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Daily Business Briefing
June 10, 2021, 5:00 a.m. ET
June 10, 2021, 5:00 a.m. ET
Prices are rising for everything from airfares to used cars, and fresh data due on Thursday will give policymakers and investors another chance to assess whether those increases are likely to be short-lived — or are poised to be the kind of lasting inflation that officials would worry about.
Economists expect the Labor Department to report that the Consumer Price Index rose 4.7 percent in May compared with a year prior, a Bloomberg survey of economists shows. That’d be the largest annual increase since 2008. Economists project that the price index rose 0.5 percent between April and May.
As prices have climbed in recent months, government officials and many economists have said the jump is likely to be temporary. 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.
Percent change in Consumer Price
Index from a year prior
Some of May’s expected jump can be explained
through what’s known as base effects — prices
fell significantly last spring, so the increase now
from the year prior is larger.
2021 Consumer
Price Index
Percent change in Consumer Price
Index from a year prior
Some of May’s expected jump can be explained through what’s known as base effects —
prices fell significantly last spring, so the increase now from the year prior is larger.
2021 Consumer Price Index
But a strong monthly figure for May, which would come on the heels of a sharp rise in April, would show that prices are moving up quickly for more than just technical reasons. The critical question is how long that will last.
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.
Car prices and bottlenecks
Outside of the base effect, the 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, many households are flush with cash to spend after multiple stimulus checks and months in lockdown.
“It’s going to be another shocking report,” said Laura Rosner-Warburton, a founding partner at MacroPolicy Perspectives. “Don’t be surprised by another epic used car number.”
Ms. Rosner-Warburton was referring to the 21 percent annual increase in used car prices reported for April, the most striking example of the bottlenecks 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. (It has affected video-game console supplies, too.)
That chip shortage, which arose from factory shutdowns during the pandemic and 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.
Percent Change, April 2021 from April 2020
But economists including Ms. Rosner-Warburton are looking for other signs that the price increases will prove longer lasting: She is particularly watching rent and owners’ equivalent rent, two components that make up a big share of inflation and which move slowly. So far, they have remained relatively subdued.
For now, “most of it is coming from those transitory factors,” she said.
Regardless, the fresh inflation figures are likely to add to the debate in Washington, where the White House and Fed have been playing down the recent run-up as temporary even as Republicans have used the price gains as ammunition in their critiques of Democrats’ spending.
The data comes just ahead of the central bank’s June meeting, which will give 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.
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.
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.
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.
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.
