Aurelia Butler

The 60-year-old central banker is being targeted by prominent politicians from the opposition Conservative Party who are casting doubt on his commitment to the fight. And while most economists and pundits have dismissed the criticism as frivolous, the attacks come at a tense time.The Bank of Canada is in the middle of a shock-and-awe campaign to bring down inflation, hoping to bolster public confidence that it’s serious about tackling the problem. The more credible the central bank is perceived to be, the more price expectations will remain in check — and the greater the chances of a soft landing.Macklem is expected to press ahead with three consecutive half-percentage-point hikes over a three-month span. The first jumbo hike came in mid-April, odds are the second is coming at a policy decision this week and a third is likely due in the first half of July.“If Tiff is worried about his credibility, what he probably has to do — and this is the unfortunate thing — is he probably has to overdo it, in terms of interest rate increases and risk a little bit more,” Chris Ragan, director of the public policy school at McGill University in Montreal, said by phone. Inflation FightThe bank’s policy interest rate, which began the year at a record low of 0.25%, is expected to hit 2% at the July 13 meeting. It’s a front-loading of force aimed at convincing households and companies the inflation spike won’t last, before they start recalibrating their expectations higher for wages and prices. Markets seem convinced Macklem will succeed. After the three oversize moves, the Bank of Canada is expected to slow down the pace of tightening. Three or four more hikes are priced in after that, but all quarter-point, and policy makers are seen stopping around the 3% mark.That’s well short of what’s currently considered a high “contractionary” rate — which means there’s no perceived need to orchestrate a sharp slowdown to rein in price pressures or repair the central bank’s credibility.What Bloomberg Intelligence Says…“We believe that risks tilt to the upside. The Bank of Canada is likely to update inflation forecasts even higher in July. If price pressures persist into 3Q, it may be difficult for the central bank to pause in 2H, but a stepdown to 25 bps is certainly possible.”–Angelo Manolatos, senior associate analyst, and Ira Jersey, chief US rates strategist For the full analysis, click hereThere’s also nothing alarming just yet in the data to suggest the central bank is too late to engineer a soft landing. Average wage growth has picked up to just over 3%. That’s still well below inflation, which was 6.8% in April, and not too far beyond what would be considered normal in non-crisis times anyway.The pace at which companies expect to be jacking up prices has also plateaued in recent months, according to monthly surveys by the Canadian Federation of Independent Business — a reassuring sign.Yet as Macklem himself quipped in a speech a decade ago, credibility is hard to earn but easy to lose. That’s why the central bank isn’t taking any chances and is moving rates back to neutral as quickly as it can. The current policy rate remains extremely stimulative. After all, it’s become clear — at least after the fact — that the Bank of Canada injected more stimulus into the economy than needed, and has been late to pull back. While it’s a stretch to blame Macklem for much of the current inflation in Canada, which is being driven by global factors, policy makers know they are stoking price pressures and have fueled a housing bubble.The quick course correction comes because officials want to prevent any perception they’ve become more tolerant of inflation.Macklem’s recent acknowledgment that some errors were made in response to the Covid-19 crisis was part of that. The mea culpa serves a purpose: reassuring Canadians the spike in prices wasn’t by design.If anything, the political attacks will accelerate what’s likely to be a years-long postmortem on Canada’s stimulus efforts during the pandemic — for both the Bank of Canada and Prime Minister Justin Trudeau. That’s not a bad thing, and the central bank appears to be open to the debate.“Tough questions, added scrutiny and informed debate are entirely appropriate in the current environment,” Senior Deputy Governor Carolyn Rogers said in a speech this month.That postmortem will likely include whether the central bank has strayed too far from its core mandate, a discussion that will be welcomed by many economists.There’s been an erosion of trust between the central bank and Conservatives that predates the pandemic and that’s an untenable situation for an institution whose effectiveness hinges on credibility.Most recently, the front-runner to win the Tory leadership, Pierre Poilievre, announced he would fire Macklem should he ever take power, which is within the realm of possibility.While most dismiss the 42-year-old lawmaker’s rhetoric as bluster, it’s also not hard to find concern bubbling that the central bank had lost focus on inflation and may have been too accommodating to politics. It’s a debate going on in other countries as well, including growing scrutiny at the Bank of England and the Federal Reserve. In Canada, look no further than the central bank’s renewal of its inflation-targeting mandate last year, which looked uncomfortably political to many. Ragan and other economists complained that the introduction of language around maximum employment and climate change appeared as if it had been written by Finance Minister Chrystia Freeland’s office rather than Bank of Canada officials. “The answer is to get inflation down,” William Robson, chief executive officer of the C.D. Howe Institute in Toronto, said by phone. “If inflation stays high, this problem is not going to go away, no matter what we think of Pierre Poilievre.”©2022 Bloomberg L.P. More

TOKYO (Reuters) – Japan’s government made no mention of a timeframe for balancing the primary budget in its draft mid-year annual long-term economic policy roadmap, two government sources with knowledge of the matter told Reuters.The government has previously pledged to achieve a primary budget surplus, which excludes new bond sales and debt servicing costs, by the end of fiscal 2025, which was seen as an elusive target given the state of Japan’s public finances.The budget balancing target has served as a key gauge for the government to finance policy expenditures without relying on debt — as part of efforts to rein in the industrial world’s heaviest public debt at twice the size of Japan’s economy.The absence of the target year in the mid-year policy roadmap could raise questions about Japan’s resolve to fix its tattered public finances.”This means the government may deliver a message that it will prioritise growth and growth-oriented investment,” said Daiju Aoki, chief Japan economist at UBS Sumi Trust Wealth Management. “That would boost fiscal spending in the name of growth investment near term.”Jiji newsagency reported that the draft said the current target year could “distort” macroeconomic policy options depending on situations at the time, while removing the words such as “fiscal 2025” which was included in the previous roadmap.The draft paid consideration towards fiscal reflationists within Prime Minister Fumio Kishida’s ruling Liberal Democratic Party (LDP), the government sources said.Kishida has come under pressure from those fiscal doves over the COVID-19 pandemic and rising cost of living.They remain at loggerheads with fiscal hawks within the LDP.The draft also said the government would not abandon the flag of fiscal reform and it would tackle the previous fiscal target, apparently out of consideration towards fiscal hawks within the LDP, Jiji newsagency reported. More

Global commercial insurance premiums rose 11% on average in the first quarter, according to insurance broker Marsh, which said the war was putting upward pressure on rates.But the overall figure masks sharper moves in some sectors, and only covers the first five weeks following the invasion.War is typically excluded from mainstream insurance policies. Customers buy extra war cover on top. Garrett Hanrahan, global head of aviation at Marsh, said aviation war insurance was no longer available for Ukraine, Russia and Belarus as a result of the conflict. For the rest of the world, aviation war cover has doubled, as insurers try to recoup some of their losses, he said.”The hull war market is beginning to reflate itself through rate rises.”The conflict, which Russia calls a “special military operation”, could lead to insurance losses of $16 billion-$35 billion in so-called “specialty” insurance classes such as aviation, marine, trade credit, political risk and cyber, S&P Global (NYSE:SPGI) said in a report.Aviation insurance claims alone could total $15 billion, S&P Global said, with hundreds of leased planes stranded in Russia as a result of western sanctions and Russian countermeasures. One aircraft lessor described recent rate increases on its insurance as “not a pretty sight”.Some aircraft lessors – a particularly exposed sector of the market because their planes are stuck in Russia – were now having to pay 10 times their original premium, one underwriter said, while another said insurers could “name their price” to lessors.In ship insurance, policyholders pay an additional “breach” premium when a ship enters particularly dangerous waters, locations which are updated by the Lloyd’s market.For the area around Russian and Ukrainian waters in the Black Sea and Sea of Avov, this has increased multiple times, three insurance sources said, to around 5% of the value of the ship, from 0.025% before the invasion, amounting to millions of dollars for a seven-day policy. Each time a ship goes into those waters, it has to pay that extra premium.Rates for ships going into other Russian waters have also risen by at least 50% after the Lloyd’s market classified all Russian ports as high risk, two of the sources said.Because of the dangers, some marine insurers have also stopped providing cover for the region. More

The prices of the lowest-cost grocery items in the UK have not risen faster than average food prices, the Office for National Statistics said on Monday in experimental new research. The statistics agency was prompted into action by anti-poverty campaigner Jack Monroe, who complained in January that supermarkets were increasing the cost of value brands by more than general inflation.After scraping web prices from seven supermarkets for a year in what it described as “highly experimental” analysis, the ONS did not find evidence to substantiate Monroe’s claims. It found that some items, such as the cheapest pasta, had risen 50 per cent in price and faster than standard pasta, but the cheapest potatoes, cheese, chips, sausages and pizza had all fallen in price over the year to April 2022.Overall, the cheapest goods on sale in supermarkets had risen 6 per cent in price over the past year, when weighted both by the amount spent on different items and the retailers used, while general grocery inflation over the same period was 6.7 per cent. The ONS said: “The lowest-priced items have increased in cost by around as much as average food and non-alcoholic drinks prices.”Some of the cheapest items, such as pasta, rose sharply in price towards the end of 2021, while others, such as sausages, had stable prices throughout the year. The ONS did not find clear patterns across cheap products.

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The agency added that there were limitations to the findings because it had to rely on products that were listed on retailers’ websites and the focus on the cheapest possible items restricted the number of price quotes and added volatility to the comparisons. Monroe claimed on Twitter the research backed up her original view that the published inflation figures underestimated price rises of the cheapest products. She added that she would write more fully on the subject on her website later.Anti-poverty campaigner Jack Monroe © Ken McKay/ITV/ShutterstockWhile the ONS research did not show the cheapest items were rising faster in price, the latest inflation figures did show low income households were hit by a higher inflation rate than higher income households because low income households spend more of their budgets on gas and electricity and energy prices were 70 per cent higher in April than a year earlier.The Institute for Fiscal Studies think-tank showed that, on average, this meant inflation was over 10.9 per cent for the poorest tenth of the population while it was 7.9 per cent for the richest tenth. This difference is likely to become starker in October when the price cap for gas and electricity is likely to rise again by about 40 per cent, according to Ofgem, the regulator. But those on the lowest incomes will receive significant protection from the government, which will provide a one-off payment of £650 for all recipients of means-tested benefits in July. More

EU leaders are being asked to agree a watered-down ban on Russian oil imports after weeks of wrangling, exempting a key supply route and leaving other details unresolved as they try to levy more sanctions against Moscow for invading Ukraine.A leader’s summit starting on Monday evening will vow to include oil and petroleum products in a sanctions package but will crucially allow a “temporary” exemption for crude delivered by pipeline, according to draft conclusions seen by the Financial Times.The conclusions may still change before EU leaders meet and diplomats have not agreed how long any carve-out of oil supplied via pipeline would last.Keeping pipelines out of any embargo has been a key demand of Hungary, which has argued that a ban would put its economy at risk given its reliance on crude delivered by the Druzhba (Friendship) pipeline from Russia. If exports on Druzhba are at the pipeline’s maximum capacity of 750,000 barrels a day, it would help Russia earn in the region of $2bn a month from EU buyers.A move to ban only Russian seaborne crude also risks distorting competition in the EU oil market, with refineries connected to pipelines from Russia enjoying a large advantage. The price of Russian oil has fallen to a huge discount versus supplies from elsewhere as European traders have shunned the country’s seaborne crude since the invasion of Ukraine.An embargo solely on seaborne oil purchases would cover about two-thirds of Europe’s imports from Russia. Russian Urals crude is trading at about $93 a barrel compared with $120 for Brent, the international oil benchmark. While Russian oil delivered via Druzhba may not carry such a big discount, depending on how contracts are structured, Hungarian oil group MOL has said it has enjoyed “skyrocketing” margins for its refineries since March owing to the “widening Brent-Ural spread”.The draft summit conclusions say ministers need to ensure a “level playing field” for oil purchases, without saying how this would work.“We should make sure we will not have more damage done to the internal market than benefits,” said an EU diplomat.Brussels proposed an embargo on buying Russian oil in early May, underlining the EU’s difficulties in finding a way to extend punishments on Moscow for its war on Ukraine while not damaging parts of the European economy that depend on deliveries of Russian energy. The EU has already sanctioned Russian coal but exempted gas from sanctions.Hungary wants a promise that the EU will foot the bill for alternative supplies and for its move away from fossil fuels. Last week Viktor Orbán, the Hungarian prime minister, declared he was not willing to discuss the oil sanctions at Monday’s summit given the lack of consensus on the matter. Even with the latest compromise excluding pipeline oil, Hungary would still want guarantees for alternative supplies in case Druzhba, which crosses through Ukraine, is disrupted, allowing it to source Russian oil transported by sea, according to diplomats. Germany also has two refineries served by the Druzhba pipeline and takes about 50 per cent of what it supplies. Poland takes 16 per cent, Slovakia 13.5 per cent, Hungary and Slovenia 11 per cent and the Czech Republic 9.5 per cent, according to IHS Markit, a unit of S&P Global.Volumes shipped via Druzhba have actually increased since Russia invaded Ukraine, with buyers in the EU looking to take advantage of the large discounts or to stock up ahead of any embargo.Argus, the energy price reporting agency, said that while seaborne shipments from Russia to Europe had fallen by 500,000 b/d, Druzhba shipments had risen by 100,000 b/d in April compared with January and were expected to increase again in May. Hungary has increased shipments by 65,000 b/d while Poland has imported an additional 130,000 b/d, helping to more than offset declines elsewhere. One EU diplomat said it was vital to maintain bloc unity and progress on sanctions. “Is there an agreement on an embargo on oil? Yes. Is there an agreement it will be in two phases? Yes. Is there an agreement on a date? It is more complicated. We will keep working on the package.”Additional reporting by Eleni Varvitsioti in Athens More

Hello from Frankfurt. We’ve spent the past few months musing about the phrase that has for decades characterised German trade policy. Wandel durch Handel, or change through trade, has encapsulated a belief among the country’s business and political elite that they were not just exporting goods, but democratic values. Recent events suggest that, while the past three decades have seen a lot of handel, the wandel was lacking somewhat. Of course, Merkantilism is a phenomenon that Alan Beattie has bashed on several occasions — and long before Russia’s invasion of Ukraine. Our question for you dear reader is, post invasion, should the concept be binned for good? Or are there examples of closer economic links altering political set-ups that us sceptics ought to bear in mind? While we’re in the mood to slaughter sacred cows, we want to weigh in on the deglobalisation debate. Our main piece will ask whether it is, or isn’t, an actual thing.Charted waters looks at the reasons why Africa’s vaccine producers are struggling to find customers.Globalisation’s death has been greatly exaggeratedA conversation has been taking place on the pages of the Pink ’Un in recent weeks about whether or not world trade is about to fall off the rails. We ran a piece on the eve of Davos about how global business leaders were heralding the end of three decades of untrammelled globalisation. Russia’s war in Ukraine had, in the words of one senior executive, put geopolitics at the “front and centre” of business decisions. Combine that with disrupted supply chains, market turmoil and talk of a global recession, and the prognosis for exporters doesn’t look good. Reporting from the slopes of the Swiss resort that hosts the World Economic Forum underlined the bleakness of the mood, with Gideon Rachman highlighting how, after decades of viewing the entire planet as a market, chief executives were “masters of the universe” no longer, ceding ground to lawmakers and generals. Then Martin Sandbu chipped in, pointing out that — for all the talk — the hard data indicate trade is actually doing rather well. Our own views are somewhere in between the two camps. We agree with Martin that export flows have held up far better than the deglobalisation rhetoric would have you think. We’d add that this is about more than the pandemic-induced pivot from goods to services. Foreign direct investment is also on the up. While it remains below 2019 levels, global greenfield projects strongly rebounded in the year to March 2022 compared with the same period the previous year, according to data by fDi Market, a Financial Times owned company tracking cross-borders investment. The number of global projects was up 15 per cent in that period, reflecting the easing of Covid-19 restrictions.But we don’t think that means the world will survive as was post-Ukraine, either. Even those German lawmakers, such as Olaf Scholz, who fully signed up to the Wandel durch Handel creed, have been forced to concede that their full-throated defence of trade as a force for good was, at best, naive and, at worst, a cynical attempt to brush under the carpet all sorts of human rights abuses in the name of boosting gross domestic product. Then there’s the flipside. The decision by the US and Europe to freeze $300bn-worth of the Russian central bank’s assets has raised eyebrows in capitals from Beijing to Riyadh. Will countries that are not exactly perfectly aligned with the US’s foreign policy aims be willing to further integrate themselves with businesses in countries that are? So why is this trumping of geopolitics over economics not showing up in the data? Well, as Christopher Cox, Citi’s global head of trade and working capital solutions, pointed out to us, companies have a fair few more pressing concerns. “Businesses are still dealing with the impact Covid has had. Logistics channels are still disrupted, inventory levels are still low, and then there’s the global macro environment to consider,” Cox says. “Interest rates are going up, there’s huge inflationary impulses. People are really preoccupied with these issues at the moment.”That’s not to say the will isn’t there, Cox adds. He thinks that what we’re set to see is less an overall retrenchment and more a shift in the structure of trade links. “There are and will continue to be great benefits to globalisation. It’s not so much about deglobalisation, it’s more about those benefits being redistributed.” Leaders in the western hemisphere cannot so stridently claim that their trade goals neatly tally with their geopolitical objectives as they did pre-Ukraine. That will have a knock-on effect on business’s thinking too. One thing we might see more of is, as Martin dubs it, “friendshoring”, where countries trade within groups of states with similar foreign policy aims. We are less sure we are moving to a world quite so multipolar. What’s more likely, in our view, is that CEOs and governments in places such as India and Brazil will aim to keep the likes of Washington and Brussels onside, while maintaining cordial relations with Russia and China too. Our bet is that there will be plenty of missteps along the way as businesses aim to get the balance between growth and geopolitics right.Additional reporting by Valentina RomeiCharted watersThe future of Africa’s biggest vaccine manufacturing plant Aspen Pharmacare is in doubt, not because of lack of need for jabs to bring down Covid-19 rates but because of a lack of demand.

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In South Africa, where Aspen is based, only 5 per cent of people have received a booster shot and less than a third of the 60mn population are double vaccinated.This has serious consequences. The widespread reluctance to get jabs — and poor health infrastructure — means Africa could continue to be blighted by the disease long after Covid has become endemic elsewhere, according to experts interviewed for this FT analysis piece. (Jonathan Moules)Trade linksThe head of DP World, the Dubai-based group that owns P&O Ferries, has insisted it is too late to reverse the decision to sack 800 sailors, as he praised its management for doing an “amazing job” in restructuring the UK company.Most carbon markets are failing to achieve the aim of limiting climate change because they are not taxing emissions enough, according to an analysis by The Economist. This is an issue because they are now one of the most widely used methods of tackling the rise in greenhouse gases with carbon pricing covering 21 per cent of the world’s emissions at the end of 2021, up from 15 per cent at the end of 2020.Central banks are raising rates rapidly in the most widespread tightening of monetary policy for more than two decades. Policymakers around the world have announced more than 60 increases in current key interest rates in the past three months, according to an FT analysis of central banking data — the largest number since at least the start of 2000.Trade Secrets is edited by Jonathan Moules More