US Business

US inflation surged to a fresh peak of 9.1 percent in June, further squeezing American families and heaping pressure on President Joe Biden, whose approval ratings have taken a battering from the relentless rise in prices. 

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

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

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

While acknowledging the inflation rate was “unacceptably high,” Biden argued that it was “out of date” as it did not reflect a clear drop in energy prices since mid-June.

The recent price drop had provided “important breathing room for American families. And, other commodities like wheat have fallen sharply since this report,” the president said in a statement.

Insisting that tackling inflation was the top priority, Biden admitted his administration needed “to make more progress, more quickly, in getting price increases under control.”

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

However, energy prices have eased in recent weeks, with oil prices falling below $100 a barrel for the first time since April, which could start to relieve some of the pressure on consumers.

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

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

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

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

– Signs of cooling? –

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

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

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

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

The White House came out ahead of the report to predict it would show “highly elevated” inflation due to rising gasoline prices that have since retreated. 

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

Mickey Levy of Berenberg Capital Markets said the “broadening” of price increases to more categories is a “cause for concern” for the Fed’s efforts, but “there is reason to believe price increases may moderate in the near term.”

Even so, the big jump left Biden open to intense criticism from opposition Republicans, who blamed Democrats’ spending.

Even Democratic Senator Joe Manchin of West Virginia accused leaders in Washington of ignoring the inflation risk.

“No matter what spending aspirations some in Congress may have, it is clear to anyone who visits a grocery store or a gas station that we cannot add any more fuel to this inflation fire,” Manchin said in a statement.

Global stocks fell Wednesday and the euro dipped below $1.00 for the first time in nearly 20 years after data showed a surge in US inflation last month, convincing investors that further increases in borrowing costs are on their way.

Stock prices on Wall Street fell after a pick-up in US inflation to 9.1 percent in June increased the risk of a possible recession.

European stock markets also ended the session lower, with London’s blue-chip FTSE-100 index down 0.7 percent, Frankfurt’s DAX down 1.2 percent and Paris’s CAC-40 down 0.7 percent. 

The euro fell below the symbolic level of $1.00 for the first time since December 2002, dipping as low as $.0998, as the prospect of higher interest rates rendered the dollar more attractive to investors. But it soon moved back above parity.

The economic prospects for the 19-country eurozone are also darkening as a possible halt to Russian gas supplies increases the risk of recession.

– Inflation tops 9% – 

US inflation surged to a 40-year high in June on a 12-month basis, much worse than expected, US Labor Department data showed.

“The inflation reading has blown past all expectations today and there is no doubt now that the (Federal Reserve) will be even more aggressive,” said Naeem Aslam, analyst at Avatrade.

“Inflation at 9.1 percent makes you sick as a consumer and as a central banker.” 

Markets fear the reading will prompt the Fed to keep hiking interest rates aggressively after it ramped up borrowing costs by three-quarters of a percentage point last month.

Consumer prices are soaring worldwide after economies reopened from pandemic lockdowns and as the Ukraine war keeps energy prices elevated.

In a further sign of the pressure being felt around the world, the New Zealand and South Korean central banks each lifted interest rates by 0.5 percentage points Wednesday.

It was the steepest increase by Seoul since 1999.

– Europe gas crisis –

Russian energy giant Gazprom said it could not guarantee the good functioning of Nord Stream gas pipeline and did not know if a “critical” turbine engine would be returned from repair in Canada. 

Gazprom started 10 days of maintenance on Nord Stream 1 pipeline on Monday, with the EU — particularly gas-reliant Germany — waiting nervously to see if the taps will be turned back on. 

“A prolonged cut to the gas supply would halt a lot of economic activity, sending (Germany) deep into recession,” said Tapas Strickland at National Australia Bank.

July 21 — when the gas should be switched back on — will be a crucial date, he said.

– Key figures at around 1545 GMT –

New York – Dow: DOWN 0.6 percent at 30,802.71 points

London – FTSE 100: DOWN 0.7 percent at 7,156.37 (close)

Frankfurt – DAX: DOWN 1.2 percent at 12,756,32 (close)

Paris – CAC 40: DOWN 0.7 percent at 6,000.24 (close)

EURO STOXX 50: DOWN 0.9 percent at 3,453.97

Tokyo – Nikkei 225: UP 0.5 percent at 26,478.77 (close)

Hong Kong – Hang Seng Index: DOWN 0.2 percent at 20,797.95 (close)

Shanghai – Composite: UP 0.1 percent at 3,284.29 (close)

Euro/dollar: UP at $1.0084 from $1.0037 Tuesday

Pound/dollar: UP at $1.1919 from $1.1889 

Euro/pound: UP at 84.63 pence from 84.40 pence

Dollar/yen: UP at 137.34 yen from 136.84 yen

West Texas Intermediate: UP 0.2 percent at $96.02 per barrel

Brent North Sea crude: DOWN 0.2 percent at $99.31 per barrel

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Moments after US President Joe Biden touched down in Tel Aviv on Wednesday, the Israeli military showed him new hardware it says is essential to confronting Iran: anti-drone lasers.

While Israel has long been known for its efforts to thwart Tehran’s nuclear ambitions, Israeli officials have increasingly been sounding the alarm over Iran’s fleet of unmanned aerial vehicles (UAVs).

Earlier this month, the Israeli military said it had intercepted four unarmed drones headed for an offshore gas rig, claiming they were Iranian-made and launched by the Tehran-backed Lebanese group Hezbollah.

As concerns mount over drone warfare, Israel hopes the new “Iron Beam” system will secure its skies.

While not yet operational, the military hardware was described as a “game-changer” in April by then-prime minister Naftali Bennett. 

On Wednesday, the Israeli army showed Biden footage of drones being intercepted by the Iron Dome defence system already in place, and the Iron Beam system which uses laser technology.

“It (Iron Beam) will be operational in very few years, it will be on the ground, integrated with Iron Dome,” Daniel Gold, head of research at Israel’s defence ministry, told AFP.

He said the two systems will “complement each other”.

“They will work together, the brain of Iron Dome — the command and control — will decide in real time who is going to shoot -– the laser or the missile,” he said.

Presenting such technology to Biden is a strategic move for Israel, which saw Washington approve a billion-dollar package in September for the Iron Dome system.

– Low-cost warfare –

Iron Dome has been used countless times to intercept rockets fired by militants from the Gaza Strip, which is controlled by Iran’s ally Hamas.

The defence system costs roughly $50,000 per launch, while Bennett priced the Iron Beam at $3.50 per deployment.

He said the new defence system was “silent” and could “intercept incoming UAVs, mortars, rockets and anti-tank missiles”.

Uzi Rubin, a former Israeli defence ministry specialist in anti-missile systems, said intercepting drones was a significant challenge.

“The laser technology will have more capacity against drones than rockets and missiles,” said Rubin, who is based at the Jerusalem Institute for Strategy and Security.

“It is going to help if we get some American financing” for the Iron Beam, he added. 

– Integrating Israel into region –

For Israel, a priority of Biden’s Middle East tour is broadening US-backed security cooperation among regional countries with shared hostility towards Iran.

The US president will fly Friday to Saudi Arabia, Iran’s main regional rival, following meetings with Israeli and Palestinian officials. 

Saudi Arabia and its neighbour the United Arab Emirates have both come under drone attack by Yemen’s Iran-backed Huthi rebels since 2019.

The Wall Street Journal reported last month that senior Israeli and US military officials had visited Egypt to discuss Iranian drones.

Participants in the talks included the United Arab Emirates and Bahrain, which both normalised ties with Israel in 2020, as well as Saudi Arabia and Qatar, which do not Israel.

Upon arriving in Israel on Wednesday, Biden said “we’ll continue to advance Israel’s integration into the region”.

– ‘Significant platform’ –

According to Eyal Pinko, a former Israeli navy intelligence officer, Israel has been anticipating the rising threat of drones from Iran and its regional proxies.

“Since 2009, there was an understanding among Israeli naval intelligence that Hezbollah’s UAVs would be a threat to Israeli rigs,” said Pinko, a specialist at Tel Aviv’s Bar-Ilan University.

“Iran understood many years ago that drones were force multipliers, a significant platform and relatively cheap,” he told AFP.

The Israeli military has said that it had intercepted in March 2021 two Iranian drones laden with weapons for Gaza militants.

Tehran “is positioning itself as a major drone power in the region”, said a report published in May by the European Council on Foreign Relations think tank.

“The country built up its vast drone fleet over many years mainly out of necessity, aiming to compensate for its old and decaying air force, which has been battered by decades of sanctions,” it added.

Tehran’s fleet includes the “Gaza” drone, which can fly for 35 hours, according to Iran’s Fars News Agency.

On Monday, the White House revealed intelligence that Tehran was “preparing to provide Russia with up to several hundred UAVs… on an expedited timeline” for use in the war in Ukraine.

While Israel aims to counter Iranian UAVs with new technology and regional alliances, it may also be going on the offensive.

In March, Israeli media said the army had launched an attack on an Iranian site storing dozens of armed drones.

But weeks later, Iranian state television broadcast footage of a facility hidden in the mountains: an underground base for scores of military UAVs.

Shares of Delta Air Lines tumbled Wednesday as swelling costs pressured quarterly earnings, despite persistently robust demand that so far appears resilient amid inflation. 

The big US carrier reported solid second-quarter operating earnings and said it is on track for “meaningful full year profitability,” a markedly better outlook after the bruising pandemic downturn.

But the results missed analyst expectations, prompting analyst questions about when Delta expects to get costs under control and stabilize operations.

Besides a 41 percent jump in fuel costs compared with the 2019 period, the airline saw increases in labor costs, in part because of elevated overtime pay as it contends with an industry-wide labor crunch that will take time to address.

“The issues we’re facing are temporary,” said Chief Executive Ed Bastian, alluding to a six-week stretch in the just-finished quarter plagued by flight cancellations and delays.

Bastian said operational performance had improved in July after the carrier built in more buffer time for crews between flights 

Delta has also trimmed its plans for near-term growth. It projects third-quarter capacity will be down 15 to 17 percent compared with the 2019 level.

Executives said cost pressures should ease in the second half of the year as Delta puts off growth plans and focuses on improving operations. 

Part of the issue is the onboarding of some 18,000 new staff members since the pandemic. 

Bastian said the carrier had done a good job of hiring people, but that there is a learning curve with new employees that should abate as staff gets experience.

Profits for the quarter were $735 million on $13.8 billion in revenues. That translated into $1.44 per share, below the $1.64 expected by analysts.

Delta’s earnings were released shortly before the June US consumer price index report, which showed a 9.1 percent jump over the last 12 years. Inflation will pinch household disposable income, especially for the less wealthy.

Delta executives insisted they were seeing no erosion in ticket purchases, citing “pent-up demand” after the pandemic.

“We’re not seeing it,” Delta President Glen Hauenstein said of a potential decline. “As of now, we’re enjoying very robust spend.”

Shares fell 6.6 percent to $29.02 in late-morning trading.

The European Space Agency has officially terminated cooperation with Russia on a mission to put a rover on Mars, with Russia’s space chief furiously responding by banning cosmonauts on the ISS from using a Europe-made robotic arm.

The ESA had previously suspended ties on the joint ExoMars mission, which had planned to use Russian rockets to put Europe’s Rosalind Franklin rover on the red planet to drill for signs of life, due to Russia’s invasion of Ukraine.

ESA Director-General Josef Aschbacher tweeted on Tuesday that because the war and resulting sanctions “continue to prevail”, the agency would “officially terminate” ties with Russia on ExoMars and its landing platform.

The firebrand head of Russian space agency Roscosmos Dmitry Rogozin issued an angry response.

“Has the head of the European Space Agency thought about the work of thousands of scientists and engineers in Europe and Russia which has been ended by this decision? Is he prepared to answer for sabotaging a joint Mars mission?” Rogozin said on Telegram.

“I, in turn, order our crew on the ISS to stop working with the European manipulator ERA,” he added.

Installed just a few months ago, the European Robotic Arm (ERA) is one of three such robots on the International Space Station, but it is the only one that can reach the Russian segment.

The 11-metre long robot, which looks like a pair of compasses, helps by moving payloads inside and outside the ISS, and can also transport spacewalkers “like a cherry-picker crane,” according to the ESA website.

The ExoMars launch had already been suspended once in 2020 due to the pandemic, then plans for a launch in September this year were called off due to the war in March.

Aschbacher said last month he is in “intense discussion” with US space agency NASA to get the rover to Mars, adding that he was “very confident that we find a good partnership”.

US inflation surged to a fresh peak of 9.1 percent in June, further squeezing American families and heaping pressure on President Joe Biden, whose approval ratings have taken a battering from the relentless rise in prices. 

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

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

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

While acknowledging the inflation rate was “unacceptably high,” Biden argued that it was also “out of date” as it did not reflect a clear drop in energy prices since mid-June.

The recent price drop had provided “important breathing room for American families. And, other commodities like wheat have fallen sharply since this report,” the president said in a statement.

Insisting that tackling inflation was the top priority, Biden admitted his administration needed “to make more progress, more quickly, in getting price increases under control.”

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

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

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

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

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

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

– Signs of cooling? –

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

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

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

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

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

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

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