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BusinessLive Updates: C.P.I., Markets and Business News

Live Updates: C.P.I., Markets and Business News

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Daily Business Briefing

June 10, 2021, 8:41 a.m. ET

June 10, 2021, 8:41 a.m. ET

Demand for cars is outpacing supply, an example of bottlenecks driving inflation.
Credit…Alyssa Schukar for The New York Times

Consumer prices rose at the fastest annual rate since 2008 in May, a bigger jump than economists had expected, a reading that is likely to keep inflation at the center of political debate in Washington.

The Consumer Price Index surged 5 percent in May from a year prior, the Labor Department said. 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.

Core C.P.I., which 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 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.

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.

The stakes are high. Inflation can erode purchasing power if wages do not keep up. While a short-lived burst would be unlikely to cause lasting damage, an entrenched one could force the Federal Reserve to cut its support for the economy, potentially tanking stocks and risking a fresh recession.

Outside of the base effect, the recent pop in 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.

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 ultimately prove temporary. In a sign that companies are finding a way to adjust to the global shortage, General Motors said earlier in June that will start to increase shipments of pickup trucks and other vehicles to dealers.

But economists including are parsing the data for signs that the price increases will prove longer lasting. For example, rent and owners’ equivalent rent, two components that make up a big share of inflation and which move slowly, are important to watch, Laura Rosner-Warburton, a founding partner at MacroPolicy Perspectives, said ahead of Thursday’s report.

Economists are also closely watching inflation expectations, which have moved up since the start of the year but which remain within historically normal ranges. If consumers and investors expect prices to rise, that can give companies the wherewithal to charge more — a self-fulfilling prophecy.

Regardless, 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.

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.

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 Equal Employment Opportunity Commission made clear this month that asking employees for their vaccination status was legal, as long as the data was kept confidential.)

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 improving rapidly, European Central Bank policymakers decided to maintain their “very accommodative” monetary stance on Thursday.

Interest rates were held at record low and negative levels while the central bank said it would continue buying 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 announcement matched market expectations; government bond yields and the euro hardly reacted.

“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.

Christine Lagarde, president of the central bank, will lead a news conference Thursday afternoon. She is expected to walk a tight line expressing optimism about the region’s economic recovery without being overly concerned about rising inflation, and explain why the current amount of monetary stimulus is appropriate. Later, staffer members at the central bank will publish new forecasts for economic growth and inflation for the region. The predictions are expected to reflect improvements in the eurozone economy.

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. Early this year, a rising number of coronavirus cases had revived lockdowns in Europe and set back the economic recovery. 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.

  • 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.

An Erewhon Market in Los Angeles. Investors are waiting for the latest data on consumer prices.
Credit…Michelle Groskopf for The New York Times

The S&P 500 was expected to open flat when trading begins on Thursday, and Europe indexes were trading in a narrow range, as investors awaited the latest reading on consumer prices.

The U.S. Consumer Price Index for May will be released at 8:30 a.m., and it will shed new light on whether rising prices for goods throughout the economy are a growing problem that needs to be addressed by the Federal Reserve and other central banks.

Many economists and lawmakers have said price increases are likely to be temporary, a result of issues connected with pandemic lockdowns that will sort themselves out over time. But overhanging the discussion are concerns about a return of inflation, which has been relatively low for decades after reaching well into the double digits in the 1970s and early ’80s.

  • European stock indexes were mixed, with the Stoxx Europe 600 down 0.1 percent and the FTSE 100 in Britain up 0.3 percent.

  • Yields for 10-year Treasury notes were rising slowly, to 1.5 percent.

  • Most Asian stock indexes ended the day higher. South Korea’s Kospi gained 0.3 percent, and the Shanghai Composite rose 0.5 percent.

  • Oil prices were edging higher. West Texas Intermediate, the U.S. benchmark, reversed earlier losses and was up 10 percent, at $70 a barrel, while the global benchmark, Brent crude, gained 0.2 percent, to $72.30 a barrel.

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.

The Keystone XL pipeline faced stiff opposition from environmental activists for years.
Credit…Jabin Botsford/The New York Times

The Canadian pipeline company that had long sought to build the Keystone XL pipeline announced Wednesday that it had terminated the embattled project, which would have carried petroleum from Canadian tar sands to Nebraska.

The announcement was the death knell for a project that had been on life support since President Biden’s first day in office and had been stalled by legal battles for years before that, despite support from the Trump administration.

On the day he was inaugurated, Mr. Biden, who has vowed to make tackling climate change a centerpiece of his administration, rescinded the construction permit for the pipeline, which developers had sought to build for over a decade. That same day, TC Energy, the company behind the project, said it was suspending work on the line.

On Wednesday, the company wrote in a statement that it “will continue to coordinate with regulators, stakeholders and Indigenous groups to meet its environmental and regulatory commitments and ensure a safe termination of and exit from the project.”

Environmental activists cheered the move and used the moment to urge Mr. Biden to rescind the Trump-era permits granted to another pipeline, the Enbridge Line 3, which would carry Canadian oil across Minnesota. Hundreds of protesters were arrested earlier this week in protests against that project.

“The termination of this zombie pipeline sets precedent for President Biden and polluters to stop Line 3, Dakota Access, and all fossil fuel projects,” said Kendall Mackey, a campaign manager with 350.org, a climate advocacy group. “This victory puts polluters and their financiers on notice: Terminate your fossil fuel projects now — or a relentless mass movement will stop them for you.”

On Capitol Hill, Republicans slammed Mr. Biden. “President Biden killed the Keystone XL pipeline and with it, thousands of good-paying American jobs,” said Senator John Barrasso of Wyoming, the ranking Republican on the Senate Energy committee. “On Inauguration Day, the president signed an executive order that ended pipeline construction and handed one thousand workers pink slips. Now, ten times that number of jobs will never be created. At a time when gasoline prices are spiking, the White House is celebrating the death of a pipeline that would have helped bring Americans relief.”

The 1,179-mile pipeline, which would have carried 800,000 barrels a day of petroleum from Canada to the Gulf Coast, had become a lightning rod in broader political battles over energy, the environment and climate change. After environmental activists spent years making the case to President Barack Obama that approval of the pipeline would be a devastating blow to his efforts to fight climate change, Mr. Obama in 2015 announced that his administration would reject its construction permit.

Two days after his inauguration in 2017, President Donald J. Trump, who during the campaign promised to overturn Mr. Obama’s environmental legacy, signed an executive order rescinding Mr. Obama’s decision and allowing the pipeline to go forward. But in 2018, after some portions of the pipeline had been built, a federal judge blocked further construction of the project on the grounds that the Trump administration did not perform adequate environmental reviews before rescinding the Obama decision. The project had been largely stalled since then.



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