Maple Syrupy Inflation

Good morning.

Cybercrooks holed their way into Krispy Kreme. The coffee and donut chain revealed Wednesday that hackers disrupted its online operations late last month. The breach impacted orders and, Krispy Kreme said, is "likely to have a material impact on the company's business operations until recovery efforts are completed" but won't have a "long-term material impact."

The company said its stores will remain open as it "continues to work diligently" with outside cybersecurity experts. It is unknown if the hackers obtained employee, company or customer data. Until anything changes, Americans' glazed cruller addictions will remain between them and their blood sugar levels.

Another month, another frustratingly sticky inflation report.

On Wednesday, the US Bureau of Labor Statistics released the latest Consumer Price Index figures, which showed prices increased 2.7% year-over-year in November and 0.3% from the month prior. Still, the devil's in the details, and a rate cut still looks all but certain when the Federal Reserve meets next week.

Home is Where the Inflation No Longer Is

In one of the final CPI reports before Trump 2.0 gets underway, there was some good news and some bad news. The bad: Consumer goods, a broad category that's inherently most likely to be impacted by tariffs should they come, experienced the worst month-to-month increase in prices in over a year. The good news: Housing costs, long one of the stickiest of inflationary forces, finally saw inflation ease month-over-month across both owned and rental categories for the first time since 2021. Meanwhile, a separate report released Wednesday showed that real hourly earnings grew 1.3% compared with a year ago — low enough for experts to conclude that the hot labor market is no longer driving inflation.

In sum: a pretty clear picture ahead for the Fed's next meeting. CME's FedWatch has pegged the chance of another quarter-point rate cut at the meeting at over 98%, up from around a 65% chance just a month ago. Odds of a second cut in January are around just 23%. Translation: Who knows what tariffs will bring?

For now though, at least some economists and experts are softly putting the blame for that everlasting last mile of inflation-taming on the consumer:

• "Overall, we're looking at an environment where the low-hanging fruit has been picked… we're getting to a point where you really need the demand side of the economy to weaken," Wells Fargo senior economist Sarah House told The Wall Street Journal. In other words: Consumers need to slow down, a troubling call when consumer sentiment has actually increased since last month's election. 
• On the flip-side, KPMG Economics chief economist Diane Swonk tells the WSJ that some recent consumption, especially on big ticket items, is due to consumers trying to beat the likely-inflationary tariffs: "Something like that never would have happened prepandemic, and the fact that we saw it is just a red flag for the Fed to watch out for."

Spin the Globe: Countries in the rest of the world face their own unique issues in inflation fights. The Bank of Canada on Wednesday instituted a half-point rate cut, likely with an eye on stoking growth in the face of looming tariffs. Meanwhile, the Bank of Japan meets next week and might increase rates from a target of 0.25% to 0.5%, which would be another show of antideflationary strength for the Land of the Rising Sun — though a hike remains far from certain.

Written by Brian Boyle

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Chinese authorities are discussing whether to weaken the country's currency in advance of a heightened trade war with the US, Reuters reported Wednesday.

Call the considerations, which could have knock-on effects on global currency markets, a yuan-sided argument.

Yuan Small Step

Since 1997, the yuan has had a currency peg, first against the US dollar and, since 2005, against a basket of currencies based on China's trading volume with foreign countries. The currency is not allowed to float more than 2% above or below a fixed level set every morning. The end result is a currency that's lower than the currencies of other countries, making buying Chinese exports attractive and powering the country's economic growth.

But President-elect Donald Trump is threatening as much as a 60% tariff on Chinese imports to the US, which could deal a major blow to the currency imbalance. If China lets the currency — which Communist Party officials have publicly pledged to keep stable — depreciate, that would theoretically make Chinese goods cheaper to global buyers. The downside would be tempting other nations to impose their own tariffs and denting Chinese stocks and bonds as domestic companies grappled with falling purchasing power. Essentially, they'd be playing a game of yuan some, you lose some:

• The US Dollar Index rose 0.29% to a two-week high Wednesday. The offshore yuan — that's the value of the currency when it's traded abroad — fell as much as half a percentage point to 7.29 per dollar before recovering some of its losses, with Reuters citing three officials who said China is considering a 7.5 yuan-to-dollar level.
• The two biggest economies in the world jostling would have knock-on impacts all over. The Australian dollar, which often fluctuates with the yuan because China is an important export market, hit a three-year low Wednesday, the country's national broadcaster reported. Other Asian currencies, like the Japanese yen and the Malaysian Ringgit, have often felt the pull of the yuan, although less so in recent years, and so they, too, could be bracing for a recalibration of purchasing power.

The Dating Game: Since Trump's election, the dollar has been gaining steam and, on Wednesday, one company revealed its own struggles with the emboldened greenback. Shares in Match Group, which owns dating apps Tinder, OkCupid, and Hinge fell 5.6% after missing Wall Street forecasts. The value of revenue from outside the Americas, which makes up 40% of Match's total, was "unfavorably" impacted by the stronger dollar.

Written by Sean Craig

No-fault divorce doesn't exist in the world of would-be corporate mergers.

One day after federal antitrust enforcers successfully blocked grocery giant Albertsons' planned sale to rival Kroger, the former filed a lawsuit against the latter. Why? According to Albertsons, Kroger's heart just wasn't in it — and when push came to shove, Kroger didn't do its part in securing regulatory approval. Or is Albertsons just crying over spilt milk in Aisle 3? 

Couples Counseling

In court, the Federal Trade Commission plus eight other states and the District of Columbia argued that the $25 billion merger of Kroger and Albertsons — the second- and fourth-largest grocers by national sales — would significantly reduce competition, likely harming consumers. Not completely unrelated: Food prices remain one of the stickier forces in the fight against inflation.

To counter the FTC's arguments, Kroger offered to divest 579 locations in a $2.9 billion sale to C&S Wholesale Grocers. (For reference, Kroger has around 2,700 stores, Albertsons around 2,200, and C&S around just two dozen under the Piggly Wiggly and Grand Union brands.) The judge ultimately sided with the regulators, who argued C&S was ill-equipped to manage the massive expansion anyhow.

Now comes the blame game. In its lawsuit, Albertsons claims Kroger made at least one key misstep — and it wants restitution:

• Albertsons argues that Kroger actually received and rejected stronger bids for the divestiture package than what C&S offered. "Rather than fulfill its contractual obligations to ensure that the merger succeeded, Kroger acted in its own financial self-interest, repeatedly providing insufficient divestiture proposals that ignored regulators' concerns," Albertsons' general counsel Tom Moriarty said Wednesday.
• Albertsons is now seeking a $600 million termination fee, plus relief for the hundreds of millions of dollars it spent over the two year merger-gone-wrong process. In the time since the deal was announced, Kroger has seen its share price rise about 30% while Albertsons has fallen around 35%. 

Kroger, for its part, has called Albertsons' allegations "baseless and without merit."

If Only: All the while, most experts expect Trump 2.0 to usher in a more lax environment for antitrust enforcement… except for Big Tech, which remains in bipartisan crosshairs. Which means Kroger and Albertsons may have had better luck if they just waited two years. In corporate mergers, as in love, sometimes timing is everything.

Written by Brian Boyle