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US consumer prices surge to new 40-year high of 9.1%

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A spike in gas prices pushed US consumer price inflation to a new four-decade high in June 2022
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US inflation surged to a fresh peak of 9.1 percent in June, further squeezing American families and heaping pressure on President Joe Biden, whose ratings have taken a battering from the relentless rise in prices. 

Government data released Wednesday showed a sharp, faster-than-expected increase in the consumer price index from the previous month driven by significant increases in gasoline prices.

The 9.1 percent CPI spike over the past 12 months to June was the fastest increase since November 1981, the Labor Department reported.

Energy contributed half of the monthly increase, as gasoline jumped 11.2 percent in June and a staggering 59.9 percent over the past year. Overall energy prices posted their biggest annual increase since April 1980.

The war in Ukraine has pushed global energy and food prices higher, and US gas prices at the pump last month hit a record of more than $5 a gallon. 

However, energy prices have eased in recent weeks, which could start to relieve some of the pressure on consumers.

But the Federal Reserve is likely to continue its aggressive interest rate increases as it tries to tamp down the price surge by cooling demand before inflation becomes entrenched.

The US central bank last month implemented the biggest rate hike in nearly 30 years, and economists say another three-quarter-point increase is likely later this month.

Ian Shepherdson of Pantheon Macroeconomics summed up the data in one word: “Ouch.” 

“This report will make for very uncomfortable reading at the Fed,” he said. “It rules out the chance of the Fed hiking by only 50bp this month.”

– Signs of cooling? –

Driven by record-high gasoline prices, the consumer price index jumped 1.3 percent in June.

But Shepherdson noted some signs of cooling prices in the data and predicted “this will be the last big increase.”

When volatile food and energy prices are stripped out of the calculation, “core” CPI increased 5.9 percent over the past year — still a rapid pace but slowing from the pace in May, according to the data. 

Food and housing prices also rose in June, as did car prices, though the rate has stabilized or slowed from the past month, the report said.

The White House came out ahead of the report to predict it would show “highly elevated” inflation. 

But press secretary Karine Jean-Pierre noted that the “backwards looking inflation data” does not take into account recent declines in gasoline prices.

According to AAA, the national average price at the pump was down to $4.63 a gallon, from $5.01 a month ago.

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Supply risks still haunt market despite high oil prices: IEA

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Oil demand could outstrip supply next year, the IEA says
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High oil prices have yet to dampen demand which is set to continue rising and may soon outstrip supply, the International Energy Agency warned Wednesday.

It cautioned that the global economic recovery could be derailed unless governments take measures to reduce consumption and fuel prices that pose a threat to stability in some nations.

“Without strong policy intervention on energy use, risks remain high that the world economy falls off-track for recovery,” the Paris-based agency that advises industrialised nations on energy policy said in its latest monthly report on oil markets.

Oil prices have surged from around $80 per barrel earlier this year to over $120 at times as Russia’s invasion of Ukraine has sparked supply concerns and the reopening of China’s economy from Covid lockdowns has boosted demand.

If high petrol prices have started to dent demand in industrialised nations, the IEA said this has been counterbalanced by larger-than-expected rebounds in demand by China and some emerging and developing nations.

The IEA now expects oil demand to rise this year to 99.2 million barrels per day (mbd) and to 101.3 mbd next year.

Meanwhile, supply climbs to 100.1 mbd this year. But even if it hits an expected record of 101.1 mbd next year, it will fall below demand.

The IEA noted that the world has little spare capacity to increase production, with the combined buffer of Saudi Arabia and the United Arab Emirates set to fall to just 2.2 mbd in August.

It said the production of OPEC+ nations could even fall next year if Russia’s supply is impacted as expected by tightening international sanctions.

Coupled with tight refinery margins causing imbalances in certain product markets and putting upward pressure on prices, “it may be up to demand side measures to bring down consumption and fuel costs that pose a threat to stability, most notably in emerging markets,” the IEA said.

It added the strengthening of the dollar versus other currencies as the US Federal Reserve hikes interest rates has compounded the pain of already rising import costs for food and oil for numerous developing and emerging nations, including Sri Lanka which has been gripped by social unrest.

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Panama protests continue despite fuel and food price cuts

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A protester sprays fire during a march against the high cost of food and fuel in Panama City
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Thousands of Panamanians took to the street again on Tuesday to protest rising inflation and government corruption, despite the announcement of price cuts for fuel and some food products.

The demonstrations, called for by the Central American country’s numerous unions, have lasted for two weeks and resulted in some main highways being closed.

President Laurentino Cortizo announced Monday that the price of gasoline for private vehicles will be reduced to $3.95 per gallon from July 15, a drop of 24 percent from the price at the end of June.

He also announced that his government would draft a decree to freeze the prices of a dozen essential food products. 

But several unions say that protests will continue until there is a general reduction in prices and gasoline rates drop below $3 per gallon.

Protesters in Panama City marched Tuesday from the central Porras Park to the heavily guarded National Assembly building.

Many carried Panamanian flags and banners with messages such as “Corruption embezzled my nation”, “We want honest governors” or “Where is the money?”

“The cost of living is what has the people in the streets,” protester Sergio Gallegos, an Indigenous man from the Ngabe-Bugle region, told AFP.

In La Chorrera, a town west of the capital, protesters marched on the Inter-American Highway, the main artery linking Panama with the rest of Central America.

Security minister Juan Pino made a “call for sanity” on Tuesday, so that “social peace” prevails over “any differences.”

The protests have stoked fears in the government and business sector that the country could see a drop in economic activity, or impacts on the tourism industry.

In Ecuador, 18 days of mass protests against high fuel prices last month cost the country over $1 billion, according to its central bank.

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China growth slumps on virus lockdowns, real estate woes: poll

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The growth data will be closely watched as the Communist Party gears up for its 20th Congress when Xi Jinping is expected to be given another five-year term as China's president
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China’s economic expansion slumped in the second quarter to levels not seen since early 2020, an AFP poll of analysts found, owing to painful Covid lockdowns and lingering weakness in the real estate sector.

Leaders of the world’s second-biggest economy remain firmly wedded to a zero-Covid approach of stamping out clusters as they emerge, but the fallout has sapped growth and is pushing policymakers’ annual target of around 5.5 percent out of reach.

The slowdown comes after the country’s biggest city Shanghai was sealed off for two months over a virus resurgence — snarling supply chains and causing factories to shut — while dozens of others grappled with tightened rules to fight local outbreaks.

Gross domestic product is estimated to have expanded 1.6 percent on-year in April-June, according to the AFP poll of experts from 12 financial institutions.

Several analysts expect the economy to shrink on a quarterly basis — a first since 2020 at the height of the pandemic.

According to key gauges, activity in both the services and manufacturing sectors contracted in April and May, said Rabobank senior macro strategist Teeuwe Mevissen.

China’s property sector, an important economic driver, was also “still in limbo”, while lockdowns have severely hit supply and demand, he told AFP.

New home sales for the top 100 developers was 43 percent down on-year in June, according to China Real Estate Information Corporation data, with Nomura analysts adding that metro passenger trips in major cities remained below 2021 levels.

China has only logged a GDP contraction once in recent decades, and analysts expect the latest reading will drag full-year growth to around four percent, slashing earlier estimates.

Economists have long questioned the accuracy of official Chinese data, suspecting that figures are massaged for political reasons. 

And Friday’s official release will be closely watched as the Communist Party gears up for its 20th Congress when Xi Jinping is expected to be given another five-year term as president.

– Zero-Covid vs growth –

China’s policymakers want both zero-Covid and growth, an aim made clear during April’s Politburo meeting, said Macquarie economist Larry Hu in a recent report.

Authorities have vowed efforts to meet this year’s target, a goal reiterated by Xi last month, and leaders will likely “decide whether to double down or back down” in July, Hu said.

“Rhetorically, policymakers are unlikely to drop the name of ‘zero-Covid’ any time soon. That said, they could still redefine ‘zero-Covid’ to make it less and less disruptive to the economy,” he added.

Last Thursday, Premier Li Keqiang said the foundations for China’s recovery are “still unstable” and called for more work to stabilise the economy.

And “multiple uncertainties” also surround the latest rebound, said ANZ Research in a report.

Besides unexpected Covid outbreaks which could trigger more restrictions on movement, “a slowdown in the US economy and the Fed’s hiking moves may cloud the outlook for China’s exports,” ANZ added.

Domestically, consumer inflation climbed in June to the highest in two years as pork prices spiked, official data showed Saturday, threatening relative stability from a global surge in food prices.

China’s economy has started to recover after lockdown restrictions were lifted in Shanghai from June 1, said Oxford Economics’ lead economist Tommy Wu.

But even if future outbreaks are less disruptive as authorities fine-tune their strategies, “pressure on consumption will likely persist”, he added.

This week, an auto industry association downgraded its 2022 sales forecast on weaker demand.

“Consumer sentiment is unlikely to turn sanguine as strict mobility restrictions will be imposed even when the number of Covid cases in a small neighbourhood is very low,” Wu added.

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