Consumer Prices Rose 0.6% Last Month and 5% Over the Past Year… Core inflation rose 0.7% for the month, 0.1% more than headline inflation and 3.8% over last year.
What it means— Cars were the thing. Used car prices increased by 7.3% last month after jumping 10% in April. Since used cars are 2.533% of the Consumer Price Index (CPI), the increase this month added 0.2% to the overall index. Away from autos, transportation services (think airline fares) and shelter also pushed up prices this month. The numbers were a bit hotter than expected, but the biggest gains were in categories like cars and airline fares that aren’t likely to sustain such gains, which plays into the Fed’s view that the current bout of inflation is transitory.
Investors appeared to agree with that assessment, because the equity markets shrugged off the numbers and moved higher while bond yields dipped. That’s not what you’d expect if investors thought the Fed was about to reduce its bond buying. We’re not sure this view is correct. While we’re not likely to bid up used car prices, we are likely to see rent prices move higher after the sustained gains in home prices. Shelter constitutes more than 30% of CPI, so gains in this category will pull the entire index higher.
Labor Market Has 9.2 Million Openings… The Bureau of Labor Statistics reported that employers were trying to fill more than nine million openings in April.
What it means— With 9.2 million jobs available and 9.3 million people unemployed, you’d think we could have one big Zoom call and connect all the employers and potential workers. It would be like a dating app but for work. Of course, we already have plenty of employment marketplaces, like Indeed.com, ZipRecruiter and your friendly local unemployment office. But, we’re dealing with structural unemployment, where the people who want to work don’t have the qualifications for the open positions. The federal unemployment bonus checks likely are keeping some people on the sidelines, but there’s no denying that most of the jobs we need to fill require either special training or experience. Oh yeah, and you must pass a drug test which is a bigger problem.
OPEC Expects Oil Demand To Surpass Pre-COVID Levels Next Year… Oil demand fell nearly 15%, from 100 billion barrels per day (b/d) last year and so far has rebounded to nearly 95 million b/d.
What it means— Last summer, many people wondered if oil demand would ever surpass pre-COVID levels, and now demand is ramping up at a rapid pace. OPEC expects demand to reach just over 99 million barrels b/d this year and continue to rise at least for the rest of the decade. They’re right.
The transition to electric vehicles in developed nations depends on hardening electric grids, changing consumer tastes, and eventual price declines. It’s doable, but it will take quite some time. Developed nations will need reliable electricity generation and distribution before they can consider electric vehicles, and that seems a long way off. Until then, oil’s the thing.
TC Energy Cancels XL Pipeline… After years of legal battles and applications for government permits, the energy company canceled plans to build the new pipeline that would carry Canadian oil through parts of the U.S.
What it means— The company did everything asked of it to gain approval from the U.S. government. The Obama administration didn’t want it, so it stalled the process. The Trump administration approved it, then Biden pulled TC’s permit during his first days in office. After several years and more than $1 billion in expenses, the company pulled the plug.
Environmentalists called it a win, but that seems a bit short-sighted. While it’s true that the pipeline won’t be built, the U.S. will still use oil, and the Canadians will still produce the stuff. But now the U.S. will have to look to other sources, such as the Middle East, for more supply, and the Canadians will ship their product via other means to far away destinations. That doesn’t sound like a victory.
El Salvador Approves Bitcoin as Legal Tender… The Central American country approved the cryptocurrency for everyday transactions and official payments, such as taxes and government fees.
What it means— The move says more about El Salvador’s financial condition than bitcoin’s acceptance. The country is in terrible economic shape and has long used the U.S. dollar as legal tender. There aren’t many opportunities for economic growth, and roughly 70% of the population doesn’t have a bank account. Adding bitcoin to the mix might make it easier for people who have smartphones but not bank accounts to exchange value, but it doesn’t create good-paying jobs. However, it does introduce something new: wild volatility in the value of the local currency.
Imagine getting paid in bitcoin for a job, and then walking an hour to the grocery store only to find that your payment is now worth 10% more, or less, than what you were paid earlier in the day. With the value of bitcoins swinging by 20%, 30%, and even 50% over mere weeks, it’s hard to see how using it as a daily currency will make life better for Salvadorans.
Researchers Prove Land Mammals Can Breathe Through Both Ends… Based on processes some fish use to breathe, researchers tested the theory that mice could survive by extracting oxygen through their intestines instead of their lungs. It worked. Eventually, they found that mice and larger mammals could live when a liquid supersaturated with oxygen was introduced into their back ends through enemas. The animals suffered no ill effects, and now the researchers are excited to try the process on human volunteer test subjects. The approach could provide a way other than ventilators to keep a patient with breathing issues alive while doctors address whatever condition is affecting the patient’s lungs.
Data supplied by HS Dent Research
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