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US prices high but stable in May, spending slows

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US inflation remains high but the price wave may have crested, as consumers pull back on spending
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A key US inflation measure showed price increases held steady in the 12 months ended in May, while consumer spending growth slowed sharply, a good sign in the battle against soaring prices.

The trend could offer comfort to consumers and central bankers alike, as a sign the Fed’s aggressive interest rate strategy is starting to have an impact to quell the fastest surge in inflation in more than 40 years.

The personal consumption expenditures (PCE) price index rose 6.3 percent compared to May 2021, still high but the same pace as in the prior month, even as it jumped 0.6 percent compared to April, the Commerce Department reported Thursday.

The index jumped 0.6 percent compared to April, much faster than in the prior month, but slightly below what economists had projected.

But spending edged up just 0.2 percent, less than half the increase in April and part of a steady downward drift as consumers pull back amid surging prices.

Buoyed by a stockpile of savings, helped by massive government aid, consumers have been the lynchpin in the rapid US recovery from the pandemic downturn.

But strong demand clashed with global supply chain snarls and the world’s largest economy has been battered for months by a cresting inflation wave, made more painful by the surge in energy prices sparked by the Russian invasion of Ukraine in late February.

Excluding volatile food and energy prices, PCE rose 0.3 percent in the month, the same as in April, and slowed slightly to 4.7 percent over the past year, the report said.

– Fed inflation battle –

The PCE price index is the Federal Reserve’s preferred inflation gauge, as it reflects consumers’ actual spending, including shifts to lower cost items, unlike the more well-known consumer price index, which jumped 8.6 percent in May.

PCE also gives less weight to things like rent, vehicles and airline fares, which have contributed to the blistering pace of the CPI rise.

The Fed early this month announced the biggest hike in the benchmark lending rate in nearly 30 years, a three-quarter point increase that was the third step in its counteroffensive against rising inflation, which aims to cool demand.

Policymakers are watching the spending and inflation data closely and have signaled there is a good chance of another similar increase in late July, followed by more big steps in coming months.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, noted that the three-month average annual increase fell to the slowest pace since November, and “a sharp easing from the 5.7 percent peak in February.”

“A combination of slower wage gains, lower margin inflation, and the stronger dollar is beginning to drive a clear slowdown in core inflation,” he said. But “It has much further to go.

– Slower spending –

The signs of consumers pulling back will weigh on second quarter GDP growth, after the Commerce Department revised first-quarter consumer spending sharply lower, cutting it to 1.8 percent from 3.1 percent, as the economy contracted 1.6 percent.

The key driver of the slower consumption growth in May was the sharp drop in spending on big-ticket manufactured items, known as durable goods, which fell 3.2 percent in the month, the report said.

Economists note that reflects a pull back on vehicle sales.

Spending on services rose 0.7 percent in the month, the same as in April.

Rubeela Farooqi of High Frequency Economics said the Fed will stick to its efforts to tame prices.

“With the threat from durable inflation in focus, these data are not likely to change the rate trajectory, which remains firmly upward,” she said in an analysis.

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Uber courts drivers by letting them pick rides

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Uber drivers in the United States who had to accept ride requests before learning where they were headed will soon be seeing details of trips being sought along with the fares
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Uber on Friday said it will let drivers in the United States see trip details before deciding whether to accept them — a new feature long sought by drivers.

A common lament by drivers at the app-summoned ride platform has been that they have to accept a request before learning where trips will take them, or how profitable they will be.

“Our new trip request screen makes it easier for drivers to decide if a trip is worth their time and effort by providing all the details — including exactly how much they’ll earn and where they’re going — upfront,” chief executive Dara Khosrowshahi said in a blog post.

Revealing details only once a driver had accepted a trip was seen as a way to ensure riders would get picked up promptly, and not be snubbed because they were headed to locations deemed undesirable by drivers.

But Khosrowshahi said drivers have made it clear that they want more flexibility and choice.

Uber said the new feature, called Upfront Fares, was tested in several cities and was a success with drivers while resulting in shorter wait times for passengers.

The ride-sharing firm will also shift from sending drivers a single ride request at a time, to letting them pick from a list of detailed passenger requests in an area.

Uber is engaged in a long-term effort to prove that its business model is socially and economy viable.

The “gig economy” — which uses temporary independent contractors for short-term tasks — has grown rapidly since Uber’s launch in 2009 and is promoted as a flexible way for people to earn money without the constraints of a full-time job.

But there has been growing backlash in countries around the world about the conditions and dangers gig workers face.

Uber driver ranks — which shrank during the Covid-19 pandemic — have not rebounded as quickly as demand for rides, and soaring fuel costs have made the gigs less attractive.

The firm in March announced a surcharge on both rides and Uber Eats meal deliveries that would go directly to drivers to help offset high fuel prices.

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Elon Musk fires back at Twitter in court battle

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Court rules require Elon Musk to provide a public version of his 'confidential' counter claims against Twitter as the court battle over holding him to the terms of the $44 bn buyout deal heads for trial in October.
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Elon Musk on Friday filed claims against Twitter as he fights back against the tech firm’s lawsuit demanding he be held to his $44 billion buyout deal.

Musk’s counter-suit was submitted along with a legal defense against Twitter’s claim that the billionaire is contractually bound to complete the deal he inked in April to buy Twitter, the Chancery Court in the state of Delaware said in a notice.

The 164-page filing was submitted as being “confidential,” meaning the documents were not accessible by the public, the notice indicated.

Rules of the court, however, require Musk to submit a public version of the filing with trade secrets or other sensitive information redacted.

A judge has ordered a five-day trial over Twitter’s lawsuit against Musk to begin on October 17.

The Tesla boss wooed Twitter’s board with a $54.20 per-share offer, but then in July announced he was “terminating” their agreement on accusations the firm misled him regarding its tally of fake and spam accounts.

Twitter, whose stock price closed at $41.61 on Friday, has stuck by its estimates regarding accounts run by software “bots” rather than people, and argued that Musk is contriving excuses to back out of the contract.

The social media platform has urged shareholders to endorse the deal, setting a vote on the merger for September 13.

“We are committed to closing the merger on the price and terms agreed upon with Mr. Musk,” Twitter chief executive Parag Agrawal and board chairman Bret Taylor said in a copy of a letter to investors.

Billions of dollars are at stake, but so is the future of Twitter, which Musk has said should allow any legal speech — an absolutist position that has sparked fears the network could be used to incite violence.

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Musk, Twitter get Oct. 17 trial in buyout fight

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Twitter is due to face off with Tesla boss Elon Musk on October 17 in the US state of Delaware in a buyout trial
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Twitter’s lawsuit to force Elon Musk to complete his $44 billion buyout bid is set to go to trial on October 17, a US judge has ordered, in a case with major stakes for both sides.

The trial is due to open in a court in the eastern state of Delaware and is set to last five days to decide whether Musk can walk away from the deal.

The Tesla boss wooed Twitter’s board with a $54.20 per-share offer, but then in July announced he was “terminating” their agreement on accusations the firm misled him regarding its tally of fake and spam accounts.

Twitter has countered by saying Musk already agreed to the deal and can’t back out now.

An order from the judge handling the case, Kathaleen McCormick, lays out an expedited schedule to resolve a fight that has left Twitter in limbo.

She reminds both sides that they “shall cooperate in good faith” on matters like handing over information to each other, a key topic that can result in delays. 

Billions of dollars are at stake, but so is the future of Twitter, which Musk has said should allow any legal speech — an absolutist position that has sparked fears the network could be used to incite violence.

Twitter blamed disappointing results last week on “headwinds,” including the uncertainty imposed on the company by Musk’s chaotic buyout bid.

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