Inflation poised to linger

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Inflation poised to linger — Double-digit spikes in used car prices and steep rises in the cost of pandemic-affected services may be slowing, but higher prices overall now look on track to last well into next year. That’s the takeaway from September CPI data released Wednesday, which showed a mixed picture on inflation: a slowdown in price jumps since the summer but a higher-than-expected 5.4 percent increase from a year ago – the biggest bounce in 13 years and one that exceeded economists’ expectations.

It’s hard to deny that the rise in prices has more staying power than initially anticipated. The Social Security Administration’s announcement that benefits will surge 5.9 percent for retirees in 2022 because of a cost-of-living adjustment, the largest gain in nearly four decades, offered one indication how long this is likely to last. And many economists now expect the unique mix of supply chain backlogs, persistent consumer demand, pent-up savings and labor shortages to keep inflation elevated deep into 2022.

That’s putting pressure on White House officials to act before voters blame them for higher prices at the pump and in the grocery store. Biden administration officials are looking now to step in to try to do what they can on at least two fronts: lowering gas prices and easing supply chain backlogs.

Our Ben Lefebvre scoops: “The White House has been consulting with the oil industry to seek a remedy for rising gasoline prices as surging inflation threatens to tarnish the economic recovery, according to three people familiar with the discussions. The latest outreach to the oil industry is an awkward shift for the Biden administration, which has pledged to move the country away from fossil fuels and has drawn criticism from the industry and Republicans for pausing lease sales of federal land for oil and gas development.”

And our Steven Overly: “President Joe Biden is rushing to relieve congestion across the nation’s complex shipping supply chain as it threatens to disrupt the holiday season for millions of Americans. … The White House is leaning heavily on port operators, transportation companies and labor unions to work around the clock unloading ships and hauling cargo to warehouses around the country. … They’re hoping Wednesday’s announcements will prompt additional retailers, long-haul trucking firms and train operators to act until the entire supply chain is working nonstop.”

Paging the FedThe Federal Reserve still sees inflation as tied to these supply chain bottlenecks and therefore a phenomenon that should fade along with the pandemic, our Victoria Guida writes. But that might take a long time. Fed officials were hearing from people in their respective regions that they “generally did not expect these bottlenecks to be fully resolved until sometime next year or even later,” according to the minutes of the Fed’s September meeting.

Though the central bank continues to refer to the current bout of inflation as transitory, it’s also still positioning itself to have the option of increasing interest rates in the second half of next year. The minutes reinforced that the Fed expects to make a decision to start slowing its massive monthly asset purchases in November, and to have that process over with by mid-2022, clearing the path for a rate hike if policymakers want to do one.

HAPPY THURSDAY — I’m so excited to be here as your guest host. Send any tips to me at [email protected] or @mmcassella and to Aubree Eliza Weaver at [email protected] or @AubreeEWeaver.

TALKING SUSTAINABILITY — The Institute of International Finance is in the middle of its annual meeting this week, with a focus on sustainable growth and stability in a “diverging, decarbonizing, digitizing, indebted world.”

There’s a lot going on, to be sure. But we watch so you don’t have to. Our Lorraine Woellert writes in with three takeaways from Wednesday’s panels on sustainability:

Disclosure is a mess. There’s little or none of it in private markets. Many public companies don’t participate in industry frameworks. And more than 20 standard-setting efforts are underway worldwide, including in the U.S. “Disclosure is a tool,” said Axel Weber, chair of both the IIF and UBS Group. “Maybe the good is better than the perfect. We need to start somewhere, and we’d better get going.”

There is some progress. Those 20-plus taxonomies have a common core, which provides a roadmap for investing in what Richard Mattison, president of S&P Global’s Sustainable1 group, called the “dark green end of the taxonomy spectrum.”

Capital is idle. Absent standardization and clear rules of the road, money isn’t being deployed. “We have large pools of savings trapped in zero- or low-yielding accounts when there’s a need for infrastructure investment,” said Leslie Maasdorp, vice president and CFO of the New Development Bank.

“Gnarly, crunchy” problems are complicated. Credit Celine Herweijer, group chief sustainability officer at HSBC, for summing up the complexity of unresolved issues. How much should companies disclose, what methodologies and scenarios should they use, and should targets be absolute or intensity-based?

One example: Absolute emissions-reductions targets are needed in the long term. But the necessary shift to electrification, for example, will drive up total emissions in the near term.

IMF’S GEORGIEVA REJECTS CHINA REPORTVictoria Guida again: “International Monetary Fund Managing Director Kristalina Georgieva on Wednesday said there was ‘no there there’ to allegations that she pressured staff to give China favorable treatment during her time at the World Bank but pledged to make the episode a ‘learning opportunity.’ Georgieva, speaking at her first press conference since the scandal broke, faced questions on a World Bank-commissioned investigation by law firm WilmerHale, which found senior officials at the bank exerted ‘direct and indirect’ pressure on the authors of the influential ‘Doing Business’ report to promote China.”

MODEST GAIN BREAKS S&P 500’S LOSING STREAK AP’s Damian J. Troise and Alex Veiga: “Major U.S. stock indexes closed mostly higher Thursday, snapping a three-day losing streak for the S&P 500 despite another choppy day of trading. The benchmark index rose 0.3 percent after having been down 0.5 percent in the early going. It’s still on pace for a 0.6 percent weekly loss. The Dow Jones Industrial Average ended flat, while the Nasdaq rose 0.7 percent.

“Most of the S&P 500′s 11 sectors rose, with technology and communication accounting for a big share of the gains. A mix of companies that rely on consumer spending also helped lift the market. Financial and energy companies fell.”

STOCK MARKET MALAISE WITH THE SHADOW OF ‘70S-STYLE STAGFLATIONNYT’s Matt Phillips: “Vaccine mandates seem to be working, younger children may be approved for shots by Halloween, and the coronavirus appears to be in retreat. But those hopeful signs herald a messy new phase for the country’s economic recovery — and that’s putting Wall Street more on edge than it’s been in months. The Federal Reserve has signaled it could begin dialing back programs that have helped prop up the markets for the past 18 months as soon as next month, while the breakneck pace of economic growth seems to be slowing, a fact underscored by a disappointing September jobs report.”

MANUFACTURERS SUE SEC OVER ADVISORY RULES — Our Kellie Mejdrich: “The National Association of Manufacturers on Wednesday sued the SEC for halting Trump-era restrictions on how investor advisory firms influence public company shareholders, in the first major industry challenge against the agency during SEC Chair Gary Gensler’s tenure. The business group said in a complaint against the SEC that the agency unlawfully suspended enforcement of the rules, which were finalized in July 2020.”

LABOR DEPT. LOOKS TO REVERSE ESG INVESTING RULESKellie again: “The Department of Labor on Wednesday proposed undoing Trump-era rules that restricted the ability of retirement plan advisers to consider climate change and social impact when selecting investments and voting on shareholder proposals. The proposed rule would make clear that environmental, social and governance factors are fair game for financial advisers.”

SEC ADOPTS RULE ON FILING FEE DISCLOSURE, PAYMENT METHODS — Reuters’ Katanga Johnson: “The U.S. Securities and Exchange Commission (SEC) on Wednesday said it voted to adopt a rule modernizing the process for paying filing fees when operating and investment companies engage in certain transactions, including registered securities offerings, tender offers, and mergers and acquisitions.

“The SEC amendments, which generally become effective on Jan. 31, 2022, with some updates phased in over the coming years, would also require filers to present the information required for filing fee calculation in a separate interactive format known as Inline eXtensible Business Reporting Language (XBRL), the agency said. It added that the changes would improve filing fee preparation and payment processing by increasing the speed, accuracy and usability of financial disclosure, and eventually reduce costs.”

But is the Fed’s inflation’s view built on sand? — WSJ’s Greg Ip: “’Mainstream economics is replete with ideas that ‘everyone knows’ to be true, but that are actually arrant nonsense.’ That’s not a pundit’s tweet or an academic’s blog post. It’s the opening line of a research paper released by the Vatican of mainstream economics, the Federal Reserve. Staff economist Jeremy Rudd’s paper focuses on a purported flaw in the Fed’s sanguine outlook for inflation. But his critique extends to the entirety of the field, accusing economists of routinely making assumptions because they suit their models and theories, not because they fit the facts.”

BRAINARD CALLS FOR BETTER ACCESS TO CREDIT FOR NATIVE AMERICANS — Reuters: “Federal Reserve Governor Lael Brainard said Wednesday that U.S. financial regulators will seek to improve Native American communities’ access to credit. ‘We will continue to focus on and seek feedback on how to best encourage impactful CRA (Community Reinvestment Act) activities in Indian Country, including for building climate resilience where needed,’ Brainard said in prepared remarks.”


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