Opening Bell: The Fed’s Catch-22

Rising inflation makes interest-rate cuts problematic; messing with menthol; Texas dereg nightmare; etc.

Inflation jumped in June to the highest level since 1991, raising more worries about the prospect of stagflation. Meanwhile, real wages plunged.

The Wall Street Journal leads page one with the news, while The New York Times folds it into its lead page-one story on the sharp decline in oil prices in the last couple of days.

Inflation rose 1.1 percent in June from May (0.3 percent excluding food and energy), the second-biggest one-month since 1982, Bloomberg says. In the past twelve months, prices are up 5 percent, the most in seventeen years.

The rising inflation combined with the weak economy puts policymakers in a jam. If the Federal Reserve cuts interest rates to boost economic activity, that will put further upward pressure on prices. If the Fed raises interest rates to tamp down inflation, that will further cripple the economy. The Financial Times says the Fed “may” be more likely to go after inflation than weak growth.

Also, wages dropped 0.9 percent after inflation and are now down 2.4 percent from a year ago. The Journal buries the news at the bottom of its story. The Times doesn’t report it at all.

The Times focuses on the $10.50 a barrel tumble in oil prices over the last two days, a drop it says was caused by worries about the economy and inflation. The fall in oil prices helped send stock markets up more than 2.5 percent, but oil is still at $134.60 a barrel.

Menthol manipulation

The Times on its Business Day cover reports that a new study says the tobacco industry has “manipulated” the amount of menthol in cigarettes to make them more addictive and to make it easier to start smoking in the first place.

The Harvard study says Philip Morris raised menthol levels in one of its brands to keep long-time smokers hooked, while lowering the amount in another because that taste appeals to new smokers. R.J. Reynolds and the maker of Newports did the same.

Congress is currently considering regulating flavored tobacco, but menthol, which is disproportionately used by blacks, is exempted from that bill. A previous Times story reported that one study found that menthol makes cigarettes much more addictive. Menthol smokers are 89 percent more likely to relapse than regular smokers.

Texas deregulation nightmare

The Journal on A1 takes an interesting in-depth look at what deregulation has done for Texan’s electric bills. It ain’t pretty:

A Texan shopping for electricity today typically would be quoted a price between 13 and 27 cents a kilowatt hour; the national average is between nine and 10 cents.

Its energy prices are so high that it could be affecting jobs: a manufacturing-industry spokesman says some energy-intensive companies have looked at other states and found the much-cheaper electricity appealing.

This guy must be in a safe district:

Still, there is little momentum for big changes. Many Texas officials believe that their system—lots of elbow room and few binding rules—will work out best for consumers in the long run. “The system is working the way it is supposed to work,” says state Rep. Phil King, the Republican from Weatherford who is chairman of the House Regulated Industries Committee.

Mortgage fraud at IndyMac?

The feds are investigating failed bank IndyMac for mortgage fraud, the Journal says on A12, following an Associated Press scoop.

Meantime, IndyMac’s customers are still dealing with the headaches of its failure, says the Los Angeles Times, which reported yesterday that cops had to be called out to quell disturbances at some branches.

Merrill Lynch unloads Bloomberg shares

Merrill Lynch agreed to sell its 20 percent stake in Bloomberg for $4.5 billion, which finally puts a public price on the data provider/terminal seller/news service: $22.5 billion, says the Times on C1.

Merrill is raising money to shore up its weakened capital base. The Journal says on C1 it will likely issue $6 billion in write-downs for the second quarter.

The Times says Michael Bloomberg himself is buying Merrill’s stake, while the Journal says the Bloomberg company is buying it.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.