Article 5HQMJ US inflation jumps to highest rate since 2008; UK economy rebounds – as it happened

US inflation jumps to highest rate since 2008; UK economy rebounds – as it happened

by
Julia Kollewe
from on (#5HQMJ)

3.06pm BST

A big jump in US inflation in April to 4.2%, the highest rate since 2008, has rekindled global inflation fears. The news sent bond yields soaring around the world, and US stocks sliding further after yesterday's heavy sell-off. European stock markets are holding on to earlier gains.

Related: Tui switches to bigger planes as bookings to Portugal skyrocket'

Related: Amazon wins appeal over 250m EU tax bill

2.47pm BST

However, Michael Pearce at Capital Economics reckons that the Fed will look through this spike in transitory' inflation.

We doubt this report will change Fed officials' view that those pressures are largely transitory". It's just that there's a lot more transitory" than they were expecting.

The rise in airfares and hotel prices is so far simply reversing the sharp declines in prices seen earlier in the pandemic. But car rental prices have surged well above pre-pandemic levels, reflecting limited supply as rental agencies slashed fleet numbers last year. Depending on the strength of pent-up demand for leisure and travel, we could see similar surges in prices in other categories over the coming months.

Those are all scary numbers that will make the Fed uncomfortable, but the more muted gains in the cyclical components of CPI support Fed officials' argument that the surge in inflation in April will be largely transitory. Rents rose by 0.2% and are up by 2.2% in 3-month annualised terms. Owners' equivalent rent prices are up by 2.8% on the same basis, which is still below the 3%+ rates recorded pre-pandemic.

We now expect headline inflation to peak at close to 5% over the coming months and remain above 4% for most of the year, while core inflation will hit 3.5%, and average 2.7% over 2021. With employment still more than 8 million short of its pre-pandemic level, however, we expect the Fed to maintain its dovish line, even as inflation gains broaden out over the coming months.

2.41pm BST

Alright, not to the moon, but US inflation surged higher in April, primarily on the back of higher used car prices, says James Knightley, chief international economist at ING. He says this means that the Federal Reserve could raise interest rates a year earlier than expected, in early 2023.

Troublingly, there is evidence of broadening price pressures too. We increasingly doubt the Fed's position that this is transitory and think they will end up hiking rates far sooner than 2024.

We've been warning about the prospect of higher for longer inflation in the US for many months, but even we hadn't predicted this. Headline inflation jumped 0.8% month-on-month versus the 0.2% consensus while the core (ex food and energy) component rose 0.9% versus the 0.3% forecast.

2.36pm BST

Wall Street has fallen at the open after the jump in US inflation to the highest rate since 2008.

2.26pm BST

Core inflation has also picked up in the US, as briefly touched on earlier. Excluding food and energy, US consumer prices rose 0.9% in April from the month before, the biggest monthly increase since April 1982, taking the annual rate to 3%.

This is clearly stoking inflation fears around the world, with global bond yields soaring.

Global bonds hit by higher US inflation. US 10y yields jump to 1.66%. pic.twitter.com/ADt2tzXXSH

2.15pm BST

European stock markets are holding on to their gains, despite the jump in US inflation.

2.14pm BST

Daniele Antonucci, chief economist & macro strategist at Quintet Private Bank, says today's upside surprise in US consumer price inflation follows several other higher-than-expected increases, from China's producer prices to Germany's wholesale prices.

Markets appear somewhat nervous as more and more statistical releases suggest rising inflation. Our view is that inflation is rising because of transitory factors, such as supply bottlenecks.

Central banks - including the Fed - have communicated, and quite clearly, that they are aware of such trends and consider these spikes as transitory. Our own analysis supports this view too, and suggests that what's boosting inflation is the combination of base effects, the feed-through of commodity price increases and various input shortages.

2.11pm BST

Inflation was fuelled by higher prices for used cars and trucks, which rose 10% in April - the largest one-month increase since the series began in 1953 - taking the annual rate to 21%. Energy costs soared at an annual rate of 25.1%, and food prices rose 2.4%.

2.01pm BST

Seema Shah, chief strategist at the investment firm Principal Global Investors, says:

Another big miss in US data, but this time to the upside. US CPI inflation has come in meaningfully higher than expected and will further stoke concerns that the Fed has mis-read the inflation story.

What have we really learnt today that we didn't already know? Markets were already expecting a rise in inflation - the big question is how sticky that inflation is. That has not been answered today, nor will it be answered for several months. Nonetheless, risk markets will continue to be whipsawed by inflationary concerns over the coming months and investors would be wise to introduce some inflation protection into their portfolios.

1.59pm BST

Other bond yields are also rising, while the dollar has advanced, and US stock futures extended losses, pointing to a lower open on Wall Street. Germany's 30-year bond yield has hit its highest level since June 2019 at 0.423%, while Italy's 10-year bond yield jumped to 0.956%, the highest since September.

Spot gold has pared losses and turned positive and is now trading at $1,840 an ounce, up 0.18%.

1.43pm BST

The jump in inflation has sent US bond yields soaring. Markets have been fretting about higher inflation in recent days.

US 10y yields jump to 1.64% as data shows US inflation running hotter than expected. pic.twitter.com/jCY3kR9dLr

1.40pm BST

The jump in US inflation was bigger than Wall Street had expected (3.6%) and comes after March's 2.6% rate. Core inflation rose to 3%, also higher than expected.

BREAKING: US consumer price inflation for April comes in at 4.2% y/y - above average estimate of economists polled by Reuters of 3.6%

Core inflation 3% y/y vs estimate of 2.3%
pic.twitter.com/GlDk41XZ3M

The comeback of #inflation 1980s style? US core CPI rises 0.9% MoM, most since 1981 vs 0.3% expected, 3.0% YoY vs 2.3% forecast. pic.twitter.com/CQ9oXdvbrF

1.38pm BST

NEWSFLASH: US inflation jumped to an annual rate of 4.2% in April, the biggest increase since September 2008.

The US Bureau of Labor Statistics said nearly all components that make up the consumer price index rose last month.

1.22pm BST

At the upmarket real estate agent Savills, shareholders holding more than a quarter of the stock failed to support the company's pay report. The firm decided to hand its top bosses bonuses even though performance targets were missed by a mile.

Investors owning nearly 21% of the shares voted against the remuneration report. Including abstentions, the figure of those refusing to back it rises to 25.7%.

It is understood the estate agency has been awarded a rare red-top" warning from the Investment Association, one grade more severe than the amber" dished out to the pharma firm AstraZeneca.

Of two dubious manoeuvres on pay, the more inflammatory move by Savills' remuneration committee was to award bonuses to executives even though financial performance targets were missed by a mile.

12.26pm BST

We could also see a shareholder revolt over pay plans for top bosses at Cineworld.

Britain's largest cinema chain, which is set to begin reopening its 127 UK sites from next week as pandemic restrictions are lifted, has drafted a new remuneration policy that could see executives awarded more than 200m in shares, reports our media business correspondent Mark Sweney.

12.13pm BST

The oil giant BP is also holding its annual meeting today, and will come under pressure from climate campaigners. Our energy correspondent Jillian Ambrose reports:

BP chairman Helge Lund has called on shareholders to vote against a green activist resolution to strengthen its climate ambitions at the oil company's remote AGM today.

12.11pm BST

A number of companies are holding their annual meetings today, and there could be more pay rows after AstraZeneca's bruising 40% protest vote against bonus plans for its chief executive Pascal Soriot yesterday.

Just Eat Takeaway shareholders will today get an advisory vote on the 3.3m pay deal for the food delivery firm's management board, reports my colleague Sarah Butler.

12.06pm BST

Industrial production edged higher in the eurozone at the end of the first quarter, but came in well below forecasts, according to Eurostat figures.

Output rose by just 0.1% in March from the previous month, and by 10.9% year-on-year. Analysts had been looking for a monthly gain of 0.8%. Across the wider EU, industrial production rose 0.6%, and by 11% year-on-year.

We are a little bit surprised by these data.

The main source of the discrepancy seems to come from Spain, where Eurostat is incorporating a 0.1% month-to-month decline, in contrast to the national data sporting a 0.4% increase. In any case, the remaining details suggest that manufacturing firmed at the end of the first quarter, but also that the performance through the quarter as a whole was disappointing.

11.29am BST

We've also had results from the world's biggest catering company Compass Group.

Sales and profits have slumped at the catering firm Compass Group as the pandemic kept canteens closed at factories, offices and schools, reports Joanna Partridge.

Related: Compass Group profits slump as Covid keeps office canteens closed

11.27am BST

Here is our updated story on Tui:

Related: Tui switches to bigger planes as bookings to Portugal skyrocket'

11.26am BST

The FTSE 100 index in London has just gone through the 7,000 level after yesterday's heavy sell-off. It is trading at 7,002, up 54 points or 0.79%.

Germany's Dax is 0.3% ahead while France's CAC and Italy's FTSE MiB have edged 0.17% higher respectively.

11.12am BST

As the pandemic subsides in some countries, the pet boom is coming to an end. Sad to see that as workers return to the office, animal shelters are getting busier again with more pets being abandoned.

Lockdowns around the world led to a pandemic boom for the billion dollar pet industry. Now, as Covid restrictions lift and workers return to the office, animal shelters are seeing an increase in pet parents abandoning their pets. Take a look. https://t.co/lxlXNYtkj8 @Quicktake pic.twitter.com/yhmZ9dXEX8

11.00am BST

Our transport correspondent Gwyn Tophams was on the Tui call this morning. He reports:

Europe's largest travel company, Tui, said bookings to Portugal had skyrocketed" by 182% since it was placed on the UK's green list last Friday, allowing travel without quarantine.

10.56am BST

While the UK stock market is having a better day than yesterday - the FTSE 100 in London is up 0.6% - the main indices in Germany, France and Italy are now flat.

US stock futures are pointing to a lower open on Wall Street later, with the tech-heavy Nasdaq seen falling 0.6% while the S&P 500 and the Dow Jones are set to fall by 0.4%.

10.31am BST

Some more thoughts on the UK GDP and trade data from Ruth Gregory, senior UK economist at Capital Economics.

The 2.1% month-on-month gain in GDP in March was an impressive result given that there were few changes in the lockdown restrictions. The upside surprise was mostly due to construction output, which jumped by 5.8% m/m due to a rise in housebuilding ahead of the end of the stamp duty holiday in September. That left output in the sector 2.3% above its pre-crisis level.

The burst of growth in March shows that the recovery has been gathering momentum more quickly than we had thought and suggests that the risks to our forecast for the economy to return to its February 2020 level by the end of 2021 are to the upside.

The reopening of sectors in the coming months should trigger rises in GDP of at least 3.0-3.5% quarter on quarter in Q2 and Q3.

10.19am BST

Some analysis of the UK growth outlook from our economics editor, Larry Elliott.

He writes:

Related: UK economy's catchup period on course to be shorter than after 2008 crisis

10.17am BST

The UK economy, meanwhile, could achieve the 7.25% growth forecast by the Bank of England this year, after a 2.1% rebound in March. It contracted by a record 9.9% last year - much worse than the EU and eurozone.

Rupert Thompson, chief investment officer at the wealth management firm Kingswood, says:

The UK economy held up better than expected during lockdown in the first quarter. GDP posted a 1.5% drop over the quarter as a whole but encouragingly grew a larger than expected 2.1% in March as the economy started to reopen. These numbers will bolster hopes that the economy will achieve the 7.25% growth forecast by the Bank of England - the fastest growth in seventy years.

Along with the jump in business confidence seen in April, they suggest the Bank's growth forecast might even be on the conservative side - as indeed is the view of Andy Haldane the Bank's Chief Economist.

10.12am BST

The European Commission has upgraded its growth forecasts, pointing to progress with Covid-19 vaccinations and a massive public stimulus programme.

The Brussels-based institution is now predicting growth of 4.2% for the EU in 2021, and 4.4% next year. This compares with its previous estimates in February of 3.7% growth this year and 3.9% in 2022. The eurozone economy is forecast to grow by 4.3% this year, and 4.4% next year, rather than 3.8% for both years as previously estimated.

The shadow of COVID-19 is beginning to lift from Europe's economy. After a weak start to the year, we project strong growth in both 2021 and 2022. Unprecedented fiscal support has been - and remains - essential in helping Europe's workers and companies to weather the storm. The corresponding increase in deficits and debt is set to peak this year before beginning to decline.

The impact of NextGenerationEU will begin to be felt this year and next, but we have much hard work ahead - in Brussels and national capitals - to make the most of this historic opportunity. And of course, maintaining the now strong pace of vaccinations in the EU will be crucial - for the health of our citizens as well as our economies. So let's all roll up our sleeves.

EU Commission Spring 2021 Economic Forecasts - EChttps://t.co/hZqctx3q63 pic.twitter.com/sthSKuLb29

9.47am BST

Meanwhile, our energy correspondent Jillian Ambrose reports that the UK bank HSBC has stakes in firms that plan to construct more than 70 new coal-fired power stations.

A loophole in HSBC's pledge to phase out financing for coal by 2040 will allow the bank to support companies with plans to build more than 70 new coal plants, which could cause an estimated 18,700 deaths from air pollution a year, according to a report.

9.44am BST

Last night, it emerged that major US airlines had weighed in alongside UK carriers to urge the reopening of transatlantic travel, calling on governments in Washington and London to arrange a summit as soon as possible.

The airlines said safely reopening borders was essential for economic recovery and asked the nations' leaders to meet before the G7, and take a decision with sufficient time for airlines to plan and restart services, writes our transport correspondent Gwyn Topham.

Related: US airline chiefs add to pressure for transatlantic travel to restart

9.38am BST

In other news...

Spain's Balearic and Canary islands and Greece are expected to be the preferred destinations for Europeans booking long-awaited summer holidays when the travel industry reopens, according to the travel group Tui, although it will only operate three-quarters of its summer 2019 capacity, writes my colleague Joanna Partridge.

Related: Spanish islands and Greece expected to be summer travel hotspots, says Tui

9.19am BST

Stocks are pushing higher in Europe, as inflation fears have receded, for now.

The anticipated supply growth through the rest of this year comes nowhere close to matching our forecast for significantly stronger demand beyond the second quarter.

India's Covid crisis is a reminder that that the outlook for oil demand is mired in uncertainty. Until the pandemic is brought under control, market volatility is likely to persist.

9.02am BST

Here is our full story on the UK economy bouncing back with 2.1% growth in March.

Related: UK economy rebounds in March after rapid Covid vaccine rollout

8.29am BST

We've also had German and French inflation data this morning. German inflation rose to an annual rate of 2% in April from 1.7, in line with the European Central Bank's target.

German CPI jumps to +2.0% YoY in April, from previous +1.7%, to the ECB's target rate, confirming the return of an inflationary environment in the Eurozone and making a monetary squeeze by the central bank more likely @JuliaKollewe

8.11am BST

The UK chancellor, Rishi Sunak, has also responded to the GDP figures:

Despite a difficult start to this year, economic growth in March is a promising sign of things to come.

As we cautiously reopen the economy, I will continue to take all the steps necessary to support our recovery.

8.07am BST

European stock markets have defied expectations of further falls after yesterday's sell-off, and have opened higher.

7.53am BST

Turning back to the GDP figures, Samuel Tombs, chief UK economist at Macroeconomics, says:

The UK economy almost certainly was the laggard in the G7 for a fourth consecutive quarter in Q1. GDP was some 8.7% below its pre-Covid Q4 2019 level, much worse than the 0.9% decline in the U.S., 4.4% in France, 4.9% in Germany and 6.9% in Italy. Japan and Canada have not reported Q1 data yet, but both economies had fared much better than the U.K. in previous quarters.

As before, the UK's underperformance can be largely attributed to households' spending, which fell by 3.9% quarter-on-quarter in Q1 and was 11.5% below its Q4 2019 peak. This chiefly was due to stay-at-home orders and commonplace home-working, both of which led to a sharp fall in services spending; in aggregate, households' incomes have been unscathed by the pandemic, thanks to government policies.

The reopening of schools in England on March 8 triggered a 8.6% month-to-month rise in output in the education sector, while the associated increase in Covid-19 testing contributed to the 1.7% rise in healthcare output. In addition, a recovery in confidence among households and businesses, thanks to the rapid rollout of vaccines, sparked a 2.9% jump in output in the distribution sector and 1.2% increase in private non-distribution services output.

Manufacturers also benefited from the reboot in global trade, with output rising by 2.1% month-to-month and the volume of goods exports increasing by 4.0%. Finally, construction output leapt by 5.8%, buoyed by the rush to finish new houses so that they can be sold before the threshold for stamp duty returns to 125,000 at the end of September.

7.50am BST

Read our latest article showing the impact of #COVID19 on the UK economy in March https://t.co/j8wvRTBzYK pic.twitter.com/BU3pQVMom2

Other figures released by the ONS this morning show that trade with the EU recovered in March. At the same time, imports from non-EU countries outpaced those from EU countries for the first time in the first quarter.

Commenting on today's trade figures, Darren Morgan said: pic.twitter.com/2M7OlnRHAa

7.33am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The UK economy declined by 1.5% in the three months to March (when the country was in lockdown) from the previous quarter, according to the Office for National Statistics. This is not as bad as the 1.7% drop forecast by City economists.

While latest data confirms the economy was hit once again by a renewed lockdown at the turn of the year, the fall in activity was much smaller compared with spring 2020. Households and businesses have clearly adapted better to working and living under Covid restrictions, despite the brutal cost of doing so.

A range of indicators, including CBI business surveys, point to a rebound in activity heading into summer - with the economy opening up and pent-up demand waiting to be unleashed. But this is a recovery that will be felt more by some. Undoubtedly, hardest-hit sectors and households have a longer road ahead.

GDP grew 2.1% in March but remains 5.9% below its pre-pandemic peak.

Services grew 1.9% (7.2% below), manufacturing grew 2.1% (2.2% below) and construction grew 5.8% (2.4% above) https://t.co/FIpL48Qtxt pic.twitter.com/v1YqGiDNBV

#UK #economy contracted in first quarter of 2021 for first time since second quarter of 2020 but #GDP decline of 1.5% quarter-on-quarter was a pretty resilient performance amid #lockdown & much less than had been feared at start of quarter. GDP grew 2.1% month-on-month in March

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