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Fed’s ‘transitory’ inflation plot thickens again with rate at 30-year high

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November 11, 2021

By Howard Schneider

WASHINGTON (Reuters) – Inflation pushed more broadly through the economy in October again challenging the Federal Reserve’s outlook for only “transitory” price increases, offsetting recent wage hikes in a blow to consumers, and prompting investors to boost bets the central bank will raise interest rates sooner than expected.

Yields on two-year Treasury notes, a proxy for the outlook for the overnight interest rate set by the Fed, jumped 6 basis points, the most in three weeks and among the largest daily increases in the last year and a half, to 0.485% on Wednesday after the release of data showing consumer prices rose by 6.2% in October versus the year before.

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That was the largest one-year jump in prices in 30 years and applied across staples like food, energy and rent, as well as to items like automobiles where the Fed has expected the pace of price increases to ease alongside pandemic-driven “bottlenecks” in global supply chains.

But those “bottlenecks” remain overrun by strong U.S. consumer demand, and inflation measures meant to diminish the impact of one-time spikes in goods and services are also rising.

Both a Cleveland Fed “trimmed mean” index of consumer prices and one that tracks the median level of price increases surged in a sign that price pressures were rising across a more extensive set of goods and services.

(GRAPHIC: Alternate inflation measures – https://graphics.reuters.com/USA-FED/INFLATION/znpnekxmdvl/chart.png)

Still, one Fed policymaker on Wednesday said the central bank should still remain patient.

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“We need to wait to see how this percolates through the economy,” before changing monetary policy in response to it, San Francisco Fed president Mary Daly said on Bloomberg TV.

Markets had a shorter leash. Pricing in futures contracts tied to the target federal funds rate showed investors boosting odds the Fed will by September raise rates twice by a cumulative 0.50 percentage point. Expectations for a third quarter-point rate increase in December increased to nearly 50% compared to less than 30% on Tuesday.

“The risks stemming from inflation have become increasingly top of mind to Federal Reserve policymakers, since excessive accommodation for too long, or essentially running the economy hot, could well hold unintended market consequences that further erode confidence and eventually impair the recovery,” said Rick Rieder, chief investment officer for global fixed income at investment giant Blackrock.

With demand, supply and wage pressures expected to continue, “near-term inflation readings may be intimidating to ‘inflation fighters’…which could press central bankers to at least discuss a faster reaction-function.”

NOT ‘LINEAR’

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For both the Fed and the Biden administration, what was an adamant faith in transitory inflation has been tempered.

“We know that the recovery from the pandemic will not be linear,” Biden’s Council of Economic Advisers said on Twitter in a nod to prices rising still faster than anticipated. The CEA “will continue to monitor the data as they come in,” the office said.

The price rises also have had the disconcerting effect of outpacing wage increases that the Fed and White House hoped would flow to lower-paid workers in the hotel, restaurant and other industries hardest hit during the pandemic shutdowns last year and the cautious return to in-person services since then.

On a month-to-month basis inflation almost fully offset the strong wage increases seen in the leisure and hospitality industry in October, noted Nick Bunker, research director for North America at job site Indeed.

Overall, real hourly wages fell 1.2% in October compared with the year before, with the nearly 5% wage gain of the past 12 months more than offset by the 6.2% rise in prices.

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That continues reversing what had been a steady rise in workers’ purchasing power since around 2013, with the benefits of low inflation boosting “real” wages after several years of stagnation following the 2007-2009 financial crisis and recession.

(GRAPHIC: Wages vs. prices – https://graphics.reuters.com/USA-ECONOMY/INFLATION/lbpgnblmjvq/chart.png)

The Fed has said it is reluctant to raise interest rates until more people have returned to jobs after being sidelined during the pandemic, even if inflation runs above its formal 2% target “for some time.”

The jobs-first strategy is a change from the previous approach which tried to use higher unemployment as a way to keep prices under control – in effect imposing the cost of inflation-fighting onto those rendered jobless during economic slowdowns.

The Fed still hopes inflation will ease, over time, without the need to ratchet interest rates higher to cool the economy, and risk slowing or reversing job growth in the process.

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But the longer inflation data run beyond expectations, the tougher that will be.

“With annual inflation now topping 6%, is this sufficient to force the Fed’s hand? This long, long transitory period has to heap pressure on the Fed,” said Seema Shah, chief strategist at Principal Global Investors.

(Reporting by Howard Schneider; Additional reporting by Ann Saphir in San Francisco and Shreyashi Sanyal in Bengaluru; Editing by Dan Burns and Andrea Ricci)

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Amazon asks India antitrust body to revoke Reliance-Future deal approval

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November 28, 2021

By Aditya Kalra and Abhirup Roy

NEW DELHI (Reuters) – Amazon has asked India’s antitrust regulator to revoke its approval for Future Retail’s $3.4 billion sale of retail assets to Reliance, saying it was “illegally obtained”, violating an order suspending the deal, a letter seen by Reuters shows.

The approval for the deal was a “nullity in the eyes of law” as an arbitrator’s order was still in force, according to the letter sent by Amazon.com Inc to the Competition Commission of India (CCI) last week.

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The battle between two of the world’s richest men, Amazon founder Jeff Bezos and Reliance Industries Ltd boss Mukesh Ambani, marks a contest for preeminence in India’s booming, nearly trillion-dollar retail market.

The winner in the fight for Future Retail Ltd, India’s second-largest retailer and Amazon’s estranged local partner, will get pole position in the race to meet the daily needs of more than a billion people.

The CCI, Amazon, Future Group and Reliance did not respond to requests for comment.

Future has said the arbitrator’s suspension order was invalid but Indian courts have declined to overturn it.

If the regulator agrees with the previously unreported letter, it would be a major setback for oil-to-telecom conglomerate Reliance.

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Amazon won an injunction against the deal from a Singapore arbitrator last year, alleging Future had violated contracts that prevented it from selling the assets to entities including Reliance.

But the CCI later cleared the deal.

Future misled the CCI and continued to seek approval for the deal, Amazon said in the letter dated Wednesday, calling the injunction a “brazen attempt to subvert the rule of law”.

Amazon asked for a personal hearing from the CCI to make its case.

The letter comes as Amazon is also battling allegations that it misrepresented facts and concealed information while seeking antitrust clearance for a 2019 deal with Future Group.

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Amazon has so far successfully used this deal’s contracts to block Future’s deal with Reliance.

(Reporting by Aditya Kalra and Abhirup Roy in New Delhi; Additional reporting by Zeba Siddiqui; Editing by William Mallard)

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Exclusive-Visa complains to U.S. govt about India backing for local rival RuPay

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November 28, 2021

By Aditya Kalra

NEW DELHI (Reuters) – Visa Inc has complained to the U.S. government that India’s “informal and formal” promotion of domestic payments rival RuPay hurts the U.S. giant in a key market, memos seen by Reuters show.

In public Visa has downplayed concerns about the rise of RuPay, which has been supported by public lobbying from Prime Minister Narendra Modi that has included likening the use of local cards to national service.

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But U.S. government memos show Visa raised concerns about a “level playing field” in India during an Aug. 9 meeting between U.S. Trade Representative (USTR) Katherine Tai and company executives, including CEO Alfred Kelly.

Mastercard Inc has raised similar concerns privately with the USTR. Reuters reported in 2018 that the company had lodged a protest https://reut.rs/3cQA2La with the USTR that Modi was using nationalism to promote the local network.

“Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India” (NPCI), the non-profit that runs RuPay, “over other domestic and foreign electronic payments companies,” said a USTR memo prepared for Tai ahead of the meeting.

Visa, USTR, Modi’s office and the NPCI did not respond to requests for comment.

Modi has promoted homegrown RuPay for years, posing a challenge to Visa and Mastercard in the fast-growing payments market. RuPay accounted for 63% of India’s 952 million debit and credit cards as of November 2020, according to the most recent regulatory data on the company, up from just 15% in 2017.

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Publicly, Kelly said in May that for years there was “a lot of concern” that the likes of RuPay could be “potentially problematic” for Visa, but he stressed that his company remained India’s market leader.

“That’s going to be something we’re going to continually deal with and have dealt with for years. So there’s nothing new there,” he told an industry event.

‘NOT SO SUBTLE PRESSURE’

Modi, in a 2018 speech, portrayed the use of RuPay as patriotic, saying that since “everyone cannot go to the border to protect the country, we can use RuPay card to serve the nation.”

When Visa raised its concerns during the USTR gathering on Aug. 9, it cited the Indian leader’s “speech where he basically called on India to use RuPay as a show of service to the country,” according to an email U.S. officials exchanged on the meeting’s readout.

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Finance Minister Nirmala Sitharaman said last year that “RuPay is the only card” banks should promote. The government has also promoted a RuPay-based card for public transportation payments.

While RuPay dominates the number of cards in India, most transactions still go through Visa and Mastercard as most RuPay cards were simply issued by banks under Modi’s financial inclusion programme, industry sources say.

Visa told the U.S. government it was concerned India’s “push to use transit cards linked to RuPay” and “the not so subtle pressure on banks to issue” RuPay cards, the USTR email showed.

Mastercard and Visa count India as a key growth market, but have been jolted by a 2018 central bank directive for them to store payments data “only in India” for “unfettered supervisory access”.

Mastercard faces an indefinite ban on issuing new cards in India after the central bank said it was not complying with the 2018 rules. A USTR official privately called the Mastercard ban “draconian”, Reuters reported in September.

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(Reporting by Aditya Kalra in New Delhi; Editing by William Mallard)

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‘Flash mob’ thieves target U.S. retail stores on Black Friday

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November 28, 2021

By Steve Gorman

LOS ANGELES (Reuters) – Black Friday shoppers weren’t the only ones out hunting for bargains on the day after Thanksgiving. Thieves were busy as well.

Police in Los Angeles and cities elsewhere across the country spent much of their holiday weekend patrols looking for suspects in a spate of “flash mob” robberies on Friday, part of a surging U.S. crime trend in which groups of thieves swarm a store, ransack the shelves and flee.

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Authorities also have used the term “smash-and-grab” to describe the trend.

At least two such robberies were reported on Saturday by the Los Angeles Police Department (LAPD) and the Los Angeles County Sheriff’s Department. A local television station, KCAL-TV, counted a total of six smash-and-grab heists on the city’s west side alone on Friday.

In one incident, a group of eight men entered a Home Depot outlet at a shopping mall in Lakewood, south of downtown Los Angeles, walked directly to the tool aisle and snatched a bunch of hammers, sledgehammers and crowbars valued at about $400 before making their getaway, the sheriff’s office said.

According to L.A. television station KTTV, the Home Depot robbery on Friday night involved up to 20 suspects who pulled up to the store in as many as 10 cars and donned ski masks before raiding the tool aisle.

“We tried to stop them,” store employee Luis Romo told KTTV. “We closed the front entrance, and they put their sledgehammers up and whoever got in the way, they were going to hurt them.”

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The Los Angeles City News Service said four suspects in that robbery were arrested on Saturday by Beverly Hills police.

In a similar incident Friday afternoon, a group of 10 men or more invaded a store in the city’s Fairfax district and started grabbing merchandise without paying for it, pushing employees out of the way before fleeing the scene, according to LAPD.

Police are investigating possible ties between that incident and a flurry of other robberies and retail thefts on Friday and earlier in the week, including two smash-and-grabs reported on Wednesday, an LAPD spokesperson said.

The rash of retail crime prompted the LAPD to place its officers on a citywide tactical alert on Friday afternoon.

Mass robberies also were reported on Friday at two Best Buy electronics stores in the Minneapolis-St. Paul area, one of them involving as many as 30 suspects, while a spree of pre-dawn retail burglaries were under investigation in Chicago.

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In one of the biggest flash-mob robberies reported on the West Coast in recent days, police in the San Francisco suburb of Walnut Creek were seeking about 80 suspects who swarmed and ransacked a department store last Saturday.

(Reporting by Steve Gorman in Los Angeles; Editing by Paul Simao)

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