US ECONOMY & POLITICS

US Inflation Quickens to 40-Year High, Pressuring Fed and Biden – Bloomberg, 6/10/2022

• The consumer price index increased 8.6% from a year earlier in a broad-based advance, Labor Department data showed Friday.
• The widely followed inflation gauge rose 1% from a month earlier, topping all estimates.
• The so-called core CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago, also above forecasts.
• Energy prices climbed 34.6% from a year earlier, the most since 2005, including a nearly 49% jump in gasoline costs.
• Grocery prices rose 11.9% annually, the most since 1979, while electricity increased 12%, the most since August 2006.
• Shelter costs — which are the biggest services’ component and make up about a third of the overall CPI index — rose 0.6% from April, the most since 2004, and 5.5% from last year, the most since 1991.
• Rent of primary of residence climbed 5.2% from a year earlier, the most since 1987.
• Used car prices, which had been cooling in recent months, advanced 1.8% in May, the most this year. New-vehicle prices climbed 1%.
• Airfares rose 12.6% in May, a slight moderation from the prior month but still up the most on an annual basis since 1980. Prices for hotel stays, meanwhile, were up 22.2% year-over-year.
• Inflation-adjusted average hourly earnings fell 3% in May from a year earlier, the biggest drop since April 2021 and the 14th straight decline, separate data showed Friday.

US Consumer Sentiment Slumps to Record Low on Rapid Inflation – Bloomberg, 6/10/2022

• US consumer sentiment plunged in early June to the lowest on record as soaring inflation continued to batter household finances.
• The University of Michigan’s preliminary June sentiment index fell to 50.2, from 58.4 in May, data released Friday showed.
• The figure was weaker than all estimates in a Bloomberg survey of economists which had a median forecast of 58.1.
• The current conditions gauge sank to a record-low 55.4 from 63.3, while a measure of expectations decreased to 46.8 from 55.2.
• An index of expected business conditions over the next year fell to the second-lowest since 1980, while a gauge of durable goods buying conditions fell to a fresh record low.
• Inflation expectations, which the Federal Reserve watches closely, also moved higher early this month and 46% of respondents attributed their negative views to persistent price pressures.
• Respondents said they expect inflation to rise 5.4% over the next year, up from 5.3% a month earlier.
• They expect prices to advance 3.3% over the next five to 10 years, the most since 2008 and up from 3% in May.
• Just 13% expect their incomes to rise more than inflation, the lowest share in almost a decade.

Fed Likely to Signal Half-Point Rate Rises Through September After Inflation Report – Wall Street Journal, 6/10/2022

• Another high inflation report is likely to lead more Federal Reserve officials to anticipate a fourth consecutive half-percentage-point rate rise will be warranted at their meeting this September.
• The Fed has already indicated it will raise rates by a half point at its meeting next week and that it is very likely to do so again in July. Officials have said that they would continue to raise rates at that pace if inflation doesn’t show signs of a convincing slowdown.
• A few Fed officials had suggested that after some glimmers of inflation deceleration in recent months that the central bank might be able to slow the rate rises to a more traditional quarter-point increment in September.
• But several others, including Vice Chairwoman Lael Brainard, Fed governor Christopher Waller and Cleveland Fed President Loretta Mester, have indicated that they could easily lean toward supporting half-point increases into the fall.
• Inflation was broad-based in May, with one measure of housing costs posting its largest monthly gain since 1990. Due to how rent and housing inflation is compiled, the data reported for the consumer-price index is heavily lagged.
• The upshot is that shelter costs could continue to keep elevated pressure on inflation through the summer.

U.S., China Defense Chiefs Dial Down Tensions Over Taiwan – Wall Street Journal, 6/10/2022

• U.S. Defense Secretary Lloyd Austin called on his Chinese counterpart to avoid destabilizing actions over Taiwan and said in their first face-to-face meeting that U.S. policy toward the island hadn’t changed.
• After a nearly one hour closed-door meeting on the sidelines of a defense conference in Singapore, both sides gave accounts that suggested an easing of tensions after President Biden said recently that the U.S. would intervene militarily to defend Taiwan if Beijing moved to seize the island.
• The meeting was the first in-person exchange between top-level U.S. and Chinese officials since Mr. Biden made his comment about U.S. military intervention to support Taiwan during a visit to Asia in May.
• Chinese defense ministry spokesman Wu Qian said Gen. Wei told Mr. Austin that Taiwan is an inalienable part of China and its status quo can’t be changed. Both sides emphasized the need to keep open lines of communication to head off crises.
• The two men also discussed Russia’s invasion of Ukraine, and North Korea, according to a U.S. account of the meeting.

EUROPE & WORLD

Shanghai Returns to Lockdown for Mass Testing on Covid Fears – Bloomberg, 6/10/2022

• Shanghai will briefly lock down most of the city this weekend for mass testing as Covid-19 cases continue to emerge, causing more disruption and triggering a renewed run on groceries days after exiting a grueling two-month shutdown.
• The plan emerged from one area with a handful of cases, then spread in hours to 15 of the financial hub’s 16 districts. It encompasses almost all of the city’s 25 million residents as health officials use testing to root out any silent transmission of the virus, a key tool in China’s Covid Zero arsenal.
• The newest move follows a rebound in infections within the community to six on both Thursday and Friday, up from zero a day earlier. Residents will be released after taking the tests, but they’ll be back under lockdown if new infections are found in their compounds.
• The latest moves hit home quickly for residents. It led some to flee their apartment complexes and sparked a run on grocery stores after many struggled to get fresh fruits and vegetables in the early days of the original lockdown.
• While the latest curbs may lift in as little as a few hours if no new infections are found, two more weeks of isolation may be imposed for areas where new chains of transmission are uncovered.

China’s Inflationary Pressures Stay Muted – Wall Street Journal, 6/10/2022

• Inflationary pressure stayed soft in China as Covid-19 lockdowns hammered domestic demand, leading economists to forecast that policy makers might increase stimulus to boost economic growth and employment.
• Consumer inflation continued low in May, the National Bureau of Statistics reported Friday, with prices up 2.1% from a year earlier, matching April’s rate. With decades-high inflation continuing to torment the U.S. and many developed countries, that makes China an outlier among the world’s largest economies.
• The producer-price index, which gauges factory-gate prices, was up 6.4%, easing from April’s 8%, as commodity rallies tamed. The median forecast of economists surveyed by The Wall Street Journal was 6.3%.

India’s Factory Output Expands to Eight-Month High in April – Bloomberg, 6/10/2022

• India’s April factory output rose to the highest in eight months, signaling economic recovery after wider reopening from the pandemic, though rising prices may curtail demand.
• The Index of Industrial Production rose 7.1% in April, data released by the Ministry of Statistics showed Friday. That compares with a 2.2% increase in March, and an estimate for a 5% increase in a Bloomberg survey.
• The rise in industrial output in April was led by an 11.8% increase in electricity output from a year ago. Manufacturing grew 6.3%, while mining increased by 7.8%.

Russia Cuts Key Interest Rate to Pre-Invasion Level as Impact of Sanctions Wanes – Wall Street Journal, 6/10/2022

• Russia’s central bank cut its key interest rate to the level it was at when the country invaded Ukraine in late February in a sign that the economy is weathering some of the pain caused by Western sanctions.
• Explaining the move, the central bank said inflation has started to fall back from a post-invasion surge sooner than it had expected, thanks in large part to the ruble’s rebound.
• The Bank of Russia Friday lowered its key interest rate to 9.5% from 11%, the fourth cut since early April. That series of rate cuts has reversed a doubling of the key rate in the immediate aftermath of Russia’s invasion of Ukraine.
• The central bank’s initial hike in the key rate to 20% from 9.5% in late February was intended to support a rapidly weakening ruble and limit a surge in inflation as imports became more expensive.
• Russia’s statistics agency on Wednesday said consumer prices were 17.1% higher in May than a year earlier, a slight slowdown from the 17.8% rate of inflation recorded in April. In January, the last full month before the invasion, inflation stood at 8.7%.

ECB Fuels Market Jitters Over Italy’s Debt – Wall Street Journal, 6/10/2022

• The European Central Bank’s plans to increase interest rates for the first time in more than a decade face a hurdle in southern Europe, especially Italy, where borrowing costs are surging as investors test the imbalances within Europe’s currency union.
• Investors dumped southern European government debt on Thursday and Friday after the ECB laid out plans to phase out its giant bond-buying program in July and conduct a series of interest-rate hikes to combat record-high inflation.
• The surge in borrowing costs, coupled with the fallout from the war in Ukraine and lockdowns in China, create strong headwinds for the ECB as it prepares to follow the Federal Reserve in increasing interest rates.
• The spread between benchmark 10-year Italian and German government bonds—a barometer of eurozone financial stress—widened Friday to the highest level since May 2020, at 2.23 percentage points.
• The Greek equivalent spread rose to 2.81 percentage points, the highest since April 2020.
• Yields on Italy’s 10-year government bonds have climbed almost 2.5 percentage points this year, to about 3.6%.

Egypt Looks to Eke Out More Bread From Its Wheat as Prices Soar – Bloomberg, 6/10/2022

• Egypt is trying to eke out extra flour from its grain to produce more of the flat loaves that are a staple of the nation’s meal-times as one of the world’s largest wheat buyers wrestles with soaring prices.
• Millers that contribute to the North African country’s bread-subsidy program, which benefits more than two-thirds of the 100-million-plus population, are being urged to increase the amount of wheat bran they use, according to Magdy El-Waily, a member of the grain chamber at the Federation of Egyptian Industries.
• The Supply Ministry’s instructions would boost the amount of flour made from a ton of wheat by about 6% to 875 kilograms (1,929 pounds). That equates to an extra 616 loaves. The measures will be applied from July, El-Waily said.

Factmonster – TODAY in HISTORY

• The Tripolitan War, between the United States and the Barbary States, began. (1801)
• Wagner’s opera, Tristan and Isolde, premiered in Munich. (1865)
• Italy replaced its monarchy with a republic. (1978)
• The Six-Day War between Israel and Syria, Egypt, and Jordan ended. (1967)