Aurelia Butler

The writer is chief economist at the Institute of DirectorsIn normal times, the Bank of England would go out of its way to avoid a recession, and not just because of the human cost. The “symmetric” nature of its inflation target means it is as concerned about undershooting as overshooting.In a high inflation environment, however, such concerns are jettisoned. With shortages on the supply side — energy, superconductors, staff — it’s the simple laws of supply and demand that drive prices up. Given we can’t fix those any time soon, the only other option is to reduce demand. This is a tough love message: no wonder therefore that global equity markets have gone into a jitter as they try to process its implications.Facing this situation, what the UK economy needs most of all is a moment when people believe inflation is peaking, and so will soon start to fall. Not only will that reassure central bankers that they don’t need to prioritise prices over steady growth, but it could also prove self-fulfilling if it calms expectations and so lessens the likelihood of factoring rising prices into every business decision.As recently as January, the expectation was that inflation would peak in April when the household energy price cap was raised. Now, surveys of Institute of Directors members suggest it will be much further into the future. The irony is that the price cap, designed to protect consumers from volatile energy markets, is now delaying the moment at which people think we are through the worst.For policymakers, however, this delay is also an opportunity, as it gives them time to decide on the nature of their response. So why not intervene on household bills in a way that directly reduces inflation? That would help persuade business and consumers that we are through the worst and therefore change behaviour. It’s a policy win-win: supporting vulnerable households at the same time as changing the inflation narrative.This means the much-anticipated intervention by chancellor Rishi Sunak should address the root cause of the problem, namely the energy bill itself. This is what is in the basket of goods used to calculate consumer price inflation. One option would be to reduce the rate of VAT on fuel but this is ill-targeted and potentially of limited impact since it can only be cut from the current rate of 5 per cent to zero. A better option would be to ramp up the support offered by the existing Warm Home Discount scheme, through which people on lower incomes apply to have their bills reduced. The government has recently decided to expand the scheme and make the payments automatic. This means much of the preparatory work has already been done.In order to affect CPI, the subsidy to bills should be broad-based but could simultaneously be progressive. The scheme as currently designed has two groups based on differing needs; the most vulnerable could therefore receive more support in recognition that energy bills make up a higher proportion of their total household expenditure. It would also need to be directly funded from the Treasury — presumably from the proposed windfall tax — rather than being cross-subsidised from other bills.By convention, Bank of England inflation forecasts do not take account of policy announcements that have not been officially made, even if they appear likely. However, if the chancellor announces his intention to reduce the actual bills that households will pay with the explicit aim of putting downward pressure on CPI, that would affect the official forecasts. In that way, by tackling the root cause, policy intervention can contribute directly to the sense that we are over the worst, which then in turn will start to improve the overall economic environment to the benefit of us all. More

This is part of a series, ‘Economists Exchange’, featuring conversations between top FT commentators and leading economistsIn an Economists Exchange published just over a year ago, I discussed the risks of an upsurge in US inflation with Larry Summers, former US Treasury secretary. Summers, a staunch Democrat, criticised the Biden administration for the scale of its fiscal stimulus, which would, he feared, lead to significant overheating and then inflation. Subsequent events apparently vindicated his worries. Olivier Blanchard is among the world’s most respected macroeconomists. Of French nationality, he has been professor of economics at the Massachusetts Institute of Technology and chief economist of the International Monetary Fund. He is currently a senior fellow at the Peterson Institute for International Economics in Washington, DC. He was one of the leading figures in the creation of “New Keynesian” economics in the 1980s and 1990s. More recently, he has argued that low long-term interest rates mean that it is safe to run larger fiscal deficits than previously thought. Yet, in February 2021, he, too, warned of the threat of inflation, also stressing the excessive fiscal expansion. So, that is where our discussion began.Martin Wolf: You were one of the people to warn that inflation was coming. Why did you think this? And have you been proved spectacularly right?Olivier Blanchard: I thought it obvious at the time that the amount of spending — the $1.9tn size of that bill, which came on top of a bill of nearly $900bn a few months before — was just too large. It was fairly obvious that this would lead to overheating of the economy. And, where I was partly right and partly wrong is that I had this notion that unemployment would get very low, which it did, that there would be wage pressure and that prices would reflect the higher wages and that this would lead to more inflation. But I didn’t anticipate the role of the goods market, which is that in many sectors the strong demand led to supply disruptions and very large increases in prices. In the end, inflation came first not from where I would have expected it to come, which was wages, but rather from prices. People will say, these were accidents that could not have been anticipated, so you don’t get any points for your forecast. But I think that the increase in prices, the disruptions in supply chains, are very much the result of strong demand hitting supply walls. So, I would claim that I should get a few points for being right in February or March of 2021. Anybody could have come to the same conclusion. I’m happy I did. And then I would admit that inflation has been even higher than I expected, due to this problem in the goods market. A bit of boasting and a bit of humility.If people did not have the money, they would not have spent it on anything, whether goods or services. But given that they had the money, they spent more on goods than on services. So, that aspect of things, yes, I had not anticipated it. But, if I had known it, then I would have been even more cautious about policy.MW: In your story fiscal policy is the decisive element. But what about monetary policy? The Federal Reserve insisted until last November that these price pressures were transitory and would soon disappear. Now it is playing catchup.OB: The question is: what should the Fed have done or said when the fiscal package was passed? I hope that Jay Powell picked up his phone and told the administration that this was going to be an issue. His staff drank the Kool-Aid, and he, not being a professional economist, could not easily second-guess them. They thought inflation expectations would remain anchored and that the Phillips curve [which shows the relationship between unemployment and wages] was flat. So, even if there was overheating, which some of them predicted, it would not have much effect on inflation.Even at the time, I argued that the reason expectations had been so stable and the slope of the Phillips curve had been so small was 20 years of no need for action — and so no action. But I think the staff convinced itself, convinced the Board and convinced Powell. So, that’s at the beginning.

If you look at the meetings and press conferences of the Federal Open Market Committee since the middle of 2021, Powell has been a bit more pessimistic each time, and he has been even more strongly pessimistic in the past few months. So, I think he had a sense that more was needed.They have indeed been playing catchup. But there was a question of how and at what a rate you deliver the bad news.MW: Do you think that we are talking about a US story, not a developed country story more broadly?OB: The question is where does advanced economy inflation come from, and my sense is that it largely comes from the US, including the effect of the US on commodity prices. If the US had been more careful, there would have been a much smaller increase in commodity prices. We are focusing on commodity prices at this stage, because of Ukraine, but the rise had largely happened before the war and I think you have to trace it mainly to very strong demand from the US.The reason I was pessimistic for the US until recently and still think that we will see a tougher scenario than is now expected is that there’s one set of forecasts which will not happen with probability one — those in the Fed staff forecasts of March. In these, they had unemployment staying at 3.5 per cent throughout the next two years, and they also had inflation coming down nicely to two point something. That just will not happen.So, what will happen is, either we’ll have a lot more inflation if unemployment remains at 3.5 per cent, or we will have higher unemployment for a while if we are actually to get inflation down to two point something. Clearly, some of the inflation is going to go away on its own. But it will not get back to anything close to 2 or even 3 per cent at that low unemployment rate. So, more action will be needed. And then the big question is, how strong will aggregate demand be in the US? For the moment, the economy is running extremely hot and the vacancy rate is at levels that have never been seen before. But could a recession come without the Fed doing anything more than it intends to do? It’s not inconceivable.One point concerns the poor GDP numbers for the first quarter. Now, it’s directly due to export and imports, not consumption or investment. But why did it happen? I don’t know, but if it continued, it would decrease growth. There is also an enormous fiscal consolidation right now. This will clearly decrease demand, regardless of monetary policy.Yet the reason it’s not obvious that there’ll be a decrease in demand is that there was this enormous accumulation of savings and it’s largely not yet spent. Also, the states received a lot of money in the $1.9tn fiscal package. They haven’t spent much of it either.

Maybe somebody smarter than me could decide how it’s going to play out, but it is not inconceivable that the economy will slow down on its own quite a bit. Unemployment would then increase, and this would decrease the pressure on inflation.And in this case, maybe the Fed would not need to increase its rates much above 3 per cent. If this did not happen, then 3 per cent nominal interest rates with expected inflation above 3 per cent would not strike me as sufficient to slow down the economy and decrease inflation. So, that’s where I am on the US.MW: Another factor, I suppose, and you touched upon this one, is what’s going on in the financial markets. There’s a worry that the economy might tank because there’s just so much market turmoil. OB: When you say there is turmoil in financial markets, what I see is that there is a large decrease in stock prices and an increase in interest rates.That’s how the monetary mechanism works. I should have added this to the list of things that might slow the economy down. It’s monetary policy working via market anticipation of higher rates to come. Is this going to lead to financial trouble? I’m not a specialist in financial balance sheets, but what I read from the stress tests and other studies is that the financial system can take it. If financial markets cannot take it, or if governments complained, would the Fed or any other central bank say, okay, we give up and we won’t increase rates? My sense is no. As long as people like Powell are in charge of the Fed, or Lagarde in charge of the European Central Bank, that’s not an issue.MW: You are associated with the argument known as “secular stagnation”. Is anything happening now leading you to qualify the basic story, or do you take the view that what we’re seeing is essentially a blip caused by the shock of Covid and an inappropriate monetary and, above all, fiscal response to it? OB: That’s the $1tn question. Your question is, indeed, how much of this is a blip. I use the word bump, which I think has a slightly longer length than a blip. But I believe we will then go back to low real interest rates.So, on this, I’m going to do the Larry Summers thing. I am going to say, with probability 0.9, we’ll return to something like that world. I think there’s a tendency for markets to focus on the current, on the present and extrapolate it forever. But if I look at the factors behind the decline in real interest rates since the mid-1980s, none of them seems about to turn around, except perhaps one, which is investment. Suppose that there were a large increase in public investment in the US, because we’ve realised we have to do something about global warming and in Europe, for the same reason. So, this would increase investment. That would increase the neutral real rate of interest.So, I can think of a new world in which public investment, and perhaps private investment as well, is much higher in the US and Europe. How high? I don’t think terribly high. But I would distinguish between the fact that we’re going to have a period of higher real rates, to slow down inflation, and the question whether we then go back to the same low real rates as before or a bit higher ones. On the latter I’m agnostic.MW: Let’s move, now, to the European situation and relate it to the war in Ukraine. If you look at eurozone core inflation, it’s gone up a bit on the standard measures, but not very much. So nothing like the US. Given the history and the situation, was the ECB right to contemplate tightening before the Ukraine war? OB: I think so. They said they would slowly tighten. I thought, at the time — this was February — that this was a reasonable course. Inflation was largely imported into the eurozone, while labour markets were not as tight as in the US. So, I thought that it was a reasonable course of action. The question is what should the ECB do now. I think there are two opposing forces at work. The first one is that Europeans seem to be quite relaxed about inflation, thinking it will just go away. And indeed, it might have gone away, had the war not happened. If inflation continues to be so high, there must be a concern about the “de-anchoring” [shifting upwards] of inflation expectations. Other things being equal, that would force the ECB to be tougher than it would otherwise be.The factor that goes in the opposite direction is that the US is self-sufficient in energy and food, while Europe is self-sufficient in food, but not in energy. We don’t exactly know how much prices will rise as a result of the Ukraine war, but on the assumption that it has caused a 25 per cent increase in the price of energy, that will lead to a decrease in EU real incomes of roughly 1 per cent. This is likely to have an adverse effect on demand. So, this says the European economy might slow down on its own.

At this stage, it seems to me, the two factors are of roughly the same strength. But I would wake up every day if I were Christine Lagarde and look at the new numbers and be ready to move one way or the other.Okay, so interest rates are going to increase in the eurozone. I have no doubt about that. But, more importantly, spreads are also increasing: the Greek 10-year spread has increased by 93 basis points so far this year, and the Italian by 67 basis points over the same period. That could put the ECB in a difficult situation. Their position has been that if the rise in spreads is not due to fundamentals, but just to markets becoming dysfunctional or crazy for some reason or another, they would do what it took to keep the rates low. But if it were due to fundamentals, they say, it’s not something they could deal with. So, what are they going to do if the spread on Italian bonds, say, goes up by another 100 basis points? Is it fundamentals? Is it really a worry about Italian debt, or is it just investors being edgy? It’s going to be very difficult if the ECB is faced with a large increase in spreads, because the only way they could do the right thing would be to say, well, we think its fundamentals are fine and we think investors are wrong.That’s really hard for the ECB to do. My sense is that the assessment of whether it’s due to fundamentals or is just noise should be left to somebody else — the European Stability Mechanism, for example. You choose your institution, but that looks to be the right one. And then it would send signals, saying, “no, we think that Italy is not in such trouble.” And then the ECB could continue to buy Italian bonds or keep Italian bonds.But that may well come as an issue in the next six months, and I don’t think that the ECB is in a position to do what it would need to do.It’s fascinating, this worry of investors, with respect to Italy, for two reasons. The first one is, Mario Draghi is in charge. He is not in charge forever, but he is in charge, and this is not exactly a crazy man, right. And the second is, because inflation is so high in Italy, the debt-to-GDP ratio will almost surely decrease substantially this year and next year. Worrying about the stability of the debt in Italy in the current context strikes me as rather strange. MW: The war has created some very big dilemmas in terms of how to do sanctions and how to bear the impact of sanctions on the European economy. And of course, some economies are much more exposed to exports of Russian gas, in particular, than others. Italy and Germany are very exposed. France, much less so.Do you have your own view on what Europe needs to do in the short, medium and long runs to handle this set of potential crises and the trade-offs involved?OB: Yes, I came out with a paper with Jean Pisani-Ferry on that. I have a sense that the implications may be much bigger for the long run than for the short run. I am struck by how this is going to change Europe in ways that also matter for the economy. I think somebody said “we are in a world of deglobalisation, but the implication might be that we’re going to get a more European globalisation”. I very much agree. I think that may strengthen the links within Europe. We’ve learnt that many of the major decisions must be taken at the EU level. So, I think it has strengthened Europe enormously.Now, coming to the short run, the main economic effect is on energy and food prices. I also don’t think we should take as given that the price increases we’ve seen are going to continue. They might reverse if there is a recession in China. But for the moment the main issue is energy prices. It’s much better to go after Russia on oil than on gas. And the reason is fairly simple, which is that if we put a tariff on oil from Russia, then Russia will not sell us oil because it would have to take the decreasing price to offset the tariff. So, it’s going to look for other markets. We know that China is willing to buy some, India is willing to buy some and so on, but they are not willing to do it at the normal world price, and shipping companies are not willing to deliver the Russian oil at the usual price either. So what we would see is a decrease in the price of oil to other markets: the “Ural” price of oil has a discount of about 35 per cent.

In that scenario, I think what happens is that Russia continues to sell what it can, but accepts a decrease in revenues of 35 per cent, which is substantial. But the world supply of oil doesn’t change very much, and to a first approximation, this gets you a decrease in Russian revenues without much of an increase in the price of oil worldwide.For gas, it’s more complex, because when we put a tariff on gas, it may well be that Russia increases its price. And here, I think, the cross-country distribution issues also make it harder to manage.Russia is a small player in a rather competitive market, worldwide, for oil. But in the case of gas, they’re facing an incredibly inelastic demand for gas. It’s clearly less elastic than in the standard monopoly condition, which is that the elasticity of demand has to be at least, greater than one, since otherwise the supplier could impose an infinite price. The reason Russia has not done this is that if it chose an extremely high price, that would increase revenues in the short run, but it would decrease them in the long run as demand and supply adjusted. Russia faces this inter-temporal trade-off. That’s the reason the price of gas from Russia has not been incredibly high so far. But since it’s likely Russia will not be able to sell gas to the EU in the future, and because it needs more revenues now, I think it has an incentive to substantially increase the gas price. We shall see.The long and the short of it is that we should be very aggressive on oil, but more careful on gas. In terms of revenues, oil revenues are also much larger than gas revenues, so I think that’s the way to go. The above transcript has been edited for brevity and clarity. More

This is the final instalment of a three-part series on the booming labour market in the USSpeaking at a community college in Cleveland, Ohio, a year ago, US president Joe Biden heralded the dawn of a new kind of labour market recovery under his watch.“My sole measure of economic success is how working families are doing, whether they have jobs that deliver dignity,” he said. “We want to get something economists call ‘full employment’. Instead of workers competing with each other for jobs that are scarce . . . we want the companies to compete to attract workers.”By many measures, Biden and his economic team have achieved that primary goal: the jobless rate has dropped to 3.5 per cent and employers have created more than 8mn new jobs in just 15 months, wiping away fears that the labour market could experience the same sort of sluggish recovery it suffered for years in the aftermath of the financial crisis. Yet the much-desired “hot” economy the White House and congressional Democrats championed so doggedly — and engineered through the $1.9tn stimulus package enacted in March 2021 — has been accompanied by a messy mix of high inflation, labour shortfalls and supply chain disruptions that have been exacerbated by Russia’s invasion of Ukraine and new waves of coronavirus infections. These factors are weighing heavily on American households and businesses, meaning Biden and his party are getting little or no political credit for the jobs boom and wage gains ahead of the midterm elections. It is a troubling verdict in the court of public opinion for an administration that desperately wanted to deliver tangible economic benefits to middle-class Americans, to fend off a new populist backlash and show that US democracy could produce positive economic results.A CBS News/YouGov poll conducted last week showed that just 36 per cent of Americans approved of Biden’s handling of the economy, while 64 per cent disapproved, a massive gap that will be exceedingly difficult to close ahead of the November vote, when most political analysts are expecting Democrats to lose control of the House of Representatives and possibly the Senate. “It’s a great labour market for the average American worker, with lots of unfilled positions and a lot of opportunity,” said Mark Zandi, an economist at Moody’s Analytics who has advised Democratic and Republican presidential campaigns. “If someone told [Biden officials] that’s what the world would look like today, with no other colour, they’d say, ‘Fantastic, we’re going to be riding high here politically.’ But that’s not the case.”“People are still pretty upset, still pretty pessimistic and on edge,” he added.In recent weeks, the president and other senior US officials have sought to defend their economic policies in response to criticism from Republicans and even some Democrats that they poured excessive stimulus into the economy, and were too dismissive of the threat posed by higher prices. “Inflation is absolutely a problem, and it’s critical to address it. But I think at the same time, we should recognise how successful [the stimulus] was in leading to an economy where instead of having a large number of workers, utterly unable to find jobs, exactly the opposite is true,” Janet Yellen, the US Treasury secretary, told members of the Senate banking committee this month.Heather Boushey, a member of the White House council of economic advisers, said: “Being able to have this conversation about inflation at this moment is because so many folks have jobs. [Inflation] is hard on families. This is definitely a serious and important issue, but it is different than high unemployment.”Heidi Shierholz, president of the left-leaning Economic Policy Institute think-tank, insisted Biden had shifted the paradigm of the labour market for the better. “We had graduating class after graduating class in the aftermath of the Great Recession for years entering into extremely weak labour markets. That has really lasting effects, and we’re not doing that to Generation Z. We made different choices and that is remarkable for workers,” she said.Yet the benefits of an expanding labour market are clearly being undercut by the higher cost of living ripping through households, with even hefty nominal wage increases being outpaced by rising inflation in a way that is very palpable to the average voter.According to an AP-NORC poll conducted this month, 51 per cent of Americans say Biden’s policies have done “more to hurt than help” the economy, while 18 per cent say they have helped and 30 per cent believe they have not made a difference.“This is the worst year we’ve had in 40 years in terms of real wages,” said Jason Furman, a Harvard University economist and former adviser to past president Barack Obama. “You’ve had . . . a small number of people gaining and a large number of people losing, and so I don’t find it at all surprising that people who have gotten the biggest pay cuts they’ve ever gotten when adjusted for inflation aren’t that happy.”Biden has sought to project empathy with Americans displeased with the economic landscape. “For every worker I met who’s gained a little bit of breathing room to seek out a better paying job, for every entrepreneur who’s gained confidence to pursue their small business dreams, I know that families all across America are hurting because of inflation,” he said earlier this month. But his administration has limited tools to change the dynamic. White House officials had hoped that passage of their $1.5tn, trimmed-down “Build Back Better” economic legislation, including tax increases on the wealthy and childcare subsidies, would cool the economy and expand labour supply in the medium and long term, but those plans have been blocked by opposition in Congress.Austan Goolsbee, a professor of economics at the University of Chicago and a former economic aide to Obama, said: “There’s not any controlling thing that the White House could do, [like] go down in the basement and [say] ‘Oh, here’s the lever we forgot to flip’ and flip it now. It’s not a wait-and-see attitude, it’s just you have to wait because it takes a long time for this stuff to shift around.”“When you have resurgences of variants of the virus, that sets it back, and when you have wars driving up the cost of commodities, that sets it back,” he added. Ultimately, the fate of Biden’s labour market — and the Democrats’ political hopes — are now in the hands of the Federal Reserve, which is embarking on a cycle of interest rate increases to tame inflation, with the aim of cooling down the labour market without triggering a new recession.Moody’s Zandi said ideally this would mean slowing the pace of payroll expansion from an average of about half a million jobs per month to about 100,000-150,000 a month, to avoid a scenario in which the economy “blows past full employment” and the jobless rate runs below 3 per cent, which could trigger an even more dangerous wage-price spiral.“It’s really about getting growth to moderate without going into reverse, and that’s the process we’re in the middle of and you can feel that’s starting to happen,” he said. More

Your browser does not support playing this file but you can still download the MP3 file to play locally.Russia’s blockade of the port of Odesa is preventing Ukraine from exporting vital supplies of grain to a hungry world. A failure to resolve the problem will lead to food price rises and starvation, resulting in more migration and global unrest, according to David Beasley, head of the UN World Food Programme. He talks to Gideon about what needs to be done to avert catastrophe.Clips: NewsNation, ABC news, CNNWant to read more?Military briefing: Ukraine seeks way to break Russia’s Black Sea blockadePakistan seeks to renegotiate IMF loan as food prices surge‘Millions’ at risk of death as Ukraine war hits food supplies, Egypt warnsWorld’s poorest nations to receive aid amid soaring food pricesSubscribe to The Rachman Review wherever you get your podcasts – please listen, rate and subscribe.Presented by Gideon Rachman. Produced by Fiona Symon. Sound design by Breen TurnerRead a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

Nancy Auma, a 35-year-old market trader, sits by a large mound of finger-sized silvery fish caught in Lake Victoria. Her stall is in one of the crowded thoroughfares of Mathare, a huge informal settlement in Nairobi, seven hours by bus from Kisumu, the Kenyan lakeside city where she purchases the fish. She must make this journey often — at the hefty cost of Ks3,000 ($26), thanks to rising fuel prices — to buy fresh supplies.These repeated trips to Kisumu are a waste of time and money, Auma admits, but she lacks the cash flow to buy larger amounts of inventory.Millions of small kiosk-holders such as her — selling products from rice and sugar to batteries, cleaning products and household supplies — suffer the same costs as they struggle to secure and pay for stock.But a new wave of start-ups, including Wasoko — which tops the FT’s Africa’s Fastest Growing Companies ranking, compiled with data company Statista — is now trying to help informal shopkeepers by reducing friction in the retail supply chain. Others in the field, broadly defined as digitalising the informal sector, include TradeDepot, Sabi and Twiga — the latter focusing on fresh produce.Wasoko started in Kenya in 2016 as Sokowatch, rebranding in March. It has expanded to 60,000 merchants in six countries, with Tanzania, Rwanda and Uganda added in east Africa and, more recently, Senegal and Ivory Coast. The company, which makes about $30mn of sales a month, recently raised $125mn in a Series B funding, valuing it at $625mn.

Fish trader Nancy Auma with her stall in Mathare, Nairobi © David Pilling

Daniel Yu, a California-born software developer and linguist, dropped out of the University of Chicago to start the business after winning a $10,000 entrepreneurial grant for his idea. The concept came to him during an overseas study period in Egypt, where he noticed stallholders struggling to get their inventory.“The ordering and restocking for the store were quite difficult,” he says. “So I started working on this idea of ordering systems to connect the shopkeepers to suppliers.” 

The theory was that a Unilever or a Procter & Gamble could not profitably deliver, say, $10 of inventory to a stallholder, he explains, so they sell instead to a large wholesaler.Wasoko, by bundling multiple orders from thousands of shopkeepers and stallholders and placing them with big manufacturers, would solve the economy of scale problem, getting the products quickly and cheaply to stallholders, while taking a slice of the transaction cost.First, a prototype was built, enabling orders to be made on an app or via numerical codes sent from a “feature phone” — a basic mobile with limited additional capabilities. Then, Yu started cold-calling big companies, presenting a solution to their distribution problems. Eventually, Wrigley, the chewing gum manufacturer, decided to try the model in Kenya.The original idea, says Yu, had been an asset-light model where software did all the heavy lifting. But he soon realised that Wasoko would need to get into the logistics business, organising distribution points and running a fleet of vehicles, mainly small vans.“When you’re running out of rice, you can order from us another 25kg bag or whatever, and we will deliver it to that shop the same day and free of charge, in an average of about two and a half hours,” he says. Established customers can order now and pay later, generally a week after delivery.If the proposition seems too good to be true, Yu says the key is what he calls the “few to many” nature of his business.A relatively small number of suppliers provide the 300 or so goods he offers to thousands of customers. That is good for Wasoko’s model, though it does not yet solve Auma’s fish supply problem, as Wasoko does not deal in fresh produce.In Nigeria, where TradeDepot operates along similar lines, the offering is 10 times larger, at 3,000 goods, reflecting the scale of Africa’s most populous country. TradeDepot serves 110,000 merchants, whose typical order, made two to three times a month, is $100-$150.Like Wasoko, TradeDepot extends credit to shopkeepers, using the picture built up of order patterns and customer footfall to determine a credit rating.Typical fees are a 4-6 per cent effective monthly interest rate, with loans normally paid back within two weeks, explains Onyekachi Izukanne, chief executive and a co-founder of the business.“We have the thesis that the big problem is access to financial services,” he says. “There’s a broken supply chain and these informal merchants and small businesses have some access to inventory, but it comes to them expensive, and we want to rationalise that.”Aubrey Hruby, co-founder of the Africa Expert Network and an investor in African start-ups, says she thinks the next wave of (companies with market capitalisations above $1bn) will be those that successfully digitise the informal retailer supply chain.“The problem with the informal market is not that it’s informal — it’s that it’s inefficient,” Hruby says. “I went down to see a big outdoor market in Lagos and saw this woman who was a big buyer of tomato paste. She used to buy her supplies from a friend down the street. Now, she compares prices to get the best deal. Her kids helped her use the app as she’s not that digitally savvy.”Even if the trader pays in cash, says Hruby, the transaction can be digitised as it moves through the system. “This is certainly going to embed fintech, and it also gets at this other area,” she says, referring to the vast informal trading sector that is much bigger than the narrow middle-class interests targeted by many fintechs. More

TOKYO (Reuters) – Japan plans to call for moving ahead with a new “green” gross domestic product (GDP) indicator that will reflect the country’s progress in reducing greenhouse gas emissions, a draft of its annual economic policy outline seen by Reuters showed.The government will make a mention of moving forward with the safe restart of nuclear power plants, the draft of the long-term policy outline showed.Tokyo has pledged to cut carbon emissions by 46% in 2030 compared to 2013 levels, for which it needs to make a massive push into decarbonisation.The policy outline will call for expanding production of electric car batteries and building more charging station, as well as setting up more hydrogen stations.The government seeks to meet a goal of having electric vehicles account for all new car sales by 2035, the draft showed.The government’s policy outline will be the first to be compiled under Prime Minister Fumio Kishida, and serve as a basis for future economic policy-making. It is expected to be finalised upon cabinet approval early next month.Kishida last week laid out a plan to issue an estimated 20 trillion yen ($157 billion) worth of “green transition” bonds to help finance investment to achieve a carbon-neutral society.The Japanese premier said the country would need at least 150 trillion yen in combined private- and public-investment in the next decade to achieve a carbon-neutral society.($1 = 127.4600 yen) More

The services producer price index rose 1.7% in April from a year earlier, accelerating from a 1.3% gain in March and marking the fastest annual pace of gain since February 2022, Bank of Japan (BOJ) data showed. The rise was driven mostly by surging overseas freight costs, but hotel, advertisement and rental fees also increased as more companies in the service industry began passing on their higher costs to customers. The outlook for service prices will be among key factors the BOJ will scrutinise in deciding how soon it may follow other central banks in raising ultra-low interest rates. BOJ Governor Haruhiko Kuroda has justified keeping rates low by pointing to Japan’s modest wage and service price growth, arguing the recent cost-push inflation will prove temporary unless accompanied by solid domestic demand. “In Japan, wages have risen, but the rate of increase has remained moderate,” Kuroda said in a speech on Wednesday.”A common challenge for each country is to determine the magnitude and persistence of the inflationary pressure. In doing so, it will be important to capture the relationship between three prices, namely, the price of goods and services, wages, and commodity prices,” he said. More

BENGALURU (Reuters) – Rampant rises in Australian house prices will grind almost to a halt this year, and an 8% decline is expected in 2023 as a cost-of-living crisis worsens and mortgage rates rise, a Reuters poll of property market analysts found.Cheap loans based on near-zero interest rates have nearly doubled house prices since the global financial crisis of the late 2000s, turning Australia into one of the world’s least affordable places to buy property.Prices surged over 20% last year, the biggest annual increase since 1989, making it much harder for first-time buyers to get on the property ladder.That blistering pace will slow to just 1.0% this year, according to the median forecast in the May 11-25 poll of 11 analysts, down sharply from 6.7% forecast in a February poll.Prices are forecast to drop 8.0% next year, more than the 5.0% expected in the previous survey.”The risk of a crash cannot be ignored, given the high level of household debt and that it’s been more than 11 years since the last rate hike,” said Shane Oliver, chief economist at AMP (OTC:AMLTF), who expects house prices to fall 10-15% into 2024. 2efd351e-c305-4b4a-b936-fe23fccdf5f41RECORD MORTGAGE DEBTAustralia’s central bank this month raised its cash rate for the first time since November 2010, by 25 basis points to 0.35%, and flagged more hikes to come.A sudden rise in borrowing costs could sharply dent housing activity, in a country where about 6% of employment is closely tied to the residential construction sector, eventually leading to slower economic growth.”A steep increase in mortgage rates over the coming year will weigh heavily on house prices,” said Adelaide Timbrell, senior economist at ANZ. It will also be a challenge for heavily indebted households in a country which has a record A$2 trillion of mortgage debt outstanding.A substantial decline in prices is needed to make housing more affordable for those who don’t already own.”A very large correction in prices would be needed to enable ‘affordable’ housing, particularly in Sydney and Melbourne, though the wage outlook is key to how much of a correction would be needed,” Timbrell added.Wages are lagging, at least by the official measure which showed annual pay growth ticked up only slightly in the first quarter to 2.4%, half the pace of inflation.Both ANZ and Knight Frank said average prices would have to fall 40% – roughly the amount U.S. house prices tumbled during the global financial crisis – to make Australian housing affordable.House prices in Sydney and Melbourne were forecast to fall 2.5-3.0% this year and 9.0% next. In Brisbane, Adelaide and Perth, prices were expected to rise 2.0-6.5% this year but decline 4.5% in 2023. More