Inflation surges as US recovery shifts into high gear
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Today’s official data showed consumer prices in the United States were accelerating faster than expected, fueling concerns about the overheating economy as the recovery takes hold.
Basic personal consumption spending, the Federal Reserve’s preferred measure of inflation that excludes volatile food and fuel costs, reached 3.1% in April from a year ago. This is the biggest increase since 1992 and well above the Fed’s 2 percent target.
Government officials such as Treasury Secretary Janet Yellen have sought to calm nerves in the face of rising inflation, insisting that increases over the next few months are proving temporary. Fed officials have signaled, however, that the central bank is prepared to cut back its support for the economy if inflation starts to get out of hand.
Today’s inflation reading comes as President Joe Biden prepares to unveil proposals for his $ 6 billion budget with upcoming ‘bump in the road’ warning and call for U.S. employers to raise wages to overcome labor shortages.
Investors were relatively bullish on the inflation data, which only confirmed their belief that the recovery was fueling price increases. Global government bonds, sensitive to rising inflation that could lower their yields, remained stable.
Chris Giles, editor-in-chief of economics, says the only way to ensure a truly sustainable recovery from the pandemic is to increase labor productivity. Experts disagree, however, on the root causes of the problem, which affects all major economies, and potential solutions.
Labor shortages have the potential to become a serious drag on the global recovery as companies emerge from the survival phase. The UK hospitality sector, which is already suffering from the impact of Brexit, is seeing workers reluctant to exit leave schemes with current employers before they end in September. Germany has similar problems.
EU approaches its ‘Hamiltonian moment’, says our newsletter Europe Express, as ratification by EU Member States € 750 billion in recovery funds is coming to an end, paving the way for the EU to start borrowing in financial markets next month. Italy reorganized the management of public enterprises which should benefit from EU money.
The World Health Organization urged member states to work more closely with vaccine manufacturers through intellectual property sharing and technology transfer to improve access for the poorest countries. The number of doses organized under the UN Covax program so far covers less than 0.5 percent of the total population of the 124 countries it is supposed to help.
Airbus, the European aerospace group, said the aviation industry was starting to recover as it announced plans to manufacture more of its A320 planes, the world’s most popular single-aisle passenger jets. The International Air Transport Association said on Wednesday it expected the number of passengers worldwide to reach 52% of pre-pandemic levels this year.
Used car prices are on a somewhat unusual upward trajectory, reports FT Alphaville. Buyers who had postponed purchases during the lockdown, as well as those who want to upgrade their engines with Covid-19 savings, are returning to the market, while new car dealers face a shortage of inventory due to factors such as than the global semiconductor shortage.
Surge raw food ingredient prices since the start of the pandemic threaten to make breakfasts much more expensive: coffee, milk, sugar, wheat, oats and orange juice have increased by an average of 28 percent. In April, the UN’s real food price index – which tracks a wide range of commodities – hit its highest level in a decade.
Tin, mainly used in soldering in electronics, became the latest product to benefit from the price spike as it hit a 10-year high on Friday due to the demand for computers for people working from home as well as supply problems in the Democratic Republic of Congo and China.
Morgan Stanley strategist Graham Seckor writes in the FT that investors are underestimating the potential impact of the EU recovery fund. Although much smaller than the US stimulus package, the European effort is more focused on long-term investments and less likely to be affected by the tightening of the government belt, Seckor argues. Growing confidence in the recovery, in particular Italy, was also reflected in the Economic Sentiment Report released today by the European Commission.
Have your say
Alec Smart comments on the fact that Covid is wiping over £ 1 billion from British Land’s wallet:
British Land is an example of a good landlord with a high quality modern park. They were quickly out of the blocks at the start of the pandemic with packages of aid for their tenant occupiers, so in my opinion they are leading the way. Other homeowners with a backlog of arrears that they do not pay or with older assets in secondary or tertiary locations in the city center will be more affected. Neighborhood owners won’t fare as badly because of the “local store” and “Deliveroo” trends they’ve benefited from.
This is almost this time of year – the months of outdoor dining in good weather. Browse our new collection of summer food and drink recommendations, from the delights of a fresh Campari to “ice cream recipes that evoke the sweetness of childhood holidays in Italy”.
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