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.

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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.