US inflation hit 4.2% in May, as the energy shock triggered by the war in Iran drove up prices.
That is in line with what economists had been expecting,. still marks an acceleration of a 3.8% year-on-year rise in April.
Core prices, which excludes food and energy prices, rose 2.9% compared with a year ago. Energy prices jumped up 23.5% and food by 3.1%.
Octopus Energy has reportedly ended a long-running row over its financial resilience by offering the regulator proof. it has met its capital targets.
Great Britain’s biggest household energy supplier was under pressure to prove its financial buffers were large enough to meet the tougher financial rules put in place by Ofgem after scores of suppliers went bust during the 2022 energy market crisis.
Ofgem said all suppliers must always have enough capital to be above a minimum floor of £0 for each dual-fuel customer,. be on track towards holding £115 net adjusted assets per dual-fuel customer.
Octopus Energy. which serves around 8m households in the UK, initially missed the deadline for meeting the new rules which could require the company to hold a capital buffer of around £800m to withstand an unexpected surge in energy costs.
But the country’s fastest growing energy company has now submitted its financial reports to Ofgem for the regulator’s approval. according to a report in the Financial Times, which would end years of criticism from rivals over its failure to meet the industry-wide targets.
British Gas boss Chris O’Shea first took aim at plans put forward by Octopus to protect consumers in 2022,. last year claimed it was “criminal” that Ofgem had not banned Octopus from taking on new customers until its financial targets were satisfied.
At the time, an Octopus Energy spokesperson referred to the outburst as “yet more naked self-interest from British Gas”. said the company “would do well to obsess about their customers rather than their rivals”.
Stephen Brown. chief North America economist at the consultancy Capital Economics, notes that the 0.2% month-on-month rise in core CPI was not as bad as feared, which he says suggests that price pressures are not broadening.
double quotation mark The details were about as good as the more dovish FOMC members could have hoped for. with core goods prices falling by 0.1% m/m, driven in part by declines in many items that had previously been lifted by tariffs.
There was once again a helping hand from another steep fall in medical care commodities. which presumably reflects the Trump administration’s efforts to bring down drug prices.
New vehicle prices fell by 0.3%. used vehicle prices only edged up by 0.1%, with the latter move once again confounding our expectations for a larger increase based on the auction price data. For services, the big surprise was that transportation services prices fell by 0.6% m/m despite another 2.7% gain in airline fares, with motor vehicle insurance. car & truck rental prices both dropping back sharply. The latter may reflect a drop in travel demand as a result of higher air fares.
Perhaps the only major concern for the Fed was that rent of primary residence. owners’ equivalent rent rose by 0.36% m/m and 0.30% m/m respectively, slightly firmer than their prior norms of closer to 0.25%, which casts doubt on the view that there is still more shelter disinflation to come. Otherwise, food prices also rose by a softer 0.2% m/m.
The 4.2% rise in US consumer prices was the highest reading since April 2023. Isaac Stell. investment manager at the broker Wealth Club, says the “most logical conclusion” from the figures is ithat interest rates may need to rise in the near term to contain inflationary pressures in the American economy.
double quotation mark However, with Kevin Warsh now at the helm of the Federal Reserve, the key question is whether he will maintain the prudence. discipline associated with Powell, or in the face of political pressure, relent and take the Presidential view.”
Arielle Ingrassia. an associate director at the wealth manager Evelyn Partners, notes that gas prices in the US have been rising very strongly.
double quotation mark The upside was again driven primarily by energy, with gasoline prices rising 7.0% on the month. the broader energy index increasing 3.9%, accounting for more than 60% of the monthly increase in headline CPI. Airline fares also remained firm, rising 2.7%, highlighting the continued impact of higher fuel costs on travel-related inflation.
…At the same time, the report still showed only modest evidence of broader second-round inflation effects. While higher energy costs continue to feed through into parts of the transport. travel sectors, several categories remained soft, including motor vehicle insurance, household furnishings and new vehicles. The overall picture remains closer to an energy. transport shock than a broad-based inflation spiral - at least for now.
But George Brown. senior economist at the asset manager Schroders, says while energy prices are driving US inflation, recent strong payroll data also suggests the economy is running hot.
double quotation mark Ahead of the Fed’s meeting next week. the question is now whether it can keep rates on hold without falling behind the curve. All eyes will be on Warsh’s debut press conference. He will need to convince markets that the Fed remains committed to price stability. If he leans more dovish, markets may begin to question that commitment, pushing Treasury yields higher.”
US stock futures are paring back some of their earlier losses now. May inflation data has arrived in line with what economists had been expecting.
Futures for the S&P 500 are now down 0.5%, while futures for the tech heavy Nasdaq are down 0.6%.
US inflation hit 4.2% in May, as the energy shock triggered by the war in Iran drove up prices.
That is in line with what economists had been expecting,. still marks an acceleration of a 3.8% year-on-year rise in April.
Core prices, which excludes food and energy prices, rose 2.9% compared with a year ago. Energy prices jumped up 23.5% and food by 3.1%.
Futures for the US stock market are pointing towards another fall later this afternoon – futures for the S&P 500 are down 1.1%. while futures for the tech-heavy Nasdaq are down 1.6%.
Investors are growing jittery ahead of US inflation data, which is scheduled to be released at 1.30pm UK time. Economists expect that the headline figure will rise to 4.2% thanks to a global spike in energy prices.
An even higher reading would feed expectations that the Federal Reserve could increase interest rates. Investors grew especially nervous about this prospect last week, after an unexpectedly strong jobs report.
The German economy is at risk of a technical recession this year due to the Iran energy shock. economists at the DIW research institute have said.
DIW now expects that Europe’s largest economy will report a contraction in output in both the second. third quarters of this year, which would mark a technical recession.
It still expects that overall the German economy will grow by 0.5% in 2025,. 0.8% in 2027 – but that represents a downwards revision of half a percentage point compared with its previous forecast.
Geraldine Dany-Knedlik, DIW’s head of forecasting, said:
double quotation mark The energy price shock is noticeably slowing the recovery –. we are not experiencing a repeat of 2022/23.
The Chinese car company BYD has said it aims to be the world’s biggest automaker within the next five years.
Targeting Toyota’s long-held top spot, BYD’s founder. chair, Wang Chuanfu said he was confident it could overtake global rivals through rapid advances in battery technology and fast charging, as well as growing production overseas, including Europe.
He said at the company’s annual shareholder meeting in Shenzhen:
double quotation mark BYD will truly become the number one automaker globally in terms of scale in five years.
Overnight the company announced plans to spend nearly £1.8bn in Europe to develop infrastructure for five-minute “flash charging” of its cars.
European stock markets are taking a more decisive turn downwards now – the UK’s FTSE 100 has fallen 0.5%. The German Dax is down 0.6% and the French Cac 40 is down 0.3%.
The Europe Stoxx 600 is down 0.4%.
Kazo Ueda, the governor of the Bank of Japan, has been hospitalised for medical treatment. will miss the next policy meeting on 15 June, the central bank has said in a statement.
Deputy governor Ryozo Himino will preside over the interest rate review,. the other deputy governor, Shinichi Uchida, will host the post-meeting press conference.
Ueda is expected to remain in hospital for about two weeks, work remotely. attend the next July 30-31 policy meeting, the BoJ said in a statement.
AI companies are on track to borrow $570bn in 2026, according to estimates by the bank Morgan Stanley.
Big tech companies are increasingly taking out more debt to fund their huge investment needs –. the US bank has found that AI-related debt issuance stood at almost $236bn as of the end of May. That is four times higher than the same point last year, according to a report by Reuters.
There has been a flurry of fundraising activity in the tech sector in recent weeks – including from OpenAI. which has filed confidentially to go public on the US stock market. Anthropic, which makes the popular Claude chatbot, has also announced it was filing to go public.
The industrial. energy company Metlen Energy & Metals is the best performer in the FTSE 100 so far this morning, with its shares up 3.6%. It is followed by Primark owner Associated British Foods, which is up 2.2% and Tesco, which is up 1.8%.
Endeavour Mining, Relx and credit agency data business Experian are the biggest fallers, all down by about 2.3%.
European stock markets have opened broadly flat. as investors look ahead to a key US inflation reading due later this afternoon.
The UK’s blue chip FTSE 100 index has ticked up 0.1%. The German Dax and the French Cac 40 are also up by about 0.1%. The Stoxx Europe 600, which tracks the biggest companies on the continent, is up 0.07%.
Nicholas Hyett, an analyst at the broker Hargreaves Lansdown, says:
double quotation mark US May inflation data is due out later today, with economists expecting both core. headline inflation to tick up. Consensus is for headline CPI inflation to reach 4.2%, which would be the highest it’s been since April 2023,. following on from strong jobs data would put more pressure on the Fed to think about raising interest rates.
The US central bank is stuck between a rock. a hard place, with the President likely to take a dim view of rate rises, but higher oil prices are steadily pushing up prices across the economy.
From the Fed’s perspective, the good news is that WTI remains relatively flat at $88 a barrel despite the US. Iran exchanging fire overnight after the downing of an American helicopter overnight. That’s towards the lower end of where oil prices have been since the war in Iran started.”
The Fuller, Smith & Turner pub. hotel chain has told investors it is “garden-ready” for the summer season and the World Cup football tournament.
Advanced bookings for the World Cup have been strong, it said –. “staycation” demand is strong too, with particular interest in the Cotswolds.
Its shares are up by about 7% this morning after revenue. profit for the year came in higher than expected, at £398m and £29.5m respectively.
Executive chair Simon Emeny said:
double quotation mark The new financial year has begun well. Like for like sales for the first 10 weeks have risen by 4.4%, building on a strong comparative period last year. our underlying profitability continues to improve, maintaining the momentum we have built in recent years.
As we move into our summer season, preparations have gone well. Our garden investment programme has seen fresh space created for peak trading, advance bookings for the World Cup have been strong,. we are seeing increased demand for staycations benefiting our excellent rooms business.
The market is not impressed with WH Smith ’s latest update – shares have slumped this morning by 16%.
Richard Hunter. head of markets at the broker Interactive Investor, says things are “going from bad to worse” for the retailer.
double quotation mark The capital raise comes at a time which will severely test investors’ patience. loyalty to the cause. Indeed. further investment into WH Smith will require something of a leap of faith as weaker consumer confidence has affected spend per passenger, a reduction in flights in the US has impacted airline capacity, while the Middle Eastern conflict has generally disrupted any progress which the group had been making.
…If the previous ‘annus horribilis’ for the group, where an overstated profit forecast led to a sharp decline in the share price. with the CEO unfortunately falling on his sword as a result seemed uncomfortable, matters have now taken a turn in what could be an existential time for the company. The capital raise. if successful, is designed to draw a line under any legacy issues while positioning the group to be underpinned by a stronger balance sheet with the company having less of a reliance on debt to grow.
Elsewhere this morning. WH Smith has said it wants to raise about £100m as the conflict in the Middle East starts to affect its profit.
The high street retailer says it will place up to 26 million shares. or about 20% of its existing share capital, alongside a separate offer for retail investors in the UK.
It has also cut its pre-tax forecast for the year to a range of £75m to £90m, down from £90m to £105m, warning that the travel industry has been hit by lower passenger numbers. weaker consumer demand. It is the second time that it has downgraded its profit outlook this year.
And, to top it off, the company has said it anticipates a £150m writedown related to the review of its InMotion business in North America, its store exit programme. the restructuring of its business in the rest of the world.
Executive chair Leo Quinn said in a statement:
double quotation mark The business has a strong core. operates in attractive markets with ample scope for profit expansion, particularly in North America. However, we need much greater capital discipline and a laser focus on returns. In recent years, the outcomes from certain acquired businesses and contract obligations have been very disappointing. Our priorities are to build an efficient. effective foundation for WHSmith and use this to drive a growth strategy managed for profitability.
…There is no doubt that current economic uncertainty and its effect on consumer appetite for spending has created headwinds. In this environment. sorting legacy issues while investing in the core model requires the financial flexibility of a stronger balance sheet in lock-step with self-help. This placing is a prudent. proactive step to accelerate our transformation of what is, at heart, a good business with some great people and clear opportunity for profitable growth.
Shares in WH Smith are down by about 21% so far in the year to date.
Susannah Streeter, of the broker Wealth Club, says that the fresh round of conflict in the Middle East has seen “optimism seep away” from the markets –. the key driver today is likely to be the latest US inflation data, which will be released this afternoon.
double quotation mark The CPI numbers are set to show another painful rise in costs for consumers. who are already grappling with sharp increases in the costs of everyday goods.
The expectation is that the headline rate will rise to 4.2% year-on-year with a 0.5% jump in May. The big concern is that elevated wholesale energy costs are spreading and settling into the broader economy. The latest attacks in the Middle East indicate that the conflict is entrenched and increasingly hard to solve.
Asian stocks have fallen sharply after Iran. the US exchanged their biggest round of fire since a ceasefire was agreed in April.
The US launched strikes against Iran after Donald Trump blamed Tehran for downing a US army helicopter near the strait of Hormuz.
The attacks triggered a wave of retaliatory strikes from Iran on Wednesday morning, with Tehran saying it had targeted Kuwait, Bahrain. Jordan.
Japan’s Nikkei index dropped 2%. while the tech-heavy South Korean Kospi slumped by about 6% – although it is still up by more than 70% in the year to date.
However. oil prices have actually fallen a bit this morning, with Brent crude – the international benchmark – down 0.2% to $91.28 a barrel.
Jim Reid at Deutsche Bank suggests that while investors are preoccupied with the conflict in the Middle East, “markets are also swinging between 1999-style AI exuberance. 2000-type tech crash fears.”
double quotation mark On the former. Brent briefly fell below $90 for the first time since April 17th yesterday before partially rebounding after Trump vowed retaliation following Iran shooting down a US helicopter. On the latter. the Philly Semiconductor Index fell by as much as -8.62% intra-day before recovering to -1.93% by the close.
European stock markets also look like they are poised for a muted start at the open today: futures for the FTSE 100 are pointing to just a 0.1% fall. while EuroStoxx 50 futures are down 0.1%.
Elsewhere this morning. new figures out of China show its factory gate prices rose at the fastest rate in four years, amid a sharp rise in energy prices triggered by the war in Iran.
The producer price index (PPI) rose 3.9% in May from a year earlier, National Bureau of Statistics data showed on Wednesday, above a 3.8% forecast in a Reuters poll. 2.8% rise in April.
It marked the third consecutive monthly rise in a row and the highest growth rate since July 2022.
Economists at the consultancy Pantheon Macroeconomics say that the rebound is “largely a cost push story, not stronger demand”.
Kelvin Lam, senior China economist, says:
double quotation mark Reflation is expected to continue in the near term due to the lasting impact of the war in Iran on imported energy costs,. of course the fading drag from from negative carry-over effect from last year, which most people forget.
While oil. gas futures markets are no longer pricing in a further escalation in the Middle East, uncertainty surrounding the peace talks and the effective reopening of the strait of Hormuz appears likely to linger in the near term. Despite the acceleration in the annual rate, monthly momentum slowed noticeably, to just 0.5% m/m from 1.7% a month ago.
This probably reflects two things. First, global energy markets are no longer expecting a broadening of the conflict as before, with a $150 per barrel scenario now looking increasingly unlikely,. prices have already fallen back from their highs. Second. China is relatively immune from an inflation pass-through point of view, with subdued domestic demand making it more difficult for producers to raise factory gate prices.
9am BST: Deadline data for the CMA and Ofcom to report back to government on the Telegraph/Mail deal
1.30pm BST: US inflation for May, forecast to rise to 4.2%
2.15pm BST: Treasury Committee hearing on student loans
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