Gasoline Prices Drive Inflation to Highest Level in Two Years

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1:03Laurence Norman:Inflation rises to its highest level in two years. Plus, Iran is holding strong cards ahead of peace talks with the U.S. this weekend in Pakistan.

1:12Konrad Putzier:So the Iranians' biggest leverage now is their control of the Strait of Hormuz. That is a huge economic problem for the rest of the world. and it's going to be pretty difficult to wrest control from Iran militarily.

1:27Laurence Norman:And the astronauts that saw the far side of the moon prepare for the toughest part of their mission. It's Friday, April 3rd. I'm Alex Osola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:46Laurence Norman:First up on today's show, the promise of a presidential pardon. We're exclusively reporting that President Trump has repeatedly said he will grant pardons to his top administration officials before he leaves office. That's according to people who have heard his comments. In a recent meeting, he said he'd pardon everyone who, quote, has come within 200 feet of the oval. Several aides said Trump raises the pardon so regularly that some of his advisers now laugh about it. White House Press Secretary Caroline Levitt said, quote, the Wall Street Journal should learn to take a joke. However, the president's pardon power is absolute.

2:22Laurence Norman:New data out from the Labor Department today showed that consumer prices rose 3.3 percent last month from a year earlier. That's much hotter than February's 2.4 percent gain and the highest reading in two years. Journal economics reporter Conrad Putsir explains how that's tied to the war in Iran.

2:39Konrad Putzier:The March inflation report was pretty bad. And the reason, of course, is the Iran war and the rise in energy prices. Gasoline prices, heating oil prices, And that's a problem for consumers. They've been upset about the high cost of living for years. There were signs that things were maybe getting better, and now they're actually getting worse. Another big risk here is that we're only seeing the beginning of the energy impact on inflation. Farmers use fertilizer to grow their food, and fertilizer is made from natural gas. Then they use diesel-powered trucks to transport that food to stores. If energy costs stay really high, you might get more food inflation, and you might get more services inflation and your taxi ride might cost more money.

3:21Konrad Putzier:So all those risks are there and we haven't really seen them yet in this inflation report, but that doesn't mean we won't see them going forward.

3:28Laurence Norman:Conrad says surging prices are hitting people's wallets.

3:31Konrad Putzier:Inflation is now so high that it basically ate up wage increases of Americans over the past year. That's a big deal because it basically means Americans aren't really better off than they were a year ago unless they own stocks. But this month's report was actually somewhat good news for lower income households because rent growth was somewhat benign, because food inflation so far was fine.

3:52Laurence Norman:But Conrad says it might not change much for the Fed.

3:55Konrad Putzier:A lot of this depends on how long the shock will last. If this is a brief blip, prices go up and then they come down again, it's not really going to be a problem. If this is a sustained situation, the price of energy keeps rising, this becomes a tricky situation for the Fed, right? Because on the one hand, you have higher inflation. But on the other hand, you have consumers that are being squeezed by all this. and that means they're spending less in all likelihood and that hurts the economy. A lot of the economists I talk to actually think that if this drags on, that might actually make it more necessary to stimulate the economy by lowering interest rates.

4:26Laurence Norman:That was economics reporter Conrad Putsier. And a separate piece of data shows that consumers are worried about the Iran war affecting the U.S. economy. The University of Michigan's consumer sentiment measure fell this month to the lowest level in over 70 years. The U.S. and Iran are gearing up for high-stakes talks in Islamabad, Pakistan tomorrow. The negotiations would be the highest-level direct talks between the U.S. and Iran since the 1979 Iranian Revolution. This morning, as the U.S. delegation set off, Vice President J.D. Vance told reporters that the president had given guidelines for the discussions.

5:03Konrad Putzier:As the President of the United States said, if the Iranians are willing to negotiate in good faith. We're certainly willing to extend the open hand. If they're going to try to play us, then they're going to find that the negotiating team is not that receptive. So we're going to try to have a positive negotiation. The president has gave us some pretty clear guidelines, and we're going to see.

5:21Laurence Norman:Journal reporter Lawrence Norman is covering the talks, which aim to convert this week's ceasefire into durable peace. Lawrence, what is the tone coming into these negotiations?

5:30Konrad Putzier:Pretty bad, I think it's fair to say. I mean, the U.S. is talking about the importance of reaching a deal and President Trump wants to talk and he's just tweeted out there's going to be some huge reset. The Iranians think that they've survived the war and they're making all kinds of preconditions for the talks and talking about the enemy that they've destroyed and converting their battlefield wins into diplomatic wins.

5:53Laurence Norman:What is the leverage that Iran has and what leverage does the U.S. have?

5:58Konrad Putzier:So the Iranians' biggest leverage now is their control of the Strait of Hormuz. That is a huge economic problem for the rest of the world, and it's going to be pretty difficult to wrest control from Iran militarily. The survival of the regime after 40 days of being pummeled by the Israeli and U.S. Air Force is a kind of leverage. But more importantly, they still have nuclear assets, in particular highly enriched uranium that they could use to build a nuclear weapon. On the US side, they obviously have military leverage, but the US also has powerful economic sanctions that force not just US companies, but most of the world not to do business with Iran.

6:43Konrad Putzier:Iran's number one goal for many years has been the removal of those sanctions, and that is hefty leverage the US has in its pocket.

6:52Laurence Norman:Right. So given those sanctions, what are going to be some of the issues that they'll be negotiating at the talks?

6:57Konrad Putzier:So number one issue is what happens to Hormuz? How can the world get vessels back through the Hormuz? And in return for Iran giving greater freedom, even if it maintains some control, what does Iran get? The number two issue, the U.S. wants Iran to stop enriching uranium and to close down its nuclear program. Iran has spent 15 years, 20 years telling the U.S. it won't do that. That will need to be resolved. That will take a serious amount of time. And the two sides are quite far apart.

7:30Laurence Norman:Seems like there's a lot to resolve in a two-week ceasefire. What is the range of outcomes that could result from these discussions?

7:36Konrad Putzier:What I would say, based on covering this for a very long time, is when you can kick issues down the road, you do. And I think the most likely is to come up with some kind of temporary arrangement that gets you through the two-week period, that makes this brief ceasefire into a longer-term ceasefire and open space for a real negotiation in the coming weeks, months, potentially years. because the only two alternatives are one, you can resolve all of these issues in two weeks, which is really impossible. And the second is that the Zorks fail and they go back to war, which is plausible, but it's fairly clear that both sides don't want to do it.

8:21Laurence Norman:That was WSJ reporter Lawrence Norman. Thanks, Lawrence.

8:24Konrad Putzier:Thanks a lot.

8:26Laurence Norman:Coming up, the conflict in the Middle East is choking off a key supply of the world's jet fuel. We'll get into what airlines are doing to cope after the break.

8:37Laurence Norman:Hi, this is Alex Osula, host of the WSJ's What's News podcast. We bring you the biggest news of the day, from business and finance to global and political developments that move markets. If you're looking for more insights and tools to understand the latest headlines, consider becoming a subscriber to The Wall Street Journal. Visit subscribe.wsj.com slash what's news to subscribe now.

9:07Laurence Norman:The war in Iran has triggered a shortage of jet fuel across the world, and the travel industry says the ceasefire, even if it holds, isn't going to fix the problem. China has stopped exporting jet fuel so it can meet its own needs. Airports across Asia are already running out of supply, and Europe could run into severe shortages as soon as next month. To deal with that, airlines are trimming their schedules and piling on fees. And in California, OpenAI said today that a person was arrested after allegedly throwing a Molotov cocktail at CEO Sam Altman's home and making threats at the company's San Francisco headquarters.

9:43Laurence Norman:OpenAI says no one was hurt. Its San Francisco offices were open today with increased security. Major U.S. indexes ended the day mixed. The Dow fell 0.6 percent and the S &P dropped 0.1%. Meanwhile, the Nasdaq closed up 0.4%, rising for the eighth straight day and exiting correction territory. That is, it closed up more than 10 % from its recent low. For the week, all three indexes ended up 3 % or more. Stocks marked their best weekly gains of the year, with investors hoping for a diplomatic end to the Iran conflict. And U.S. oil prices slipped 1.3 percent to$96.57 a barrel. This week, they tumbled 13 percent, their biggest weekly decline since 2020.

10:30Laurence Norman:After about 10 days in space, NASA's Artemis II mission is expected to splash back literally into the Pacific Ocean tonight around 8 p.m. Eastern. The crew has made it around the moon and flown a record distance from Earth, more than 248 ,655 miles. Victor Glover, one of those astronauts, said in a press conference earlier this week that he's been thinking about tonight for a while.

10:54Konrad Putzier:I've actually been thinking about entry since April 3rd, 2023, when we got assigned to this mission. And one of the first press conferences we were asked, what are we looking forward to? And I said, splashdown. And it's kind of humorous, but it's literal as well that we have to get back.

11:09Laurence Norman:But as WSJ space reporter Micah Maidenberg is here to tell us, the trickiest part is still to come. Micah, you were just telling me you're on pins and needles for tonight's planned landing. Seems like you're not the only one. But getting into Earth's atmosphere is the hardest part of this mission. Why is that?

11:26Konrad Putzier:Okay, so you have this vehicle that is soaring toward Earth. And after a couple of maneuvers, the crew capsule, right, where the astronauts have been living and working, it's essentially going to slam into the Earth's atmosphere. And that's going to create just an extraordinary amount of heat that the capsule has to transfer away from it to keep the vehicle, and, of course, the crew members safe. During a press conference yesterday, there was one leader at NASA who basically said he has no rational fears left about this reentry. But every reentry of a spacecraft with humans on board is a bit of a white-knuckle moment.

12:03Laurence Norman:Let's talk about the mission up to this point. What has it accomplished and have things more or less gone according to plan?

12:11Konrad Putzier:The crew conducted an extensive campaign of system tests, like how to get on emergency suits if something goes wrong, how to prepare for medical emergencies. And they also did a ton of lunar science. So that's a lot in the bag already for NASA. There have been a number of glitches along the way, a small propellant leak in Orion's propulsion system, but it's been relatively smooth so far. Yeah.

12:39Laurence Norman:What does the success of this mission mean for NASA's future plans?

12:44Konrad Putzier:Both NASA leaders and the crew themselves have described Artemis II repeatedly as a stepping stone to bigger and better things. In 2027, the agency and a couple of its contractors want to test out how Orion docks with lunar lander vehicles in low Earth orbit. That's supposed to help everybody get prepared for lunar landing of a crew in 2028. Now, a lot of people I talk to don't believe that it's possible, but that's the goal. And that's what industry and the agency are currently driving for.

13:21Laurence Norman:That was WSJ space reporter, Micah Maidenberg. Micah, good luck tonight. Thank you.