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Inflation victory is proving elusive for central banks

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The fight against inflation in the U.S. and Europe is proving to be a challenging battle, with recent trends showing a halt in the decline or even slight increases.

This shift is challenging the assumptions that guided central bank policies and market expectations.

After witnessing a decline from the highs of approximately 9% to 10% across advanced economies in 2022, which were largely attributed to easing supply-chain blockages and normalisation of commodity prices, the journey towards lower inflation has hit a roadblock.

Underlying inflation, which excludes volatile food and energy prices, had slowed to 3% in the latter half of last year but has since inched up to 3.5%, according to estimates by JP Morgan.

This trend is causing investors to reconsider their expectations that inflation would steadily decline towards central banks’ targets, typically around 2%.

U.S. Federal Reserve

Commodity markets

There are growing concerns that inflation could surge once again, echoing the second wave that characterised the high inflation of the 1970s.

Economists and central banks had been forecasting sustained decreases in inflation, contingent upon strong factors such as global labor costs, short-term expectations, and signals from commodity markets.

However, recent data suggests that these factors might not be aligning as anticipated. Services inflation remains elevated, and goods prices, which had previously fallen, are now on the rise.

Central bankers had anticipated that the final stretch of reducing inflation would be turbulent. However, they are indicating a readiness to wait before resorting to rate cuts.

A deviation from expected rate cuts could have significant repercussions for the global economy and markets, which had rallied on the assumption of such cuts.

Recent data from the U.S. Commerce Department revealed that the price index of personal-consumption expenditures, the Federal Reserve’s preferred inflation indicator, rose by a modest 2.5% in the 12 months through February.

However, the index excluding food and energy witnessed a more significant increase, climbing by 3.5% on an annualised basis over the three months through February.

Slowing progress

Fed governor Christopher Waller expressed concerns about the slowing progress on inflation, suggesting a need to reconsider the frequency and timing of rate cuts.

Fed Chair Jerome Powell, however, maintained a more balanced stance, highlighting the occasionally bumpy path toward 2% inflation and said the strength of economic growth as a factor allowing policymakers to wait for more data.

Joachim Nagel, president of Germany’s Bundesbank, cautioned against premature rate cuts, citing the risk of missing inflation targets and the potential need for subsequent rate hikes.

He referenced an International Monetary Fund report that highlighted the persistence of inflation shocks over extended periods.

Stubborn inflation

Eurozone countries are also grappling with stubborn inflation.

In Italy, underlying inflation edged higher in March, while French services prices remained elevated despite a cooling headline inflation rate.

The resilience of economic growth, particularly in the U.S., coupled with strong consumer spending and job creation, has contributed to the persistence of inflationary pressures.

While Europe’s growth has stalled, recent indicators suggest a potential upturn. Additionally, wage growth remains high, reflecting tight labor markets, and is a significant driver of services-price inflation in the eurozone.

Central banks may inadvertently be contributing to inflationary pressures by signaling a pivot toward rate cuts, which has suppressed borrowing costs and boosted asset prices.

Ahron Young is an award winning journalist who has covered major news events around the world. Ahron is the Managing Editor and Founder of TICKER NEWS.

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Money

Research shows daters are looking for solvent partners

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As the cost-of-living crisis continues to grip Australia, new research reveals a shifting landscape in the realm of dating preferences.

According to the survey conducted by eharmony, an overwhelming two-thirds of Australians are now keen to understand their potential partner’s financial situation before committing to a serious relationship.

The findings indicate a growing trend where individuals are becoming more discerning about whom they invest their affections in, particularly as the economic pressures intensify.

Read more: Why are car prices so high?

The study highlights that nearly half of respondents (48%) consider a potential partner’s debts and income as crucial factors in determining whether to pursue a relationship.

Certain types of debt, such as credit card debt, payday loans, and personal loans, are viewed unfavorably by the vast majority of respondents, signaling a preference for partners who exhibit financial responsibility.

Good debt

While certain forms of debt, such as mortgages and student loans (e.g., HECS), are deemed acceptable or even ‘good’ debt by a majority of respondents, credit card debt, payday loans (such as Afterpay), and personal loans top the list of ‘bad’ debt, with 82%, 78%, and 73% of respondents, respectively, expressing concerns.

Interestingly, even car loans are viewed unfavorably by a significant portion of those surveyed, with 57.5% considering them to be undesirable debt.

Sharon Draper, a relationship expert at eharmony, said the significance of financial compatibility in relationships, noting that discussions around money are increasingly taking place at earlier stages of dating.

“In the past, couples tended to avoid discussing money during the early stages of dating because it was regarded as rude and potentially off-putting,” Draper explains.

“However, understanding each other’s perspectives and habits around finances early on can be instrumental in assessing long-term compatibility.”

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Money

US energy stocks surge amid economic growth and inflation fears

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Investors are turning to U.S. energy shares in droves, capitalizing on surging oil prices and a resilient economy while seeking protection against looming inflationary pressures.

The S&P 500 energy sector has witnessed a remarkable ascent in 2024, boasting gains of approximately 17%, effectively doubling the broader index’s year-to-date performance.

This surge has intensified in recent weeks, propelling the energy sector to the forefront of the S&P 500’s top-performing sectors.

A significant catalyst driving this rally is the relentless rise in oil prices. U.S. crude has surged by 20% year-to-date, propelled by robust economic indicators in the United States and escalating tensions in the Middle East.

Investors are also turning to energy shares as a hedge against inflation, which has proven more persistent than anticipated, threatening to derail the broader market rally.

Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group, notes that having exposure to commodities can serve as a hedge against inflationary pressures, prompting many portfolios to overweight energy stocks.

Shell Service Station

Shell Service Station

Energy companies

This sentiment is underscored by the disciplined capital spending observed among energy companies, particularly oil majors such as Exxon Mobil and Chevron.

Among the standout performers within the energy sector this year are Marathon Petroleum, which has surged by 40%, and Valero Energy, up by an impressive 33%.

As the first-quarter earnings season kicks into high gear, with reports from major companies such as Netflix, Bank of America, and Procter & Gamble, investors will closely scrutinize economic indicators such as monthly U.S. retail sales to gauge consumer behavior amidst lingering inflation concerns.

The rally in energy stocks signals a broadening of the U.S. equities rally beyond growth and technology companies that dominated last year.

However, escalating inflation expectations and concerns about a hawkish Federal Reserve could dampen investors’ appetite for non-commodities-related sectors.

Peter Tuz, president of Chase Investment Counsel Corp., highlights investors’ focus on the robust economy amidst supply bottlenecks in commodities, especially oil.

This sentiment is echoed by strategists at Morgan Stanley and RBC Capital Markets, who maintain bullish calls on energy shares, citing heightened geopolitical risks and strong economic fundamentals.

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Money

How Australians lose nearly $1 billion to card scammers in a year

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A recent study by Finder has unveiled a distressing trend: Australians are hemorrhaging money to card scams at an alarming rate.

The survey, conducted among 1,039 participants, painted a grim picture, with 2.2 million individuals – roughly 11% of the population – falling prey to credit or debit card skimming in 2023 alone.

The financial toll of these scams is staggering. On average, victims lost $418 each, amounting to a colossal $930 million collectively across the country.

Rebecca Pike, a financial expert at Finder, underscored the correlation between the surge in digital transactions and the proliferation of sophisticated scams.

“Scammers are adapting, leveraging sophisticated tactics that often mimic trusted brands or exploit personal connections. With digital transactions on the rise, it’s imperative for consumers to remain vigilant and proactive in safeguarding their financial assets,” Pike said.

Read more – How Google is cracking down on scams

Concerning trend

Disturbingly, Finder’s research also revealed a concerning trend in underreporting.

Only 9% of scam victims reported the incident, while 1% remained oblivious to the fraudulent activity initially. Additionally, 1% of respondents discovered they were victims of bank card fraud only after the fact, highlighting the insidious nature of these schemes.

Pike urged consumers to exercise heightened scrutiny over their financial statements, recommending frequent monitoring for any unauthorised transactions.

She explained the importance of leveraging notification services offered by financial institutions to promptly identify and report suspicious activity.

“Early detection is key. If you notice any unfamiliar transactions, don’t hesitate to contact your bank immediately. Swift action can mitigate further unauthorised use of your card,” Pike advised, underscoring the critical role of proactive measures in combating card scams.

As Australians grapple with the escalating threat of card fraud, Pike’s counsel serves as a timely reminder of the necessity for heightened vigilance in an increasingly digitised financial landscape.

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