Daily Business Briefing
July 13, 2021, 7:23 a.m. ET
July 13, 2021, 7:23 a.m. ET
A key measure of inflation most likely rose rapidly for a third month in June, economists expect, a gain that could keep concerns over rising prices front and center at the White House and Federal Reserve.
The Consumer Price Index, the Labor Department’s measure of how much consumers are paying for purchases like rent and airfare, climbed by 4.9 percent in the year through June, economists surveyed by Bloomberg predicted. That would mean the pace of increase ticked down slightly — it was at 5 percent for the year through May — but remained high, bolstered by consumer demand as the economy reopens and by a quirk in the data.
Investors, lawmakers and central bank officials are watching the changes closely. Quick price gains can squeeze consumers if wages do not keep up, and if they appear to be sustained it could prod the central bank to pull back on support for the economy. The central bank’s cheap-money policies are generally good for markets, so a rapid withdrawal would be bad news for investors in stocks and other asset classes.
Policymakers do expect inflation will fade as the economy gets through a volatile and unprecedented pandemic-reopening period, but how quickly that will happen is unclear. Prices have climbed faster than officials at the Fed had predicted earlier this year, some measures of consumer inflation expectations are starting to rise — a factor that could make inflation a self-fulfilling prophecy — and some officials at the central bank are increasingly wary of the changes.
Here is what to watch when the report comes out at 8:30 a.m.
The C.P.I. is expected to have risen 0.5 percent from May, the Bloomberg survey showed as of Monday afternoon. That would be slower than the 0.6 percent month-over-month increase the prior month.
Stripping out volatile food and fuel prices, the C.P.I. probably climbed 0.4 percent, down from 0.7 percent the prior month.
The C.P.I. is expected to have risen 4.9 percent in the year through June, slower than the 5 percent in the year through May.
Stripping out volatile food and fuel prices, the C.P.I. probably climbed 4 percent over the past year, up from 3.8 percent in the year through May. That would be the fastest pace since 1992.
Car Prices, Rents and Restaurants
Used car prices have been jumping thanks to a semiconductor shortage that has slowed auto production, and June may have been the tail end of that trend, economists at Goldman Sachs wrote in a preview note.
Shelter costs are another area to watch: Rent and a rental equivalent for owner-occupied houses have been firming. Because they make up nearly a third of overall inflation, that strengthening could matter a lot to price gains going forward.
The “food away from home” category could also prove interesting. Restaurants have seen demand surge even as they struggle to hire, and many have raised wages to attract workers. They may try to pass those costs along.
The Base Effect and PERsonal Consumption Expenditures
The “base effect” is a wonky way to say that because prices fell last year, gains in the price index look artificially high this year. The quirk was at its most extreme in May. It should start to fade slightly in June’s data, though it remains a factor behind the larger-than-usual increase.
Analysts watch the C.P.I. closely because it is more timely, but the Fed actually targets a related but different index when aiming for its 2 percent average inflation goal. That measure, the Personal Consumption Expenditures index, tends to come in slightly lower. It too has accelerated this year.
Boeing said on Tuesday that it would temporarily slow production of the 787 Dreamliner after it identified new work that needed to be done on the troubled wide-body jet.
The slowdown will cause the company to fall short of a target production rate of five 787s per month as it conducts inspections and completes the extra work, Boeing said. Reuters reported on the new production problem on Monday.
Boeing also said that it expected to deliver less than half of the Dreamliners in its inventory this year, a shift from April when its chief executive, Dave Calhoun, said the company would hand over the majority by 2022.
“We will continue to take the necessary time to ensure Boeing airplanes meet the highest quality prior to delivery,” the manufacturer said in a statement. “Across the enterprise, our teams remain focused on safety and integrity as we drive stability, first-time quality and productivity in our operations.”
Boeing had stopped delivering the 787 last year amid quality concerns related to shims used where parts of the plane’s fuselage, or main body, are joined. The company resumed deliveries in March, but said in May that it had stopped again after the Federal Aviation Administration said it was unconvinced by Boeing’s inspection methods, which relied on using a statistical analysis to identify where inspections were needed. Boeing said on Tuesday that discussions with the F.A.A. are ongoing.
Mr. Calhoun addressed the general 787 production disruptions at an investor conference last month.
“We will work our way and get to a stable delivery rate, which is, right now, our biggest challenge,” he said, adding, “But we think we’re doing this the right way, and we’re doing it alongside the F.A.A.”
News of the production slowdown comes as Boeing released strong, new monthly production and sales figures.
The company said on Tuesday that it had delivered 45 planes to customers in June, the most since March 2019, when its popular 737 Max plane was banned from flying around the world. The grounding of the Max, which was prompted by two fatal crashes, devastated Boeing’s finances and led to the ouster of Mr. Calhoun’s predecessor. The plane was allowed to start flying passengers again late last year.
Boeing also said on Tuesday that it had booked 219 gross orders in June, the most in three years. Nearly all of the orders were part of a record expansion of United Airlines’s fleet. And June was also Boeing’s fifth straight month of positive net sales, after accounting for cancellations.
The United States is hopeful that Ireland will drop its resistance to joining the global tax agreement that it is brokering, as Treasury Secretary Janet L. Yellen made the case to her Irish counterpart this week that it is in its economic interests to join the deal.
The discussion with Ireland came during a weeklong trip to Europe, where Ms. Yellen worked to gather more support for a global plan that is intended to put an end to tax havens and curb profit shifting with a new global minimum tax. The agreement, which gained the support of the Group of 20 nations on Saturday, would usher in a global minimum tax of at least 15 percent. It would also change how taxing rights are allocated, allowing countries to collect levies from large, profitable multinational firms based on where their goods and services are sold.
“For Ireland, low taxes has been an economic strategy that has been incredibly successful,” Ms. Yellen said in an interview ahead of her return to Washington. “They see it as very vital to their economic success. And I think to go along with it, probably they need to be able to make the case that it’s in the interest of the country.”
Ms. Yellen held high-stakes meetings in Brussels this week with Paschal Donohoe, Ireland’s finance minister and president of the Eurogroup, a club of European finance ministers. Ms. Yellen needs Mr. Donohoe’s support because the European Union requires unanimity among its members to formally join the deal that will require changes to domestic tax laws.
After meeting with Ms. Yellen on Monday, Mr. Donohoe struck a positive tone and said that he would continue to engage in the process.
Despite growing global support for the deal, much work remains to be done.
More than 130 countries have now backed a framework of the global agreement, which would be the largest shake-up of the international tax system in decades, but important holdouts like Ireland as well as Hungary and Estonia remain. With stops in Venice and Brussels on her first trip to Europe as Treasury secretary, Ms. Yellen worked with her counterparts to develop a strategy for getting those countries to drop their concerns and join the agreement so that a final pact can be secured by October.
Ms. Yellen told her Irish counterpart that its economic model would not be upended if it increased its tax rate from 12.5 percent, noting that it would still have a large gap between its rate and the 21 percent tax rate on foreign earnings that the Biden administration has proposed.
The Biden administration believes that the agreement, if enacted, would end the “race to the bottom” on corporate taxation, heralding a new era of corporate governance that will help nations finance new infrastructure investments and reduce inequality. Greater tax fairness could also aid in pushing back against the rise of right-wing populists, who have come to power around the world on a wave of frustration that working-class citizens have been forgotten by the elites.
“Globalization is not just serving to enrich the rich further and harm the poor,” Ms. Yellen said. “In some broader sense the international tax piece is about that.”
Ms. Yellen said that the Biden administration’s tax plans, which include raising the corporate tax rate to 28 percent from 21 percent, are also meant to address what she considers to be the unfairness of the tax code in the United States.
“It just isn’t right for very successful companies to be able to avoid paying their fair share to support expenditures that we need to invest in our economy, to invest in our work force, in R.&D. and a social safety net that’s operational,” Ms. Yellen said.
Resistance is mounting from corporate America, with business groups warning that the possibility of $2 trillion in corporate tax increases will make American companies less competitive around the world. And with rising prices continuing to be a concern among policymakers in the United States, business interests have said that the tax increases could fuel inflation, as companies pass them on to consumers.
Ms. Yellen dismissed that theory, arguing that most of the economic research has found that corporate tax increases mostly falls on past investments and would not harm workers or lead to prices rising faster.
“There’s no reason to think that changing corporate taxes would have some direct impact on prices,” Ms. Yellen said.
BEIJING — China has prospered during much of the coronavirus pandemic as the world’s factory, making everything from face masks to exercise equipment for housebound consumers. Demand for its products doesn’t appear to be slowing even as Western economies reopen.
China’s General Administration of Customs announced on Tuesday that the country’s exports surged 32.2 percent in June compared with the same month last year. The increase caught many economists by surprise, as one of China’s biggest ports was partially closed for most of June and China’s exports of medical supplies have begun to level off.
China’s export performance in June “is quite impressive and not so easy to understand,” said Louis Kuijs, the head of Asia economics in the Hong Kong office of Oxford Economics.
Mr. Kuijs said that a little more than a third of the increase in value of Chinese exports might reflect rising prices. Chinese factories are passing on their own higher costs to foreign consumers.
Chinese manufacturers face escalating costs these days because prices have increased worldwide over the past year for commodities like iron ore and copper and for industrial materials like steel.
China’s currency, the renminbi, has also strengthened against the dollar. So Chinese producers need to charge more dollars to pay the same wages and other costs denominated in renminbi.
By raising prices for foreign buyers, Chinese factories can preserve their profit margins — at the risk of contributing to inflation elsewhere.
Port and shipping delays are driving the price tags for Chinese goods even higher in foreign markets. The cost of shipping a 40-foot cargo container across the Pacific has ballooned from the usual $4,000 to $5,000 to a record $18,000 or more.
Part of the problem lies in China’s drastic actions to prevent new coronavirus variants from spreading. These measures have included forcing port workers into lengthy lockdowns at the first sign of outbreaks.
China’s policies have been effective in keeping virus cases to a minimum, but at some economic cost.
One of the world’s largest ports, Yantian Port in the southeastern Chinese city of Shenzhen, partially shut down for more than a month from late May through much of June. Shenzhen acted in response to fewer than two dozen coronavirus cases.
When the port fully reopened on June 24, shipping executives and freight forwarders hoped that trade would start returning to normal.
It has not worked out that way.
Dozens of huge container ships fell far behind schedule when they had to wait weeks to dock in Shenzhen. That meant ships later showed up in bunches at ports in other countries, causing further congestion. Chinese export factories also sent goods by truck to alternative ports, like Shanghai’s, leaving them overcrowded as well.
Zhao Chongjiu, China’s deputy minister of transport, defended his country’s tough coronavirus measures. “Everyone knows that during an epidemic, workers in ports must be placed under lockdown, and various countries have taken corresponding measures, so the efficiency of loading and unloading would be reduced,” he said when Yantian reopened.
By mid-June, the freight yard was so crammed with containers at Shanghai’s vast, highly automated Yangshan Deep Water Port that the stacking cranes barely had room to lift containers on and off ships. Dong Haitao, a senior administrator at the adjacent free trade zone, blamed foreign ports for failing to handle arriving containers on time.
“Their schedule of shipments has been disrupted, but not ours,” he said.
Shipping rates for containers have continued to rise steeply in the weeks since Yantian Port reopened. The increase is widely expected to keep going as stores in the United States in particular race to restock shelves for returning shoppers and also start preparing for the Christmas shopping season.
“Each week these rates go up another few hundred dollars,” said Simon Heaney, the senior manager for container shipping research at Drewry Maritime Research in London. “Nobody seems to have any answers, and the only thing we can hope for is Chinese New Year — and that’s obviously a long way off.”
Factories in China typically close for several weeks during the Lunar New Year celebration, which could give the world’s ships time to catch up. But next year’s holiday does not start until the end of January.
Liu Yi and Li You contributed research.
Investors are increasingly eyeing the creator economy — the huge, largely unexplored market of providing digital tools to influencers and helping them run their businesses.
The venture capital firm SignalFire estimates that 50 million people around the world consider themselves content creators, while the technology news site The Information estimates that venture capital firms have invested $2 billion into 50 creator-focused start-ups so far this year.
Last month, for example, the venture firm Founders Fund took the lead in a $15 million investment round for Pietra, a start-up aimed at helping influencers launch product lines. In April, Seven Seven Six, a venture firm run by Alexis Ohanian, a Reddit co-founder, and Bessemer Venture Partners announced a $16 million investment in PearPop, a platform that helps creators monetize their collaborations and social media interactions.
The list goes on. In February, the high-profile venture firm Andreessen Horowitz led an investment in Stir, a platform that helps creators manage how they make money, valuing the company at $100 million, Taylor Lorenz and Erin Woo report for The New York Times.
And then there is Clubhouse, the heavyweight of this young market, generating plenty of buzz from Silicon Valley and the media and entertainment world. Clubhouse, which requires an invitation to join, is a social network built around audio-only chat rooms. In April, it raised $200 million in a funding round led by Andreessen Horowitz, putting its valuation at roughly $4 billion.
Major platforms like Spotify, Twitter and Facebook are rushing to catch up to start-ups, particularly Clubhouse. Spotify recently announced its new live audio app, Greenroom, a Clubhouse competitor that Spotify built after acquiring the live audio start-up Locker Room. Twitter has already added its own Clubhouse rival, Twitter Spaces, and both Twitter and Facebook are starting newsletter services to compete with the success of Substack, which allows users to easily set up subscriptions for their writing.