Aurelia Butler

Here’s a look at where policymakers stand in the race to contain red-hot inflation. Graphic: Rate hike checklist Rate hike checklist – https://graphics.reuters.com/GLOBAL-CENTRALBANKS/zdvxowbjbpx/chart.png 1) NORWAY Norway’s Norges Bank was the first big developed economy to kick off a rate-hiking cycle last year and has raised rates three times since September. It is expected to increase its 0.75% rate again on June 23 and plans seven more moves by end-2023. Graphic: Major central banks are hiking rates – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjowkqjpr/rates1606.PNG 2) NEW ZEALAND The Reserve Bank of New Zealand is also one of the world’s most hawkish central banks, raising the official cash rate by 50 basis points (bps) to 2% on May 25, a level not seen since 2016. That was its fifth straight rate hike.It projected rates to double to 4% over the coming year and stay there until 2024. New Zealand inflation reached a three-decade high of 6.9% in the year to Q1, versus a 1-3% target. Graphic: New Zealand among the most aggressive central banks – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwezdkqvw/NZ0706.PNG 3) CANADAThe Bank of Canada delivered a second consecutive 50-bps rate increase to 1.5% on June 1, and said it would “act more forcefully” if needed. With April inflation at 6.8%, Governor Tiff Macklem has not ruled out a 75-bps or larger increase and says rates could go above the 2%-3% neutral range for a period. Deputy BoC governor Paul Beaudry has warned of “galloping” inflation and markets price an unprecedented third consecutive 50-bps increase in July.4) BRITAINThe Bank of England raised interest rates by a quarter of a percentage point on Thursday and said it was ready to act “forcefully” to stamp out dangers posed by an inflation rate heading above 11%.The British benchmark rate is now at its highest since January 2009. The BoE, the first major central bank to tighten monetary policy after the COVID-19 pandemic, has now raised borrowing costs five times since December. Graphic: Sterling – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrmdqzvm/Pasted%20image%201655378626194.png 5) UNITED STATES The Federal Reserve raised the target federal funds rate on June 15 by three-quarters of a percentage point to a range of between 1.5% and 1.75%. It acted days after data showed 8.6% annual inflation and has since triggered a market frenzy with expectations growing of even more aggressive responses in coming months.The Fed is also reducing its $9 trillion stash of assets accumulated during the pandemic.Graphic: Central bank balance sheets are starting to shrink — slowly – https://fingfx.thomsonreuters.com/gfx/mkt/akvezrwyzpr/balancesheets070622.PNG 6) AUSTRALIA With the economy recovering smartly and inflation at a 20-year high of 5.1%, the Reserve Bank of Australia raised rates by a surprise 50 bps on June 6. It was the RBA’s second straight move after insisting for months policy tightening was way off.Money markets price in another 50 bps rise in July.7) SWEDENA late-comer to the inflation battle, Sweden’s Riksbank raised rates to 0.25% in April in a quarter-point move. With inflation at 6.4%, versus its 2% target, the Riksbank may now opt for bigger moves.Having said as recently as February that rates would not rise until 2024, the Riksbank expects to hike two or three more times this year.8) EURO ZONE Now firmly in the hawkish camp, and facing record high inflation, the ECB said on June 9 it would end bond-buying on July 1, hike rates by 25 bps that month for the first time since 2011 and again in September, likely putting an end to negative rates. But without details on a tool to prevent borrowing costs for Southern European nations diverging too much above those of Germany, markets will test the ECB’s resolve. The bank now plans to accelerate work on a potential new tool to contain fragmentation, and skew proceeds from maturing pandemic-era bond holdings into stressed markets.Graphic: Euro zone inflation is at record highs – https://fingfx.thomsonreuters.com/gfx/mkt/egpbkwxeovq/ecb0706.PNG 9) SWITZERLANDOn June 16, the Swiss National Bank unexpectedly raised its -0.75% interest rate, the world’s lowest, by 50 bps, sending the franc soaring.Recent franc weakness has contributed to driving inflation towards 14-year highs and SNB governor Thomas Jordan said he no longer sees the franc as highly valued. That has opened the door to bets on more rate hikes; a 100 bps move is now priced for September. 10) JAPANThat leaves the Bank of Japan as the holdout dove. BOJ boss Haruhiko Kuroda says the top priority is to support the economy, stressing unwavering commitment to maintaining “powerful” monetary stimulus.Japanese April core consumer prices rose 2.1% from a year earlier, exceeding the BOJ’s target for the first time in seven years. Still, BOJ officials see such cost-push inflation as temporary so there are no signs it will signal a hawkish pivot at its June 17 meeting. Graphic: BOJ and JP CPI – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrnbyjpm/BOJ%20and%20JP%20CPI.JPG More

GENEVA (Reuters) -Negotiations at the World Trade Organization aimed at clinching deals on food security, fishing and vaccines entered their final hours on Thursday after all-night talks, with some trade sources hopeful that efforts to circumvent Indian opposition would succeed.Ministers from more than 100 countries are meeting at the global trade watchdog’s headquarters in Geneva this week for the first time in more than four years to thrash out new trade rules — a feat many doubt in an era of high geopolitical tensions.The body’s 164 members must all agree for new global trade rules to be passed, meaning that one member can block deals.In the June 12-15 meeting, now prolonged until Thursday afternoon, that member has been India. New Delhi, which has a history of blocking multilateral negotiations, has stuck to long-held demands to maintain subsidies for fisheries and agriculture and pushed for extra carve-outs, trade sources say.Indian Commerce Minister Piyush Goyal’s statements confirmed those demands. “India is strongly representing its perspective at the WTO to protect the future of every Indian and that of the marginalized,” he said on Twitter (NYSE:TWTR).However, some delegates were more upbeat on Thursday, including on a package of deals with trade offs possible across the topics. EU trade commissioner Valdis Dombrovskis said they were “getting closer” in a tweet. WTO deputy director-general Anabel Gonzalez said she was “hopeful”.Negotiators including U.S. Trade Representative Katherine Tai were involved in talks in the so-called ‘Green Room’ of the WTO most of the night trying to thrash out agreements. But Tai left early on Thursday, a U.S. official confirmed. Negotiations resumed around 0700 GMT and are ongoing with the conclusion due Thursday afternoon, trade sources said.One of the possible outcomes of the talks is a pared-back version of a deal designed to curb fishing subsidies that cause over-fishing, a document seen by Reuters showed. Another is a waiver of intellectual property rights for COVID-19 vaccines and pledges to ease the food security crisis although tussles over the wording continued, sources said.WTO officials have maintained throughout the meetings that deals can be reached, saying that talks often look hopeless until a final bargain comes together.Observers expressed frustration with the process.”The ministerial (conference) laid bare the increasing dysfunction that inhibits collective action at the WTO,” said Jake Colvin, president of the National Foreign Trade Council, adding that members should not reward “obstructionism”. More

“Domestic economic activity has been gaining traction in spite of formidable headwinds from external developments,” the Reserve Bank of India said in its monthly bulletin published on Thursday.Gross domestic product (GDP) for 2021-22 surpassed its pre-pandemic (2019-20) level by 1.5% and activity is gaining strength in 2022-23 so far as gauged from high frequency indicators, it added. More

WASHINGTON (Reuters) – U.S. Energy Secretary Jennifer Granholm is expected to meet with refining executives on June 23 to discuss gasoline prices, sources familiar with the matter told Reuters.The planned talks come as President Joe Biden, under pressure over high gasoline prices, has demanded that oil refining companies explain why they are not putting more fuel on the market as they reap windfall profits. More

ROME (Reuters) – Diana Parini left her waitressing job at an Italian Alpine resort last month because she was fed up with the pay and conditions: eight euros per hour, of which six were paid cash-in-hand with no welfare or pension contributions.Parini, 44, who has a modern languages degree, went home to Milan to work as a dogsitter. Millions of others have similar stories in Italy, where much work is unregulated and – uniquely in Europe – wage growth has been stagnant for 30 years.With consumer prices surging across the euro zone, there are signs wages are also climbing – but not in Italy, the bloc’s third-largest economy.Negotiated wages in the single-currency area rose 2.8% in the first quarter from a year earlier, driven by a 4% gain in Germany. In Italy they increased just 0.6%.The pattern is familiar. Organisation for Economic Cooperation and Development (OECD) data on inflation-adjusted wages in 22 European countries shows that between 1990 and 2020, pay rose 6% in Spain and over 200% in the Baltic states. Italy was the only country where wages fell, registering a 3% decline. The OECD figures have triggered an anguished debate on “la questione salariale” (the salary issue) – or why Italy is unable to generate stable, well-paid jobs.The answer, economists say, lies in a vicious circle of underinvestment, especially in education and technology, low productivity and weak economic expansion. And it has deep roots.”We chose the wrong growth model back in the 1980s,” says Francesco Saraceno, economics professor at Rome’s Luiss University and Sciences-Po in Paris.”To respond to globalisation we tried to compete with emerging markets by lowering costs instead of following the German example of investing in higher quality production. That meant keeping salaries low.”PRODUCTIVITY PROBLEMItaly has been the most sluggish of the 19 euro zone economies since the single currency’s launch in 1999. Labour productivity, measured roughly as output per hour worked, has risen just 13% since 1995, according to the Bank of Italy, compared to 44% in Germany.Behind those figures lies a web of problems that include a rapidly ageing population and a low-skilled workforce.By joining the euro Italy also lost the quick fix of being able to devalue its currency to maintain competitiveness.A large shadow economy is part of the picture. Some Italians, especially in the poor south, top up regular jobs with casual work which does not show up in official wage statistics, and is usually even more badly paid. Parini, a passionate climber, has spent several winters working at Alpine resorts. Like many hospitality sector jobs, they were all paid at least partly “cash-in-hand”. Reforms since the 1990s have partially deregulated Italy’s labour market, increasing the scope for temporary, low-paid contracts which now account for the majority of new jobs. In April the number of temporary workers stood above 3.15 million, the highest since 1977.Tito Boeri, a labour economist at Milan’s Bocconi university, says Italy has a dysfunctional labour market split between protected workers mostly hired before the reforms and low-paid ones without job protection hired afterwards.”The real problem is that it is very hard for people to pass from temporary to permanent contracts,” he said.MINIMUM WAGE? NO THANKSOne of just six European Union countries without a statutory minimum wage, Italy has one of the highest proportions of “working poor” on wages below 60% of the average.Yet when the EU approved a directive last week laying out common rules for minimum wages and tackling labour abuses and in-work poverty, it got a lukewarm reception in Italy.Many firms, backed by rightist parties, fear higher costs, while trade unions reject any interference in the wage bargaining process and argue that pay could actually fall towards a statutory minimum.Boeri criticised the union stance as “a question of power”, saying with millions of Italians excluded from collective bargaining, “the current system isn’t working”.Some employers complain a “citizens’ wage” poverty relief scheme offering about 450 euros per month – roughly 25% of Italy’s average take-home pay – to the unemployed makes it impossible for them to find staff.”When we are looking for young people to give them a job, we have a big competitor: the citizens’ wage,” says Carlo Bonomi, head of employers lobby Confindustria.Economics professor Saraceno says this exemplifies Italy’s plight: “It means some companies think 500 euros a month is a good salary, which is absurd.”To reverse the situation, Saraceno says Italy needs to shift the tax burden from salaries to rents and wealth, while launching a long-term public investment programme.Some 200 billion euros ($208.36 billion) of EU pandemic recovery funds Rome is due to receive through 2026 is a major opportunity, he said, allowing Italy to adopt reforms while increasing spending, rather than reducing it as in the past.In the near term, Mario Draghi’s government is studying measures to reduce the so-called tax wedge, the difference between the salary an employer pays and what a worker takes home, officials have told Reuters.Boeri says Italy’s priority should be reforms to increase service sector competition and improve the civil justice system and state bureaucracy, but he sees little progress.”Has this government of national unity passed reforms that can allow us to grow significantly? Unfortunately it hasn’t,” he said. ($1 = 0.9599 euros) More

LONDON (Reuters) -The Bank of England stuck to its gradual increases in interest rates on Thursday, as other central banks took more urgent action, but said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation it now sees topping 11%.A day after the U.S. Federal Reserve raised rates by the most since 1994 with a 75 basis point hike, the BoE increased Bank Rate by another 25 basis points even as it warned that Britain’s economy would shrink in the April-June quarter.The Monetary Policy Committee voted 6-3 for the hike to 1.25%, the same breakdown as in May with the minority voting for a 50 basis-point increase.Britain’s benchmark rate is now at its highest since January 2009, when borrowing costs were slashed as the global financial crisis raged. It was the fifth time the BoE has raised rates since December when it became the first major central bank to tighten monetary policy following the COVID-19 pandemic. But some critics say it is moving too slowly to stop the rise in inflation from becoming entrenched in pay deals and inflation expectations, damaging the economy over the long term.”The scale, pace and timing of any further increases in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures,” the BoE said.”The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”Sterling fell more than a cent against the U.S. dollar before recovering its losses while British government bond yields rocketed.Investors moved to price in a more than 50% chance of a 50 basis-point rise at the BoE’s next scheduled meeting on Aug. 4, although some analysts thought Britain’s poor economic outlook would stay its hand.”The Bank of England was the earliest of its peers to begin policy normalisation, and now faces some of the most acute risks to near-term growth,” Vivek Paul, UK Chief Investment Strategist, BlackRock (NYSE:BLK) Investment Institute, said.”That means the Bank is further along in the journey to get rates to a neutral level – and likely to serve as a case study of how central banks will enact monetary policy as recession risks increase.” As in May, MPC members Catherine Mann, Jonathan Haskel and Michael Saunders voted for a bigger, 50 basis-point increase.   Economists polled by Reuters had forecast the 6-3 vote to raise rates to 1.25% but investor bets on a bigger move had risen in recent days, with sterling tumbling and after reports that the Fed was considering its rare 75 basis-point move.The BoE noted that the market path for British interest rates had risen materially since the May meeting, even though there had been relatively little news since then.It dropped its guidance from May when it said most MPC members believed “some degree of further tightening in monetary policy may still be appropriate in the coming months”.GLOBAL STRUGGLE   Central banks around the world are trying to contain inflation that is hitting levels not seen in decades after the reopening of the global economy after the pandemic and Russia’s invasion of Ukraine.   Last week the European Central Bank said it would lift borrowing costs for the first time since 2011 in July and again in September.Earlier on Thursday, the Swiss National Bank unexpectedly raised its main rate for the first time in 15 years while Hungary’s central bank hiked its one-week deposit rate.    The BoE is raising rates even though it has warned a sharp economic slowdown is coming.   Consumer price inflation hit a 40-year high of 9% in April, more than four times the BoE’s 2% target, and the central bank said on Thursday it would peak slightly above 11% in October, when energy bills go up again.   Britain’s inflation surge looks set to last longer than in many other economies, partly reflecting its mechanism for domestic power tariffs but also because of the hit to trade from leaving the European Union.   A chronic lack of workers to fill vacancies is worrying the BoE because it could lead to a jump in wages that further feeds inflation.   A fall in the pound in recent weeks, caused largely by rising interest rate expectations elsewhere, threatens to add to inflation pressure in Britain.The BoE said sterling had been “particularly weak against the U.S. dollar”.It said Britain’s economy would shrink by 0.3% in April-June, rather than growing 0.1% over the three months as it predicted in May.The forecast for a contraction in the current quarter came despite finance minister Rishi Sunak’s announcement of measures in late May to help households hit by the jump in inflation. The BoE said those measures could boost growth by 0.3% and push inflation 0.1 percentage points higher in the first year. More

BERN/LONDON (Reuters) – Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, and hinted at even higher borrowing costs to come to tame soaring inflation that is eroding savings and squeezing corporate profits.Fuelled initially by soaring oil prices in the wake of Russia’s invasion of Ukraine, inflation has broadened out to everything from food to services with double digit readings in parts of the continent. Such levels have not been seen in some places since the aftermath of the oil crisis of the 1970s.The Swiss National Bank and the National Bank of Hungary both caught markets off guard with big upward steps, just hours after their U.S. counterpart the Federal Reserve lifted rates by the most in almost three decades.The Bank of England meanwhile lifted borrowing costs by the quarter point markets had expected.The moves come just a day after the European Central Bank agreed plans in an emergency meeting to contain borrowing costs in the bloc’s south so it could forge ahead with rates rises in both July and September.”We are in a new era for central banks, where lowering inflation is their only objective, even at the expense of financial stability and growth,” George Lagarias, Chief Economist at Mazars Wealth Management said. The day’s biggest moves came in Switzerland where the SNB raised its policy rate to -0.25% from the -0.75%, a step so large, not a single economist polled by Reuters had predicted it.The first SNB hike since 2007 is unlikely to be the last, however, and the bank could be out of negative territory this year, some economists said.”The new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future,” SNB Chairman Thomas Jordan told a news conference.The Swiss franc jumped almost 1.8% against the euro on the decision and was headed for the biggest daily rise since January 2015 when the SNB unhooked the franc from its euro peg.TIGHTROPEIn London, the Bank of England was more cautious but said it was ready to act “forcefully” to stamp out dangers posed by an inflation rate heading above 11%.It was the fifth time that the BoE has raised borrowing costs since December and the British benchmark rate is now at its highest since January 2009. Three of nine rate setters however voted for a bigger, 50 basis point increase, suggesting that the bank will be under pressure to keep raising rates, even as economic growth slows sharply.”Central bankers are teetering along a tightrope, with the biggest concern that raising rates too quickly could tip economies into recession,” Maike Currie, Investment Director for Personal Investing at Fidelity International said. “Monetary policy tightening is a very blunt tool to manage a very precarious situation.”Despite the hike, sterling fell sharply as some in the market had bet on a bigger move given the Fed’s 75 basis points hike the previous evening. The weaker currency, however, means higher imported inflation and further pressure to raise rates.The pound was last at $1.2085 against the dollar, down three quarters of a percent on the day. In Budapest meanwhile, the Hungarian central bank unexpectedly raised its one-week deposit rate by 50 basis points to 7.25% at a weekly tender, also to tame stubbornly rising inflation now running in double-digits.Barnabas Virag, the bank’s deputy governor said the increase far was from the last and the bank would continue its rate hike cycle with “predictable and decisive” steps until it sees signs that inflation is peaking, probably in the autumn.The hike also comes as the nation’s currency has lost close to 7% of its value this year, increasing inflation further via higher import prices. More