This is the web version of the WSJ’s economic newsletter. You can sign up for daily delivery here.
Good morning! Today we look at a possible way out of the U.S.-China trade fight, how businesses are getting squeezed by rising wholesale prices, California’s decision to make housing more expensive, and the ascendance of euroskeptics in Italy.
China likely will offer to import more U.S. goods as the two sides look to avert an all-out trade war. China is dispatching its chief economic envoy, Liu He, to Washington in the days ahead, Lingling Wei and Bob Davis report. Mr. Liu is expected to come with a shopping list of sorts, specific ideas for purchases designed to narrow the two country’s vast trade imbalance. Such a move is viewed as one of the best ways to ease tensions that already have affected trade flows and business deals.
CALL ME MAYBE
One reason China may want to resolve the trade spat quickly: Its national champions are getting stung. ZTE said it halted major business operations, marking the deepest wound yet in the rift between China and the U.S. The announcement came less than a month after the U.S. Commerce Department banned American companies from selling components to ZTE, the fourth-largest seller of phones in the U.S. The extent of the halt to business at ZTE isn’t fully clear, Dan Strumpf reports, though the company has warned for weeks that the U.S. sales ban threatened its survival.
WHAT TO WATCH TODAY
The Bank of England releases its policy statement, minutes and inflation report at 7 a.m. ET. Until mid-April, investors had expected the central bank to raise its key interest rate at this May meeting. But weak economic data and new guidance from Gov. Mark Carney have realigned expectations: Now markets want to know whether the BOE will move at all this year.
The U.S consumer price index for April is out at 8:30 a.m. ET. Economists expect headline inflation to rise 0.3% from the prior month and core prices, which exclude food and energy, to climb 0.2%. On a year over year basis, that would put overall inflation at 2.5% and core at 2.2%, a slight pickup from the prior month’s reading.
U.S. jobless claims dropped to the lowest lowest level since Dec. 6, 1969, a few weeks ago. Economists expect 215,000 in the latest report, out at 8:30 a.m. ET. That’s not a record but is still historically low.
COMPANIES: “PAY MORE.” CONSUMERS: “NO.”
Higher input costs are pressuring U.S. companies to raise prices—a potential precursor to more consumer inflation. But shoppers are resisting. Input price increases have outstripped consumer price increases since late 2016, with some pipeline costs rising at two or three times the rate of consumer inflation, Eric Morath, Heather Haddon and Jacob Bunge report. The challenge is particularly acute in the food industry, where freight costs have been skyrocketing. If companies can’t pass on the higher costs, their profits take a hit.
CHARTS OF THE DAY: CONSTRUCTION
Food services aren’t the only industry getting pinched. “The cost of goods used in construction jumped in April at the fastest year-over-year rate since 2011, with ongoing increases for a wide range of building materials, including many that are subject to proposed tariffs that could drive prices still higher and cause scarcities,” the Associated General Contractors of America said. For now, the data implies builders are passing on some, but not all, of the higher costs.
Actual and proposed tariffs, alongside other geopolitical developments, look like they’re behind some of the price swings.
WALKING ON SUNSHINE
California took a major step toward becoming the first state to require solar panels on nearly all new homes. The California Energy Commission voted 5-0 to approve a mandate that residential buildings up to three stories high, including single-family homes and condos, be built with solar installations starting in 2020, Erin Ailworth reports. The commission estimates that the move, along with other energy-efficiency requirements, would add $9,500 to the average cost of building a home in California.
BIG DEAL IN THE EUROZONE
The leaders of Italy’s hard-right League party and antiestablishment 5 Star Movement appeared close to forming a new government, possibly clearing the way for a euroskeptic alliance to come to power in the eurozone’s third-largest economy. If it comes to fruition, a governing coalition between 5 Star, which is one of Europe’s biggest antiestablishment parties, and the League would hand antiestablishment groups in Europe one of their biggest victories to date, Giovanni Legorano reports.
EUROPE’S FIRST CIRCLE
The European Union has been in limbo for much of the last two years. That’s partly because members have been ducking some difficult decisions, Simon Nixon writes, including the need to agree on a new long-term budget. The €1.3 trillion ($1.5 trillion) proposal announced by the European Commission last week kick-started what is sure to be a bloody political battle to shape the EU’s post-Brexit future. The EU budget must be approved unanimously, suggesting a realistic deadline around the time the current budget period ends in 2027. The EU’s long limbo may have much further to run.
TWEET OF THE DAY
WHAT ELSE WE’RE READING
Does more financial aid lead to higher tuition or vice versa? The cause and effect has been hard to pin down. RAND Corporation’s Matthew Baird, Trey Miller and Jennie Wenger, and the U.S. Military Academy’s Michael Kofoed use the post-9/11 GI Bill as a natural experiment and find that for-profit universities responded to the tuition-benefits program by raising prices.
Want to win the Nobel prize in economics? Study under someone who won the Nobel prize in economics. “Results show that Nobelists are connected, falling into four disjoint graphs, with new winners often being closely related to previous winners. Among a pool of likely candidates for future prizes, more than half trained under a laureate,” the University of Sussex’s Richard Tol writes.
Persistently low inflation has puzzled economists and policy makers. The Bank for International Settlements’s Mikael Juselius and Előd Takáts say it’s largely due to demographics. “[I]nflationary pressure rises when the share of dependants increases and, conversely, subsides when the share of working age population increases. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.”
UP NEXT: FRIDAY
U.S. import prices for April round out the week’s inflation data at 8:30 a.m. ET. Economists expect a 0.6% rise from the prior month.
The University of Michigan consumer sentiment survey for May, out at 10 a.m. ET, is expected to fall slightly to 98.0. That level would still reflects broad optimism about the economy.