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US consumer inflation highest since 2008, as initial jobless claims hit pandemic low – as it happened

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Rolling coverage of the latest economic and financial news

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Thu 10 Jun 2021 14.05 EDTFirst published on Thu 10 Jun 2021 02.49 EDT
A restaurant in Los Angeles, California.
A restaurant in Los Angeles, California. Photograph: Frederic J Brown/AFP/Getty Images
A restaurant in Los Angeles, California. Photograph: Frederic J Brown/AFP/Getty Images

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Key events

Closing summary

Time to wrap up. Here’s a quick recap

US consumer prices increased by the most in nearly 13 years in May, year-on-year, as rising demand, supply chain bottlenecks, and the ‘base effect’ from last year’s lockdown push up inflation. Energy, used cars, flights and clothes all pushed CPI up by 5.0%, higher than expected.

Core inflation also surged, hitting 3.8% for the first time since 1992. But Wall Street rallied, and bond yields remained calm, as investors showed confidence that the surge would be temporary.

In a boost to the recovery, the number of Americans filing new unemployment claims hit a new pandemic low. Just 376,000 ‘initial claims’ were submitted last week, as firms held onto staff amid the scramble to fill vacancies.

ABI Chart of the Day: Weekly U.S. Unemployment Claims Fall to 376,000, Sixth Straight Drop. https://t.co/dG14qN217r pic.twitter.com/N6y2envKTc

— ABI (@abiworld) June 10, 2021

The European Central Bank pressed on with its bond-buying programme, pledging to keep running it at a faster pace than early this year.

It also lifted its growth and inflation forecasts, saying the economic outlook had improved.

The world’s top banking regulators have called for crypto assets such as bitcoin to face the toughest capital regulations, meaning banks would need to hold enough capital to cover losing all their money.

The Basel Committee on Banking Supervision said crypto assets have raised many concerns, from consumer protection and financial stability, to money laundering and terrorist financing, and their carbon footprint.

Their report came after it emerged JBS, the world’s biggest meat processor, has paid an $11m (£7.8m) ransom after a cyber-attack shut down operations, including abattoirs in the US, Australia and Canada.

BT has a new biggest shareholder, with Altice taking a 12.1% stake in the UK telco:

My colleague Nils Pratley thinks Altice’s Patrick Drahi intentions may not be alarming:

Vote of confidence in the company? That’s always a board’s default spin on events when a billionaire buys a large stake, purrs politely about management but is slightly mysterious about his long-term intentions. The pitch is rarely convincing because billionaires are not generally the type to sit back and simply collect a stream of dividends. They tend to want something.

It’s too soon to be confident about the motives behind Patrick Drahi of Altice’s purchase of a 12.1% stake in BT, worth £2bn. But, on this occasion, the non-threatening interpretation may be correct. Or, at least, it looks the most likely line for a while.

The number of workers on furlough has hit a new low, with 7% of the workforce on the Coronavirus Job Retention Scheme last week. Job vacancies are up, including in hospitality.

Supermarket chain Morrisons has been hit by a stinging shareholder revolt, over the award of millions of pounds in bonuses to executives who missed profit targets during the pandemic.

The UK aviation sector has warned that airports are likely to lose at least £2.6bn this summer as the “chaotic” Covid traffic light system halts international travel.

Investors controlling $41tn (£29tn) in assets have called for governments around the world to end support for fossil fuels and set targets for rapid reductions in carbon emissions to limit the damage from global heating

A report has warned that small drugmakers and biotech firms that are developing the bulk of new antibiotics need far more financial support.

The US drugmaker Regeneron, whose Covid treatment was hailed as a “cure” by Donald Trump last year, has come under fire from two influential shareholder advisory groups over “excessive” payouts made to its top executives ahead of its annual meeting on Friday.

Goodnight! GW

European stocks closed mixed

After a busy day, Europe’s stock markets have ended the session roughly where they started it!

The FTSE 100 index has closed just 0.1% higher at 7088, up 7 points.

Telecoms group BT led the risers, up 6.55%, after Altice surprised the City by becoming its biggest shareholder with a 12.5% stake, and hailing the opportunity presented by the national rollout of next generation broadband.

Auto Trader was right behind, gaining 6.54% after giving an optimistic outlook this morning. The car marketplace expected to benefit from to shift to online car buying after profits and revenues fell last year.

Thungela (-3.2%) was the top faller, as the South African thermal coal business continues to experience a volatile first week since demerging from Anglo American, amid concerns over its potential cleanup costs.

Hospitality firms also dipped, on concerns over whether the UK will relax Covid-19 restrictions on 21 June, or extend them due to rising cases and hospitalisations.

Catering firm Compass (-3.1%), hotel group Intercontinental (-2.3%) and commercial property companies Land Securities (-2.15%) and British Land (-2.1%) all dropped.

On the FTSE 250 index, budget airline easyJet (-4%) and cruise operator Carnival (-3.6%) weakened.

The pan-European Stoxx 600 index finished flat, with Germany’s DAX very slightly lower and France’s CAC down 0.26%.

Morrisons hit by huge pay revolt over executive bonuses

Photograph: Peter Cziborra/Reuters

Back in the UK, supermarket chain Morrisons has suffered a serious shareholder revolt over pay.

Around 70% of investors opposed its remuneration report today, after Morrison’s decided to pay large bonuses even though profit targets were missed -- by stripping out the costs of the pandemic when calculating the payouts.

My colleague Jasper Jolly reports:

Morrisons shareholders have voted overwhelmingly against the award of millions of pounds in bonuses to executives who missed profit targets during the pandemic, in one of the biggest shareholder rebellions of recent years.

The vote is not binding so the chief executive, David Potts, and his two most senior managers will still be able to receive the £9m in pay and bonuses they were awarded, despite a year in which the company fell out of the FTSE 100 and profits halved because of extra pandemic costs.

Morrisons’ remuneration committee, chaired by Kevin Havelock, decided to use its “discretion” and adjust its bonus calculations to ignore Covid-19 costs of £290m.

Potts can collect his full £1.7m bonus, bringing his total pay packet to £4.2m, a 5% increase compared with the year before. The chief operating officer, Trevor Strain, was awarded total pay of £3.2m – including an annual bonus of £1.3m – up 9% year-on-year, while the grocer’s newly installed chief financial officer, Michael Gleeson, was given £1.7m including a bonus of almost £1m.

Our financial editor Nils Pratley wrote in today’s Guardian that the bonus system has to work both ways. Firms can’t justify lucrative payouts in good years if they then change the rules in the bad ones.

Nobody doubts that the big supermarket chains, including Morrisons, did an excellent job of keeping the shelves stocked in tricky conditions. But a bonus is not meant to be a semi-guaranteed entitlement. If profits have been clobbered, and half the bonus relates to profits, applying “discretion” to imagine what might have been is a nonsense.

Modern bonuses structures grant huge upsides to executives in good years. The system has to be seen to work in reverse in leaner times, whatever the cause.

Clearly many Morrisons investors agreed.

ECB raised growth and inflation forecasts today

Back in the eurozone, the ECB raised its projections for inflation this year.

The eurozone’s central bank now expects euroarea consumer prices to rise by 1.9% in 2021 -- bang on its target, up from a previous forecast of 1.5%.

But, inflation is then seen back at 1.5% next year, and 1.4% in 2023, as the impact of rising energy prices drops out of the equation.

Core inflation is expected to rise slowly - from 1.1% this year to 1.3% next year, and 1.4% in 2023.

President Christine @Lagarde introduces the baseline GDP and inflation outlook for the euro area. pic.twitter.com/WaH5GmGNR3

— European Central Bank (@ecb) June 10, 2021

ECB president Christine Lagarde told reporters that there is “some improvement” in the inflation outlook.

But she pointed out that wage growth remained weak:

“We don’t see much by way of service prices going up... and that is because wages have not increased significantly.

We see a little bit more movement possibly, and we hope that we will see more of it.”

Lagarde also said the ECB was more optimistic about growth.

The latest signal that we are getting is a strong rebound in the second quarter and hopefully (that) will be amplified in the third quarter.”

The ECB also raised its forecast for euro area economic growth this year to 4.6%, from 4.0%. and for 2021 to 4.7%, from 4.1%, as it anticipated a faster recovery.

But despite this optimism, the ECB will continue to run its bond-buying PEPP programme at a faster pace than early this year, to try to make sure conditions don’t deteriorate.

ECB turns really optimistic. GDP growth is being upgrade d significantly for this year and next and forecasts for inflation are also being revised up. But the PEEP continues at it's current pace - for now.

— Helge J. Pedersen (@helgejpedersen) June 10, 2021

Broad-based upward revision to ECB's growth and inflation outlooks. They are no clearly ahead of consensus and slightly more upbeat than us in 2021/22. Hence, the "significantly higher" PEPP pace can be seen as reinforcing the message of the unchg. 2023 forecasts, i.e. transitory pic.twitter.com/cV4UOmMzHP

— Oliver Rakau (@OliverRakau) June 10, 2021

US government bonds have taken the jump in US inflation in their stride.

The yield, or interest rate, on 10-year Treasuries is hovering around 1.485% now, slightly lower on the day, despite annual core inflation hitting its highest in almost 30 years.

Bond yields are a good gauge of inflation expectations, and remain low when investors expect central banks not to rush to end their stimulus packages.

The bond market is pretty firmly in the "inflation is transitory" camp as the yield on 10-year U.S. Treasuries remained below 1.5%, and edged lower. Remember bond vigilantes? They are not here today. https://t.co/boAERaYTi4 via @markets pic.twitter.com/ISLiwzezay

— Steve Matthews (@SteveMatthews12) June 10, 2021

Erik Norland, CME Group senior economist, explains that bond investors may be anticipating that inflation will soften over the summer.

May is the last month for which we will be rolling off negative numbers from last year for the consumer price index. As such, for year on year inflation to continue to rise in June and July, prices will have to rise by more than 0.5% each month.

These base effects may explain why fixed income investors are looking beyond the current surge in prices. Bond yields have come down in recent days, perhaps in anticipation of softer inflation numbers in coming months.”

President Biden’s Council of Economic Advisors have tweeted about US consumer price inflation hitting a 13-year high.

They highlight that ‘base effects’ helped to push the annual CPI rate to 5% (because prices fell a year ago due to the pandemic).

Inflation as measured by CPI increased at a 5.0% rate year-over-year last month and 0.6% month-over-month. Core inflation—without food/energy—rose 3.8% year-over-year and 0.7% month-over-month. The year-over-year numbers were impacted by base effects from last spring. 1/

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

The month-over-month inflation was a slight deceleration from the April inflation numbers, but slightly above expectations. 2/

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

Much of the annual inflation was due to base effects, reflecting the depressed prices from last spring. Controlling for base effects by smoothing across the 15 months since February 2020, the rate of CPI inflation was 3%. 3/ pic.twitter.com/RX98UKsEoU

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

In core inflation, controlling for base effects the rate of annualized CPI inflation was 2.6% 4/ pic.twitter.com/pL5XV9CJhJ

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

Cars once again accounted for a large share of the increase. Used cars, new cars, and car rentals together made up about half of core month-over-month inflation 5/ pic.twitter.com/2DqjqkiUvE

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

Prices of pandemic-affected services rose again this month and contributed 7 basis points to the core inflation increase in May, relative to 19 basis points in April. 6/ pic.twitter.com/uTPOxbfRWG

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

We know that the recovery from the pandemic will not be linear. The Council of Economic Advisers will continue to monitor the data as they come in. /end

— Council of Economic Advisers (@WhiteHouseCEA) June 10, 2021

Joe Biden, incidentally, is in Cornwall for the G7 meeting, where he’s meeting with Boris Johnson now.

After President Biden jokes that he and Prime Minister Boris Johnson have in common that they both married up, Johnson says, "I am not going to dissent on that one — or indeed on anything else."

— Kaitlan Collins (@kaitlancollins) June 10, 2021

All smiles and jokes for the cameras, but Biden is expected to urge Johnson not to undermine the Good Friday agreement though the row with the EU over the Northern Ireland protocol.

Our UK politics liveblog has the action:

S&P 500 hit record high, then falls back, after inflation data

The S&P 500 index hit a fresh record high in early trading, before easing back, as Wall Street investors try to decide whether the rise in inflation is transitory or not.

Stocks rose at the open, with the drop in jobless claims reassuring traders that the recovery is on course. But the rally has cooled a little since.

Here’s the current situation:

  • Dow Jones industrial average: up 48 points or 0.15% at 34,495 points
  • S&P 500: up 6 points or 0.15% at 4,226 points
  • Nasdaq Composite: up 18 points or 0.15% at 13,929 points

Top risers on the Dow are pharmaceutical company Merck (+2.5%), health retailer Walgreens Boots (+1.6%), biotech firm Amgen (+1.2%), oil giant Chevron (+1%), fast food chain McDonalds (+0.95%) and aerospace manufacturer Boeing (+0.9%).

Although the CPI came in hotter than expected, at 5.0% year-on-year, Wall Street may be calculating that it won’t jolt the Federal Reserve into changing its plans.

Daniele Antonucci, chief economist & macro strategist at Quintet Private Bank, thinks the Fed will be tolerant of these higher prices, as they are partly due to temporary factors:

“That US consumer prices accelerated the most in almost 13 years surely makes an eye-catching headline. However, rather than a generalised spiral, this looks mostly driven by pent-up demand combined with transitory supply bottlenecks as the US economy reopens – especially for a few categories such as like rental cars, hotels and flights.

Not all of the price increase is about the feed-through of energy prices nor is it just an easy comparison with low prices last year during the worst of the pandemic. And how long the shortages will last remains to be seen. Yet the Fed, so far, looks relatively tolerant about this spike, appearing to see it as temporary. In part, this is because of past undershoots relative to the central bank’s inflation target: consumer prices have been subdued for quite a long time, despite monetary easing.

US core inflation in May was 3.8% (vs expectations of 3.4%) - highest since 1992... pic.twitter.com/M9QzdvM8qc

— Ben Chu (@BenChu_) June 10, 2021

...Overall US inflation 5% (vs expectations of 4.7%)... pic.twitter.com/v37XmNcY41

— Ben Chu (@BenChu_) June 10, 2021

...More fuel for the inflation hawks of course - but markets and most Wall Street analysts seem relaxed about the slightly higher than expected print - still see it as result of temporary supply bottlenecks, in line with Fed/White House analysis.

— Ben Chu (@BenChu_) June 10, 2021
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CHART OF THE DAY: The price of used cars in the US jumped 29.7% y-on-y in May, the biggest annual increase in ~45 years (reason is very strong demand for cars and supply bottlenecks due to ship shortages). Older cars are less efficient than new ones (and unlikely to be EV) #OOTT pic.twitter.com/2vOCok9v9f

— Javier Blas (@JavierBlas) June 10, 2021

US initial jobless claims hit pandemic low

The number of Americans filing new claims for unemployment support has hit a fresh pandemic low as the labor market recovery continues.

The number of initial claims for jobless benefits fell last week to its lowest since mid-March 2020 (just as the first wave of Covid-19 hit).

There were 376,000 initial claims for state unemployment benefits last week (on a seasonally adjusted basis). That’s a drop of 9,000 from the 385,000 recorded in the prior week, and a near 15-month low.

That continues the steady fall in jobless claims in recent months, since the rapid Covid-19 vaccination program helped the US economy to reopen and rebound strongly.

Jobless claims continue to fall. 376K initial claims were filed last week, the fewest since the pandemic began. Overall, 15 million people are still receiving govt #unemployment benefits. A year ago that figure was above 30 million. #economy pic.twitter.com/lD9ulDI867

— Cetera Investment Management (@ceteraIM) June 10, 2021

NEW: U.S. weekly jobless claims fell for a sixth straight week to 376,000 https://t.co/SbhBF89vAU

— Bloomberg Economics (@economics) June 10, 2021

In addition, 71,292 initial claims were filed for Pandemic Unemployment Assistance (the scheme for freelancers, self-employed people, and others who aren’t eligible for unemployment insurance)

So, rather more new jobless claims are still being filed each week than before the pandemic, when initial claims ran in the low 200,000s.

[On a non-seasonally adjusted basis, initial claims fell to 367,000]

UI claims dropped again last week, falling to 438K (367 UI initial claims NSA + 71K PUA claims), falling to ~2x pre-crisis levels.

The NSA decline was boosted by the Memorial Day weekend, so no reason to worry if we see a small rebound next week.#joblessclaims 2/ pic.twitter.com/ELyWcRmat7

— Daniel Zhao (@DanielBZhao) June 10, 2021

Continuing claims resumed their decline last week after a surprise jump the week prior.

The improvement in continuing claims over the last 1-2 months has been much slower than for initial claims.#joblessclaims 2/ pic.twitter.com/jZv0Vp40KK

— Daniel Zhao (@DanielBZhao) June 10, 2021

Investors shouldn’t panic about the jump in US inflation, says Ron Temple, Co-Head of Multi Asset and Head of US Equities at Lazard Asset Management:

“Before hitting the panic button, investors should recognise that used cars, auto insurance, and airfares drove nearly half of the core CPI increase.

These increases are all easily explained by depressed prices a year ago and the semiconductor shortage that has turbocharged used car prices. The next few months are likely to be noisy, and investors should focus on data this fall when schools are fully reopened and several million workers can rejoin the labor force, mitigating the challenges of reopening the world’s largest, and rapidly recovering, economy.”

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