Aurelia Butler

(Reuters) – From export bans to price controls, governments in Asia are taking a much more targeted approach than their Western counterparts in curbing global inflationary pressure, a strategy that appears to be working at least for now.While inflation remains a serious economic challenge in Asia, the measures have in many countries helped shield the public from some of the price rises and meant most central banks in the region have not had to raise interest rates as quickly as they have elsewhere.The various efforts have also shifted some of the cost burdens away from consumers and small businesses largely to government balance sheets.”We have not seen any weakening in purchasing power,” said Baskoro Santoso, investor relations officer at Indonesian snack maker Mayora Indah.The company has adjusted prices since the second half of last year but has not seen a material hit to business, especially during the Ramadan festive period, he said.Indonesia, a country with a history of financial volatility and price swings, last week hiked energy subsidies by $24 billion to contain energy costs, having only just lifted a controversial export ban on palm oil.Although many retailers in Southeast Asia’s largest economy have still had to pass on price hikes, household demand remains strong and inflation is within the central bank’s 2-4% target band.In South Korea, government caps on electricity bills provide a competitive edge for global manufacturers like Samsung Electronics (OTC:SSNLF) and Hyundai Motor and help cushion the hit to households’ disposable incomes.The caps instead have squeezed state-run power utility Korea Electric Power (NYSE:KEP) Corp, which reported a record quarterly loss on sharply higher fuel import costs, increasing the chance of a government capital infusion.India this month banned wheat exports as a scorching heat wave curtailed output and domestic prices hit record highs.And this week, Malaysia said it would stop exports of 3.6 million chickens monthly from June until prices stabilised. It also runs mechanisms to subsidise fuel and cooking oil.Gareth Leather, senior Asia economist at Capital Economics, said Malaysia’s heavy fuel and transport subsidies have likely knocked about 1.5 percentage points off the country’s inflation, which was just 2.3% in April.Such intervention in domestic supply is not new for many Asian governments, which are sensitive to public backlash from price hikes, although economic reforms and a stronger focus on fiscal discipline over the past decade have given greater room for market forces. SHOOTING UPSTREAMIn contrast, Western governments have been reluctant to intervene in production lines to bring down prices of key items such as food and fuel. U.S. and UK inflation has now surged to decade-highs, crimping retailers’ profit and shoppers’ spending power.Walmart (NYSE:WMT), Target (NYSE:TGT) and Kohl’s (NYSE:KSS) were among major U.S. retailers that reported earnings this month that missed Wall Street expectations by the widest margin in at least five years due to surging inflation.The burden to contain prices in Europe and the United States has mostly been carried by monetary policy, with the U.S., UK and Canadian central banks now engaged in aggressive interest rate hike cycles.That contrasts with a markedly more benign policy outlook in Southeast Asia, where most central banks have only recently commenced a very cautious shift away from extremely low interest rates, with tightening expected to be more gradual than in the West.In Thailand, headline inflation has only just breached the central bank’s target range of 1-3% and the bank’s chief has pledged continued monetary support for the economic recovery.But while that outlook remains broadly supportive for business, many retailers in Thailand still feel the squeeze as customers refuse to accept price increases, a sign policy alone won’t be able to help all sectors.”It’s the peak of the durian season that you normally make big profits,” said Radavadee Ratanachaiuchukorn, president of fresh fruit exporter Chotakkarasup Co. Ltd, referring to the tropical fruit.”But because of higher costs, we hardly get a profit margin. This really hurts us… For new orders, we will have to increase the prices or we can’t survive.” More

“As we assess the future digital financial system, it is prudent to consider how to preserve ready public access to safe central bank money, perhaps through the digital analogue of the Federal Reserve’s issuance of physical currency,” Brainard said in testimony released in advance of her appearance on the issue before the U.S. House of Representatives Financial Services Committee on Thursday.”We recognize there are risks of not acting, just as there are risks of acting,” she said.Fed policymakers remain divided on the need for a central bank digital currency (CBDC) and have just finished a three-month public consultation period soliciting feedback on the idea. The Fed has also indicated it would not launch one without clear support from the White House and lawmakers.That puts it behind its other major global central bank peers, including the ECB, Bank of Japan and Bank of England, on the process of possible adoption. China is currently piloting its own CBDC and in total nine countries have launched one and another 87 countries are exploring the option, according to the Atlantic Council. The risks of loosely-regulated cryptocurrencies and stablecoins, which exploded in value during the COVID-19 pandemic, have come into sharp focus with the crypto market slumping sharply this month after the downfall of major “stablecoin” terraUSD. Leading cryptocurrency Bitcoin has dropped more than 50% since November.”These events underscore the need for clear regulatory guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system,” Brainard said. Unlike cryptocurrencies, which are typically run by private actors, a CBDC would be issued and backed by the central bank. If the U.S. goes ahead with creating one, Brainard said, it ought to be designed so that commercial banks, given their centrality to the financial system, are not disintermediated, by for instance limiting the amount an individual could hold or transfer. Brainard also argued a U.S. CBDC could safeguard the dollar’s global importance. Other Fed policymakers, including Fed Governor Christopher Waller, are more skeptical and point out that many dollar transactions are already digital, and have also raised privacy concerns. More

Rishi Sunak will on Thursday announce an emergency multibillion-pound package of support for British households facing spiralling domestic energy bills this autumn, partly funded by a windfall tax on energy companies.Those briefed on the UK chancellor’s thinking said the government support could be worth more than £10bn and will be primarily focused on the poorest households and pensioners, although the “squeezed middle” will also receive help.Sunak agreed the final package with Boris Johnson, who is desperate to prove the government is ready to “move on” from the “partygate” scandal that has dogged his premiership. Although many Tory MPs will be delighted that Sunak is acting to alleviate the cost of living crisis, some on the right are furious that he is planning a windfall tax raising several billion pounds to help pay for it.North Sea oil and gas company executives said they were resigned to a windfall tax on profits, a move Sunak had previously rejected arguing it would hit investment.They also believe a separate windfall levy on electricity generators, which is under consideration in the Treasury, would be too complicated to design in time for Sunak to announce it on Thursday.But they believe a windfall tax on electricity profits could potentially still be on the table for the autumn, when households will feel the full force of higher energy bills as they turn their heating back on.Executives at energy generators on Wednesday blamed their counterparts in the oil and gas sector of lobbying ministers to expand the windfall tax to include them. Several energy executives told the Financial Times that it was “only right” that other beneficiaries of high gas and power prices were also hit.A number of cabinet ministers, including business secretary Kwasi Kwarteng, have criticised a levy on profits on the energy sector. “Rishi has made no attempt to win over critics of the policy,” said one cabinet source.However, Sunak may sugar the pill by ringfencing certain investments, such as funds poured into low carbon energy projects, so they are not subject to a windfall tax.Ofgem, the energy regulator, said this week it expected the energy price cap that regulates average household bills would rise by over £800 from £1,971 in April to about £2,800 in October. Domestic energy prices will have risen by £1,500 in a year.Sunak was heavily criticised for failing to do more to help the poor in his Spring Statement, which focused most help on those who are in work. His “economic update” on Thursday is expected to address those criticisms. Kwarteng has proposed that a total of 8mn households in receipt of means-tested working age benefits and pension credits could receive an extra £500 through the warm home discount scheme.

That would cost some £4bn, but the Resolution Foundation think-tank argued that Sunak should make payments averaging £1,000 for 15mn households on the state pension or means-tested working age benefits.“The chancellor will need to announce a significant package of £10bn to £15bn to make a major dent in the increases in destitution and debt that lie ahead of us this winter,” said Torsten Bell, Resolution Foundation director.If Sunak offers help through the warm home discount, the payment will go directly to energy suppliers, alleviating fears that the companies could go to the wall this winter with customers unable to pay their bills.Meanwhile Sunak could offer help to all households by turning his February plan to offer a one-off universal loan worth £200 — deducted from energy bills in October and repayable at £40 a year over five years — into a grant.The chancellor has also been under pressure from Tory MPs to offer a universal tax cut — perhaps an income tax reduction or the scrapping of VAT on domestic fuel — to prove he is not addicted to putting up taxes.Sunak will have to balance those demands against his concern that deficit-funded tax cuts could fuel inflation, which the Bank of England expects to top 10 per cent in the autumn. More