Aurelia Butler

JERUSALEM (Reuters) – The Bank of Israel is expected to keep short-term interest rates unchanged this week, its 14th such decision in a row, although analysts are expecting a hawkish tone that could lead to higher rates in the coming months as inflationary pressures mount.All 12 economists polled by Reuters forecast that the central bank’s monetary policy committee (MPC) will keep the benchmark rate at an all-time low of 0.1% when the decision is announced on Monday at 4 p.m. (1400 GMT).While other countries have faced an inflation surge, Israel has not, largely due to a very strong shekel that has moved to a 26-year high against the dollar and kept import prices down. The annual inflation rate stood at 2.4% in November, well within an official 1-3% target.Last month, Bank of Israel Governor Amir Yaron told Reuters that the central bank was in no rush to raise interest rates since inflation was under control.However, analysts see rising inflation as inevitable, especially with a tightening labour market in which the broadest measure of the jobless rate has fallen to 6.5%.”Inflation pressure is likely to become persistent and require more hikes,” said BofA Securities economists in a report, predicting that rates will be hiked from the second quarter and end 2022 at 1%.All six rate setters had voted to keep the benchmark interest rate at 0.1% at its prior meeting on Nov. 22 after one policymaker had voted for a rate increase to 0.25% on Oct. 7. They cited real interest rates in Israel as being negative and at a similar level to those in major economies.The central bank has also largely let the shekel strengthen since the currency’s gains stem from a strong economic rebound from the COVID-19 pandemic, a current account surplus and large foreign inflows into the high-tech sector.The shekel appreciated for most of 2021 despite the bank buying a planned $30 billion of foreign currency. Yaron has said the bank will still intervene when needed but without a pre-announced, set amount as was the case last year.Israel’s economy, according to the bank’s last estimate in October, was expected to have expanded 7% in 2021 and is projected to grow 5.5% this year. At Monday’s decision, the bank will issue updated macro forecasts and Yaron will hold his quarterly news conference at 4.15 pm. More

Barbara Kaczor took the disruption caused by the Covid-19 pandemic in her stride. But the 41-year-old from Czestochowa in southern Poland has found handling this year’s rapid surge in prices more of a struggle.“When you go shopping you spend so much money you don’t know what you have spent it on. I understand that prices change, but what is happening now is just crazy,” she said, reeling off the increases in the cost of everything from butter and tomatoes to gas. “Believe it or not, last year with the start of Covid was much easier.”Kaczor is among millions of Poles feeling the pinch. Annual inflation hit 7.8 per cent last month, the highest level for two decades, and the fourth highest in the EU. With energy tariffs due to rise more than 20 per cent and gas prices by more than 50 per cent next year, consumers expect more pain and the topic has raced up the political agenda.Much of the developed world is grappling with a similar pattern. But for Poland’s ruling Law and Justice party (PiS), rampant inflation is a particularly tricky problem. The conservative-nationalist government has come under fire at home and abroad over democratic backsliding. But despite these fights, it has remained the most popular party thanks to a large extent to its success in improving the lot of less well-off Poles.“PiS has won over voters with a very simple promise: you will be better off; your wealth will go up. High inflation makes it much harder to deliver on that promise, and that is why it is so dangerous for this government,” said Marcin Duma, head of the IBRiS polling agency in Warsaw.“Inflation is especially painful for those people who have seen their wealth grow over the last five or six years. They have been able to go on holidays, to buy things they couldn’t before. And now suddenly, their bills are going up and they cannot spend on the things that they have got used to.”

Tadeusz Koscinski, Poland’s finance minister, says high inflation figures were ‘something that needs attention but not major panic’ © Thierry Monasse/Getty

For Kaczor, who works for a company that carries out surveys and teaches languages on the side, the jump in prices has meant longer hours to make ends meet and fewer holidays and trips to the cinema. “Sometimes you have to decide what is a priority,” she said. “Most of all, you have to pay the bills.”Businesses are also concerned. Marcin Nowacki, deputy head of the ZPP employers’ association, said that while not all companies were yet feeling its impact, inflation was “the biggest threat for next year”, adding: “If it remains and goes above 10 per cent, it will be very difficult, and we will all feel it, both Poles and businesses.”Poland’s opposition has attempted to seize on the topic, accusing PiS of fuelling the problem through reckless spending. This month, it projected “PiS = high prices” on to the ruling party’s headquarters in Warsaw. Opposition lawmakers unfurled a banner with the same message during a session in parliament.PiS officials argue that — as in much of Europe — inflation has been driven by external factors such as energy prices and disruption caused by the pandemic.The government has announced a 10bn zlotys ($2.5bn) package of temporary tax cuts on energy and fuel, and also plans to cut VAT on food. It has also lobbied for reform of the EU’s emissions trading system: prices for carbon permits have more than doubled this year.However, analysts say external factors are only part of the story. High energy prices have been compounded by Poland’s ageing, coal-intensive energy system, which makes the country particularly exposed to soaring carbon permit prices. Moreover, fiscal and monetary policy have remained loose, even as the economy has grown at close to 5 per cent in recent years and labour shortages have put upward pressure on wages. Polish inflation was among the EU’s highest even before this year’s surge.“We are . . . paying the price for the mistakes of governments past and the lack of investment in the green transition. Our energy system is outdated and high-emission and so we have to acquire more carbon emission permits than other countries,” said Hanna Cichy, an economist at Polityka Insight in Warsaw. “There are very difficult demographic pressures, and there is also a competence gap: not only are there not enough workers, but we don’t have the right skills to fill the gaps in the market.” High inflation figures were “something that needs attention but not major panic”, said Tadeusz Koscinski, Poland’s finance minister. “The most important thing for us as a government is to control the emotions and make sure that people don’t think that this is a permanent situation.” However, barring an intensification of the pandemic, economists doubt inflation will return to the 2.5 per cent targeted by Poland’s central bank soon. “Core inflation is above 4 per cent and strong, so you have to expect that inflation will remain above 7 per cent next year,” Cichy said. “It is very unlikely that it will return to the central bank’s target in 2023.” More

The long-expected end of easy money seems to be upon us. In the past couple of weeks, the Bank of England has raised rates, and the US Federal Reserve has indicated a swifter tapering of its asset-buying programme and as many as three rate hikes in the year ahead. All this is predicated on the idea that “transitory” inflation is becoming more permanent, moving from commodities and durable goods into areas such as wages and services. A lot of the debate on growth, inflation and stock markets has been about the secular shifts that we may or may not be entering. But what if the only constant in the next few years is volatility? What if inflation dynamics that seem entrenched begin to oscillate? I think you can argue this will be the case for a number of reasons. First, the ripple effects of the pandemic have created an inflationary environment unlike in the 1970s, the last time the US had a prolonged period of inflation. Covid has created a series of asynchronous recessions and recoveries around the world. The US is running “hot”, but China, which has been trying to deflate its property and debt bubbles, has cooled off. The fact that these two poles of the global economy are decoupling, not only in terms of trade and capital flows, but also their growth pictures, makes it tougher to predict how inflationary pressures will play out. This is just one of the many factors behind what investment research provider TS Lombard has dubbed the “biflation” trend, in which multiple supply and demand factors push and pull against one another in unexpected ways. For example, while the world has adjusted to the sudden “high Covid” demand for all things digital, as well as pandemic-specific goods like medical equipment, personal protective equipment and home goods, there may still be some post-Covid-19 supply shocks in services, which had little reason to invest over the past two years, leaving scant spare capacity. That has already led to wage pressure. In the US, where services make up the majority of the economy, companies expect wage costs to be up 4 per cent in 2022, as salary budgets reach a 14-year high, according to the Conference Board, a think-tank. There’s a generational complexity to all this. “Soaring wage growth among younger workers in particular has compressed the typical premium offered to more experienced employees — who are, in turn, seeking out new opportunities in a hot job market” At the same time, companies may be in for a round of price commodification that will also depress profit margins. While there was huge demand for goods over the past few years, we may soon see an inventory glut at manufacturers and retailers, as retailers guard against over-purchase. A December Deutsche Bank research report noted that “retailers are over-ordering ahead of the busy holiday period” while “manufacturers are producing and holding far more inventory than they did before Covid”. According to the Bank for International Settlements, “the mechanical effect on CPI could well turn disinflationary” as supply-chain dislocations and “precautionary hoarding behaviour” wanes. This would inevitably cause deflation in goods, even as there’s inflation in services. The sharpest upward shift in spending in the past year has been in areas such as out-of-home entertainment, restaurant meals, cinema and theatre. But that, too, can change quickly based on the trajectory of Covid-19 variants, as those of us with cancelled holiday plans have seen. All this is creating what the BIS recently dubbed a “bullwhip effect”, in which efforts to fix immediate inflationary issues create their own complex, delayed ripples that further distort prices. The geopolitically driven shift from efficiency to resilience in supply chains, which will favour everything from localised production to new sovereign-backed digital currencies, will further hamper economists trying to model inflation with the data from the past half century. Technology is the final wild card. Artificial intelligence means it can do more of what humans can; 5G and the internet of things are increasing business efficiency. Both are deflationary. But that’s just part of the story. Remote work, for example, lowers commercial property prices but raises those of homes. Robot installations (up 12 per cent this year in the US) will be good for companies trying to keep prices down, but bad for the unemployed faced with spikes in fuel and food costs. The upshot? I think we’re likely to see back-and-forth messaging from central bankers struggling to figure out where things are heading next. Add in the historic issues of debt and asset bubbles from decades of falling rates and unprecedented quantitative easing, and you have one of the most complex environments in which to make monetary policy. If anyone deserves a pay rise, it’s the people trying to figure out where inflation is [email protected] More

“The United States today terminated Ethiopia, Mali and Guinea from the AGOA trade preference program due to actions taken by each of their governments in violation of the AGOA Statute,” the U.S. Trade Representative’s office said in a statement.Biden said in November that Ethiopia https://www.reuters.com/article/us-ethiopia-conflict-trade-idCAKBN2HN1QQ would be cut off from the duty-free trading regime provided under the U.S. African Growth and Opportunity Act (AGOA) due to alleged human rights violations in the Tigray region, while Mali and Guinea were targeted due to recent coups.The suspension of benefits threatens Ethiopia’s textile industry, which supplies global fashion brands, and the country’s nascent hopes of becoming a light manufacturing hub. It also piles more pressure on an economy reeling from the conflict, the coronavirus pandemic, and high inflation.”The Biden-Harris Administration is deeply concerned by the unconstitutional change in governments in both Guinea and Mali, and by the gross violations of internationally recognized human rights being perpetrated by the Government of Ethiopia and other parties amid the widening conflict in northern Ethiopia,” the USTR statement said.The AGOA trade legislation provides sub-Saharan African nations with duty-free access to the United States if they meet certain eligibility requirements, such as eliminating barriers to U.S. trade and investment and making progress toward political pluralism.”Each country has clear benchmarks for a pathway toward reinstatement and the Administration will work with their governments to achieve that objective,” it added.The Washington embassies of the three African countries did not immediately respond to requests for comment.Ethiopia’s Trade Ministry said it November it was “extremely disappointed” by Washington’s announcement, saying the move would reverse economic gains and unfairly impact and harm women and children. More

With daily infection numbers at a record high and people who test positive required to self-isolate for at least seven days, the government expects businesses and public services to face disruption in the coming weeks, it said in a statement.”So far, disruption caused by Omicron has been controlled in most parts of the public sector, but public sector leaders have been asked to test plans against worst case scenarios of workforce absence of 10%, 20% and 25%,” it said.Prime Minister Boris Johnson has asked ministers to work closely with their respective sectors to develop robust contingency plans, said the Cabinet Office, which is coordinating the government’s efforts.The impact of Omicron on workforces in supply chains, public services and schools is being closely monitored, it said. Mitigations being considered include asking for volunteers such as retired teachers to go back to work.”There is work ongoing to identify potential regulatory, policy or operational changes which could minimise or alleviate potential disruption,” the Cabinet Office said.The daily number of new COVID-19 infections across the United Kingdom rose to a record 189,846 on Friday, far higher than during previous peaks.However, hospitalisations and deaths have remained at much lower levels than in previous waves. More