Consumer prices jumped 5 percent in May from year earlier, faster than expected.
The Consumer Price Index showed the strongest year-over-year reading since 2008, and a core index popped the most since 1992.
Demand for cars is outpacing supply, an example of bottlenecks driving inflation.Credit…Alyssa Schukar for The New York Times
Consumer prices rose in May at the fastest annual rate since 2008, a bigger jump than economists had expected and one that is sure to keep inflation at the center of political and economic debate in Washington.
The Consumer Price Index surged 5 percent in May from a year prior, the Labor Department said on Thursday. Economists had expected an increase of 4.7 percent. The price index rose 0.6 percent from April to May, compared with forecasts for a 0.5 percent gain.
Another measure that excludes volatile food and energy costs, rose 3.8 percent from a year earlier, the briskest pace since June 1992.
Prices are rising for everything from airfares to used cars, and the data released on Thursday offers policymakers and investors another chance to assess whether that pickup is likely to be short-lived — or is poised to be the kind of lasting inflation that officials would worry about.
As prices have climbed in recent months, government officials and many economists have said the jump is likely to fade with time. The annual number in particular is getting a boost from what’s called a base effect: The year-ago number was depressed by pandemic-driven shutdowns, so the current figures look large by comparison.
May 2021: +5%
Percent change in Consumer Price
Index from a year prior
Some of May’s jump can be explained through
what’s known as base effects — prices fell
significantly last spring, so the increase now from
the year prior is larger.
May 2021: +5%
Percent change in Consumer Price
Index from a year prior
Some of May’s jump can be explained through what’s known as base effects — prices
fell significantly last spring, so the increase now from the year prior is larger.
2021 Consumer Price Index
But the strong monthly figure for May, which came on the heels of a sharp rise in April, showed that prices have been moving up quickly for more than just technical reasons. The critical question is whether that is a transient trend tied to reopening or something more persistent.
“We are at peak heat, this is the moment,” said Julia Coronado, founder of the research firm MacroPolicy Perspectives, who expects inflation to remain in line with the Federal Reserve’s 2 percent average goal over time. “We know we’ll get a fade — the question is, how big is the fade?”
Investors on Thursday were unmoved by the data. Yields on 10-year government bonds, which have been particularly sensitive to concerns about inflation were unchanged by midmorning, while stocks rose about half a percent — gains that put the S&P 500 on track to close at a record.
Still, the stakes are high on both Wall Street and Main Street. Inflation can erode purchasing power if wages do not keep up. A short-lived burst would be unlikely to cause lasting damage, but an entrenched one could force the Fed to cut its support for the economy, potentially tanking stocks and risking a fresh recession.
The Fed targets a different index as it aims for 2 percent average inflation, the Personal Consumption Expenditures measure. That gauge is closely linked to C.P.I., though it tends to run slightly below it.
Outside of the base effect, the recent pop in consumer prices has been driven by two trends. The economy is reopening from a global pandemic shutdown for the first time ever, and some materials are in short supply as manufacturers try to ramp up production. Also, some households are flush with cash to spend after multiple stimulus checks and months in lockdown, which has been goosing consumer demand.
Percent Change, May 2021 from May 2020
The 29.7 percent annual increase in used car prices reported for May is among the more striking examples of how bottlenecks are driving inflation. Demand for cars — used and new — is outpacing supply in part because of a global shortage of semiconductors that has hobbled vehicle production.
That chip shortage, which arose from factory shutdowns during the pandemic and one-off problems like a drought in Taiwan, could take time to resolve — but it should prove temporary. In a sign that companies are finding a way to adjust to the global shortage, General Motors said earlier in June that would start to increase shipments of pickup trucks and other vehicles to dealers.
But economists are parsing the data for signs that the price increases will prove longer lasting. For example, rent and owners’ equivalent rent, two measures of housing costs that make up a big share of the inflation reading, but which move slowly, are important to watch. Both moved higher in May.
“We are getting an earlier rebound than what we were envisioning — that’s significant,” said Laura Rosner-Warburton, also a founding partner at MacroPolicy Perspectives, speaking on the same call as Ms. Coronado. But Ms. Rosner also expects the pressures on other goods and services prices to fade, she said.
The fresh inflation figures are likely to spur continued debate in Washington, where the White House and Fed have been playing down the recent run-up as temporary as Republicans have used the price gains as ammunition in their critiques of Democrats’ spending.
Andrew Hunter, senior U.S. economist at Capital Economics, noted that the jump in the cost of food away from home — an index that tracks restaurant meals — suggested that higher labor costs were getting passed along to customers. The increase in housing prices suggested the acceleration in prices could prove longer lasting, he said.
“While inflation is likely fall back next year as base effects fade and some of the upward pressure on prices in the pandemic-hit sectors subsides, we expect core inflation to remain materially above the Fed’s target,” Mr. Hunter wrote in a note following the release.
Some households are flush with cash to spend after multiple stimulus checks and months in lockdown, which has been goosing consumer demand.Credit…Alyssa Schukar for The New York Times
The data was released less than a week before the central bank’s June meeting, which will give the Fed chair, Jerome H. Powell, another opportunity to address how he and his colleagues plan to achieve their two key goals — stable prices and full employment — in the tricky post-pandemic economic environment.
“The Fed has never said how big a reopening spike it expected, but we’re guessing that policymakers have been surprised by the past two months’ numbers,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note following the release, adding that they “do raise the risk that the loosening of labor supply everyone expects in the fall won’t be enough to dampen wage pressures as much as will be needed.”
The big policy question facing the Fed is when, and how quickly, it will begin to slow its $120 billion in monthly government-backed bond purchases. That policy is meant to keep borrowing of all kinds cheap and stoke demand, and because it bolsters stock prices, markets are very attuned to when central bankers will taper it.
Mr. Powell and his colleagues have repeatedly said that they need to see “substantial” further progress toward maximum employment and stable inflation that averages 2 percent over time before they pull back from that policy.
A “number” of officials said that it would soon be time to begin discussing a policy change at the Fed’s last meeting, and the inflation figures are another data point likely to ramp up pressure to get moving sooner rather than later.
The S&P 500 rose in early trading on Thursday, climbing into record territory despite new data showing consumer price inflation rising faster than expected.
Investors have been particularly attuned to inflation, and the potential for fast-rising prices to force the Federal Reserve to rein in its support for the economic recovery. In recent months, signs that prices are rising have led to an increase in government bond yields, and turbulence in the stock market.
But many economists and lawmakers have argued that the price increases are likely to be temporary, a result of shortages connected with pandemic lockdowns that will sort themselves out over time. On Thursday, the government reported that airfares and used car prices surged by more than 20 percent in May, from a year earlier. Both increases are illustrative of the short-term adjustments as the economy reopens.
More broadly, the Consumer Price Index showed that prices rose 5 percent in May from the year before, the strongest year-over-year reading since 2008, and faster than the 4.7 percent increase expected by economists.
After an early jump, yields on 10-year Treasury notes were unchanged by midmorning Thursday. The S&P 500 rose about half a percent, crossing above its May 7 record.
Concerns about an overheating economy have somewhat eased lately as monthly reports on hiring and unemployment have come in below expectations, highlighting the Fed’s contention that the recovery is far from complete.
The big policy question facing the Fed is when, and how quickly, it will begin to slow its $120 billion in monthly government-backed bond purchases. That policy is meant to keep borrowing of all kinds cheap and stoke demand, and also bolsters stock prices.
The Fed chair, Jerome H. Powell, and his colleagues have repeatedly said that they need to see “substantial” further progress toward maximum employment and stable inflation that averages 2 percent over time before they pull back from that policy.
Stocks in Europe were also slightly higher on Thursday after policymakers at the European Central Bank said they would hold interest rates at record low and negative levels while continuing to buy bonds in its pandemic response program at “a significantly higher pace” for the next quarter compared with the start of the year — currently, a rate of about 80 billion euros a month.
Outside the Goldman Sachs headquarters in Manhattan. The bank is requiring all of its employees in the United States to log their vaccination status in the bank’s system.Credit…Brendan Mcdermid/Reuters
Goldman Sachs wants to know how many of its employees have gotten a Covid-19 shot. The bank sent a memo this week informing employees in the United States that they must report their vaccination status by noon on Thursday.
“Registering your vaccination status allows us to plan for a safer return to the office for all of our people as we continue to abide by local public health measures,” said a section of the memo, which was sent to employees who have not yet reported their status and was obtained by the DealBook newsletter.
Disclosing vaccination status had been optional at the bank. In May, Goldman told employees that they could go maskless in the Manhattan office if they reported their vaccination status.
Now, all Goldman employees in the United States, regardless of whether they choose to wear a mask while in the office, will need to log their status in the bank’s system. They do not need to show proof of vaccination, but will be asked to record the date they received their shots and the maker of the vaccine.
The bank has roughly 20,000 employees based in the firm’s New York headquarters as well as other U.S. cities, including San Francisco and Dallas.
Companies are trying to find out how many workers are vaccinated ahead of full office reopenings. They’re doing it by conducting surveys, giving out cash rewards upon proof of vaccination or making reporting compulsory, as with Goldman. That data can inform the need for new incentives to get more people vaccinated or potentially to impose a mandate. (Goldman, for its part, said in the memo it “strongly encourages” vaccination, though the choice “is a personal one.”) The Wall Street firm, which began to bring more workers back to the office this month, has been offering employees paid time off to get the shots.
A woman in Munich passing a mural showing traditional Bavarian musicians. Europe’s economy has been reviving from the pandemic.Credit…Matthias Schrader/Associated Press
Even as Europe’s economic outlook is rapidly improving, European Central Bank policymakers decided on Thursday to maintain their “very accommodative” monetary stance.
Governments are lifting lockdown restrictions and the vaccine rollout has sped up, which has led to a bounce in the services industry and “ongoing dynamism” in manufacturing, Christine Lagarde, president of the central bank, told reporters at a news conference in Frankfurt.
“We expect economic activity to accelerate in the second half of this year as further containment measures are lifted,” she said.
But Ms. Lagarde stressed thatlots of support was still needed and that policymakers were giving the economy a “steady hand.”
“Uncertainties remain, as the near-term economic outlook continues to depend on the course of the pandemic,” she added.
The bank said it would hold interest rates at record low and negative levels while continuing to buy bonds in its pandemic response program at “a significantly higher pace” for the next quarter compared with the start of the year — currently, a rate of about 80 billion euros a month.
“The ECB is currently choosing to err on the side of caution rather than withdraw monetary stimulus prematurely,” analysts at ING wrote in a note.
Staff members at the central bank also published new forecasts for economic growth and inflation in the region. The eurozone economy will grow 4.6 percent this year and 4.7 percent next year, they said, compared with forecasts from three months ago that predicted 4 percent and 4.1 percent growth.
In the United States, policymakers are watching rising inflation, which rose 5 percent in May, the fastest annual rate since 2008. Economists say a sustained increase in inflation would force the Federal Reserve to pull back its monetary stimulus. But Ms. Lagarde said the American and European recoveries were “a very, very different story.”
In the euro area, inflation is expected to rise over the next few years, including core inflation, which excludes volatile energy and food prices, but the increase is “largely” a result of temporary factors, the bank said. The central bank does not forecast price gains to rise above its 2 percent target.
Staff projections, which were revised higher since March, point to a 1.9 percent annual inflation rate in 2021 and 1.5 percent rate next year.
In March, the central bank increased the pace of the assets purchases in its Pandemic Emergency Purchase Program, which is scheduled to buy 1.85 trillion euros worth of debt by the end of March. Bond-buying programs are intended to keep interest rates low and smooth access to credit for businesses and households.
Data published earlier this week showed that the eurozone’s economy did not fare as badly in the first quarter as initially expected. Gross domestic product declined 0.3 percent in the first three months of the year, the statistics agency said, not the 0.6 percent decline that was previously estimated.
Ms. Lagarde also said it was too soon for policymakers to even begin discussing when and how it might end its pandemic bond-buying program. “It’s too early, it’s premature, it’s unnecessary,” she said.
Initial claims for state jobless benefits declined last week, the Labor Department reported Thursday.
The weekly figure was about 367,000, a decrease of 58,000 from the previous week. New claims for Pandemic Unemployment Assistance, a federally funded program for jobless freelancers, gig workers and others who do not ordinarily qualify for state benefits, totaled 71,000, a decrease of 2,000 from the prior week. The figures are not seasonally adjusted. (On a seasonally adjusted basis, state claims totaled 376,000, a decline of 9,000.)
It was the first time the weekly figure for initial state claims had fallen below 400,000 since the outset of the pandemic.
New state claims remain high by historical standards but are one-third the level recorded in early January. The benefit filings, something of a proxy for layoffs, have receded as businesses return to fuller operations, particularly in hard-hit industries like leisure and hospitality.
China’s top leader, Xi Jinping, has called for his country to achieve a more “lovable” image, but the legislation on Thursday was the latest sign that this has not led to fundamental shifts in foreign policy.Credit…Kevin Yao/Reuters
Lawmakers in Beijing approved legislation on Thursday barring companies and individuals from obeying foreign sanctions against China, the latest in a series of moves by the Chinese government to push back against international pressure on its conduct in Hong Kong and in its far western Xinjiang region.
Passage of the new law, which was reported by state-run media, means that multinational corporations and their employees could increasingly find themselves in a bind. The United States and the European Union have prohibited any dealings with a lengthening list of businesses and people in China who are accused of human rights violations and other offenses.
Compliance with those American and European laws would now entail a growing risk of violating Chinese laws.
China’s Ministry of Commerce issued regulations on Jan. 9 that prohibited any compliance with foreign sanctions. But the ministry lacks the authority to impose fines of more than a few thousand dollars for violations, said Nick Turner, a lawyer specializing in economic sanctions in the Hong Kong office of the Steptoe & Johnson law firm.
“Kicking it up another level and making it into a statute would allow the penalties to be greater,” he said.
The Standing Committee of the National People’s Congress approved the new law on Thursday but did not release its text. So the new penalties and other details were not immediately clear.
The legislation comes less than two weeks after China’s top leader, Xi Jinping, called for his country to achieve a more “lovable” image. But the legislation on Thursday was the latest sign that this has not led to fundamental shifts in foreign policy.
Joerg Wuttke, the president of the European Union Chamber of Commerce, criticized the secrecy with which the law was suddenly sped through the approval process this week. The law could hurt foreign investment by making companies feel like they are, “sacrificial pawns in a game of political chess,” he said in a statement.
A billboard in Brazil for the meatpacking giant JBS. The chief executive said the decision to pay a ransom to hackers was “very difficult.”Credit…Paulo Whitaker/Reuters
The world’s largest meat processor said on Wednesday that it paid an $11 million ransom in Bitcoin to the hackers behind an attack that forced the shutdown last week of all the company’s U.S. beef plants and disrupted operations at poultry and pork plants.
The company, JBS, said in a statement that the decision to pay the ransom was made to protect its data and hedge against risk for its customers. The company said most of its facilities were back up and running when the payment was made.
The F.B.I. said last week that it believed REvil, a Russian-based group that is one of the most prolific ransomware organizations, was responsible for the attack.
JBS, which is based in Brazil, processes roughly a fifth of the United States’ beef and pork. News last week of the cyberattack on a producer so central to the U.S. meat supply spurred worries that the shutdown could shock the market, creating shortages and accelerating the rise of already-high meat prices.
The worst of those fears were not realized, in large part because JBS was able to resume its operations quickly.
The Wall Street Journal was first to report news of JBS’s ransom payment.
The breach was the latest in a string of attacks targeting critical infrastructure that have raised concerns about vulnerabilities of American businesses. Last month, a ransomware attack on the Colonial Pipeline, a vital artery that transports gasoline to nearly half the East Coast, caused gas and jet-fuel shortages and set off panic buying of fuel in several states.
The pipeline’s operator had also paid a ransom in Bitcoin to the attackers, the Russian hacking group DarkSide, which started as an affiliate of REvil. This week, the Justice Department announced that its investigators had traced and recovered much of the ransom, or some $2.3 million of the $4.3 million worth of Bitcoin paid. The revelation highlighted that the cryptocurrency, sometimes perceived as untraceable, can be quickly tracked down by law enforcement authorities.
White House officials have said they are reviewing issues with cryptocurrencies like Bitcoin, which for years have helped enable cyberattacks.
JBS said it learned on May 30 that it had been targeted by an attack affecting some of its servers powering its IT systems in Australia and North America. It moved to suspend those systems, shutting down the production plants.
The company announced, four days after it first learned of the attack, that its global facilities were again fully operational. It said that it lost less than one day’s worth of food production during the attack and that it would be able to make it up by the end of this week.
JBS said on Wednesday it was confident that none of its data or that of its customers was breached during the attack.
Deputy U.S. Attorney General Lisa Monaco, center, announcing the recovery of part of the Colonial Pipeline ransom on Monday.Credit…Pool photo by Jonathan Ernst
The revelation this week that federal officials had recovered most of the Bitcoin paid in the recent Colonial Pipeline ransomware attack exposed a fundamental misconception about cryptocurrencies: They are not as hard to track as cybercriminals think.
That’s because the same properties that make cryptocurrencies attractive to cybercriminals — the ability to transfer money instantaneously without a bank’s permission — can be leveraged by law enforcement to track and seize criminals’ funds at the speed of the internet, The New York Times’s Nicole Perlroth, Erin Griffith and Katie Benner report.
Bitcoin is also traceable:
The digital currency can be created, moved and stored outside the purview of any government or financial institution, but each payment is recorded in a permanent fixed ledger, called the blockchain.
That means all Bitcoin transactions are out in the open. The Bitcoin ledger can be viewed by anyone who is plugged into the blockchain.
On Monday, the Justice Department said it had traced 63.7 of the 75 Bitcoins — some $2.3 million of the $4.3 million — that Colonial Pipeline had paid to the hackers as the ransomware attack shut down the company’s computer systems, prompting fuel shortages and a jump in gasoline prices. Officials have since declined to provide more details about how exactly they recouped the Bitcoin.
“It is digital bread crumbs,” said Kathryn Haun, a former federal prosecutor and investor at venture capital firm Andreessen Horowitz. “There’s a trail law enforcement can follow rather nicely.”
Given the public nature of the ledger, cryptocurrency experts said, all law enforcement needed to do was figure out how to connect the criminals to a digital wallet, which stores the Bitcoin.
Protesters in New York outside a 2019 state trial. Activist investors can now agitate for changes at companies on the ground.Credit…Justin Lane/EPA, via Shutterstock
An activist investor successfully waged a battle to install three directors on the board of Exxon Mobil last week with the goal of pushing the energy giant to reduce its carbon footprint. The investor, a hedge fund called Engine No. 1, was virtually unknown before the fight.
The tiny firm wouldn’t have had a chance were it not for an unusual twist: the support of some of Exxon’s biggest institutional investors. BlackRock, Vanguard and State Street voted against Exxon’s leadership and gave Engine No. 1 powerful support. These huge investment companies rarely side with activists on such issues.
The stunning result turned the sleepy world of boardroom elections into front-page news as climate activists declared a major triumph, and a blindsided Exxon was left to ponder its defeat, Matt Phillips reports for The New York Times.
Observers say Engine No. 1’s victory shows there is a path for shareholder activism to change how companies approach issues like racial diversity and the environment, often considered distractions from producing profits.
“We’re finding that there are other components that factor into a company’s overall performance: social, cultural and, now, environmental,” said Andrew Freedman, a partner and co-head of the shareholder activism group at Olshan Frome Wolosky, a law firm in New York. “Shareholders are able to now find a way to run a campaign where there’s alignment on the initiative because it all feeds to the bottom line.”
In other words, activist investors can now agitate for changes at companies on the ground that such shifts aren’t just the right thing to do but will also enrich shareholders by pushing up the price of the stock.
Exxon Mobil isn’t the only energy giant facing pressure on climate-related issues. On Wednesday, Royal Dutch Shell said it would accelerate efforts to cut its carbon dioxide emissions, after a Dutch court ruled Shell must reduce its global net carbon emissions by 45 percent by 2030 compared with 2019.
Drivers gathered in San Francisco last year to urge voters to reject an initiative that would exempt Uber, Lyft and other gig companies from a state employment law.Credit…Jim Wilson/The New York Times
Gig companies like Uber and Lyft have long resisted classifying workers as employees, stating in regulatory filings that doing so would force them to alter their business model and risk a financial hit.
After California passed a law in 2019 that effectively gave gig workers the legal standing of employees, companies like Uber and Lyft spent some $200 million on a ballot initiative exempting their drivers.
To avoid such threats in other states, the companies have pressed for legislation that classifies drivers as contractors, meaning they are not entitled to protections like a minimum wage and unemployment benefits, Noam Scheiber reports for The New York Times. Industry officials have estimated that making drivers employees could raise labor costs 20 to 30 percent.
As California considered its bill in 2019, the companies met repeatedly with a few large unions, including the Service Employees International Union and the Teamsters, to discuss a deal. But the talks collapsed because many in the labor movement refused to make significant concessions while holding the legislative upper hand.
The California bill passed in September of that year, but after a ballot initiative that exempted drivers was approved last fall, some in labor became more amenable to a deal. New York State, where discussions were already underway, was a natural place to seek one.
The initiative in New York has stalled while facing opposition from labor groups as the state’s legislative session winds down this week. But the effort seems certain to be revived, and the negotiations — in which the companies offered to grant workers bargaining rights and certain benefits but not all the protections of employment — have indicated what an eventual deal could look like in New York and beyond.