Wednesday, June 22, 2022

Xi Slams Sanctions for ‘Weaponizing’ World Economy at BRICS Open - Bloomberg

Xi Slams Sanctions for 'Weaponizing' World Economy at BRICS Open

by Bloomberg News

Chinese President Xi Jinping criticized sanctions for stoking global economic pain in a speech kicking off this year's BRICS summit, as he seeks to bolster relations with emerging markets in the wake of strained Western ties.

Chinese President Xi Jinping criticized sanctions for stoking global economic pain in a speech kicking off this year's BRICS summit, as he seeks to bolster relations with emerging markets in the wake of strained Western ties.

Without explicitly naming the US, Xi said that the international community is worried that the global economy will split into mutually exclusive zones, and called for the world to fight against the hegemony of any one country.

"Politicizing, instrumentalizing and weaponizing the world economy using a dominant position in the global financial system to wantonly impose sanctions would only hurt others as well as hurting oneself, leaving people around the world suffering," Xi told the BRICS Business Forum via video link Wednesday, according to the official Xinhua News Agency. 

The virtual event, which Beijing is hosting this week, is set to bring together Xi, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, South Africa's Cyril Ramaphosa and Brazil's Jair Bolsonaro.  

The summit beginning Thursday offers Xi and Putin a vehicle to expand their vision of a global order after they declared a "no-limits friendship" just before Russia invaded Ukraine. China has since provided crucial diplomatic support for Russia, as Beijing more broadly pushes back against US sanctions and seeks to redefine terms including democracy and human rights.

In his speech, Xi called for the lessons of two world wars to be remembered as he cautioned against confrontation, while again suggesting that NATO was responsible for antagonizing Russia. 

"Those who obsess with a position of strength, expand their military alliance, and seek their own security at the expense of others will only fall into a security conundrum," Xi said. 

READ: India to Resist Anti-US Messaging at BRICS Summit With Xi, Putin

Xi offered an alternative to Western-dominated global governance, including reducing barriers for trade, investment and technology with the WTO at the core, as well as giving emerging economies and developing countries a bigger say in economic governance. 

He urged the BRICS to deepen cooperation in trade, investment and finance, as well as the digital economy, smart manufacturing, clean energy and infrastructure.

India is expected to counter an anticipated effort by Xi to use the summit to highlight his efforts to build an alternative to the US-led global order, according to Indian officials with knowledge of the matter. Negotiators from the South Asian nation will look to ensure any joint statement from the summit is neutral, they added.

Modi's government will also seek to delay China's effort to expand BRICS by pushing the organization to decide on criteria for adding members, the officials said. Last month, China proposed that the grouping should start a process to include more countries.

The Chinese leader is scheduled to host a dialogue on Friday that will include leaders from BRICS countries and some from other emerging markets. 

China said last month that it wanted to expand the BRICS grouping that was formed as a quad in 2009, with South Africa joining the following year. Chinese Foreign Minister Wang Yi told an online meeting of his BRICS counterparts that Beijing would like to start the expansion process, without specifying which countries might be included.

China is also working to expand its influence in the Pacific Islands, where it has proposed a sweeping trade and security deal with ten nations. That yet-to-be-signed deal, which was dealt a setback last month, has been taken as a sign of Beijing's intensifying competition with the US and Australia for influence those emerging markets.

— With assistance by Krystal Chia, and Jing Li

Thursday, June 9, 2022

Why Inflation Is Hitting American Households Like Never Before - Bloomberg

Why Inflation Is Hitting American Households Like Never Before

by Olivia Rockeman, Will Wade and Michael Hirtzer

text only 
<p>Utilities, gasoline and grocery prices have been rising at double-digit levels all spring and it's probably about to get worse.</p>

ByOlivia Rockeman, Will Wade, and Michael Hirtzer
June 9, 2022, 7:00 AM EDT

Economists like to strip food and energy out of their inflation calculations. They're too volatile to be meaningful, they say. But for everyday Americans coping with exploding prices, those items are pretty much all they care about right now.

For two straight months, the primary consumer expenses — fuel, power, and grocery-store food — have all been rising at double-digit annual rates for the first time since 1981. And data out Friday are likely to show a further surge in those unavoidable areas of spending. The Biden administration may want to draw focus to the ultra-low jobless rate to tout a strong economic recovery, but it's inflation on everyday expenses that has become the topic of conversation at kitchen tables across the country.

"You normally wouldn't see both of these things happening at the same time," said Omair Sharif, founder of Inflation Insights LLC, referring to soaring energy and food prices. In the past, any stretch of high inflation in a single category would likely be isolated and pass in a few months' time, he said. "And now, nothing is well-behaved."

Inflation Frustration

Power, fuel and food are all rising at double-digit rates, slamming budgets

Source: Bloomberg, Bureau of Labor Statistics

Note: Figures are seasonally adjusted

Some economists had been predicting that March was the "peak" for US inflation this cycle as annual price increases for consumer discretionary items like furniture, apparel and appliances have started to come off the boil. But that's not the reality Americans are living in day-to-day life, with gas prices around $5 per gallon and grocery prices rising at the fastest pace in more than four decades.

This week's consumer price index report is forecast to show annual inflation rising at a pace of 8.2% in May, a very slight slowdown from the prior month but still more than four times the levels experienced before the pandemic. "Core" inflation, which strips out those traditionally volatile food and energy categories, is expected to slow a bit more. But food, power and fuel could very well go in the other direction.

If they do, it risks further souring buying conditions for big-ticket items like homes and cars and leaves little wiggle room for households that are already beginning to draw down on savings built up during the pandemic. No wonder Americans are so pessimistic about the state of the economy.

Read more: May CPI could show inflation peak still ahead

"It's a little rough," said Anitrice Jackson, a 59-year-old health-information specialist in Miami whose May utility bill just hit $234, up from $100 or less in a typical month. The grandmother of two has been trying to cut costs by purchasing less seafood and red meat, reducing her car insurance coverage and canceling an August vacation to Disney World with her husband. With bills so uncharacteristically high, "a lot of things we used to do, we can't do."

Electricity rates are likely to climb as the American summer sets in.Photographer: Jordan Vonderhaar/Bloomberg

Residential electricity rates have been climbing for months amid mounting natural gas prices and tight fuel supply, and they're likely to go up even more as summer heat prompts people to crank up their air conditioners. Barclays Plc calculates that monthly power bills will be almost 50% higher than last year. Gasoline is also surging, with US pump prices reaching record highs on a nearly daily basis. Food prices are being pushed up by everything from high fertilizer costs to logistics snarls. The war in Ukraine is exacerbating it all.

Related: Hunger and blackouts are the start of an emerging economy crisis

David Williams, senior vice president of procurement and risk management at CTI Foods in Texas, which makes prepared foods, said consumers may not feel the full brunt of commodity inflation until the fourth quarter or even next year. "There'll be a time when we start to see a pullback but we don't see it today," Williams said. The Federal Reserve is raising interest rates aggressively in a bid to tame inflation, though any cooldown won't happen overnight.

Connect the dots on the biggest economic issues.
Dive into the risks driving markets, spending and saving with The Everything Risk by Ed Harrison.
Sign up to this newsletter

As prices for everyday expenses go up, more families are going without. Some 31% of households found it somewhat or very difficult to pay for usual household expenses, according to a Census Bureau survey conducted in late April and early May, compared with 25% at the same time last year. Nine percent of households sometimes or often didn't have enough to eat, the survey found, compared with 7% a year ago.

The number of households that found it difficult to pay for expenses jumped 6 percentage points from the year prior. Photographer: David Paul Morris/Bloomberg

The challenges are especially acute for low-income Americans who spend more of their income on necessities. Gasoline and power bills now account for about 34% of the monthly budgets for the lowest-earning consumers, up from 31% last year, according to the National Energy Assistance Directors Association.

"The cost of energy is becoming unaffordable," said Mark Wolfe, executive director of NEADA. US consumers currently owe about $22 billion in overdue utility bills, almost double the $12 billion seen in a typical year. This all comes at a time when housing prices are also surging, up the most since 1991 as of April. Shelter costs lag other CPI categories because of how the government tracks the data, so the category could increase further in the second half, adding to household strain.

Monday, June 6, 2022

Dean Baker refutes the hawks on critics of Janet Yellen

 Janet Yellen Admits She Didn’t See Later Rounds of COVID-19 and the War in Ukraine

Politico has decided to make a big deal out of Treasury Secretary Janet Yellen’s supposedly embarrassing admission that:

“There have been unanticipated and large shocks to the economy that  have boosted energy and food prices and supply bottlenecks that have  affected our economy badly that I didn’t — at the time — didn’t fully  understand, but we recognize that now.”

While Politico’s implication from this “admission” is that the $1.9  trillion American Recovery Plan Biden was a mistake, this is not what  Yellen said. She said that she did not anticipate large shocks to the  economy. Obviously, she is referring to the delta and omicron rounds of  the pandemic, as well as the war in Ukraine.

These subsequent rounds of the pandemic both disrupted production in  the United States and elsewhere, and prevented a more rapid return to  normal consumption patterns. The ongoing disruption of production, due  to the pandemic, prevented supply chains from returning to normal  through the fall and winter, and even now, as China’s exports continue  to face disruptions.

The subsequent waves of COVID-19 also prevented people from returning  to normal consumption patterns. This meant that consumers continued to  spend less than normal amounts on services involving exposure to other  people (restaurants, movies, gyms) and larger than normal amounts of  money on things (televisions, cars, clothes). This continued shift to  goods consumption aggravated supply chain problems.

The war in Ukraine has sent the world price of oil and natural gas  soaring. This has pushed gas prices to near record levels in real terms.  The war has also raised the price of wheat and other agricultural  commodities, as both Russia and Ukraine are major grain exporters.

It’s good that Yellen admitted her failure to see these shocks,  although it’s not clear what different policy the administration should  have pursued if she had seen them coming. The world price of oil, and  therefore the price of gas, would be just as high today if the Biden  administration had not passed its recovery plan.

There is a point here on which the Biden administration certainly can  be criticized, although not one mentioned by Politico. If the Biden  administration had made vaccinating the world a top priority, it is  likely that we would not have seen the development of the omicron  variant and quite possibly also have prevented the delta variant.

The number of mutations of a virus will depends on the extent of its  spread. If we had worked aggressively with other countries to produce  and distribute as many doses of the vaccine as quickly as possible,  overriding patent monopolies and other protections, we could have  prevented hundreds of millions of cases, along with the resulting  sicknesses and death.

The Biden administration ostensibly supported a limited waiver of  patent protection for vaccines, but this support was at best  half-hearted. It really should have been the top priority of the Biden  administration, from day one, to spread the vaccines,  as well as tests and treatments, as widely as possible as quickly as  possible. Clearly this was not the case, and for that it deserves  considerable blame. (Of course, it would have been even better if we  embarked on this path back in March of 2020, but we know Donald Trump doesn’t care about stopping deadly pandemics.)

Anyhow, there was a very serious mistake, for which the Biden  administration deserves to be taken to task big time. Unfortunately, it  is not a mistake that Politico is interested in talking about.

Sunday, June 5, 2022

Dean Baker: not so bad news on inflation, via Patreon

 May Jobs Report Should Have Made Inflation Hawks Happy

We have been hearing endless screaming from the media about out of control inflation. It certainly is the case that inflation is higher than anyone feels comfortable with, and prices of gas and food are especially troublesome, since they are necessities for most families.

But the key question when we get a monthly job report is whether the situation is getting better or worse. Anyone looking at the May jobs report with clear eyes should have concluded the picture is getting better.

The issue with jobs and inflation is the concern that we will see a wage-price spiral like what we saw in the 1970s. The story there is that workers saw rising prices, to which they responded by demanding higher wages. This meant higher costs for businesses, leading to still higher inflation, and an even larger round of pay hikes.

The 1970s story of spiraling inflation is one where the rate of wage growth is increasing. The May data shows that the pace of wage growth is actually falling. The average hourly wage, the key measure of wage growth in the report, increased by 6.5 percent over the last year. That is a pace that is clearly inconsistent with a rate of inflation that most people would consider acceptable.

However, we get a much better picture if we focus on the more recent period. The annualized rate of wage growth comparing the last three months (March, April, and May) with the prior three months (December, January, and February) was 4.3 percent. This is only moderately higher than the peak 3.6 percent year over year rate of wage growth hit in February 2019. In 2019, inflation was well under control, with few seeing it as a serious problem.

Wage data are erratic (that is the reason for taking three-month averages), but it is clear that the direction of change based on the data we have is downward. This is the opposite of the wage-price spiral story, wage growth is moderating.

This is not the only item in the May jobs report that should help to calm the inflation hawks. One way that businesses responded to the difficulty in hiring workers earlier in the recovery was to increase the length of the workweek. The average workweek was 34.4 hours in 2019, before the pandemic. It peaked at 35.0 hours in January of 2021. That would be equivalent to hiring roughly 2.6 million workers at 34.4 hours a week.

The length of the average workweek has now shortened to 34.6 hours over the last three months. This suggests that employers no longer feel a need to lengthen hours to compensate for not being able to hire workers. Again, this is evidence that the labor market is stabilizing.

The third item that should calm inflation hawks is the drop in the share of unemployment due to people voluntarily quitting their jobs. This is an important measure, since workers will only quit their jobs before having a new one lined up, if they are confident they will be able to get another job.

The share of unemployment due to voluntary quits edged down to 12.8 percent in May. It had peaked at 15.1 percent in February, and since trended downward. The share of unemployment due to quits also reached levels above 15.0 percent just before the pandemic and in 2000. In short, this is not a labor market in which workers feel totally comfortable quitting their jobs.

In short, this is a jobs report that should have made inflation hawks very happy. It shows a strong, but stable, labor market with moderating wage growth. This is definitely not a wage-price spiral story.

Of course, this report does nothing to reduce the price of gas. If you’re concerned about the price of gas, then you need to pay attention to the war in Ukraine, not the U.S. labor market. The world price of oil determines the price of gas here, not our employment levels.

Wednesday, May 18, 2022

Costs of the shadow wars with Russia and China

Before war ravaged Yemen, Walid Al-Ahdal did not worry about feeding his children. At his hometown near the Red Sea, his family grew corn, raised goats and relied on their own cow for milk.

But for the last four years, after fighting forced them to flee, their home has been a tent at a camp with 9,000 other families outside the capital city of Sana. Mr. Al-Ahdal has struggled to buy adequate food with his wages as a janitor at a hospital.

Now another war — this one more than 2,000 miles away — has upended their lives again. Food prices are soaring. Since Russia invaded Ukraine, the cost of wheat has more than doubled, while milk has climbed by two-thirds.

On many nights, Mr. Al-Ahdal, 25, has nothing to feed his 2-year-old daughter and his three boys, ages 3, 5 and 6. He consoles them with tea and sends them to bed.

“My heart hurts every time my child looks for food that is not there,” Mr. Al-Ahdal said. “But what can I do?”

The hunger gnawing at families in war-torn countries like Yemen highlights a broader crisis confronting billions of people in the world’s less-affluent economies as the consequences of Russia’s assault on Ukraine are compounded by other challenges — the continuing pandemic, a global tightening of credit and a slowdown in China, the second-largest economy after the United States.

ImageWalid Al-Ahdal with his children in their home at a camp in Marib, Yemen. “My heart hurts every time my child looks for food that is not there,” he said.Credit...Owis Alhamdani/UNICEF

“It’s like wildfires in all directions,” said Jayati Ghosh, an economist at the University of Massachusetts Amherst. “This is much bigger than after the global financial crisis. Everything is stacked against the low- and middle-income countries.”

The most direct repercussions are seen in the rising prices of cooking fuel, fertilizer and staple foods like wheat, disrupting agriculture and threatening nutrition in much of the world.

Sanctions imposed on Russia, a major oil and gas exporter, have constrained the supply of energy, sending prices skyward and limiting economic growth, especially in countries heavily dependent on imports.

High energy prices are at the center of diminished expectations for global economic growth, now estimated at 3.6 percent this year compared with 6.1 percent last year, according to a forecast from the International Monetary Fund.

More than 14 million people are now on the brink of starvation in the Horn of Africa, according to the International Rescue Committee — the result of a terrible drought combined with the pandemic and shortfalls of grains from Russia and Ukraine. The two countries are collectively the source for one-fourth of the world’s exports of wheat.

Last week, as India banned exports of most of its wheat, concerns deepened. India is the world’s second-largest wheat producer and holds abundant reserves.

The war in Ukraine threatens to impede the humanitarian response, lifting by as much as 16 percent the prices of components like peanuts that are blended into a therapeutic paste used to treat children facing life-threatening levels of malnutrition, UNICEF warned on Monday.

This catastrophe is unfolding as the pandemic continues to assail health systems, depleting government resources, and as the Federal Reserve and other central banks raise interest rates to choke off inflation. That is prompting investors to abandon lower-income countries while moving funds into less risky assets in wealthy economies.

This tidal shift in the flow of money has lifted the U.S. dollar while pushing down the value of currencies from India to South Africa to Brazil, making their imports more expensive. Tighter credit is also increasing borrowing costs for heavily indebted governments.

Not least, China, long the engine of growth for many countries, has become a significant source of drag. As the Chinese government extends lockdowns to enforce its zero-Covid policy, the result is weaker demand for raw materials, parts and finished goods shipped to China from around the globe.

“I look at a perfect storm developing in places like Yemen, and many other places around the world,” said Philippe Duamelle, the UNICEF representative for Yemen. “Families have terrible choices to make.”

Michael Moki, a motorcycle taxi driver in Douala, Cameroon, says the price of bread has risen while the portions have become smaller.Credit...Tom Saater for The New York Times

Not Enough Bread

On a fiercely hot morning in Cameroon’s largest city, Douala, Michael Moki, a motorcycle taxi driver, pulled up to a glass case containing a scattering of bread rolls.

A jovial man with a ready laugh, Mr. Moki, 34, ordered 500 Central African francs’ (about 80 cents) worth of rolls — breakfast for his family of five. When the vendor handed him the bag, the smile fell from his face.

“Your bread gets smaller every day, and the price increases,” he complained to the young man behind the counter. “Do you think I can eat all of this and get full?”

“The price of flour has gone up,” the vendor replied.

This kind of exchange has become commonplace in markets across Africa and parts of Asia.

The fighting in Ukraine has prompted farmers in Ukraine to flee their land, while Russia has blockaded Ukrainian ports on the Black Sea — vital conduits for exports. Last week, the World Food Program warned that the shutdowns of the ports threatened to worsen severe food insecurity in Ethiopia, South Sudan, Syria, Yemen and Afghanistan.

Russia and Ukraine supply all the wheat imported by Somalia and Benin, and at least two-thirds of the supply reaching Tanzania, Senegal, the Democratic Republic of Congo, Sudan and Egypt, according to research from the United Nations Conference on Trade and Development.

Globally, export prices for wheat and corn soared more than one-fifth in the month after Russia invaded Ukraine, according to the World Food Program.

Some economists accuse multinational agribusiness of exploiting the chaos caused by the pandemic and the war to lift prices beyond any connection to supply and demand. Ms. Ghosh, the economist, cited evidence that financial speculation is driving food prices higher.

In April, speculators were responsible for 72 percent of the buying activity on the Paris wheat market, up from 25 percent before the pandemic, according to data analyzed by Lighthouse Reports, a European journalism collaborative.

Many poor countries now confront an uncomfortable choice — increasing spending to aid their populations while adding to their debts, or imposing budget austerity and courting social conflict. Last week, public rage over rapid inflation amid a spiraling debt crisis in Sri Lanka triggered the downfall of the government. The risks of upheaval look dire in Tunisia, Ghana, South Africa and Morocco, Oxford Economics warned in a recent report.

For Mr. Moki, the motorcycle taxi driver, the source of strife was immediate. Returning to his two-room apartment, he faced disappointment from his wife over his meager breakfast haul.

Their landlord is increasing their rent from a barely affordable 50,000 francs ($80) a month to 75,000 francs ($120), citing his own higher costs.

“Things are becoming very difficult for us,” Mr. Moki said.

Culling the Herd

Sencer Solakoglu, a dairy farmer in Turkey, is getting squeezed by forces beyond his control.

The prices of animal feed like hay, corn and alfalfa — much of it imported from Russia and Ukraine — have doubled and tripled in recent months. Yet the government, fearing public anger over inflation, has pressured farmers to forgo price increases, limiting Mr. Solakoglu’s ability to recoup his costs.

Turkish households, battered by a long-running economic crisis, have cut back on milk, slashing his sales by roughly half.

This is how Mr. Solakoglu, whose farm sits outside the Turkish city of Bursa, found himself culling his dairy herd by 200 in recent months.

“We slaughtered every cow that produced less than 30 kilograms (66 pounds) of milk per day,” he said.

These sorts of grim calculations have become routine in Turkey, a country that has gained intimate familiarity with economic distress.

A produce market in Istanbul last month. Inflation in Turkey has soared, deepening a cost-of-living crisis for many households.Credit...Francisco Seco/Associated Press

Preparing bread dough at a bakery in Istanbul.Credit...Burak Kara/Getty Images

After the global financial crisis of 2008, central banks in major economies like the United States and Europe dropped interest rates to near zero to spur growth. As international investors sought better returns, they piled into so-called emerging markets, accepting higher risks in exchange for greater rewards.

Turkey’s strongman president, Recep Tayyip Erdogan, urged his cronies to avail themselves of international borrowing to finance enormous construction projects that kept the economy growing.

The Russia-Ukraine War and the Global Economy
Card 1 of 7

A far-reaching conflict. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes. The conflict has caused​​ dizzying spikes in gas prices and product shortages, and is pushing Europe to reconsider its reliance on Russian energy sources.

Global growth slows. The fallout from the war has hobbled efforts by major economies to recover from the pandemic, injecting new uncertainty and undermining economic confidence around the world. In the United States, gross domestic product, adjusted for inflation, fell 0.4 percent in the first quarter of 2022.

Energy prices rise. Oil and gas prices, already up as a result of the pandemic, have continued to increase since the beginning of the conflict. The sharpening of the confrontation has also forced countries in Europe and elsewhere to rethink their reliance on Russian energy and seek alternative sources.

Russia’s economy faces slowdown. Though pro-Ukraine countries continue to adopt sanctions against the Kremlin in response to its aggression, the Russian economy has avoided a crippling collapse for now thanks to capital controls and interest rate increases. But Russia’s central bank chief warned that the country is likely to face a steep economic downturn as its inventory of imported goods and parts runs low.

Trade barriers go up. The invasion of Ukraine has also unleashed a wave of protectionism as governments, desperate to secure goods for their citizens amid shortages and rising prices, erect new barriers to stop exports. But the restrictions are making the products more expensive and even harder to come by.

Food supplies come under pressure. The war has driven up the cost of food in East Africa, a region that depends greatly on exports of wheat, soybeans and barley from Russia and Ukraine and is already dealing with a severe drought. Amid dwindling supplies, supermarkets around the world have begun asking customers to limit their purchases of sunflower oil, of which Ukraine is a top exporter.

Prices of essential metals soar. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.

By 2017, investors fretted that the staggering debts held by Turkish companies posed the risk of defaults. They dumped the Turkish lira, pushing its value down roughly three-fourths by the end of last year.

That was the story before Russia’s invasion of Ukraine, and before central banks around the globe began raising interest rates.

By April, the lira was falling anew, and Turkey’s inflation rate was running at nearly 70 percent — its worst mark in two decades.

Even in countries facing less dire circumstances, farmers are grappling with malevolent arithmetic, as prices rise for animal feed, fertilizers and pesticides.

Indonesia has in recent years imported growing stocks of fertilizer from Russia. With fertilizer costs doubling in recent months, farmers have limited their application, diminishing their harvests.

“The current situation is the worst that we have ever seen,” said Ajat Sudrajat, a farmer in the Cipanas district of West Java, an agricultural area that serves Jakarta, Indonesia’s teeming capital.

Food being distributed in Islamabad, Pakistan. The economy is drowning in debt and the country’s people are suffering from an unsustainable cost of living.Credit...Saiyna Bashir for The New York Times

Impossible Debts

Two years ago, when Rubab Zafar and her husband, Muhammad Ali, left their village in rural Pakistan for new lives in Islamabad, they were full of optimism.

“There were no jobs in the village,” said Ms. Zafar, 31. “Islamabad is a big city, and we thought there would be some opportunity for us here.”

Instead, they have suffered the grind of a country grappling with impossible debts and downward mobility.

Ms. Zafar recently lost her babysitting job, while securing occasional part-time stints. Her husband works for a ride-hailing app. Collectively, they earn about 25,000 rupees a month (about $133), which barely covers the rent for their single room in a working-class neighborhood.

They are behind on their electrical bill, placing them in the same position as the Pakistani government, now in talks with the International Monetary Fund for an extension on a $6 billion package of loans.

Since 2016, Pakistan’s external debt payments have swelled to 38 percent of government revenue from about 9 percent, according to data tabulated by Debt Justice, an advocacy organization in England.

Debt payments have absorbed money that might otherwise support people like Ms. Zafar. Several times, she has applied for a cash grant, only to be turned away without explanation.

Downward Mobility

Brazil, a major exporter, is often portrayed as a beneficiary of rising commodity prices.

But in the shantytowns of Brazil’s major cities, where poverty frames daily life, people are focused on the exploding cost of liquefied petroleum gas, the cooking fuel used in 96 percent of homes.

Since February, the price of a canister of L.P. gas has increased nearly 10 percent, reaching its highest level in two decades, according to government data.

“It is the only thing we talk about,” said Vanderley de Melo Pereira, 55, a father of two in Rocinha, a teeming slum in Rio de Janeiro. “Since the war in Ukraine started, things have gotten worse.”

Across Latin America, the unfolding crisis threatens to erase decades of progress in boosting living standards.

“There are no prospects for growth,” said Liliana Rojas-Suarez, a regional expert and senior fellow at the Center for Global Development in Washington. “I think we’re going to have another lost decade.”

Ruth Maclean reported from Dakar, Senegal; Salman Masood from Islamabad, Pakistan; Elif Ince from Istanbul; Flávia Milhorance from Rio de Janeiro; Muktita Suhartono from West Java, Indonesia; and Brenda Kiven from Douala, Cameroon. Renato Dias in Rio de Janeiro contributed to this report.

Sunday, May 15, 2022

Bloomberg: ollar’s Strength Pushes World Economy Deeper Into Slowdown

via Bloomberg

Fed rate hikes and strong dollar are hurting global growth
Emerging economies are especially vulnerable as capital leaves


Enda Curran and

Amelia Pollard
May 14, 2022, 5:00 PM EDT

The soaring dollar is propelling the global economy deeper into a synchronized slowdown by driving up borrowing costs and stoking financial-market volatility -- and there’s little respite on the horizon.

A closely watched gauge of the greenback has risen 7% since January to a two-year high as the Federal Reserve embarks on an aggressive series of interest-rate increases to curb inflation and investors have bought dollars as a haven amid economic uncertainty.

A rising currency should help the Fed cool prices and support American demand for goods from abroad, but it also threatens to drive up the import prices of foreign economies, further fueling their inflation rates, and sap them of capital.

That’s especially worrying for emerging economies, which are being forced to either allow their currencies to weaken, intervene to cushion their slide, or raise their own interest rates in a bid to buttress their foreign exchange levels.

Both India and Malaysia made surprise rate hikes this month. India also entered the market too to prop up its exchange rate.

Advanced economies haven’t been spared either: In the past week the euro hit a new five-year low, the Swiss franc weakened to hit parity with the dollar for first time since 2019 and Hong Kong’s Monetary Authority was forced to intervene to defend its currency peg. The yen also recently toughed a two-decade low.

“The Fed’s rapid pace of rate hikes is causing headaches for many other economies in the world, triggering portfolio outflows and currency weakness,” said Tuuli McCully, head of Asia-Pacific economics at Scotiabank.

While the combination of slowing US growth and an expected cooling in America’s inflation will ultimately see the dollar’s ascent slow -- which in turn will take pressure off other central banks to tighten -- it may take months to find that new equilibrium.

So far at least, traders are reluctant to call a peak in the dollar rally. That in part reflects bets at the end of 2021 that the greenback’s gains would fade as rate hikes were already priced in. Those views have since been shredded.

Developing economies are in danger of a “currency mismatch,” which occurs when governments, corporations or financial institutions have borrowed in US dollars and lent it out in their local currency, according to Clay Lowery, a former US Treasury assistant secretary for international affairs who’s now executive vice president at the Institute for International Finance.

Global growth will essentially flatline this year as Europe falls into recession, China slows sharply and US financial conditions tighten significantly, according to a new forecast from the IIF. Economists at Morgan Stanley expect growth this year to be less than half of the pace in 2021.

As rates continue to rise amid on-going global volatility -- from the war in Ukraine to China’s Covid lockdowns -- that has led investors to leap for safety. Economies nursing current account deficits are at risk of more volatility.

“The United States has always been a safe haven,” Lowery said. “With rising interest rates both from the Fed and from market rates, even more capital could flow into the US. And that could be damaging for emerging markets.”

Outflows of $4 billion were seen from emerging economy securities in April, according to the IIF. Emerging market currencies have tumbled and emerging-Asia bonds have suffered losses of 7% this year, more than the hit taken during the 2013 taper tantrum.

“Tighter US monetary policy will have large spillovers to the rest of the world,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “The real kicker is that most economies outside the US are starting in a weaker position than the US itself.”

Weaker Outlook

The IMF sees growth in 2022 and 2023 lower than it did in January

Source: International Monetary Fund

Note: 2022 and 2023 are forecasts

Many manufacturers say the high costs they are facing means they aren’t getting much of a dividend from weaker currencies.

Toyota Motor Corp. forecast a 20% decline in operating profit for the current fiscal year despite posting robust annual car sales, citing an “unprecedented” rise in costs for logistics and raw materials. It said it doesn’t expect the weakened yen to deliver a “major” lift.

China’s yuan has slid as record flows of capital pull out of the

country’s financial markets. For now, it remains insulated from the wider dollar effect as low inflation at home allows authorities to focus on supporting growth.

But that’s causing yet another source of fragility for developing nations used to a strong yuan offering their markets an anchor.

“The recent abrupt shift in the renminbi’s trend has more to do with China’s deteriorating economic outlook than Fed policy,” said Alvin Tan, a strategist at Royal Bank of Canada in Singapore. “But it has definitely splintered the shield insulating Asian currencies from the rising dollar and precipitated the rapid weakening of Asian currencies as a group in the past month.”

In advanced economies, weakening currencies set up a “tricky policy dilemma” for the Bank of Japan, European Central Bank and the Bank of England, Dario Perkins, chief European economist at TS Lombard in London, wrote in a recent note.

ECB Governing Council Member Francois Villeroy de Galhau noted this month that a “euro that is too weak would go against our price stability objective.”

“While domestic ‘overheating’ is mostly a US phenomenon, weaker exchange rates add to imported price pressures, keeping inflation significantly above central banks’ 2% targets,” Perkins wrote. “Monetary tightening might alleviate this problem, but at the cost of further domestic economic pain.”

— With assistance by Maria Eloisa Capurro

Tuesday, May 3, 2022

CR: Rent Increases Up Sharply Year-over-year, Pace may be slowing


Rents have increased sharply over the last year, and this is likely due to both demand and supply issues. Also, rents dipped in 2020, so some of the recent increase is making up for the 2020 decline. For example, the Zillow measure of new leases is up 16.8% year-over-year in March, but is up 8.8% annualized over the last 2 years.

What drives demand for housing is household formation. Even though population growth in 2020 and 2021 was dismal, household growth appears to have picked up.

A few possible reasons for household growth include:

  • Some younger adults probably moved in with their parents or relatives (or stayed with them) during the worst of the pandemic in 2020 and started moving out in 2021.

  • Divorces might have increased in 2021 splitting households.

Unfortunately, we will not have data on household formation for some time. For example, data on divorces is only available through 2020 (provisional data shows divorces were down sharply in 2020).

Some other factors might include more properties being converted into short term rentals, removing them from the long-term rental housing stock, and also the eviction moratorium might have had some impact on rents.

The preference for single family homes (and the corresponding larger rent increases) is partially due to the pandemic, and the desire for more space - especially for people working at home. And with the rapid increase in home prices, and lack of for sale inventory, more people have been looking to rent single family homes instead.

On the supply side, the supply chain disruptions have constrained completions. Here is a graph of housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 811 thousand single family units under construction (SA). This is the highest level since November 2006.

Blue is for 2+ units. Currently there are 811 thousand multi-family units under construction.  This is the highest level since May 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.

Combined, there are 1.622 million units under construction. This is the most since February 1973, when a record 1.628 million units were under construction (mostly apartments in 1973 for the baby boom generation).

Quarterly Apartment Tightness Index

The apartment tightness index from the National Multifamily Housing Council (NMHC) has been very useful in forecasting vacancy rates for apartments. Here are the results for the April survey: Apartment Demand Continues to Grow, but Investors Face Tougher Financing Conditions

Apartment markets tightened further according to the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for April 2022, while financing became more costly. The Market Tightness (60) index was the only index to come in above the breakeven level (50) this quarter; the Sales Volume (50) index came in at exactly 50, with much disagreement among respondents; while both the Equity Financing (35) and Debt Financing (9) indexes indicated weaker conditions compared to three months prior.

“Demand for apartments continues to exceed supply, resulting in the fifth straight quarter of tightening markets,” noted NMHC’s Chief Economist, Mark Obrinsky. “Yet, even as rent growth and occupancy remain elevated, developers are struggling to build more housing due to the increasing cost of materials, a lack of available labor, continued obstructionism from NIMBYs, and, because of rising interest rates, an increasing cost of capital.”

  • The Market Tightness Index came in at 60 this quarter – above the breakeven level of 50 – indicating that market conditions have become tighter. While less than one-third (30 percent) of respondents reported markets to be tighter than three months ago, an even smaller share (10 percent) thought that markets have become looser. A majority of respondents (59 percent), meanwhile, thought that apartment market conditions were unchanged from last quarter.

emphasis added

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. 

Even though the index declined in April, this indicates market conditions tightened further in April for the fifth consecutive quarter, after being especially weak during the early months of the pandemic.

Note that a majority of respondents thought conditions was unchanged. This was up from 40% in the December survey, and up from a low of just 7% saying conditions were unchanged in the July 2021 survey.

Asking Rents Up Sharply Year-over-year, but Increases Slowing

From Apartment List National Rent Report

Welcome to the May 2022 Apartment List National Rent Report. Rent growth is continuing to pick up steam again, after a brief winter cooldown, with our national index up by 0.9 percent over the course of April. So far this year, rents are growing more slowly than they did in 2021, but faster than the growth we observed in the years immediately preceding the pandemic. Year-over-year rent growth currently stands at a staggering 16.3 percent, but most of that growth took place last spring and summer. Over the first four months of 2022, rents have increased by a total of just 2.5 percent, though we’re only beginning to enter the busy season for the rental market, when the bulk of annual rent growth typically occurs.

On the supply side, our national vacancy index dipped slightly this month, the first time that vacancies have tightened since last August. Our vacancy index currently stands at 4.6 percent, up from a low of 3.8 percent last August, but still well below the pre-pandemic norm. Rents increased this month in 93 of the nation’s 100 largest cities, with Sun Belt markets in Florida and Arizona continuing to see some of the nation’s fastest growth.

Our national rent index closed out 2021 with a 0.2 percent month-over-month decline, making December the only month last year in which rents fell. That price dip proved to be short lived, however, with rent growth returning to positive territory over the past four months. Our national rent index increased by 0.9 percent month-over-month in April. Rents grew nearly twice as fast at this time last year, with a 1.7 percent month-over-month increase in April 2021. In fact, this month’s increase looks more similar to the rates we observed in the years preceding the pandemic – from 2017 to 2019, month-over-month growth in April averaged 0.8 percent, just barely below this month’s 0.9 percent increase.

emphasis added

Rents are still increasing, but not as rapidly as a year ago.

CoreLogic also tracks rents for single family homes: Rent Growth Extends Record-Breaking Streak in February, CoreLogic Reports

CoreLogic … today released its latest Single-Family Rent Index (SFRI), which analyzes single-family rent price changes nationally and across major metropolitan areas.

U.S. rent prices continued their double-digit gains in February, rising 13.1% from one year earlier to hit another new record as the highest in the history of the index.

The 13.1% YoY increase in February was up from 12.6% YoY in January.

Rent Data

I’m going to update some of the data on rents. Here is a graph of several measures of rent since 2000: OER, rent of shelter, rent of primary residence, Zillow Observed Rent Index (ZORI), and (All set to 100 in January 2017)

Note: For a discussion on how OER, and Rent of primary residence are measured, see from the BLS: How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and rent of primary residence (Rent)

OER, rent of shelter, and rent of primary residence have mostly moved together. The Zillow index started in 2014, and the ApartmentList index started in 2017. Here is a graph of the year-over-year (YoY) change for these measures since January 2015. All of these measures are through March 2022 (Apartment List through April 2022).

Note that new lease measures (Zillow, Apartment List) dipped early in the pandemic, whereas the BLS measures were steady. Then new leases took off, and the BLS measures are picking up.

The Zillow measure is up 16.8% YoY in February, down from 17.2% YoY in February. And the ApartmentList measure is up 16.4% as of April, down from 17.2% in March. Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase in rents. From Zillow:

“ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent.”

And from ApartmentList:

At Apartment List, we estimate the median contract rent across new leases signed in a given market and month. To capture how rents change in a market over time, we estimate the expected price change that a rental unit should experience if it were to be leased today.

Both of these measures reflect new leases, whereas most rental units don’t turnover every year (as captured by the BLS measures). This sharp increase in new lease rates should spill over into the consumer price index over the next year (as discussed in earlier article).

Clearly rents are still increasing, and we should expect this to continue to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 4.5% YoY in March, from 4.3% YoY in February - and will likely increase further in the coming months.

My suspicion - based on all of the above data - is rent increases will slow over the coming months.