US inflation dips to 8.3% but stays close to 40-year high – business live | Business


Introduction: German inflation rises to new record, US inflation in focus

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Today the markets will be focused on US inflation, out at lunchtime. Just out now: Inflation in Germany, Europe’s biggest economy, hit a new record high in April, pushed higher by food and energy prices.

The annual rate rose to 7.4% from 7.3% in March. The German statistics office said the main factor in March was higher energy prices, but this time round it flagged above-average increases in food prices. “This is where the impact of the war in Ukraine is becoming more and more visible.”

Food prices rose 8.6% across all areas: prices for fats and oils jumped 27.3% amid panic-buying of vegetable oil at German supermarkets, while meat and meat products rose 11.8%, dairy products and eggs went up 9.4% in price and fresh vegetables became 9.3% dearer.

Energy products prices soared again, by 35.3%, compared with March’s 39.5% increase.

Georg Thiel, president of the Federal Statistics Office, said:

The inflation rate thus reached an all-time high for the second month in a row since German reunification.

Energy prices, in particular, have increased considerably since the war started in Ukraine and have had a substantial impact on the inflation rate. A similarly high inflation rate was last recorded in the former territory of the Federal Republic in autumn 1981 when mineral oil prices had sharply increased, too, as a consequence of the first Gulf war between Iraq and Iran. Additional factors are delivery bottlenecks due to interruptions in supply chains caused by the Covid-19 pandemic and the marked price increases at upstream stages in the economic process.

Here in Britain, the picture is similarly bleak.

A respected UK think tank warns today that more than 250,000 households will “slide into destitution” next year, taking the total number in extreme poverty to around 1.2m, unless the government acts to help the poorest families hit by the energy price shock,

The National Institute for Economic & Social Research said more than 1.5m households will see the rise in food and energy bills outstrip their disposable income, forcing them to rely on savings or extra borrowing to make up the shortfall, said the thinktank, which blamed welfare spending cuts since the Brexit vote in 2016 for leaving millions of families in a vulnerable financial position.

Michael Hewson, chief market analyst at CMC Markets UK, said the German inflation number will reinforce

the calls yesterday from Bundesbank President Joachim Nagel who said he would be pushing for the European Central Bank to hike rates at its July meeting, a call he is expected to repeat later today at a capital markets day in Berlin. It will be interesting to note how his remarks will be received by ECB President Christine Lagarde when she speaks later today in Slovenia.

We finish up with US CPI for April, in the wake of last week’s decision by the Federal Reserve to raise rates by 50 basis points. Whatever today’s number comes in at, there seems little prospect that we won’t see another 50bps rate rise in June, even if the numbers come in below expectations.

The Federal Reserve has already said it will go for successive 50bps rate hikes at the next two meetings, as well as announcing the process of balance sheet reduction, starting next month at $47.5bn a month, increasing to $95bn a month by September. Expectations are for headline CPI to slip back to 8.1%, and core prices to 6.1%.

In China, factory gate inflation eased to the slowest rate in a year in April, with the annual rate in producer prices falling to 8% from 8.3% in March. The consumer prices index rose at its fastest pace this year, 2.1%, up from 1.5%, but is still below the levels it was at late last year.

US stocks managed to eke out some small gains yesterday after the big declines earlier this week. But trading was choppy, and it could have gone either way, said ING analyst Iris Pang.

Asian shares rose after trading close to two-year lows the previous day, and the dollar held steady ahead of the US inflation data.

China’s blue-chip index CSI 300 rose 2.3% after producer prices rose at the slowest pace in a year, leaving room for more fiscal stimulus to shore up the Covid-battered economy. The Hong Kong market rose 1.4% while Australia was little changed. European shares are also expected to open higher.

The Agenda

  • 9am BST: ECB president Christine Lagarde speaks in Slovenia
  • 1.30pm BST: US Inflation for April (forecast: 8.1%)

Andrew Hunter, senior US economist at Capital Economics, said the falls in headline and core inflation in April “should mark the beginning of a sustained decline, as base effects improve and supply shortages ease, although the 0.6% monthly jump in core prices indicates that underlying inflation pressures are stronger than we had expected”.

He explained:

The fall in headline inflation to 8.3%, from 8.5%, and core inflation to 6.2%, from 6.5%, partly reflect base effects, as the first of the big rises in prices early last year dropped out. Base effects should continue pushing annual inflation rates lower over the coming months.

That said, while a drop back in energy prices limited the monthly rise in headline CPI to 0.3% m/m, the 0.6% gain in the core index was much stronger than we had anticipated. Admittedly, that partly reflected a record 18.6% surge in airfares as travel demand recovers, with hotel room rates also rising again. Air fares have surged by close to 35% over the past three months and are now around 15% above the pre-pandemic level which, factoring in the higher cost of jet fuel, is not a complete surprise.

The strong 1.1% rise in new vehicle prices could partly reflect the switch to a new data source last month and is at odds with evidence that supply problems in the sector are easing. Indeed, used vehicle prices fell again in April, albeit by only 0.4%.

The 0.8% decline in clothing prices is another sign that global goods supply problems, which have lingered since the Delta wave hit Southeast Asia last year and West Coast ports congestion built up, are finally fading. That all said, the 0.6% m/m rise in CPI rents and, in particular, the 0.5% gain in owners’ equivalent rents – which marks a new cyclical high for monthly gains in that series – suggests that domestically-generated inflationary pressures remain strong.

Overall, the April data will probably strengthen the Fed’s resolve to continue hiking rates by 50bp at the next couple of meetings – and could lead to renewed speculation about a 75bp hike or an inter-meeting move. But with goods shortages tentatively easing and signs that wage growth is set to cool, we still think a more pronounced drop back in inflation will allow officials to slow the pace of tightening in the second half of the year.

Wall Street futures have turned negative, indicating a lower open when US indices start trading in just over half an hour.

The Nasdaq is seen falling 1.1% at the open, while the Dow Jones is expected to dip 0.4% and the S&P 500 is set to fall 0.6%. US 10-year government bond yields jumped, after what some described as a “grim” inflation report.

Richard Carter, head of fixed interest research at the investment management firm Quilter Cheviot, said:

The drop in US CPI to 8.3% last month may be welcomed by markets with investors beginning to hope that the peak in inflation is behind us. However, the numbers were still worse than expected and it is far too early to declare victory with inflation likely to remain high for some time to come while energy prices could also rise further if the Ukraine war escalates. Furthermore, while it is hoped US inflation has peaked, other countries cannot say the same thing and this has become a global problem.

The pressure is also still very much on the Federal Reserve to raise interest rates and get inflation under control. Nevertheless, attention is now beginning to turn to a sharp slowdown that is predicted for the global economy and markets are increasingly becoming concerned by this.

While the Federal Reserve is now in aggressive tightening mode they may be forced to change tact very quickly as it is very fluid picture right now. As a result, volatility will reign supreme over the coming months and until we see inflation under control and thus investors need to be patient when identifying potential opportunities.

US #inflation hit 8.3% YoY vs 8.1% expected but slowed from previous month’s 4-decade high. Removing volatile food and energy prices, so-called core CPI still rose 6.2%, against expectations for a 6% gain. pic.twitter.com/TKNJAgTFSe

— Holger Zschaepitz (@Schuldensuehner) May 11, 2022

The core inflation rate in America, which strips out food and energy because they tend to be volatile, dipped to 6.3% from 6.5%. This was also higher than the 6% rate pencilled in by Wall Street analysts.

Energy prices rose 30.3% over the last year, while food prices increased by 9.4%, the largest 12-month increase since April 1981, according to the US Bureau of Labor Statistics. You can read the full release here.

US inflation higher than expected at 8.3%, near a 40-year high

US inflation has come in higher than expected in April, and stayed close to a 40-year high.

The annual rate dipped slightly to 8.3% from 8.5% in March, while economists had forecast a bigger easing to 8.1%.

JUST IN: US inflation in April was 8.3%, a bit below the 8.5% y/y reading in March, but still basically a 40-year high.

Lower gas prices helped to bring inflation down. But shelter, food, airfares and new car prices were still problematic. https://t.co/GtEeBZYbXg#inflation

— Heather Long (@byHeatherLong) May 11, 2022

ECB’s Lagarde cements expectations for July rate hike

The European Central Bank’s president, Christine Lagarde, has cemented expectations for an interest rate hike this summer, Reuters reported.

The ECB is likely to end its bond-buying stimulus programme early in the third quarter of this year, followed by a rate hike that could come just “a few weeks” later, Lagarde said today.

A rate hike will be the first time the central bank raises borrowing costs in over a decade in July in an attempt to put a lid on record-high inflation in the eurozone, driven as surging energy prices spill over to other goods.

Most other major central banks have already raised borrowing costs but the ECB, which had fought too-low inflation for a decade, is still pumping cash into the financial system via bond purchases.

Lagarde said at a conference in the Slovenian capital:

My expectation is that they should be concluded early in the third quarter.

The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases…(and) this could mean a period of only a few weeks.

A growing number of ECB policymakers are calling for a July hike after inflation hit 7.5% in the eurozone last month and even the core inflation rate, which strips out food and energy prices, rose above the ECB’s 2% target.

ECB policymaker Boštjan Vasle, governor of the Slovenian central bank, said at the same event:

What started as a one-off shock has now become a more broad-based phenomenon. When the circumstances change, the policy response must follow.

ECB board member Frank Elderson also said earlier today that the ECB may consider a rate hike in July, a move that has also been advocated by Bundesbank president Joachim Nagel, among others.

ECB President Christine Lagarde at a news conference in Frankfurt.
ECB President Christine Lagarde at a news conference in Frankfurt. Photograph: Reuters

Lloyd’s of London AGM goes virtual on climate activist threat

Lloyd’s of London, the world’s oldest and biggest insurance market, has asked insurance firms to dial into next week’s annual meeting online rather than in person, because it fears the meeting will be overshadowed by further climate protests outside its headquarters (the striking Richard Rogers-designed building) at One Lime Street in the City of London.

Bruce Carnegie-Brown, the chairman, said in a memo to the nearly 100 syndicates that make up the market that “the risk of disruption has significantly increased” since Lloyd’s sent out invitations to the meeting on 19 May.

To ensure the safety and security of our members and to allow the meeting to proceed in an orderly and fair manner, it is with regret that I must now strongly encourage all members attending the AGM to join virtually and not to attempt to enter the Lloyd’s Building on that day.

The warning comes nearly a month after Lloyd’s was forced to shut the doors of its building, when more than 60 protesters from Extinction Rebellion used superglue, chains and bicycle locks to prevent workers from entering. They unfurled a banner that read: “End fossil fuels now”.

The Lloyd’s corporation is not doing enough to stop insurers’ investments in – and insurance cover of – fossil fuel projects, protesters argue.

Oil, gas prices rise as Russian gas flows disrupted via Ukraine

Oil prices are rising today after falling nearly 10% in the previous two sessions, on supply concerns as the European Union tries to garner support for an embargo on Russian oil.

Both global benchmarks, Brent crude and US light crude, are up around 3% on the day, at $105.49 and $102.81 a barrel respectively.

The EU decision needs unanimous support from all member states, but the vote has been delayed because Hungary has dug in its heels, opposing an oil embargo.

Oil prices – and gas prices – have also been boosted by disruptions to Russian gas flows to Europe via Ukraine. They are down by a quarter today after Kyiv halted use of a major transit route blaming interference by occupying Russian forces. It’s the first time Russian exports via Ukraine have been disrupted since Russia invaded Ukraine on 24 February.

Kremlin-controlled Gazprom, which has a monopoly on Russian gas exports by pipeline, said it was still shipping gas to Europe via Ukraine, but volumes fell to 72m cubic metres from 95.8m mcm on Tuesday.

The gasp pipeline via the Sokhranivka transit point runs through Ukraine’s Luhansk region, which is partly under control of pro-Russian separatists.

GTSOU, which runs Ukraine’s gas system, said on Tuesday it would suspend gas flows through that transit point and invoked “force majeure”. It said it would divert deliveries to Europe to another route, the Sudzha entry point.

The Dutch wholesale gas benchmark for day-ahead delivery rose 6.5%.

Ukraine’s economy is expected to shrink by 45% this year, according to its finance minister, Serhiy Marchenko. He added that his government is committed to servicing the country’s debts in full.

He said during a briefing at the annual meeting of the European Bank for Reconstruction and Development in Marrakech, Morocco:

People of Ukraine are paying an enormous price, and this price cannot be assessed.

What can be assessed is the projection of GDP decline, we are [estimating] around 45% this year.

Mark Sweney

Mark Sweney

ITV has warned it expects an advertising slump over the coming months because of economic uncertainty and the absence of a major commercial event like last year’s European football championship, writes our media business correspondent Mark Sweney.

The broadcaster hailed a “robust” start to the year, having grown TV and digital advertising revenues by a healthy 16% year-on-year to £468m in the first three months.

ITV grew total external revenues – including income from its in-house ITV Studios operation, which makes shows including Snowpiercer, Hell’s Kitchen and Love Island – by 18% to £834m for the first quarter.

However, the company said it narrowly missed its forecast of 10% total advertising growth for April, hitting 9% instead. May is expected to be down 8% year-on-year, with June off 15%, with the second quarter overall dropping 6% year-on-year.

‘Love Island’ TV show, Series 7, Episode 42, Majorca, Spain - 15 Aug 2021.
‘Love Island’ TV show, Series 7, Episode 42, Majorca, Spain – 15 Aug 2021. Photograph: ITV/REX/Shutterstock

Michael Gove has been accused of minimising the cost of living crisis after he ruled out an emergency budget and admitted the government would fail to meet its target of building 300,000 homes a year, writes our deputy political editor Rowena Mason.

The UK levelling up secretary said it would be “patronising” for him to intervene to advise people who were struggling to make ends meet and blamed the current squeeze on global inflation.

The Queen’s speech on Tuesday contained no significant measures to help people with the soaring cost of living, but Boris Johnson had promised there would be news of extra assistance in the coming days.

However, Gove told Sky News: “There won’t be an emergency budget. It is sometimes the case that the words from a prime minister or minister are over-interpreted. The prime minister is right. We will be saying more and doing more in order to help people with the cost of living challenge we face at the moment, but that doesn’t amount to an emergency budget. It is part of the work of government.

“Last night, the prime minister convened a group of ministers – we have all done work on some of the things we could do to help. Those policy initiatives will be announced by individual departments in due course as they are worked up.”





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