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Tag: Prices

  • Kroger and Albertsons Say Their Merger Will Cut Prices. Their Shares Are Tumbling.

    Kroger and Albertsons Say Their Merger Will Cut Prices. Their Shares Are Tumbling.

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    With inflation still an untamed threat, Friday’s announced merger of the grocers


    Kroger


    and


    Albertsons


    will spur debate about whether the consolidation will raise food prices, or lower them.

    The Biden administration’s antitrust regulators are scrutinizing mergers more closely than did predecessors, and an old argument against combinations is that they lead to price-gouging.

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  • Amazon’s holiday sales event sees lower sales, group says

    Amazon’s holiday sales event sees lower sales, group says

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    NEW YORK — Amazon said Thursday its Prime members ordered more than 100 million items during a sales event this week that analysts are expecting to be a bellwether for the holiday shopping season.

    As expected, the Seattle-based e-commerce company did not share sales figures. Still, some third-party estimates offer clues on how consumers spent during the two-day discount event that ran on Tuesday and Wednesday.

    According to the data group Numerator, which tracked roughly 44,670 orders during the sale, the average order size clocked in at $46.68, $13 less than what it was during Amazon’s Prime Day sales event in July. Inflation also had an impact – 26% of shoppers passed on a deal because it wasn’t a necessity, Numerator said.

    Major retailers have been offering more holiday discounts this year and doing it much earlier than usual, aiming to offload excess goods and offer cash-strapped Americans better deals amid high inflation.

    Amazon’s discount event this week was the first time the company offered major sales to its Prime members twice in one year. Walmart has also been offering sales this week and has expanded its window for gift returns to between Oct. 1 and Jan. 31, compared with last year’s return window of Nov. 1 to Jan. 24. Meanwhile, Target began offering holiday deals last week during a two-day discount event. The company declined to share its revenue from those sales.

    According to Salesforce, which analyzes online shopping data, the average online discount rate on Tuesday and Wednesday was roughly 21%, the deepest discount rate since the beginning of the pandemic outside of Cyber Week, the time between Thanksgiving and Cyber Monday.

    But despite the deep discounts, consumers are still generally paying more than they did in the past two years due to high inflation. The average online selling price on Tuesday and Wednesday, for example, was up 8% compared to last year, and 17% compared to 2020, Salesforce said.

    Online spending in November and December is expected to hit $209.7 billion, a 2.5% jump from 2021, according to Adobe Analytics. That’s sluggish growth compared to last year’s gain of 8.6%.

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  • Saudis say US sought 1 month delay of OPEC+ production cuts

    Saudis say US sought 1 month delay of OPEC+ production cuts

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    DUBAI, United Arab Emirates — Saudi Arabia said Thursday that the U.S. had urged it to postpone a decision by OPEC and its allies — including Russia — to cut oil production by a month. Such a delay could have helped reduce the risk of a spike in gas prices ahead of the U.S. midterm elections next month.

    A statement issued by the Saudi Foreign Ministry didn’t specifically mention the Nov. 8 elections in which U.S. President Joe Biden is trying to maintain his narrow Democratic majority in Congress. However, it stated that the U.S. “suggested” the cuts be delayed by a month. In the end, OPEC announced the cuts at its Oct. 5 meeting in Vienna.

    Holding off on the cuts would have likely delayed any rise in gas prices until after the elections.

    Rising oil prices — and by extension higher gasoline prices — have been a key driver of inflation in the U.S. and around the world, worsening global economic woes as Russia’s months-long war on Ukraine also has disrupted global food supplies. For Biden, gasoline prices creeping up could affect voters. He and many lawmakers have warned that America’s longtime security-based relationship with the kingdom could be reconsidered.

    The decision by the Saudi Foreign Ministry to release a rare, lengthy statement showed how tense relations between the two countries have become.

    The White House pushed back on Thursday, rejecting the idea that the requested delay was related to the U.S. elections and instead linking it to economic considerations and Russia’s war on Ukraine.

    “We presented Saudi Arabia with analysis to show that there was no market basis to cut production targets, and that they could easily wait for the next OPEC meeting to see how things developed,” said John Kirby, coordinator for strategic communications at the National Security Council.

    “Other OPEC nations communicated to us privately that they also disagreed with the Saudi decision, but felt coerced to support Saudi’s direction,” he added.

    U.S.-Saudi ties have been fraught since the 2018 killing and dismemberment of Washington Post columnist Jamal Khashoggi, which Washington believes came on the orders of Saudi Crown Prince Mohammed bin Salman. Meanwhile, higher energy prices provide a weapon Russia can use against the West, which has been arming and supporting Ukraine.

    The statement by the Saudi Foreign Ministry acknowledged that the kingdom had been talking to the U.S. about postponing OPEC+’s 2 million barrel cut announced last week.

    “The government of the kingdom clarified through its continuous consultation with the U.S. administration that all economic analyses indicate that postponing the OPEC+ decision for a month, according to what has been suggested, would have had negative economic consequences,” the ministry said in its statement.

    The ministry’s statement confirmed details from a Wall Street Journal article this week that quoted unnamed Saudi officials saying the U.S. sought to delay the OPEC+ production cut until just before the midterm elections. The Journal quoted Saudi officials as describing the move as a political gambit by Biden ahead of the vote.

    The kingdom also criticized attempts to link its decision to Russia’s war on Ukraine.

    “The kingdom stresses that while it strives to preserve the strength of its relations with all friendly countries, it affirms its rejection of any dictates, actions, or efforts to distort its noble objectives to protect the global economy from oil market volatility,” it said. “Resolving economic challenges requires the establishment of a non-politicized constructive dialogue, and to wisely and rationally consider what serves the interests of all countries.”

    Both Saudi Arabia and the neighboring United Arab Emirates, key producers in OPEC, voted in favor of a United Nations General Assembly resolution Wednesday to condemn Russia’s “attempted illegal annexation” of four Ukrainian regions and demand its immediate reversal.

    Once muscular enough to grind the U.S. to a halt with its 1970s oil embargo, OPEC needed non-members like Russia to push through a production cut in 2016 after prices crashed below $30 a barrel amid rising American production. The 2016 agreement gave birth to the so-called OPEC+, which joined the cartel in cutting production to help stimulate prices.

    The coronavirus pandemic briefly saw oil prices go into negative territory before air travel and economic activity rebounded following lockdowns around the world. Benchmark Brent crude sat over $92 a barrel early Wednesday, but oil-producing nations are worried prices could sharply fall amid efforts to combat inflation.

    Biden, who famously called Saudi Arabia a “pariah” during his 2020 election campaign, traveled to the kingdom in July and fist-bumped Prince Mohammed before a meeting. Despite the outreach, the kingdom has been supportive of keeping oil prices high in order to fund Prince Mohammed’s aspirations, including his planned $500 billion futuristic desert city project called Neom.

    On Tuesday, Biden warned of repercussions for Saudi Arabia over the OPEC+ decision.

    “There’s going to be some consequences for what they’ve done, with Russia,” Biden said. “I’m not going to get into what I’d consider and what I have in mind. But there will be — there will be consequences.”

    ———

    Associated Press writer Aamer Madhani in Washington contributed to this report.

    ———

    Follow Jon Gambrell on Twitter at www.twitter.com/jongambrellAP.

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  • Worsening inflation will pressure Fed to keep raising rates

    Worsening inflation will pressure Fed to keep raising rates

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    WASHINGTON (AP) — Inflation in the United States accelerated in September, with the cost of housing and other necessities intensifying pressure on households, wiping out pay gains and ensuring that the Federal Reserve will keep raising interest rates aggressively.

    Consumer prices, excluding volatile food and energy costs, jumped 6.6% in September from a year ago — the fastest such pace in four decades. And on a month-to-month basis, such “core” prices soared 0.6% for a second straight time, defying expectations for a slowdown and signaling that the Fed’s multiple rate hikes have yet to ease inflation pressures. Core prices typically provide a clearer picture of underlying price trends.

    Overall prices rose 8.2% in September compared with a year earlier, down slightly from August, the government said Thursday in its monthly inflation report. But from August to September, prices increased 0.4%, faster than the July-to-August increase. Though cheaper gas helped slow the broadest measure of inflation, costlier food, medical care and housing pointed to the breadth of price pressures across the economy.

    “We still have no evidence that inflation is decelerating,” said Matthew Luzzetti, an economist at Deutsche Bank. “Let alone the clear and convincing evidence that the Fed is looking for.”

    Stock markets fell sharply in early trading, but then rebounded and moved higher. The Dow Jones was up 560 points, or 1.9%, in mid-day trading.

    Thursday’s report represents the final U.S. inflation figures before the Nov. 8 midterm elections after a campaign season in which spiking prices have fueled public anxiety, with many Republicans casting blame on President Joe Biden and congressional Democrats.

    Speaking Thursday in Los Angeles, Biden acknowledged the pain that inflation is causing many people, while suggesting that the latest figures showed “some progress.”

    “Americans are squeezed by the cost of living,” the president said. “It’s been true for years, and folks don’t need to read a report to tell them they’re being squeezed. Fighting this battle every day is a key reason why I ran for president.”

    Even with widespread price spikes, the September data showed that the prices for many physical goods, including clothing, used cars, furniture, and appliances, dropped last month. A key factor is that supply chain snarls have eased, and many large retailers such as WalMart and Target have discounted some items to clear excess stockpiles.

    Yet the price drops were not as steep as many economists expected, and they were more than offset by sharp increases in services prices, including health care, auto repair and housing.

    A measure of housing costs jumped 0.8% in September, the largest such increase in 32 years. The Fed’s rate hikes have led to much higher mortgage rates — the average on a 30-year fixed home loan is nearly 7% — and caused home sales to tumble and prices to falter. But declining house prices will take time to feed through into the government’s measure.

    The cost of health insurance jumped 2.1% from August to September and more than 28% over the past 12 months — a record one-year increase. The cost of auto repairs surged 15% in September from a year earlier, also a record high. The supply chains of many car parts are still disrupted.

    “The primary driver of inflation has rotated away from goods prices and to services,” said Eric Winograd, U.S. economist at AB. “Services inflation is heavily influenced by wages, and so it is going to take a meaningful weakening of the labor market to bring inflation to heel.”

    Inflation in services is also being fueled by steady consumer demand. Though there are signs that lower-income Americans are cutting back, higher-income households still appear willing to spend on travel, restaurant meals and services like veterinary care.

    Both Delta and American Airlines, for example, reported strong revenue growth this week, driven by increased demand from travelers. Airfares rose a brisk 0.8% from August to September.

    Service businesses are having to rapidly raise wages to attract the workers they need. Those higher labor costs, in turn, are often passed on to consumers in the form of higher prices.

    Inflation has swollen families’ grocery bills, rents and utility costs, among other expenses, causing hardships for many and deepening pessimism about the economy despite strong job growth and historically low unemployment.

    Kasondra Mathews is among those feeling the squeeze. Mathews, 50, who lives near Denver, has been working overtime as a nurse’s assistant to keep up with her rent and grocery bills. Her rent has increased roughly 5% a year for the past several years, shrinking her budget for other items.

    With her daughter a senior in high school and headed soon to college, Mathews has found ways for her to apply to her preferred schools for free. She’s also forgoing any visits to a college to avoid the travel expense.

    “We didn’t get to do college tours, because we can’t afford it,” she said. “I couldn’t do the things you might want to do for your senior.”

    As the elections near, Americans are increasingly taking a dim view of their finances, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. Roughly 46% of people now describe their personal financial situation as poor, up from 37% in March. That sizable drop contrasts with the mostly steady readings that had lasted through the pandemic.

    The September inflation numbers essentially guarantee that the Fed will raise its key short-term rate by three-quarters of a point for a fourth straight time when it next meets in early November. The Fed has already raised its key short-term rate by 3 percentage points since March, the fastest pace of hikes since the early 1980s. Those increases are intended to raise borrowing costs for mortgages, auto loans and business loans and cool inflation by slowing the economy.

    At their last meeting in late September, Fed officials had projected that by early next year, they would raise their key rate to roughly 4.5%, which would be the highest level in 14 years. Some economists now predict that the Fed will have to boost rates even higher to defeat what appears to be an entrenched bout of inflation. The risk is that such higher borrowing costs would push the economy into recession.

    Fed policymakers said at the September meeting that inflation was “showing little sign so far of abating,” according to minutes from the Fed’s most recent meeting.

    Used car prices dropped 1.1% from August to September, the third straight decline. Wholesale used car prices have fallen much faster, yet dealers have resisted passing on those declines to consumers, resulting in much bigger profits.

    Lael Brainard, vice chair of the Federal Reserve, noted this week that retailers have also reported healthy profit margins, having raised prices more than they have increased wages.

    “The return of retail (profit) margins to more normal levels could meaningfully help reduce inflationary pressures in some consumer goods,” Brainard said.

    Some large chains have started to cut prices. But it’s not clear how much effect on inflation that will have in the coming months. Walmart has said it will offer steep discounts on such items as toys, home goods, electronics and beauty. Target began offering holiday deals earlier this month.

    But after jacking up prices for the past 18 months, companies are reluctant to reverse course. Until consumer demand slows further, forcing more companies to compete on price, costs for many goods will likely stay high, economists say.

    “There’s a saying in economics that prices go up like rockets and down like feathers,” said Eric Swanson, a former Fed economist who is now a professor at the University of California, Irvine. “You’re kind of seeing that a little bit.”

    ___

    Associated Press writer Colleen Long contributed to this report from Los Angeles.

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  • Social Security benefits to jump by 8.7% next year

    Social Security benefits to jump by 8.7% next year

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    WASHINGTON (AP) — Millions of Social Security recipients will get an 8.7% boost in their benefits in 2023, a historic increase but a gain that will be eaten up in part by the rising cost of everyday living.

    The cost-of living adjustment — the largest in more than 40 years — means the average recipient will receive more than $140 extra a month beginning in January, the Social Security Administration said Thursday.

    While Social Security recipients welcomed the benefit increase, many said it wasn’t enough to cover the impact of inflation.

    It’s “not much help,” said 85-year-old Shirley Parker, who lives in Chatham on Chicago’s South Side,

    Home maintenance costs and high grocery prices are cutting steeply into her budget. “Food is ridiculous. I come out with a bag full of groceries — $50 — don’t have about 10 items,” she said.

    A separate government report Thursday showed inflation newly accelerating. The Consumer Price Index rose 0.4% for September after just 0.1% in August and is up 8.2% for the past 12 months. Jobless claims for unemployment benefits rose for the week.

    The Social Security Administration said the estimated average monthly Social Security benefit for all retired workers will be $1,827 starting in January, according to an agency fact sheet.

    The boost in Social Security benefits will be coupled with a 3% drop in Medicare Part B premiums, meaning retirees will get the full impact of the Social Security increase.

    “This year’s substantial Social Security cost-of-living adjustment is the first time in over a decade that Medicare premiums are not rising and shows that we can provide more support to older Americans who count on the benefits they have earned,” said the Social Security Administration’s acting commissioner, Kilolo Kijakazi.

    President Joe Biden on Thursday afternoon echoed the sentiment that the Medicare premium reduction would have some impact on retirees’ wallets. “Seniors are gonna get ahead of inflation next year,” Biden said. “For the first time in 10 years, their Social Security checks will go up while their Medicare premiums go down.”

    Jo Ann Jenkins, CEO of the AARP, said the benefits increase “will provide much needed relief to millions of Americans.”

    Several government indexes show that inflation hits older Americans harder than the rest of the population. Medical costs are a big part of the burden.

    The Social Security announcement comes just weeks before the midterm elections, and at a time when Democrats and Republicans are sparring about high prices now and how best to shore up the program financially in the future.

    William Arnone, chief executive of the National Academy of Social Insurance, an advocacy organization for Social Security, said the benefit increase is “no cause for celebration,” since it will not help all recipients overcome inflation, especially if prices continue to rise.

    “There’s already indications that health care inflation is going to be through the roof next year,” Arnone said.

    Margaret Toman, a 78-year-old in Garner, North Carolina, who had stopped working to take care of her mother, who has since died, described the 8.7% increase as “quite stingy.”

    “I think most of us who are older receiving Social Security are grateful for that Social Security,” she said. “But that gratitude sometimes covers up or replaces a certain feeling of anger at having paid into a system for so long and still struggling to survive.”

    About 70 million people — including retirees, disabled people and children — receive Social Security benefits. This will be the biggest increase in benefits that baby boomers, those born between the years 1946 and 1964, have ever seen. The last time a COLA was higher was in 1981, at 11.2%.

    Willie Clark, 65, of Waukegan, Illinois, says his budget is “real tight” and the increase in his Social Security disability benefits could give him some breathing room to cover household expenses he’s been holding off on.

    Still, he doubts how much of the extra money will end up in his pocket. His rent in an apartment building subsidized by the U.S. Department of Housing and Urban Development is based on his income, so he expects that will rise, too.

    Social Security is financed by payroll taxes collected from workers and their employers. The maximum amount of earnings subject to Social Security payroll taxes for 2023 is $160,200, up from $147,000 in 2022.

    The financing setup dates to the 1930s, the brainchild of President Franklin D. Roosevelt, who believed a payroll tax would foster among average Americans a sense of ownership that would protect the program from political interference.

    Next year’s higher payout, without an accompanying increase in Social Security contributions, could put additional pressure on a system that’s facing a severe shortfall in coming years.

    The annual Social Security and Medicare trustees report released in June says the program’s trust fund will be unable to pay full benefits beginning in 2035.

    If the trust fund is depleted, the government will be able to pay only 80% of scheduled benefits, the report said. Medicare will be able to pay 90% of total scheduled benefits if the fund is depleted.

    In January, a Pew Research Center poll showed 57% of U.S. adults saying that “taking steps to make the Social Security system financially sound” was a top priority for the president and Congress to address this year. Securing Social Security got bipartisan support, with 56% of Democrats and 58% of Republicans calling it a top priority.

    Some solutions for reforming Social Security have been proposed, but none has moved forward in a sharply partisan Congress.

    House Speaker Nancy Pelosi said Thursday the COLA announcement is a reminder that “extreme MAGA Republicans are openly plotting new schemes to slash seniors’ benefits and raise their costs – including by threatening to cause an economic catastrophe by holding the debt limit hostage for their toxic agenda.”

    Earlier this year, Sen. Rick Scott, R-Fla., issued a detailed plan that would require Congress to come up with a proposal to adequately fund Social Security and Medicare or potentially phase them out.

    Senate Minority Leader Mitch McConnell, R-Ky., publicly rebuked the plan and Biden has used Scott’s proposal as a political bludgeon against Republicans before the midterm elections.

    “If Republicans in Congress have their way, seniors will pay more for prescription drugs and their Social Security benefits will never be secure,” White House press secretary Karine Jean-Pierre said.

    ___

    Claire Savage in Chicago and Hannah Schoenbaum in Raleigh, North Carolina, contributed to this report.

    Follow the AP’s coverage of inflation: https://apnews.com/hub/inflation

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  • OPEC+ supply cut threatens to tip global economy into recession, IEA says

    OPEC+ supply cut threatens to tip global economy into recession, IEA says

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    An oil supply cut from the Organization of the Petroleum Exporting Countries threatens to deepen a global energy crisis by sending oil prices higher at a time of already elevated inflation and weak economic growth, the International Energy Agency said.

    Last week’s two million barrel-a-day reduction in the group’s output targets, which incurred sharp criticism from the U.S. and its partners, will tighten the oil market further at a moment of extreme vulnerability with few additional sources of supply available to compensate, the Paris-based agency said Thursday.

    The cut’s impact will be to exacerbate a mix of high oil prices and weakening global growth, both of which would undermine longer-term demand for oil, the IEA said, as it slashed its oil-demand forecasts.

    “With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” the IEA said in its monthly market report.

    The IEA cut its oil-demand growth forecasts by 470,000 barrels a day for 2023, to 1.7 million barrels a day. It also lowered its 2022 oil-demand growth forecast by 60,000 barrels a day, to 1.9 million barrels a day. Oil demand growth has steadily fallen throughout the year and is forecast to contract in the fourth quarter by 340,000 barrels a day, the IEA said.

    OPEC has said higher oil prices are necessary to spur fresh investments in oil production but the IEA said constraints among oil producers meant additional supplies would be scant. U.S. shale oil producers facing higher costs are withholding investment, while most Western nations are consciously moving away from fossil fuels. OPEC’s own members are struggling with a lack of spare capacity.

    The cut has undone a trend of steadily recovering oil supply following the Covid-19 pandemic “with the resulting higher price levels exacerbating market volatility and heightening energy security concerns,” the IEA said.

    The IEA’s report characterizes the supply cut as a lose-lose situation for both oil producers and consumers, as buyers of oil suffer from higher prices in the short term, while oil producers stand to see weaker demand as a result.

    The cut also comes ahead of an EU embargo on Russian oil and a plan by the Group of Seven wealthy nations to cap oil prices, both of which analysts warn could further undermine global energy supplies.

    Russia has said it would cut production and withhold supplies from nations participating in the price cap mechanism. Meanwhile, time was running out for EU states to find alternative sources of energy to compensate for the still-high levels of oil currently imported from Russia, the IEA said.

    Russia’s oil exports to the EU fell by 390,000 barrels a day in September, to 2.6 million barrels a day, the IEA said. The EU has just two months until the embargo on Russian crude imports comes into force, but still needs to find an alternative source for 1.3 million barrels a day of Russian oil, it warned.

    OPEC has said its production cut is aimed at stabilizing oil markets and countering declining oil-demand growth. On Wednesday, in its own report, the group sharply slashed its forecasts for global economic growth and oil demand.

    For 2022, the IEA now expects total oil demand of 99.6 million barrels a day and 101.3 million barrels a day in 2023.

    The agency cuts its forecast for global oil supply next year by 1.2 million barrels a day to 100.6 million barrels a day and by 200,000 barrels a day to 99.9 million barrels a day for 2022.

    Write to Will Horner at william.horner@wsj.com

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  • Little sign of relief expected in September inflation data

    Little sign of relief expected in September inflation data

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    WASHINGTON — Any Americans hoping for relief from months of punishing inflation might not see much in Thursday’s government report on price increases in September.

    Lower gas prices will probably reduce overall consumer inflation for a third straight month. But measures of “core” inflation, which are closely watched because they exclude volatile food and energy costs, are expected to return to a four-decade peak.

    Economists have estimated that the government’s consumer price index jumped 8.1% in September from 12 months earlier, according to a survey by the data provider FactSet. That is a distressingly large gain, though below the 9.1% year-over-year peak that was reached in June.

    Core prices are estimated to have risen 0.4% from August to September, slower than the previous month but still a much faster pace than was typical before the pandemic. Measured over the past 12 months, core prices are forecast to have surged 6.5%, up from 6.3% in August. That’s far above the 2% inflation that the Federal Reserve has long set as its target rate.

    Thursday’s report will provide the final inflation figures before the Nov. 8 midterm elections after a campaign season in which spiking prices across the economy have fed widespread public anxiety, with many Republicans casting blame on President Joe Biden and congressional Democrats.

    Inflation has escalated families’ grocery bills, rents and utility costs, among many other expenses, inflicting hardships on households and deepening gloom about the economy despite strong job growth and historically low unemployment.

    As the election nears, Americans are increasingly taking a dim view of their finances, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. Roughly 46% of people now describe their personal financial situation as poor, up from 37% in March. That sizable drop contrasts with the mostly steady readings that had lasted through the pandemic.

    The September inflation report, whatever it shows, isn’t likely to change the Fed’s plans to keep hiking rates aggressively in an effort to wrest inflation under control. The Fed has boosted its key short-term rate by 3 percentage points since March, the fastest pace of hikes since the early 1980s. Those increases are intended to raise borrowing costs for mortgages, auto loans and business loans and cool inflation by slowing the economy.

    Minutes from the Fed’s most recent meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. The officials projected that they would raise their benchmark rate by an additional 1.25 percentage points over their next two meetings in November and December. Doing so would put the Fed’s key rate at its highest level in 14 years.

    Along with lower gas prices, economists expect to see that the prices of used cars tumbled in September after small declines the previous two months. Wholesale used car prices have dropped for most of this year, though the declines have yet to show up in consumer inflation data. (Used vehicle prices had soared in 2021 after factory shutdowns and supply chain shortages reduced production.)

    Large retailers, too, have started offering early discounts for the holiday shopping season, after having amassed excess stockpiles of clothes, furniture and other goods earlier this year. Those price cuts might have lowered inflation in September or will do so in the coming months.

    Walmart has said it will offer steep discounts on such items as toys, home goods, electronics and beauty. Target began offering holiday deals earlier this month.

    Yet prices for services — particularly rents and housing costs — are remaining persistently high and will likely take much longer to come down. Health care services, education and even veterinary services are still rising rapidly in price.

    “Services price increases tend to be more persistent than increases in the prices of goods,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, noted in remarks last week.

    Rising rental costs are a tricky issue for the Fed. Real-time data from websites such as ApartmentList suggest that rents on new leases are starting to decline.

    But the government’s measure tracks all rent payments — not just those for new leases — and most of them don’t change from month to month. Economists say it could be a year or longer before the declines in new leases feed through to government data.

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  • Little sign of relief expected in September inflation data

    Little sign of relief expected in September inflation data

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    WASHINGTON — Any Americans hoping for relief from months of punishing inflation might not see much in Thursday’s government report on price increases in September.

    Lower gas prices will probably reduce overall consumer inflation for a third straight month. But measures of “core” inflation, which are closely watched because they exclude volatile food and energy costs, are expected to return to a four-decade peak.

    Economists have estimated that the government’s consumer price index jumped 8.1% in September from 12 months earlier, according to a survey by the data provider FactSet. That is a distressingly large gain, though below the 9.1% year-over-year peak that was reached in June.

    Core prices are estimated to have risen 0.4% from August to September, slower than the previous month but still a much faster pace than was typical before the pandemic. Measured over the past 12 months, core prices are forecast to have surged 6.5%, up from 6.3% in August. That’s far above the 2% inflation that the Federal Reserve has long set as its target rate.

    Thursday’s report will provide the final inflation figures before the Nov. 8 midterm elections after a campaign season in which spiking prices across the economy have fed widespread public anxiety, with many Republicans casting blame on President Joe Biden and congressional Democrats.

    Inflation has escalated families’ grocery bills, rents and utility costs, among many other expenses, inflicting hardships on households and deepening gloom about the economy despite strong job growth and historically low unemployment.

    As the election nears, Americans are increasingly taking a dim view of their finances, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. Roughly 46% of people now describe their personal financial situation as poor, up from 37% in March. That sizable drop contrasts with the mostly steady readings that had lasted through the pandemic.

    The September inflation report, whatever it shows, isn’t likely to change the Fed’s plans to keep hiking rates aggressively in an effort to wrest inflation under control. The Fed has boosted its key short-term rate by 3 percentage points since March, the fastest pace of hikes since the early 1980s. Those increases are intended to raise borrowing costs for mortgages, auto loans and business loans and cool inflation by slowing the economy.

    Minutes from the Fed’s most recent meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. The officials projected that they would raise their benchmark rate by an additional 1.25 percentage points over their next two meetings in November and December. Doing so would put the Fed’s key rate at its highest level in 14 years.

    Along with lower gas prices, economists expect to see that the prices of used cars tumbled in September after small declines the previous two months. Wholesale used car prices have dropped for most of this year, though the declines have yet to show up in consumer inflation data. (Used vehicle prices had soared in 2021 after factory shutdowns and supply chain shortages reduced production.)

    Large retailers, too, have started offering early discounts for the holiday shopping season, after having amassed excess stockpiles of clothes, furniture and other goods earlier this year. Those price cuts might have lowered inflation in September or will do so in the coming months.

    Walmart has said it will offer steep discounts on such items as toys, home goods, electronics and beauty. Target began offering holiday deals earlier this month.

    Yet prices for services — particularly rents and housing costs — are remaining persistently high and will likely take much longer to come down. Health care services, education and even veterinary services are still rising rapidly in price.

    “Services price increases tend to be more persistent than increases in the prices of goods,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, noted in remarks last week.

    Rising rental costs are a tricky issue for the Fed. Real-time data from websites such as ApartmentList suggest that rents on new leases are starting to decline.

    But the government’s measure tracks all rent payments — not just those for new leases — and most of them don’t change from month to month. Economists say it could be a year or longer before the declines in new leases feed through to government data.

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  • Social Security payments set for big increase. What to know.

    Social Security payments set for big increase. What to know.

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    NEW YORK — Tens of millions of older Americans are about to get what may be the biggest raise of their lifetimes.

    On Thursday, the U.S. government is set to announce how big a percentage increase Social Security beneficiaries will see in monthly payments this upcoming year. It’s virtually certain to be the largest in four decades. It’s all part of an annual ritual where Washington adjusts Social Security benefits to keep up with inflation, or at least with one narrow measure of it.

    Plenty of controversy accompanies the move, known as a cost-of-living adjustment or COLA. Critics say the data the government uses to set the increase doesn’t reflect what older Americans are actually spending, and thus the inflation they’re actually feeling. The increase is also one-size-fits-all, which means beneficiaries get the same raise regardless of where they live or how big a nest egg they may have.

    Here’s a look at what’s happening:

    WHAT’S THE BIG DEAL?

    The U.S. government is about to announce an increase to how much the more than 65 million Social Security beneficiaries will get every month. Some estimates say the boost may be as big as 9%.

    WHAT DO BENEFICIARIES HAVE TO DO TO GET IT?

    Nothing.

    WILL THIS BE THE BIGGEST INCREASE EVER?

    No, but it’s likely the heftiest in 40 years, which is longer than the vast majority of Social Security beneficiaries have been getting payments. In 1981, the increase was 11.2%.

    WHEN WILL THE BIGGER PAYMENTS BEGIN?

    January. They’re also permanent, and they compound. That means the following year’s percentage increase, whatever it ends up being, will be on top of the new, larger payment beneficiaries get after this most recent raise.

    HOW BIG WAS THIS PAST YEAR’S INCREASE?

    5.9%, which itself was the biggest in nearly four decades.

    WHAT’S THE TYPICAL INCREASE?

    Since 2000, it’s averaged 2.3% as inflation remained remarkably tame through all kinds of economic swings. During some of the toughest years in that stretch, the bigger worry for the economy was actually that inflation was running too low.

    Since the 2008 financial crisis, the U.S. government has announced zero increases to Social Security benefits three times because inflation was so weak.

    SO THE INCREASE IS TO MAKE UP FOR INFLATION?

    That’s the intent. As Americans have become painfully aware over the past year, each $1 doesn’t go as far at the grocery store as it used to.

    HAS SOCIAL SECURITY ALWAYS GIVEN SUCH INCREASES?

    No. The first American to get a monthly retirement check from Social Security, Ida May Fuller from Ludlow, Vermont, got the same $22.54 monthly benefit for 10 years.

    Automatic annual cost-of-living adjustments didn’t begin for Social Security until 1975, after a law passed in 1972 requiring them.

    HOW IS THE SIZE OF THE INCREASE SET?

    It’s tied to a measure of inflation called the CPI-W index, which tracks what kinds of prices are being paid by urban wage earners and clerical workers.

    More specifically, the increase is based on how much the CPI-W increases from the summer of one year to the next.

    IS THAT THE INFLATION MEASURE EVERYONE FOLLOWS?

    No. People generally pay more attention to a much broader measure of inflation, the CPI-U index, which covers all urban consumers. That covers 93% of the total U.S. population.

    The CPI-W, meanwhile, covers only about 29% of the U.S. population. It has been around longer than the CPI-U, which the government began compiling only after the legislation that required Social Security’s annual increases be linked to inflation.

    IS THAT WEIRD?

    Yes, and some critics have argued for years that Social Security should change to a different measure, one that’s pegged to older people in particular.

    Another experimental index, called CPI-E, is supposed to offer a better reflection of how Americans aged 62 and above spend their money. It has historically shown higher rates of inflation for older Americans than the CPI-U or CPI-W, but it has not taken hold. Neither have other measures compiled by organizations outside the government that hope to show how inflation affects older Americans specifically.

    Recently, the CPI-E has shown a bit milder inflation than CPI-W or CPI-U.

    WHY NOT USE ONE OF THOSE OTHER INDEXES?

    To calculate the CPI-E, the government pulls from the same survey data used to measure the broad CPI-U. But there are relatively few older households in that data set, meaning it may not be the most accurate.

    All indexes give just a rough approximation of what inflation really is. But the more pressing challenge may be that if the government switched to a different index, one that showed higher inflation for older Americans, Social Security would have to pay out higher benefits.

    That in turn would mean a faster drain on Social Security’s trust fund, which looks to run empty in a little more than a decade at its current pace.

    HOW IS THE SIZE SET FOR SOCIAL SECURITY BENEFITS?

    Through a complicated formula that takes into account several factors, including how much a worker made in their 35 highest-earning years. Generally, those who made more money and those who wait longer to start getting Social Security get larger benefits, up to a point.

    This year, the maximum allowed benefit for someone who retired at full retirement age is $3,345 monthly.

    WILL RICH PEOPLE GET THE SAME BOOST IN SOCIAL SECURITY?

    Yes. Everyone gets the same percentage increase, whether they have millions of dollars in retirement savings or are just scraping by.

    IF THE INCREASE IS BASED ON INFLATION IN URBAN AREAS, WILL PEOPLE IN RURAL AREAS GET THE SAME BOOST?

    Yes.

    “The COLA doesn’t take into account where you live or your actual spending patterns,” said William Arnone, CEO of the National Academy of Social Insurance. “For some people, it’s an overstatement of cost of living for, say, small towns in the Midwest versus urban areas like New York, D.C. or Chicago. With many older people choosing to live in suburban areas or rural areas, some will benefit more” than others from the same-sized increase.

    DO BIGGER PAYOUTS NOW MEAN SMALLER PAYOUTS IN THE FUTURE?

    The expected increase is great news for every beneficiary and for the businesses around them that could see more in sales. But it also means the Social Security system will pay out more money sooner, which can add more strain on its trust fund.

    One year of big increases driven by inflation won’t drain the system by itself, but it’s already long been heading toward an unsustainable future. The latest annual trustees report for Social Security said its trust funds that pay out retirement and survivors and disability benefits will be able to pay scheduled benefits on a timely basis until 2035. After that, incoming cash from taxes will be enough to pay 80% of scheduled benefits.

    WILL THIS MAKE INFLATION WORSE?

    It will put more cash in the hands of people who mostly really need it, and they’re very likely to use it. That will feed more fuel into the economy, which could keep upward pressure on inflation.

    Social Security’s boost, though, will have a smaller impact on the economy than past stimulus packages provided by Washington, snarls in supply chains caused by worldwide shutdowns of businesses or other factors that economists say are behind the worst inflation in decades.

    SO EVERYTHING’S GOING TERRIBLY?

    The risk of a recession seems to grow by the day, but many economists expect inflation to come down as interest-rate hikes take effect and supply chains continue to improve.

    Economists at Deutsche Bank, for example, expect inflation to ease from 8.2% this past August to 7.2% in the last three months of this year. In 2023, they see it dropping to 3.9% in the second half of the year.

    This is key for many Social Security beneficiaries. That would mean the COLA they receive this upcoming year would be bigger than the inflation they’re feeling at the moment. That would help make up for this past year, where actual inflation far outstripped the cost-of-living increase they got in January 2022.

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  • US producer price inflation eases to still-high 8.5%

    US producer price inflation eases to still-high 8.5%

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    WASHINGTON — Inflation at the wholesale level rose 8.5% in September from a year earlier, the third straight decline though costs remain at painfully high levels.

    Wednesday’s report from the Labor Department also showed that the producer price index — which measures price changes before they reach the consumer — rose 0.4% in September from August, after two months of declines.

    The September monthly increase was larger than expected and was pushed higher by a big increase in hotel room costs and higher prices for other services. Food costs also rose in September from August, after a slight drop the previous month. The cost of fresh and dry vegetables soared nearly 16% in September from August.

    The larger-than-expected monthly increase in overall wholesale prices suggests inflation pressures are still strong in the U.S. economy, with the Federal Reserve likely to continue its rapid pace of interest rate hikes at its next meeting in November.

    Wholesale gas costs fell last month, but will likely reverse in the coming months now that oil prices are rising again in the wake of planned production cuts by many oil exporting nations. Grocery bills are rising at their fastest pace in decades, and prices at the gas pump are rising again, squeezing consumers’ budgets.

    Excluding the volatile food and energy categories, core prices rose 0.3% in September from August for the third straight month, and 7.2% compared with a year earlier.

    Overall wholesale inflation peaked at 11.7% in March.

    Services prices — including health care, lodging, and shipping — rose 0.4% in September, the most in three months. Federal Reserve officials have recently cited rising services prices as a source of concern, because they can take longer to reverse since they mostly reflect the impact of rising wages.

    Health care costs rose last month, driven higher by a 0.7% increase in nursing home prices.

    Stubbornly-high inflation is draining Americans’ bank accounts, frustrating small businesses and raising alarm bells at the Federal Reserve. It is also causing political headaches for President Joe Biden and congressional Democrats, most of whom will face voters in mid-term elections in less than a month.

    The Fed has boosted its benchmark short-term interest rate by three percentage points since March to combat rising prices. It’s the fastest pace of rate hikes since the early 1980s. Higher rates are intended to cool consumer and business borrowing and spending and bring down inflation..

    Wednesday’s producer price data captures inflation at an earlier stage of production and can often signal where consumer prices are headed. It also feeds into the Fed’s preferred measure of inflation, which is called the personal consumption expenditures price index.

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  • Ark’s Cathie Wood issues open letter to the Fed, saying it is risking an economic ‘bust’

    Ark’s Cathie Wood issues open letter to the Fed, saying it is risking an economic ‘bust’

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    Cathie Wood, Founder, CEO, and CIO of ARK Invest, speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, May 2, 2022.

    David Swanson | Reuters

    The Federal Reserve likely is making a mistake in its hard-line stance against inflation Ark Investment Management’s Cathie Wood said Monday in an open letter to the central bank.

    Instead of looking at employment and price indexes from previous months, Wood said the Fed should be taking lessons from commodity prices that indicate the biggest economic risk going forward is deflation, not inflation.

    “The Fed seems focused on two variables that, in our view, are lagging indicators –– downstream inflation and employment ––both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates,” Wood said in the letter posted on the firm’s website.

    Specifically, the consumer price and personal consumption expenditures price indexes both showed inflation running high. Headline CPI rose 0.1% in August and was up 8.3% year over year, while headline PCE accelerated 0.3% and 6.2% respectively. Both readings were even higher excluding food and energy, which saw large price drops over the summer.

    On employment, payroll growth has decelerated but remains strong, with job gains totaling 263,000 in September as the unemployment rate fell to 3.5%.

    But Wood, whose firm manages some $14.4 billion in client money across a family of active ETFs, said falling prices for items such as lumber, copper and housing are telling a different story.

    Worries over a ‘deflationary bust’

    The Fed has approved three consecutive interest rate increases of 0.75 percentage point, mostly by unanimous vote, and is expected to OK a fourth when it meets again Nov. 1-2.

    “Unanimous? Really?” Wood wrote. “Could it be that the unprecedented 13-fold increase in interest rates during the last six months––likely 16-fold come November 2––has shocked not just the US but the world and raised the risks of a deflationary bust?”

    Inflation is bad for the economy because it raises the cost of living and depresses consumer spending; deflation is a converse risk that reflects tumbling demand and is associated with steep economic downturns.

    To be sure, the Fed is hardly alone in raising rates.

    Nearly 40 central banks around the world approved increases during September, and the markets have largely expected all the Fed’s moves.

    However, criticism has emerged recently that the Fed could be going too far and is at risk of pulling the economy into an unnecessary recession.

    “Without question, food and energy prices are important, but we do not believe that the Fed should be fighting and exacerbating the global pain associated with a supply shock to agriculture and energy commodities caused by Russia’s invasion of Ukraine,” Wood wrote.

    The Fed is expected to follow the November hike with a 0.5 percentage point rise in December, then a 0.25 percentage point move early in 2023.

    One area of the market known as overnight indexed swaps is pricing in two rate cuts by the end of 2023, according to Morgan Stanley.

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  • Newsom to call special legislative session over gas prices

    Newsom to call special legislative session over gas prices

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    SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

    Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

    But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

    California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

    “It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

    The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

    “If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

    Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

    It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

    The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

    That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

    Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

    The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

    “A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

    California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

    “Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

    Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

    On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

    He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

    Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

    “These guys are playing us for fools. They have for decades,” Newsom said.

    The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

    The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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  • Newsom to call special legislative session over gas prices

    Newsom to call special legislative session over gas prices

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    SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

    Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

    But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

    California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

    “It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

    The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

    “If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

    Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

    It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

    The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

    That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

    Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

    The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

    “A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

    California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

    “Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

    Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

    On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

    He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

    Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

    “These guys are playing us for fools. They have for decades,” Newsom said.

    The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

    The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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  • Newsom to call special legislative session over gas prices

    Newsom to call special legislative session over gas prices

    [ad_1]

    SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

    Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

    But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

    California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

    “It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

    The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

    “If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

    Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

    It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

    The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

    That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

    Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

    The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

    “A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

    California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

    “Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

    Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

    On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

    He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

    Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

    “These guys are playing us for fools. They have for decades,” Newsom said.

    The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

    The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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  • Here’s why good jobs news is bad news for the Fed and the stock market

    Here’s why good jobs news is bad news for the Fed and the stock market

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    The good-news-is-bad-news theme was an overarching reason behind Friday's sharp sell-off in stocks and the sharp increase in bond yields.

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  • The shaky stock market is barreling towards key tests with bank earnings, inflation data on deck

    The shaky stock market is barreling towards key tests with bank earnings, inflation data on deck

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  • EXPLAINER: How will OPEC+ cuts affect gas prices, inflation?

    EXPLAINER: How will OPEC+ cuts affect gas prices, inflation?

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    FRANKFURT, Germany — Major oil-producing countries led by Saudi Arabia and Russia have decided to slash the amount of oil they deliver to the global economy.

    And the law of supply and demand suggests that can only mean one thing: higher prices are on the way for crude, and for the diesel fuel, gasoline and heating oil that are produced from oil.

    The decision by the OPEC+ alliance to cut 2 million barrels a day starting next month comes as the Western allies are trying to cap the oil money flowing into Moscow’s war chest after it invaded Ukraine.

    Here is what to know about the OPEC+ decision and what it could mean for the economy and the oil price cap:

    WHY IS OPEC+ CUTTING PRODUCTION?

    Saudi Arabia’s Energy Minister Abdulaziz bin Salman says that the alliance is being proactive in adjusting supply ahead of a possible downturn in demand because a slowing global economy needs less fuel for travel and industry.

    “We are going through a period of diverse uncertainties which could come our way, it’s a brewing cloud,” he said, and OPEC+ sought to remain “ahead of the curve.” He described the group’s role as “a moderating force, to bring about stability.”

    Oil prices had fallen after a summer of highs. Now, after the OPEC+ decision, they are heading for their biggest weekly gain since March. Benchmark U.S. crude rose 3.2% on Friday, to $91.31 per barrel. Brent crude, the international standard, rose 2.8% to $97.09, though it’s still down 20% from mid-June, when it traded at over $123 per barrel.

    One big reason for the slide is fears that large parts of the global economy are slipping into recession as high energy prices — for oil, natural gas and electricity — drive inflation and rob consumers of spending power.

    Another reason: The summer highs came about because of fears that much of Russia’s oil production would be lost to the market over the war in Ukraine.

    As Western traders shunned Russian oil even without sanctions, customers in India and China bought those barrels at a steep discount, so the hit to supply wasn’t as bad as expected.

    Oil producers are wary of a sudden collapse in prices if the global economy goes downhill faster than expected. That’s what happened during the COVID-19 pandemic in 2020 and during the global financial crisis in 2008-2009.

    HOW IS THE WEST TARGETING RUSSIAN OIL?

    The U.S. and Britain imposed bans that were mostly symbolic because neither country imported much Russia oil. The White House held off pressing the European Union for an import ban because EU countries got a quarter of their oil from Russia.

    In the end, the 27-nation bloc decided to cut off Russian oil that comes by ship on Dec. 5, while keeping a small amount of pipeline supplies that some Eastern European countries rely on.

    Beyond that, the U.S. and other Group of Seven major democracies are working out the details on a price cap on Russian oil. It would target insurers and other service providers that facilitate oil shipments from Russia to other countries. The EU approved a measure along those lines this week.

    Many of those providers are based in Europe and would be barred from dealing with Russian oil if the price is above the cap.

    HOW WILL OIL CUTS, PRICE CAPS AND EMBARGOES CLASH?

    The idea behind the price cap is to keep Russian oil flowing to the global market, just at lower prices. Russia, however, has threatened to simply stop deliveries to a country or companies that observe the cap. That could take more Russian oil off the market and push prices higher.

    That could push costs at the pump higher, too.

    U.S. gasoline prices that soared to record highs of $5.02 a gallon in mid-June had been falling recently, but they have been on the rise again, posing political problems for President Joe Biden a month before midterm elections.

    Biden, facing inflation at near 40-year highs, had touted the falling pump prices. Over the past week, the national average price for a gallon rose 9 cents, to $3.87. That’s 65 cents more than Americans were paying a year ago.

    “It’s a disappointment, and we’re looking at what alternatives we may have,” he told reporters about the OPEC+ decision.

    WILL THE OPEC PRODUCTION CUT MAKE INFLATION WORSE?

    Likely yes. Brent crude should reach $100 per barrel by December, says Jorge Leon, senior vice president at Rystad Energy. That is up from an earlier prediction of $89.

    Part of the 2 million-barrel-per-day cut is only on paper as some OPEC+ countries aren’t able to produce their quota. So the group can deliver only about 1.2 million barrels a day in actual cuts.

    That’s still going to have a “significant” effect on prices, Leon said.

    “Higher oil prices will inevitably add to the inflation headache that global central banks are fighting, and higher oil prices will factor into the calculus of further increasing interest rates to cool down the economy,” he wrote in a note.

    That would exacerbate an energy crisis in Europe largely tied to Russian cutbacks of natural gas supplies used for heating, electricity and in factories and would send gasoline prices up worldwide. As that fuels inflation, people have less money to spend on other things like food and rent.

    Other factors also could affect oil prices, including the depth of any possible recession in the U.S. or Europe and the duration of China’s COVID-19 restrictions, which have sapped demand for fuel.

    WHAT WILL THIS MEAN FOR RUSSIA?

    Analysts say that Russia, the biggest producer among the non-OPEC members in the alliance, would benefit from higher oil prices ahead of a price cap. If Russia has to sell oil at a discount, at least the reduction starts at a higher price level.

    High oil prices earlier this year offset much of Russia’s sales lost from Western buyers avoiding its supply. The country also has managed to reroute some two-thirds of its typical Western sales to customers in places like India.

    But then Moscow saw its take from oil slip from $21 billion in June to $19 billion in July to $17.7 billion in August as prices and sales volumes fell, according to the International Energy Agency. A third of Russia’s state budget comes from oil and gas revenue, so the price caps would further erode a key source of revenue.

    Meanwhile, the rest of Russia’s economy is shrinking due to sanctions and the withdrawal of foreign businesses and investors.

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  • EU leaders struggle to bridge gas price cap divide

    EU leaders struggle to bridge gas price cap divide

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    PRAGUE — European Union leaders converged on Prague Castle on a crisp Friday morning to try to bridge significant differences over a natural gas price cap as winter approaches and Russia’s war on Ukraine fuels a major energy crisis.

    The price cap is one of several measures the 27-nation bloc is preparing to contain an energy crisis in Europe that is driving up prices for consumers and business and which could lead to rolling blackouts, shuttered factories and a deep recession over the winter.

    As the Europeans bolster their support for Ukraine in the form of weapons, money and aid, Russia has reduced or cut off natural gas to 13 member nations, leading to surging gas and electricity prices that could climb higher as demand peaks during the cold months.

    Standing in the way of an agreement is the simple fact that each member country depends on different energy sources and suppliers, and they’re struggling to see eye-to-eye on the best way ahead.

    A group of 15 member countries has urged the EU’s executive branch, the European Commission, to propose a cap on gas prices as soon as possible, but the idea has not secured unanimous support, with Germany notably blocking.

    For now, the commission says, Europe’s gas storage capacity stands at about 90%, even as Russian gas supplies to the EU declined by 37% between January and August, with the U.S. and Norway stepping in to provide liquefied natural gas. But those replacement supplies have not been cheap.

    “I therefore recommend stepping up negotiations with our reliable suppliers to reduce the prices of imported gas of all kinds,” commission President Ursula von der Leyen said in a letter to the leaders ahead of Friday’s summit in the Czech capital.

    Von der Leyen also recommended that countries work together to “develop an intervention to limit prices in the natural gas market,” where prices have fluctuated wildly over jitters about the war and potentially uncoordinated national responses to the problem.

    For now, a breakthrough on the price cap seems a distant prospect, but the leaders may make enough progress to conclude some kind of agreement when they meet again in Brussels on Oct 20-21.

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  • Fed’s Cook says more rate hikes needed to combat inflation

    Fed’s Cook says more rate hikes needed to combat inflation

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    WASHINGTON (AP) — More interest rate increases will be necessary to wrestle inflation under control, Federal Reserve Governor Lisa Cook said Thursday, echoing several tough speeches by other central bank officials this week.

    Cook said she has revised her views on inflation in the past several months and now sees it as more persistent. And while real-time, private-sector data is showing signs that inflation could cool in the coming months, the Fed should only slow rate hikes when inflation actually falls, she said.

    “With inflation running well above our 2% longer-run goal, restoring price stability likely will require ongoing rate hikes, and then keeping policy restrictive for some time until we are confident that inflation is firmly on the path” back to 2%, she said at the Peterson Institute for International Economics.

    Cook’s speech, her first as Fed governor, comes after hawkish comments earlier Thursday by Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, and Raphael Bostic, president of the Atlanta Fed, on Wednesday. “Hawks” in Fed-speak typically support higher interest rates to quell inflation, while “doves” are often more focused on keeping rates low to support more hiring.

    Their remarks ran counter to speculation among many Wall Street that the Fed may soon slow the pace of its rate increases or even cut rates next year, as the U.S. and world economies struggle with higher energy costs and the threat of recession. The Fed is increasing its benchmark short-term rate at the fastest pace in four decades, causing the U.S. dollar to strengthen sharply against other major currencies. A stronger dollar typically draws more capital to the U.S., disrupting overseas economies.

    Yet the comments by Cook, Kashkari, and Bostic suggest the Fed is unlikely to slow its campaign against inflation anytime soon. Fed officials have pushed up their short-term rate by a hefty three-quarters of a percentage point three times in a row, bringing it to a range of 3% to 3.25%, the highest in 14 years.

    Fed officials projected last month that they would push rates to roughly 4.4% by the end of this year, and 4.6% by early 2023.

    Earlier Thursday, Kashkari acknowledged that because the Fed’s rate hikes take time to work their way through the economy — as long as 12 to 18 months — there is a risk the central bank could raise borrowing costs too high and unnecessarily cause a recession. For that reason, some economists have said the Fed should pause its increases soon and take time to evaluate the impact of its moves on the U.S. and global economies.

    But Kashkari, who has shifted from one of the most dovish officials to among the most hawkish, said he was more worried about stopping the rate hikes too soon.

    He also said that he, like other Fed officials, had mistakenly thought last year that inflation was temporary and mostly due to supply chain shocks and shortages, only to see inflation persist.

    “Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause,” he said at a conference sponsored by the Bremer Financial Corp. “I think we’re quite a ways away from a pause.”

    Bostic also delivered hawkish remarks late Wednesday that sought to downplay any chance of rate hikes next year.

    “You no doubt are aware of considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall,” Bostic said in a speech at Northwestern University Wednesday.

    “I would say: not so fast,” Bostic concluded. “We are still decidedly in the inflationary woods, not out of them.”

    In her remarks, Cook said the Fed is aware of slowing growth overseas, which will likely slow U.S. exports.

    But she added that the Fed’s goals of stabilizing prices and seeking maximum employment “is a domestic mandate.”

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  • EXPLAINER: How will OPEC+ cuts affect gas prices, inflation?

    EXPLAINER: How will OPEC+ cuts affect gas prices, inflation?

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    FRANKFURT, Germany (AP) — Major oil-producing countries led by Saudi Arabia and Russia have decided to slash the amount of oil they deliver to the global economy.

    And the law of supply and demand suggests that can only mean one thing: higher prices are on the way for crude, and for the diesel fuel, gasoline and heating oil that are produced from oil.

    The decision by the OPEC+ alliance to cut 2 million barrels a day starting next month comes as the Western allies are trying to cap the oil money flowing into Moscow’s war chest after it invaded Ukraine.

    Here is what to know about the OPEC+ decision and what it could mean for the economy and the oil price cap:

    WHY IS OPEC+ CUTTING PRODUCTION?

    Saudi Arabia’s Energy Minister Abdulaziz bin Salman says that the alliance is being proactive in adjusting supply ahead of a possible downturn in demand because a slowing global economy needs less fuel for travel and industry.

    “We are going through a period of diverse uncertainties which could come our way, it’s a brewing cloud,” he said, and OPEC+ sought to remain “ahead of the curve.” He described the group’s role as “a moderating force, to bring about stability.”

    Oil prices had fallen after a summer of highs. Now, after the OPEC+ decision, they are heading for their biggest weekly gain since March. Benchmark U.S. crude rose 3.2% on Friday, to $91.31 per barrel. Brent crude, the international standard, rose 2.8% to $97.09, though it’s still down 20% from mid-June, when it traded at over $123 per barrel.

    One big reason for the slide is fears that large parts of the global economy are slipping into recession as high energy prices — for oil, natural gas and electricity — drive inflation and rob consumers of spending power.

    Another reason: The summer highs came about because of fears that much of Russia’s oil production would be lost to the market over the war in Ukraine.

    As Western traders shunned Russian oil even without sanctions, customers in India and China bought those barrels at a steep discount, so the hit to supply wasn’t as bad as expected.

    Oil producers are wary of a sudden collapse in prices if the global economy goes downhill faster than expected. That’s what happened during the COVID-19 pandemic in 2020 and during the global financial crisis in 2008-2009.

    HOW IS THE WEST TARGETING RUSSIAN OIL?

    The U.S. and Britain imposed bans that were mostly symbolic because neither country imported much Russia oil. The White House held off pressing the European Union for an import ban because EU countries got a quarter of their oil from Russia.

    In the end, the 27-nation bloc decided to cut off Russian oil that comes by ship on Dec. 5, while keeping a small amount of pipeline supplies that some Eastern European countries rely on.

    Beyond that, the U.S. and other Group of Seven major democracies are working out the details on a price cap on Russian oil. It would target insurers and other service providers that facilitate oil shipments from Russia to other countries. The EU approved a measure along those lines this week.

    Many of those providers are based in Europe and would be barred from dealing with Russian oil if the price is above the cap.

    HOW WILL OIL CUTS, PRICE CAPS AND EMBARGOES CLASH?

    The idea behind the price cap is to keep Russian oil flowing to the global market, just at lower prices. Russia, however, has threatened to simply stop deliveries to a country or companies that observe the cap. That could take more Russian oil off the market and push prices higher.

    That could push costs at the pump higher, too.

    U.S. gasoline prices that soared to record highs of $5.02 a gallon in mid-June had been falling recently, but they have been on the rise again, posing political problems for President Joe Biden a month before midterm elections.

    Biden, facing inflation at near 40-year highs, had touted the falling pump prices. Over the past week, the national average price for a gallon rose 9 cents, to $3.87. That’s 65 cents more than Americans were paying a year ago.

    “It’s a disappointment, and we’re looking at what alternatives we may have,” he told reporters about the OPEC+ decision.

    WILL THE OPEC PRODUCTION CUT MAKE INFLATION WORSE?

    Likely yes. Brent crude should reach $100 per barrel by December, says Jorge Leon, senior vice president at Rystad Energy. That is up from an earlier prediction of $89.

    Part of the 2 million-barrel-per-day cut is only on paper as some OPEC+ countries aren’t able to produce their quota. So the group can deliver only about 1.2 million barrels a day in actual cuts.

    That’s still going to have a “significant” effect on prices, Leon said.

    “Higher oil prices will inevitably add to the inflation headache that global central banks are fighting, and higher oil prices will factor into the calculus of further increasing interest rates to cool down the economy,” he wrote in a note.

    That would exacerbate an energy crisis in Europe largely tied to Russian cutbacks of natural gas supplies used for heating, electricity and in factories and would send gasoline prices up worldwide. As that fuels inflation, people have less money to spend on other things like food and rent.

    Other factors also could affect oil prices, including the depth of any possible recession in the U.S. or Europe and the duration of China’s COVID-19 restrictions, which have sapped demand for fuel.

    WHAT WILL THIS MEAN FOR RUSSIA?

    Analysts say that Russia, the biggest producer among the non-OPEC members in the alliance, would benefit from higher oil prices ahead of a price cap. If Russia has to sell oil at a discount, at least the reduction starts at a higher price level.

    High oil prices earlier this year offset much of Russia’s sales lost from Western buyers avoiding its supply. The country also has managed to reroute some two-thirds of its typical Western sales to customers in places like India.

    But then Moscow saw its take from oil slip from $21 billion in June to $19 billion in July to $17.7 billion in August as prices and sales volumes fell, according to the International Energy Agency. A third of Russia’s state budget comes from oil and gas revenue, so the price caps would further erode a key source of revenue.

    Meanwhile, the rest of Russia’s economy is shrinking due to sanctions and the withdrawal of foreign businesses and investors.

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