consumption didn’t go up. So there was no increase for demand for products and services.”As inflation hardly moved, some economists wondered if Japan’s stimulus had been too conservative, even as it racked up one of the world’s largest debt burdens.Policymakers, citing a need to pay off the country’s debts and meet the growing costs of caring for an aging population, hedged against the spending by twice raising the country’s consumption tax, apparently weakening demand.A bus station in Tokyo. Economists point to Japan’s aging population as one reason for weakening demand.Charly Triballeau/Agence France-Presse — Getty ImagesIn the end, Mr. Abe’s experiment, known as Abenomics, may not have been as successful as hoped. But it has informed policymakers’ response to the pandemic, said Gene Park, a professor of political science at Loyola Marymount University in Los Angeles who studies Japan’s monetary policy.One takeaway, he said, is that governments could spend more than they had ever thought possible without setting off a rapid rise in inflation. Another is that they might have to spend considerably more than they had once considered necessary to stimulate growth.Japan “has given the U.S. more freedom to experiment with bolder measures,” Mr. Park said.During the pandemic, Japan, too, has tried to apply the lessons learned since 2013.The government has paid shops and restaurants to stay closed, handed out cash to every person in the country, and financed zero-interest loans for struggling businesses. Prices fell anyway. That was partly at the behest of the government itself, which recently pressured telecom companies to lower mobile phone fees it deemed too high. Most Japanese consumers are also still waiting to be vaccinated against the coronavirus, holding back economic activity.Even after the pandemic wanes, however, Japan’s inflation rates are likely to stay low, said Sayuri Shirai, an economics professor at Keio University in Tokyo and a former board member of the Bank of Japan.After all, the primary problem remains unchanged: No one is really sure why prices have stagnated.“The central bank probably doesn’t want to say that they cannot control inflation,” Ms. Shirai said. “Therefore, this issue has just been left without a clear discussion.” More

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    Janet Yellen Warns That Coronavirus Variants Threaten Global Recovery

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    At the end of a gathering of the finance ministers of the Group of 20 nations, the U.S. Treasury secretary called for an acceleration of vaccine distribution worldwide.Treasury Secretary Janet L. Yellen said on Sunday that coronavirus variants could hinder the global economic recovery and called for a stepped-up effort to vaccinate the world’s population.Luca Bruno/Associated PressVENICE — Treasury Secretary Janet L. Yellen said on Sunday that she was concerned that coronavirus variants could derail the global economic recovery and called for an urgent push to deploy vaccines more rapidly around the world.Her comments, made at the conclusion of a gathering of the finance ministers of the Group of 20 nations, came as the highly contagious Delta variant of the coronavirus was driving outbreaks among unvaccinated populations in countries such as Australia, Indonesia, Malaysia and Portugal. Delta is also now the dominant variant in the United States.“We are very concerned about the Delta variant and other variants that could emerge and threaten recovery,” Ms. Yellen said. “We are a connected global economy. What happens in any part of the world affects all other countries.”Many cities and countries have started to declare victory against the pandemic, easing restrictions and returning to normal life. But Ms. Yellen warned that the public health crisis was not over.She said that the world’s top economic officials had spent much of the weekend in Venice discussing how they could improve vaccine distribution, with the goal of getting 70 percent of the world inoculated by next year. Ms. Yellen noted that many countries had been successful in financing the purchase of vaccines, but that the logistics of getting them into people’s arms were falling short.“We need to do something more and to be more effective,” she said.The spread of variants has started to dampen optimism about the trajectory of the recovery.Analysts at Capital Economics said this week that they planned to lower their economic growth outlook for the year to below 6 percent.The spread of new coronavirus variants has “raised doubts about the pace of real economic growth in the second half of this year and beyond,” Paul Ashworth, the chief North America economist at Capital Economics, wrote in a research note.The International Monetary Fund said that it was maintaining its projection for 6 percent global growth this year, but it warned that growth was being suppressed in developing countries where infection rates were surging.“The divergence across economies is intensifying,” Kristalina Georgieva, the managing director of the I.M.F., said on Saturday. “Essentially, the world is facing a two-track recovery.”Some finance ministers also expressed concern over the weekend that variants and slow vaccine uptake could upend the recovery. That concern was highlighted as a downside risk to the global economy in the joint statement that the group released.“The single hurdle on the way to a quick, solid economic rebound is the risk of having a new wave of pandemics,” said Bruno Le Maire, the French finance minister. “We all have to improve our vaccination performance.”The I.M.F. executive board approved a plan last week to issue $650 billion worth of reserve funds that countries could use to buy vaccines and to finance health care initiatives.Ms. Yellen said that she had pressed her Group of 20 counterparts to accelerate “equitable” delivery and distribution of vaccines, diagnostics and therapeutics to ensure that low- and middle-income countries could fight flare-ups of the virus.Policymakers at the meeting this weekend also spent time focusing on new investments to prepare for future pandemics. Ms. Yellen said that, while this was important, there was more that needed to be done in the near term.“Certainly variants represent a threat to the entire globe,” she said. More

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    I.M.F. Board Backs $650 Billion Aid Plan to Help Poor Countries

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    The expansion of emergency reserves to help fund vaccines and pay down debt is politically contentious in the United States.VENICE — The International Monetary Fund took a step on Friday toward easing widening global inequality and helping poor nations get access to vaccines, saying its executive board approved a plan to issue $650 billion worth of reserve funds that countries can use to buy vaccines, finance health care and pay down debt.The decision comes at a pivotal moment as Covid-19 infections continue to spread among populations that have not been inoculated and as more contagious variants of the coronavirus are posing new health threats. The pandemic has drained the fiscal resources of poor countries over the past year, and the I.M.F. projected this week that faster access to vaccinations for high-risk populations could save 500,000 lives in the next six months.The new allocation of so-called Special Drawing Rights would be the largest such expansion of currency reserves in the I.M.F.’s history. If approved by the group’s board of governors, as is expected, the reserves could become available by the end of next month.“This is a shot in the arm for the world,” Kristalina Georgieva, managing director of the I.M.F., said in a statement. “The S.D.R. allocation will help every I.M.F. member country — particularly vulnerable countries — and strengthen their response to the Covid-19 crisis.”Ms. Georgieva made the announcement as finance ministers and central bank governors of the Group of 20 nations were gathering in Venice to discuss international tax policy, climate change and the global economic response to the pandemic. The I.M.F., established in 1944 to try to broker economic cooperation, has warned of a two-track economic recovery, with poor countries being left behind while advanced economies experience rapid expansions.Ahead of the meetings, Treasury Department officials said expanding access to vaccines would be a central topic of discussion. It is also a potentially contentious one, as some developing countries have suggested that advanced economies are not doing enough to ensure fair distribution of vaccines.“The immediate priority for developing countries is widespread access to vaccines that match their deployment programs,” David Malpass, president of the World Bank, said in a speech in Venice on Friday.Mr. Malpass called on G20 countries to share doses and remove all trade barriers to exporting finished vaccines and their components. He noted that the pandemic had aggravated structural weaknesses that had dogged developing countries for years.“Even as that is accomplished,” Mr. Malpass said of expanded vaccine distribution, “development faces years of setback and struggle.”Narrowing the gap between the fortunes of advanced and developing economies was a central topic on the first day of the G20 meetings in Venice. Bruno Le Maire, France’s finance minister, told reporters on Friday that inequality was a risk to the stability and security of Europe that could lead to an influx of refugees. He argued that it must be urgently addressed.It remains to be seen how far the $650 billion will go to help developing countries as they race to vaccinate people before new variants of the virus take hold, including the Delta variant, which has plunged many countries back into a health crisis.The United Nations Conference on Trade and Development called this year for $1 trillion worth of Special Drawing Rights to be made available by the I.M.F. as a “helicopter money drop for those being left behind.”Jubilee USA Network, a nonprofit organization that advocates debt relief for poor countries, praised the move by the I.M.F. and called on wealthy countries to do more to help.“This is the biggest creation of emergency reserve funds that we’ve ever seen, and developing countries will immediately receive more than $200 billion,” said Eric LeCompte, executive director of Jubilee USA Network. “Wealthy countries who receive emergency reserves they don’t need should transfer those resources to developing countries struggling through the pandemic.”The I.M.F., the World Bank, the World Health Organization and the World Trade Organization have created a new vaccine task force and called for an additional $50 billion investment to broaden access to supplies. The groups have also called on G20 countries to set a goal of having 40 percent of their populations vaccinated by the end of this year and 60 percent by the middle of next year.The United States has thrown its support behind the expansion of the I.M.F. reserves, reversing a Trump administration policy and angering Republican lawmakers in the process.The Trump administration balked at the proposal last year and prevented it from moving forward. It argued at the time that boosting the emergency reserves was an inefficient way to provide aid to poor countries and that doing so would provide more resources to advanced economies that did not need the help, like China and Russia.Republican lawmakers have since accused the Biden administration of bolstering the fortunes of adversaries, while doing little to actually help developing nations. Although Republicans have introduced legislation that would put restrictions on how the I.M.F. reserves were used if they were authorized, such proposals are unlikely to pass with Democrats in control of Congress.Under Treasury Secretary Janet L. Yellen, the United States has taken a different view from the Trump administration, and the United States supports the allocation. Ms. Yellen believes that rich countries will have little use for the S.D.R.s but that developing economies will be able to use them to get enough money to vaccinate their people.Treasury Secretary Janet Yellen, center, arriving for the Group of 20 finance ministers and central bank governors meeting in Venice on Friday.Andrea Merola/EPA, via ShutterstockSpecial Drawing Rights work by allowing member countries of the I.M.F. to cash the asset in for hard currency. Their value is based on a basket of international currencies and is reset every five years.Each of the 190 countries that is a member of the I.M.F. gets an allotment of S.D.R.s based on its shares in the fund, which tracks with the size of a country’s economy. The new reserves would also be distributed under this formula, with the largest economic powers like the United States gaining the biggest tranche.The drawing rights cannot be used to buy things on their own, but they can be traded for currencies that can. If two countries agree, they can trade their Special Drawing Rights for cash, with the I.M.F. acting as a middleman to facilitate the trade.That has prompted some criticism that the program will not work unless rich countries voluntarily transfer their holdings to poorer nations.“It is a legitimate concern that new S.D.R.s will end up mostly in the hands of large and rich countries that have little use for them rather than in the hands of the smaller and poorer countries that really need them,” said Eswar Prasad, the International Monetary Fund’s former China chief. “A reallocation of S.D.R.s toward the latter group, in addition to increasing the overall volume of S.D.R.s, would be helpful in dealing with stresses to the global financial system.”To address some of those concerns, the I.M.F. is working to develop a new trust fund where rich countries can channel their excess S.D.R.s. The goal is to create a $100 billion pot of money that poor countries take loans from so they can expand health care systems or address climate change in conjunction with existing I.M.F. programs.The United States has previously indicated it will make available about one-fifth of its allocation, worth about $20 billion. At the urging of the United States, the I.M.F. is also working to create greater transparency around how the assets are being used so that it is clear that American adversaries are not benefiting from the proceeds.The I.M.F.’s board of governors is expected to hold its vote in early August. More

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    European Central Bank Tweaks Strategy to Fight Inflation

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    The European Central Bank said Thursday it would adjust the guideposts it uses to set monetary policy, giving its more room to deploy crisis measures even if inflation rises above its official target. The bank also said it would begin using its clout in bond markets to fight climate change.After concluding an 18-month review of its strategy, the bank’s Governing Council said Thursday that it would no longer aim to keep inflation below, but close to, 2 percent. Rather, it would simply aim for 2 percent and be ready to accept “a transitory period in which inflation is moderately above target.”The seemingly minor change gives the bank space to keep pumping credit into the eurozone economy even if annual inflation rises above 2 percent, as long as policymakers think the jump is temporary.That situation may soon materialize. Inflation in the eurozone has been hovering around 2 percent in recent months, and could rise above the target as economies reopen and shortages of needed products like semiconductors become more acute. According to the previous strategy, the central bank would be obligated to raise interest rates or take other measures to slow the economy, even if the crisis was not over.By law, controlling prices in the 19 countries of the eurozone is the central bank’s main priority, so any adjustment to its approach to inflation has broad implications for the interest rates that businesses and consumers pay on loans, and for employment and economic growth.The bank also said it would take climate change into account when it buys corporate bonds as part of its stimulus measures. The bond purchases, made with newly created money, are a means to stimulate borrowing and economic growth. But in the future, the European Central Bank will favor companies that have made sincere efforts to reduce the amount of carbon dioxide they produce.In practice, the central bank has already provided ample evidence it was willing to bend its own rules to fight the pandemic, or the debt crisis that nearly destroyed the euro a decade ago.“We do not expect the new strategy to shift the outlook for the E.C.B.’s monetary policy stance significantly,” Holger Schmieding, chief economist at Berenberg Bank, said in a note to clients ahead of the announcement. “Instead, it will formally codify the approach which the E.C.B. has pursued anyway. This will make it easier for the E.C.B. to communicate with markets and the public.”The European Central Bank’s new approach is sure to generate criticism from places like Germany, where fear of inflation runs deep. Jens Weidmann, a member of the Governing Council and president of the Bundesbank, Germany’s central bank, has called for the European Central Bank to begin dialing back its stimulus to ensure that inflation does not get out of control. He has also said that climate change was not a matter for central banks.But Mr. Weidmann belongs to a minority on the Governing Council. The central bank said in a statement that it believed that climate change was relevant to “inflation, output, employment, interest rates, investment and productivity; financial stability; and the transmission of monetary policy.” More

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    Gas Price Increase Poses Challenge to U.S. Economy

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    Experts say a period of costlier fuel is likely to be brief. But if consumers start to assume otherwise, it could mean problems for Biden and the Fed.As the U.S. economy struggles to emerge from its pandemic-induced hibernation, consumers and businesses have encountered product shortages, hiring difficulties and often conflicting public health guidance, among other challenges.Now the recovery faces a more familiar foe: rising oil and gasoline prices.West Texas Intermediate, the U.S. oil-price benchmark, hit $76.98 a barrel on Tuesday, its highest level in six years, as OPEC, Russia and their allies again failed to agree on production increases. Prices moderated later in the day but remained nearly $10 a barrel higher than in mid-May.Reflecting the increase in crude prices, the average price of a gallon of regular gasoline in the United States has risen to $3.13, according to AAA, up from $3.05 a month ago. A year ago, as the coronavirus kept people home, gas cost just $2.18 a gallon on average. The auto club said on Tuesday that it expected prices to increase another 10 to 20 cents through the end of August.The price of a gallon of gas

    Note: Weekly prices through Monday. Data is not seasonally adjusted and includes all formulations of regular gasoline.Source: Energy Information AdministrationBy The New York TimesThe rapid run-up comes at a delicate moment for the U.S. economy, which was already experiencing the fastest inflation in years amid resurgent consumer activity and supply-chain bottlenecks. And it could cause a political headache for President Biden as he tries to convince the public that his policies are helping the country regain its footing.Asked about oil prices at a White House news conference on Tuesday, Jen Psaki, the press secretary, said the administration was monitoring the situation and had been in touch with officials from Saudi Arabia and other major producers. But she suggested that the president had limited control over gas prices.“There sometimes is a misunderstanding of what causes gas prices to increase,” Ms. Psaki said. “The supply availability of oil has a huge impact.”Indeed, energy experts said the recent jump in oil prices had more to do with global economic and geopolitical forces than with domestic policies. Global energy demand slumped when the pandemic hit last year, eventually leading the Organization of the Petroleum Exporting Countries and its allies to cut production to prevent a collapse in prices. Demand has begun to rebound as economic activity resumes, but production has not kept pace: OPEC Plus, the alliance of oil producers, on Monday called off a teleconference to discuss increasing output.The direct economic impact of higher oil prices will probably be substantially more modest than in past decades. Energy overall plays a smaller role in the economy because of improved efficiency and a shift away from manufacturing, and the rise of renewable energy means the United States is less reliant on oil in particular.In addition, the surge in domestic oil production in recent years means that rising oil prices are no longer an unambiguous negative for the U.S. economy: Higher prices are bad news for drivers and consumers, but good news for oil companies and their workers, and the vast network of equipment manufacturers and service providers that supply them. Joe Brusuelas, chief economist at the accounting firm RSM, said oil prices of $80 or even $100 a barrel didn’t concern him. Not until prices top $120 a barrel would he start to worry seriously about the economic impact, he said.“The world has changed,” Mr. Brusuelas said. “The risks aren’t what they once were.”Still, the costs of higher prices will not be felt equally. Poor and working-class Americans drive older, less efficient cars and trucks and spend more of their incomes on fuel.Higher oil prices are no longer an altogether bad thing for the U.S. economy, but they are a particular burden to poor and working-class Americans.Audra Melton for The New York TimesScott Hanson of Western Springs, Ill., said $40 was enough to fill up his gas tank last year, when he lost his job as an office manager because of the pandemic. Now Mr. Hanson is paying over $60 to fill his Dodge Charger, making trips to take his mother to her medical appointments more expensive. Gas in Illinois is averaging $3.36 a gallon, according to AAA.“It’s too much for too many people that lost their jobs or have low-paying jobs,” Mr. Hanson said. “Everything bad that could happen is happening all at once.”Gas prices also remain a potent and highly visible symbol of rising prices when many consumers — and some economists — are nervous about inflation. Consumer prices rose 5 percent in May from a year earlier, the biggest annual increase in more than a decade, and forecasters expect figures for June, which will be released next week, to show another significant increase.Policymakers at the Federal Reserve have said they expect the increase in inflation to be short-lived, and they are unlikely to change that view based on an increase in energy prices, which are often volatile even in normal times, said Jay Bryson, chief economist at Wells Fargo.But if rising oil prices lead consumers and businesses to believe that faster inflation will continue, that could be a harder problem for the Fed. Economic research suggests that prices of things that consumers buy often, such as food and gasoline, weigh particularly heavily on their expectations for inflation. With public opinion surveys showing increasing concern about inflation, rising oil prices increase the risk of a more lasting shift in expectations, said David Wilcox, a former Fed economist who is now a senior fellow at the Peterson Institute for International Economics in Washington.“I don’t expect the price of oil to be the last straw on the camel’s back, but it is another straw on a camel’s back that’s already carrying a fair amount of baggage,” Mr. Wilcox said. “There is a much greater risk today of an inflationary psychology taking hold than I would have said three to five years ago.”Republicans have seized on rising prices to criticize Mr. Biden’s energy policies, including his decision to cancel permits for the Keystone XL oil pipeline and his pause on selling new oil leases on federal lands, a move that a federal judge has blocked.“Bad policy is already creating conditions like higher gasoline prices that we haven’t seen in a very long time,” Senator John Barrasso, Republican of Wyoming, wrote in an opinion essay last week. (Energy experts say Mr. Biden’s policies have had no meaningful impact on oil prices.)Ms. Psaki noted that Mr. Biden had consistently opposed an increase in the federal gas tax, which some Republican senators and business groups had advocated to help fund spending on infrastructure. The deal Mr. Biden reached with a bipartisan group of senators last month did not include a gas tax increase.“Ensuring Americans don’t bear a burden at the pump continues to be a top priority for the administration writ large,” Ms. Psaki said. “That’s one of the core reasons why the president was opposed — vehemently opposed — to a gas tax and any tax on vehicle mileage, because he felt that would on the backs of Americans. And that was a bottom-line red line for him.”Domestic oil production is expected to rise in coming months as higher prices and rising demand lead companies to step up drilling. But any rebound is likely to be gradual. U.S. oil companies have been cautious about investing in new exploration and production over the last year, even as oil prices have roughly doubled from the first half of 2020, when the pandemic punctured demand. Company executives say they are focused on share buybacks and debt reduction as sales rise.The Energy Department predicts that production will average 11.1 million barrels a day this year and 11.8 million barrels a day in 2022, 400,000 barrels a day less than in 2019.Even without a surge in domestic oil production, many forecasters doubt that prices will continue to rise at their recent pace. OPEC members generally agree that production should increase; they just disagree about how much. And a new nuclear deal with Iran or a thawing of U.S.-Venezuela relations could bring a flood of new supplies. Iran alone could potentially add 2.5 million to three million barrels of oil daily on the global market, or roughly a 3 percent addition to supplies.At the same time, the spread of new coronavirus variants has led some countries to reimpose or tighten restrictions on activity, which could dampen demand for oil. Capital Economics, a forecasting firm, said on Tuesday that it expected oil prices to peak at about $80 a barrel before falling back as supply increases. But the firm said that a collapse in prices or a further spike both remained possible.Reporting was contributed by More

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    States and Cities Scramble to Spend $350 Billion Stimulus

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    The Biden administration is betting on the funds to keep the recovery humming, but Republicans say the money is being wasted.WASHINGTON — When Steve Adler, the mayor of Austin, heard the Biden administration planned to give billions of dollars to states and localities in the $1.9 trillion pandemic aid package, he knew exactly what he wanted to do with his cut.The remarkable growth of the Texas capital, fueled by a technology boom, has long been shadowed by a rise in homelessness, so local officials had already cobbled together $200 million for a program to help Austin’s 3,200 homeless people. When the relief package passed this spring, the city government quickly steered 40 percent of its take, about $100 million, to fortify that effort.“The inclination is to spread money around like peanut butter, so that you help out a lot of people who need relief,” Mr. Adler, a Democrat, said in an interview. “But nobody really gets all that they need when you do that.” The mayor of Austin, Steve Adler, steered $100 million of pandemic relief funding to initiatives that help the homeless population.Ilana Panich-Linsman for The New York TimesThe stimulus package that President Biden signed into law in March was intended to stabilize state and city finances drained by the coronavirus crisis, providing $350 billion to alleviate the pandemic’s effect, with few restrictions on how the money could be used.Three months after its passage, cash is starting to flow — $194 billion so far, according to the Treasury Department — and officials are devoting funds to a range of efforts, including keeping public service workers on the payroll, helping the fishing industry, improving broadband access and aiding the homeless.“It’s not like all places are rushing out to do the most aspirational things, since the first thing they need to do is replace lost revenue,” said Mark Muro, a senior fellow with the Brookings Institution, a nonpartisan Washington think tank. “But there is much more flexibility in this program than in previous stimulus packages, so there is more potential for creativity.”The local decisions are taking on greater national urgency as the Biden administration negotiates with Republicans in Congress over a bipartisan infrastructure package. Some Republican lawmakers want money from previous relief packages to be repurposed to pay for infrastructure, arguing that many states are in far better financial shape than expected and the money should be put to better use.The administration, sensitive to those concerns, has begun bending the program’s rules to allow the money to be spent even more broadly. In May, the Treasury Department told states they could use their funding to pay for lotteries intended to encourage vaccinations. In June, President Biden prodded local governments to consider using the cash to address the recent rise in violent crime, which his aides regard as a serious political hazard heading into the 2022 midterm elections.For the most part, local officials have been focused on undoing the damage of the past year and a half.Maine officials are looking to spend $16 billion to bolster the fishing industry, which is facing a combination of lobster shortages and hungry consumers, flush with money after more than a year in lockdown. Alaska is already pouring cash into its fishing sector.In North Carolina, the concerns are more terrestrial: The governor wants to direct $45 million in relief funds to the motor sports sector, which took a hit when the pandemic halted NASCAR.Maine officials are looking to spend $16 billion to bolster the fishing industry, which is facing a combination of lobster shortages and hungry consumers, flush with money after more than a year in lockdown.Greta Rybus for The New York TimesIn conservative-leaning states like Wyoming that did not incur major budget deficits during the coronavirus, officials have been freed to spend much of their cash on infrastructure improvements, especially rural broadband.Places like Orange County, Calif., that poured significant funding into fighting the spread of the pandemic are using a lot of their money to pay for huge community vaccination campaigns. And the midsize cities that make up the county — Irvine, Garden Grove and Anaheim — are directing most of their $715 million to plug virus-ravaged budgets.Last week, New York City passed its largest budget ever, about $99 billion, bolstered by $14 billion in federal pandemic aid that will be used in nearly every facet of the city’s finances, like an infusion of cash needed to cover budget gaps and an array of new programs, including youth job initiatives, college scholarships and a $1 billion backup fund for health emergencies.Local officials, especially Democrats, have tried to leverage at least some of the windfall to address chronic social and economic problems that the coronavirus exacerbated.After a series of community meetings in Detroit, Mayor Mike Duggan and the City Council opted for a plan that divided the city’s $826 million payout roughly in half, with about $400 million going to recoup Covid-19 losses, and $426 million to an array of job-creation programs, grants for home repairs and funding to revitalize blighted neighborhoods.In Philadelphia, officials are considering using $18 million of the new aid to test a “universal basic income” pilot program to help poor people. That is among the uses specifically suggested in the administration’s guidance. Several other big cities, including Chicago, are considering similar plans.The Cherokee Nation, which is receiving $1.8 billion of the $20 billion set aside for tribal governments, is replicating the law’s signature initiative — direct cash payments to citizens — by sending $2,000 checks to around 400,000 members of the tribe in multiple states.The $350 billion program has led to legal battles, with officials in many Republican-led states fighting one of the few restrictions placed on use of the money, a prohibition against deploying it to subsidize tax cuts, and partisan clashes erupting over which projects should have been given priority.And the cash has spawned partisan conflict. Gov. Mark Gordon of Wyoming, a Republican, announced this month that the state would use only a fraction of the approximately $1 billion it was expected to receive on emergency expenditures this year, and would discuss how to use the rest.“These are dollars borrowed by Congress from many generations yet to come,” he said in a statement this spring.The idea of the federal government distributing such vast sums has been charged from the start. Republican lawmakers successfully blocked a large state and local package during the Trump administration, denouncing it as a “blue-state bailout” that helped fiscally-irresponsible local governments.Not a single Republican in either house of Congress voted for the bill. Yet the vast majority of officials from conservative states have welcomed the aid without much fuss. In general, Republican governors and agency officials have tilted toward financing economic development and infrastructure improvements, particularly for upgrading broadband in rural areas, rather than funding social programs.When the administration updates the guidance for the funding this summer, they are likely to loosen the restrictions on internet-related projects at the behest of Republican state officials, a senior White House official said.One of the most ambitious plans in the nation is being formulated by Indiana, a Republican-controlled state that is using $500 million of the stimulus money for projects aimed at stemming the decades-long exodus of workers from postindustrial towns and cities.“It’s huge — it’s found money — nobody thought it was going to be there,” said Luke Bosso, the chief of staff at the Indiana Economic Development Corporation, which has been working on the effort for years. Cleveland-Cliffs steel mill in Burns Harbor, Ind. Indiana is using its stimulus funds on projects aimed at stemming the exodus of workers from postindustrial towns and cities. Taylor Glascock for The New York TimesWhile lawmakers in Washington debate the scope of a new infrastructure bill this year, the package that passed in March already represents a major down payment for a variety of infrastructure projects.Christy McFarland, the research director of the National League of Cities, said that many cities across the country were preparing to put money into infrastructure projects that had been delayed by the pandemic, and investing in more affordable housing and spending on core needs such as water, sewer and broadband.However, she said she was also seeing creative ideas such as recurring payments to the poor and investments in remote work support emerge as cities look to expand their safety nets and modernize their work forces.“We’re also seeing communities that never recovered from the Great Recession, have an opportunity to think much bigger,” Ms. McFarland said. “They’re asking what they could do that would be transformational.”The slow pace of recovery from the last recession has been a driving force behind the White House’s push. Mr. Biden has been eager to avoid a mistake that hobbled the last recovery’s pace — underestimating the drag that faltering local governments would have on the national economy. Gene Sperling, a former Obama adviser now overseeing Mr. Biden’s pandemic relief efforts, said not providing help to local governments meant annual economic growth “of about 2 percent versus growth of 3 percent.”The effort also serves Mr. Biden’s political objectives by bypassing national Republicans to build trust with voters in rural counties, small towns and midsize cities in the Midwest and elsewhere.“Something like this creates a space for a White House to be talking to governors and mayors of both parties about the basic mechanisms of governing that just cuts through the politics,” Mr. Sperling said. “That’s a good thing.” More