Aurelia Butler

Leading economies are close to “tipping” into a high-inflation world where rapid price rises are normal, dominate daily life and are difficult to quell, the Bank for International Settlements warned on Sunday. In its annual report, the BIS, the influential body that operates banking services for the world’s central banks, said these transitions to high-inflation environments happened rarely, but were very hard to reverse. Diagnosing that many economies had already embarked on the process, the BIS recommended that central banks should not be shy of inflicting short-term pain and even recessions to prevent any move to a persistently high-inflation world. Agustín Carstens, BIS general manager, said: “The key for central banks is to act quickly and decisively before inflation becomes entrenched.”Central banks around the world have started to raise rates quickly in response to soaring inflation, with the US Federal Reserve leading the pack, but the action taken so far does not satisfy the BIS. In its report, the bank said that there was a deep, “inherently stagflationary” shock hitting the world from higher commodity prices, supply chain bottlenecks and shortages stemming from Russia’s invasion of Ukraine. This had increased the prices of the goods and services that households noticed the most, reinforcing the salience of price rises. “We may be reaching a tipping point, beyond which an inflationary psychology spreads and becomes entrenched. This would mean a major paradigm shift,” the report stated.Such a shift would mean leaving behind a world where prices have been generally stable, with some things getting cheaper and others more expensive. In this benign world, central banks have been able to ignore temporary surges in oil or natural gas prices because “economy-wide inflation [is] less noticeable [and] also less relevant”. After a move to a high inflationary period, “price changes are much more synchronised and inflation is much more of a focal point for the behaviour of economic agents, exerting a major influence on it”.Inflation is at multi-decade highs in several economies, including the US, eurozone and the UK. The BIS was worried the leading economies of North America, Europe and many emerging markets were near a tipping point. Consumers had noticed price rises, large increases had become broad across most goods and falling real wages would generate attempts to recoup the losses. Ignoring price rises was no longer rational for consumers, the BIS said, which reinforced the danger of a shift to a high-inflation world. “As inflation rises and becomes a focal point for agents’ behaviour, behavioural patterns tend to strengthen the transition,” it added, predicting companies would fight to prevent profit margins being squeezed and workers would defend their wages. The length of most contracts would tend to shrink, it added, because parties on both sides could not guarantee price levels in future. To bring down inflation, the BIS said, “some pain will be inevitable”, but it said ultimately the difficulties of entrenched inflation “far outweigh the short-term ones of bringing it under control”.“This puts a premium on a timely and decisive response,” it told its member central banks, even if none could be certain that they had moved into a high-inflation environment. The BIS added: “The overriding priority is to avoid falling behind the curve, which would ultimately entail a more abrupt and vigorous adjustment. This would amplify the economic and social costs of bringing inflation under control.” More

Major global companies are pushing world leaders to step up action to tackle climate change at the G7 summit in Germany this weekend, calling for large-scale carbon pricing and measures to boost demand for clean technology.In an open letter ahead of the three-day gathering that begins on Sunday in the Bavarian resort of Schloss Elmau, more than a dozen heads of large corporations including Bank of America and Shell pleaded for ambitious government climate policies “that offer the private sector clarity and stability”.“Once businesses can be certain of a stable and predictable policy environment with well-established goals, we will do all in our power to help society get there,” they wrote.The companies came together under the Sustainable Markets Initiative, which was announced by the Prince of Wales at Davos in 2020 and now counts more than 400 global chief executives among its members.At the summit, the G7 will confront the consequences of the war in Ukraine, including the turmoil it has wreaked in global energy markets. European countries including Germany are increasing their use of coal power to conserve gas reserves after Russia curtailed supply.But the SMI members said the Ukraine crisis should not undermine efforts to phase out use of thermal coal, the most polluting fossil fuel, which the SMI says should be banned in advanced countries by 2030 and globally by 2040. “Obviously, we’re facing a near-term challenge but over time that is a meaningful and achievable goal,” they said.German chancellor and G7 chair Olaf Scholz promised last week the summit would demonstrate that leading democracies standing together against Russia’s aggression “are no less committed to the fight against hunger and poverty, and to combating health crises and climate change”.Governments have been coming under increasingly public pressure on climate policy from companies which are nervous about continued uncertainty over future regulations, and face huge scrutiny over their progress towards ambitious net zero emissions goals. Bank of America and other leading US financial institutions recently faced unsuccessful campaigns by shareholders seeking to block their financing of fossil fuel projects. Energy companies are also facing scepticism over the pace of their green transition. Last month 20 per cent of Shell shareholders voted for a resolution stating that its climate plan was not aligned with the 2015 Paris accord, which aims to keep global warming well below 2°C.The SMI letter put strong emphasis on carbon pricing, calling for governments to pursue a price on emissions that would rise over time. It said that a carbon price of $30-70 would destroy the economic logic for coal investment, while a level above $120 would drive investment in technologies such as direct air capture, which removes carbon dioxide from the atmosphere.The intervention comes amid political efforts around carbon pricing on both sides of the Atlantic. This month Democratic senator Sheldon Whitehouse introduced a bill that would create a carbon levy on imports, set initially at $55 per tonne of associated carbon dioxide emissions. This week, members of the European Parliament agreed on a plan to impose a similar carbon levy on imports, and to expand the EU’s emission-trading scheme — which currently covers energy, heavy industry and aviation — to a wider range of domestic sectors.The SMI letter also asked governments for “demand-side policies” such as a fixed end date for the sale of petroleum-powered cars, and requirements for sustainable fuel usage by airlines.If the G7 and other governments “can work with the private sector to help accelerate our progress, we can do this,” said the letter, whose signatories included the leaders of BP, EY, PwC, State Street and the Mahindra Group. More

KIGALI (Reuters) – British Prime Minister Boris Johnson said on Saturday he aims to remain in power until the middle of the next decade, despite calls for him to quit, which would make him the country’s longest continuously serving leader in 200 years.Earlier this month, Johnson survived a vote of confidence by Conservative lawmakers in which 41% of his parliamentary colleagues voted to oust him, and he is under investigation for intentionally misleading parliament.On Friday Conservative candidates lost two parliamentary by-elections held to replace former Conservative incumbents who had to step down, one after being convicted of sexual assault and the other for watching pornography in the House of Commons.The by-election defeats suggest the broad voter appeal which helped Johnson win a large parliamentary majority in December 2019 may be fracturing after a scandal over illegal parties held at Downing Street during coronavirus lockdowns.Under Conservative party rules, its lawmakers cannot formally challenge Johnson for another year, but overwhelming dissatisfaction or resignations by a series of senior ministers could make his position untenable.Britain is also in the midst of its deepest cost-of-living crisis in decades, with inflation at a 40-year high. Former party leader Michael Howard said on Friday it was now time for Johnson to go, and Conservative party chairman Oliver Dowden quit after the by-election losses.However, Johnson said he wanted to serve a third term in office and remain as prime minister until the mid-2030s to give him time to reduce regional economic disparities and make changes to Britain’s legal and immigration systems.”At the moment I am thinking actively about the third term and, you know, what could happen then. But I will review it when I get to it,” Johnson told reporters in Rwanda on the final day of a visit for a Commonwealth summit.Asked what he meant, Johnson said: “About the third term … this is the mid-2030s.”Johnson must call Britain’s next national election by December 2024, and would need a third election victory by 2029.If he was still in office beyond early 2031, he would beat Margaret Thatcher’s record as the longest continuously serving British prime minister since Robert Banks Jenkinson, the Earl of Liverpool, who was in office from 1812 to 1827.NO CHALLENGE, NO CHANGE?Johnson told reporters that he did not expect to have to fight another internal challenge from within his party, and blamed the by-election defeats partly on months of media reporting of lockdown parties at the heart of government. “People were fed up of hearing about things I had stuffed up, or allegedly stuffed up, or whatever, this endless – completely legitimate, but endless – churn of news,” he said.Earlier on Saturday, Johnson told BBC radio he rejected the notion that he should change his behaviour.”If you’re saying you want me to undergo some sort of psychological transformation, I think that our listeners would know that that … is not going to happen.”Johnson refused to comment on a report in The Times newspaper that he had planned to get a donor to fund a 150,000-pound ($184,000) treehouse for his son at his state-provided country residence. The story comes months after his party was fined for failing to accurately report a donation which helped fund the refurbishment of his Downing Street apartment.”I’m not going to comment on non-existent objects,” Johnson said when asked if he planned to use a donor’s money to build the treehouse.($1 = 0.8155 pounds) More

SAN JOSE (Reuters) – Costa Rica has told the International Monetary Fund (IMF) it is interested in obtaining a nearly $700 million loan to invest in infrastructure from a newly created fund, the Central Bank said.Costa Rican authorities told the IMF that the country aims to be the first to secure financing from the IMF’s Resilience and Sustainability Trust (RST), announced in April, the Central Bank told Reuters on Friday.”The Government is evaluating the conditions and opportunities to have access to these resources for infrastructure works,” the bank said. The IMF launched the financing facility with the goal of helping low and middle-income countries tackle long-term challenges such as climate change and pandemics. The IMF has said it plans to begin lending under the program by October. Costa Rica reached a $1.78 billion agreement with the IMF in early 2021 to help the Central American country consolidate its finances after years of mounting debt. The IMF has so far disbursed nearly $570 million. President Rodrigo Chaves, who took office in May just as Costa Rica’s debt was equivalent to 66.5% of Gross Domestic Product (GDP), has said he plans to strengthen the IMF program, but has not provided details.IMF staff met for the first time with Chaves this month, and warned of a likely slowdown in Costa Rica’s economy this year amid external pressures including the ongoing pandemic and rising inflation. More

The announcement of the measures came after the government agreed the package of 5.5 billion euros ($5.80 billion) in spending for families and 3.6 billion euros ($3.80 billion) in tax cuts in an extraordinary cabinet meeting. Pensions will be raised by 15% for the most vulnerable on retirement, including widows and the disabled, representing a 60 euro ($63) monthly increase.From September, a 50% reduction will be introduced for those who already receive subsidised travel on national state rail or bus services plus a 30% cut for those using regional services. Self-employed people on low incomes below 14,000 euros ($14,775) per year or who are unemployed will receive a one-off payment of 200 euros ($210). Prices for gas canisters, a common way to heat homes in Spain, will be fixed until 31 December.Those most exposed to energy price rises, including the fishing industry and farmers, will be eligible for social security exemptions.”We govern for the middle and working classes of this country although we know that this annoys some economic powers,” Sanchez told reporters.The government will introduce a bill to cut VAT on electricity bills by half to 5% which Sanchez said should come into force from January.The new package will be in force until the end of 2022, Sanchez said on Friday.The package follows measures approved in March and in force until the end of June, worth six billion euros in direct aid and tax cuts and 10 billion euros in soft loans to help companies and households cope with higher fuel prices.($1 = 0.9475 euros) More