Inflation Pushes Up Prices, and Wages

Pay vs. prices

This morning, the government will report inflation data for January. Economists expect that prices continued to climb at the fastest pace in 40 years. But how much workers feel the effects of inflation depends on whether wages, which have also been growing fast, can keep pace with rising prices. DealBook turned to Ben Casselman, an economics reporter at The Times, for his thoughts. Here’s what he said:

First, there’s almost no question that wages, in the aggregate, have risen less than inflation over the past year. Over the full pandemic, real wages — meaning after inflation — are probably up, but below their prepandemic trend.

Second, it’s totally possible to argue that wage growth will remain strong even if inflation moderates, leading to real gains for workers. There are two flavors of that argument:

• In one version, the pandemic has spurred productivity-enhancing investments. In addition, it’s possible that there has been a composition shift in the economy toward more high-productivity sectors. And some of those shifts could be permanent, even after the pandemic. That means, for example, more Zoom meetings and less business travel, which could allow for more output with fewer hours, and hence faster real wage growth.

• The other possibility is that inflation and wages are being driven, largely, by different forces right now. Inflation is mostly about elevated spending, especially on goods, running into supply-chain disruptions. Wages are being driven by labor shortages, which give workers more bargaining power. Those two forces have some of the same underlying causes — like excess savings allowing people to sit out of the labor market and spend more — but they’re sufficiently distinct that you could imagine inflation abating while wage pressures remain strong.

Those are two very different stories. One is about the pie growing larger; the other is about workers getting a bigger share of the pie. (Remember, labor’s share of national income — that is, the amount of G.D.P. that gets paid out to workers — has been falling for decades, so there’s plenty of room for it to rise.) Then again, it’s also possible that wages will continue to lag behind inflation, or at least won’t outpace it, leaving workers treading water, at best.

HERE’S WHAT’S HAPPENING

Disney+ gains ground on Netflix. Disney said its streaming service hit 130 million subscribers by year end, surpassing expectations. The news eased investor fears about the slowdown in growth at other streaming platforms, notably Netflix, and sent Disney’s shares up more than 6 percent in after-hours trading.

Leonard Green joins the hunt for Kohl’s. The private equity firm has expressed its interest in bidding for the retailer, two people familiar with the matter told DealBook. The firm may not submit an offer, but its interest is notable, given its expertise in retail. (Leonard Green declined to comment.) Kohl’s has said that it was working with PJT Partners and Goldman Sachs to field interest, after takeover approaches from the private equity firm Sycamore and a consortium backed by Starboard Value — which the retailer has rejected as too low.

Speaker Nancy Pelosi signals an openness to banning lawmakers’ stock trades. As bipartisan support for the ban grows, even Pelosi — whose husband’s lucrative trades have drawn criticism — suggested she may be open to such measures. One steadfast opponent is Senator Tommy Tuberville, Republican of Alabama, who violated congressional reporting rules on disclosing trades 132 times last year.

Tech stocks show mixed fortunes. Twitter said today that its fourth-quarter revenue grew more slowly than analysts expected and that it would report a loss in the current quarter. Investors have been worried about a slide in its business, with one prominent shareholder, the fund manager Cathie Wood, selling down her holdings recently. Meanwhile, Uber’s earnings highlighted rising revenue and passenger numbers as signs of a comeback in its core ride-hailing business.

States and businesses are dropping mask rules. More Democratic governors relaxed coronavirus restrictions in their states, while federal officials cautiously suggested that the U.S. was headed toward “more normality.” CVS said it expected demand for coronavirus tests and vaccines to drop this year.

Microsoft’s charm offensive

Microsoft laid out its pitch to regulators in Washington yesterday as it sought approval for its $70 billion deal to buy the video game maker Activision. The company is positioning itself as the friendly face of Big Tech, drawing distinctions with Google, Apple and Amazon, which have attracted the ire of lawmakers and regulators for their market power.

Microsoft also has to convince investors that the deal can pass regulatory muster: Activision’s shares are trading at $81.50, far below the $95 price Microsoft has offered, implying that there are some doubts that the deal will get done.

Microsoft announced an 11-point pledge for a “principled approach to app stores.” It promised not to give preferential treatment to its own games in its app stores and said it would not force developers to use its payment system to process in-app payments (the center of the legal fight between Apple and Epic Games). If that sounds familiar, it’s because it’s what the Open App Markets Act, which recently passed the Senate, calls on Apple and Google to do.

Other tech giants have bristled at Microsoft’s strategy. Google’s head of global affairs has criticized Microsoft for supporting an act targeting its competitors, while not applying the same restrictions on its Xbox store. Brad Smith, Microsoft’s president, said the company was “committed” to applying the promises on preferential treatment and payments to the Xbox store “over time.”

Microsoft also needs to convince regulators outside of Washington. Microsoft said yesterday it would need approval from 17 governments to get the Activision deal done. “We want to be clear with regulators and with the public that if this acquisition is approved, they can count on Microsoft to adapt to the rules that are emerging,” Smith said.

In other news, Discovery and AT&T cleared a significant regulatory hurdle to their plan to merge into one of the biggest media companies in the country, saying that the combination “satisfied the closing condition” of an antitrust review by the Justice Department.

“Smaller cases can make big law, and this could be one of those cases.”

— Andrew Gavil, a law professor at Howard University, on the $8 billion deal between the health sciences companies Illumina and Grail, which faces opposition from the F.T.C. and the European Commission. The deal tests new thinking in antitrust that says the government should move quickly to stop bigger companies from buying fledgling innovators.

The S.E.C. had a busy day

The S.E.C. wants to make private equity a bit less private, advancing a proposal for new rules to shed more light on the roughly $18 trillion industry. At a meeting of S.E.C. commissioners yesterday, the agency also proposed shortening settlement time for trades and requiring more disclosures of cybersecurity policies and episodes. These rules are now put out for public comment, where they could be altered based on feedback (and lobbying) before being put to a final vote, a process that could take all year to finalize.

The private equity industry is likely to resist the rules on more transparency. If the proposals are approved, private equity firms and hedge funds would have to provide more information to investors, including quarterly statements detailing performance, fees and expenses. The funds would also be subject to more record-keeping and audits, limits on giving particular investors preferential treatment, and prohibitions on charging certain fees and expenses to a fund. (Last month, the S.E.C. also proposed rules that would require private funds to share more information about their investments confidentially with regulators.)

• Drew Maloney of the American Investment Council, a trade group that represents private equity, said that “these new regulations are unnecessary and will not strengthen pension returns or help companies innovate and compete in a global marketplace.”

• Steve Nelson of Institutional Limited Partners Association, a trade group representing pension funds and other investors, said the rules could “help address the increased conflict of interest” in the private equity industry.

Speeding up settlement times would be a stock market makeover. The S.E.C.’s plan would shorten the time it takes to complete a stock trade, cutting the current two-day period in half. In a report on the meme-stock frenzy last year, the agency said that speeding up settlement could reduce liquidity demands that clearinghouses put on brokers, which the online broker Robinhood said forced it to limit trading in some stocks when they were in high demand.

Better cybersecurity practices would reduce risks and bolster investor confidence, the agency said. Proposed new rules for investment companies would require written cybersecurity policies and procedures, record-keeping and reporting of cybersecurity episodes. “Cyber incidents, unfortunately, happen a lot,” Gary Gensler, the S.E.C. chair, said in a statement.

THE SPEED READ

Deals

• Credit Suisse said it lost $2.2 billion in the fourth quarter, capping off a tough year. (WSJ)

• Unilever pledged to avoid striking big deals, after failing to buy GlaxoSmithKline’s consumer health division, and warned that inflation would eat into its operating margins. (FT)

• Bodhi Tree, an Indian media venture co-founded by James Murdoch, has raised up to $1.5 billion from Qatar’s sovereign wealth fund. (FT)

• Inside a Chinese investment bank’s crucial role in getting the Trump SPAC off the ground. (Reuters)

• The rapper Snoop Dogg has bought control of Death Row…