How historically bad is inflation? Here’s what to look for in this week’s big CPI report
Good morning. This is Bernhard Warner on New York’s East Side, filling in for Alan.
Let me give you some numbers to start your week ahead of Friday’s big consumer price index (CPI) inflation data dump. Global food prices are up 30% year on year. House prices have jumped a record 21% in that same period. Oil has doubled. You get the picture. And wages? Meh, paychecks are roughly 5% fatter in 2022. You don’t have to be a quant whiz though to see pay is well undershooting the rising cost of living.
Inflation on Main Street, not to mention anywhere above or below 14th Street, will dominate the economic (and political) landscape for the rest of the year. But surely inflation is peaking. Right? Maybe. Maybe, just maybe, Friday’s inflation numbers will show the worst is behind us. But that doesn’t mean our dream homes will suddenly become affordable, or that we should start planning that coast-to-coast driving trip or sink our savings back into stocks anytime soon.
In fact, Bank of America’s chief investment strategist Michael Hartnett warns that “investors should expect a very aggressive Fed [over the] next six to nine months.” In the nearer future, Hartnett & Co. are saying we’re about to enter the “summer of Volcker,” a reference to former Fed Chair Paul Volcker during the Carter-Reagan years. He and his colleagues were tasked with dousing raging inflation by raising, raising, raising interest rates. (I’m already feeling nostalgic for last year’s “hot vax summer.”)
In this environment of quantitative tightening, investors tend to punish companies with weak cash flow and high debt loads. Regardless of what Friday’s CPI tells us, a bunch of 50-basis-point rate hikes are in the cards. Mortgage rates will go up. Indebted households and firms will feel the squeeze. Belts will be tightened. And when the dust settles, that wages-to-inflation ratio will continue to be out of whack.
I’m looking forward to getting back to Rome where a superlative cappuccino still costs €2. Just be sure to order it before 11 a.m.
Britain has announced it will send the first long-range missiles to Ukraine, after Russian forces attacked the outskirts of Ukrainian capital Kyiv for the first time since April. The move comes despite a warning from Russian President Vladimir Putin that if the U.S. sent missiles to Ukraine, Moscow would hit new targets within the country. Bloomberg
U.K.’s Johnson faces confidence vote
U.K. Prime Minister Boris Johnson will face a vote of confidence in his leadership on Monday, which will force him to stand down if he loses. Lawmakers in Johnson’s Conservative Party will cast their votes between 6 p.m. and 8 p.m. local time. The vote was triggered after at least 54 Conservative MPs submitted letters of no confidence in Johnson—but at least 180 will have to vote against Johnson for him to be removed as Prime Minister. BBC
$456 million lawsuit
Elliott Investment Management is suing the London Metal Exchange for $456 million, seeking damages over canceled nickel trades in March. The LME said in a statement that the claim was “without merit” and would be “contested vigorously.” Fortune
Ryanair language test
Irish budget airline Ryanair has been criticized for making South African nationals take a test in the Afrikaans language on U.K. flights. Ryanair said the test had been implemented “due to the high prevalence of fraudulent South African passports,” and claimed it exposed those traveling with fraudulent documents. South Africa has 11 official languages, and many people from the country reportedly say they do not understand Afrikaans. Fortune
AROUND THE WATERCOOLER
Elon Musk, the billionaire CEO of Tesla, said Sunday that he planned to increase total headcount at the company—a day after telling employees he would reduce the number of salaried employees by 10%. In a tweet on Sunday, Musk said total headcount would increase, while the rate of salaried workers “should be fairly flat.” Fortune
Thousands of British workers began working a four-day workweek from Monday without any loss of pay, as part of a wider global trial. More than 3,300 workers at 70 companies are taking part in the U.K. arm of the six-month experiment. The Guardian
Despite many companies setting April return-to-office deadlines, for the past month, U.S. office occupancy has held steady at roughly 43%. But working from home is far from free—especially when you consider rising energy costs. Fortune
Top Gun: Maverick a hit in Taiwan
The long-awaited Top Gun sequel—which earned almost $250 million globally in its opening weekend—is being celebrated in Taiwan for not pandering to Chinese censorship rules. The movie’s inclusion of a Taiwanese flag could suggest Hollywood is shifting away from deference to China’s red lines, experts say. CNBC
This edition of CEO Daily was edited by Chloe Taylor.
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