Aurelia Butler

Political risk is nothing new in Latin America. But three big shocks in the space of a few days in previously business-friendly nations have reminded companies that even by the region’s elevated standards, risk is rising fast.Voters in traditionally moderate Chile handed a first round election victory to José Antonio Kast of the far right, the most extreme presidential candidate in three decades to secure such a strong result. While he aims to be business friendly, Kast will struggle to govern if he wins the second round as he lacks a base in Congress and his radical positions could trigger more street protests.Peru’s hard-left government announced without prior warning that it would close two copper mines owned by London-listed Hochschild Mining on environmental grounds. Days later it changed its mind again.Mexico’s populist president alarmed markets by abandoning his nomination of a respected former finance minister, Arturo Herrera, as the next central bank head in favour of a little-known public sector economist who is loyal to him.Investors in the region have long shunned socialist Venezuela, and Argentina is off-limits for most foreign investors after its perennial debt defaults and the imposition of price and exchange controls. But the latest trio of shocks came from nations regarded as much better bets for business, prompting dismay among bankers and executives. “There’s an awful lot of gloom out there,” said Eric Farnsworth, vice-president of the Council of the Americas, an international business organisation. “What is really concerning people is that several economies which were considered stable for a long time are all of a sudden in question.”Top of the worry list is Mexico. After President Carlos Salinas de Gortari led the country into the North American Free Trade Agreement in 1994, the business sector became accustomed to broadly technocratic governments of different political stripes. Nafta and its successor pact USMCA, the reasoning went, provided a solid institutional underpinning.That now seems much less clear under President Andrés Manuel López Obrador. In the latest development to concern business, billions of dollars of investment in renewable energy are in jeopardy as a result of proposed electricity reforms, which would give priority to the fossil-fuel powered state generator at the expense of the private sector. The chief executive of General Motors’ local operation, Francisco Garza, warned last month of the risks of those measures, saying that while the company wanted to continue investing in the country “if the conditions are not in agreement with our long-term vision, then obviously Mexico will not be a destination in the short term, unfortunately”.Chile has been proving the pessimists right since it was engulfed by a wave of street protests in October 2019. Its hitherto moderate Congress caved in to populist demands for three separate early withdrawals of savings from private pension schemes. A fourth is under discussion.An elected assembly writing a new constitution is dominated by the left and the hard left. It now threatens to upend an economic model which, although imperfect at distributing wealth, did generate some of the region’s best economic growth. Now voters in last weekend’s first-round presidential election have abandoned the political centre, turning December’s second round into a choice between the far right and the hard left.

Further up the Andes, Colombia’s traditionally stable business environment faces its biggest test yet in a presidential election next year, with a former guerrilla from the radical left leading polls.That leaves Peru, where former rural primary school teacher President Pedro Castillo has led a chaotic administration split between former Marxists and more moderate leftists and beset by scandal. Peru’s Congress is so hostile to Castillo that it is already discussing removing him from office after just four months. Such is the political turbulence in Latin America, that Brazil, even in the final year of a far-right Bolsonaro government, looks relatively hospitable for business despite what promises to be an unusually divisive election in 2022 and rising fiscal risks. “My own view is that the back and forth political dynamics in Brazil won’t affect dealmaking very much,” said one person involved in many of the region’s larger transactions. “Whether it’s [opposition leader] Lula or Bolsonaro, Brazil is not at risk of turning into the next Venezuela.”[email protected] More

Much of the world is experiencing a dramatic bout of inflation. Yet many central banks are keeping interest rates at or close to record lows, despite the rise in prices caused by higher energy costs, strong consumer demand and the disruption to global supply chains wrought by Covid-19 and its latest variants. Some fear this combination might mark a general return to the chronic inflation of the 1970s. The one exception to the worldwide pattern of rising prices are East Asian countries such as China and Japan. But even here, there are signs that inflation is starting to rise.This page provides a regularly updated visual narrative of consumer price inflation around the world, both now and for next year.* It also separates inflation into its main components; what higher food prices mean for consumers; and where investors think inflation is heading over the medium term.One of the main points of debate among policymakers and economists is whether the rise in prices is transitory and will fade soon, or whether it may prove more permanent.Yet even among those who believe that inflation will fall next year as supply chain problems ease and consumer demand stabilises, there is an acceptance that the inflationary shock will last longer than first estimated. Economists polled by Consensus Economics, a company that collates the predictions of leading forecasters, have steadily revised up their expected inflation figures for 2022.Rising inflation is a challenge for central banks, not least those G7 countries which have a price stability target of 2 per cent. To reach that goal, central banks can adjust monetary policy to curb demand. But such tools are less effective in tackling inflation created by lack of supply. As the governor of the Bank of England, Andrew Bailey, has said, monetary policy “doesn’t get more gas, more computer chips, more lorry drivers”.The rise in energy prices, which has driven inflation in many countries, is a case in point. In one telling sign that inflation may be starting to spread beyond energy, the price of many other items is also increasing — especially in countries where consumer demand is strong enough for businesses to pass on higher costs.Rising prices limit what households can spend on goods and services. For the less well off, that could lead to them being unable to afford basic needs, such as food and shelter.Daily data on staple goods, such as the wholesale price of breakfast ingredients, provide an up to date indicator of the price pressures faced by consumers. In developing countries, the wholesale cost of these ingredients has a larger impact on final food prices; food also accounts for a larger share of household spending.The debate over whether the surge in inflation is temporary or more permanent continues. Supporters of “team transitory” believe this year’s price spikes are due to a one-off surge in consumer demand bumping against a one-off rise in supply chain disruptions. Supporters of “team permanent” point to a broadening pattern of price rises, especially in countries where a shortage of workers is pushing up wages.For now, markets seem to be siding with “team permanent” and, in many countries, have steadily priced in a rise in inflation over the next five years. *Consumer inflation refers to annual percentage changes in countries’ consumer price indices. This data is internationally comparable, although some countries and regions use a different headline figure. The eurozone, for example, takes its harmonised consumer price index as its headline figure, while also reporting the CPI. More

A Dutch trade union has accused fashion retailer H&M and its logistics partner of cutting break times for warehouse staff and refusing to engage with workers in an alleged violation of local labour laws and its own policies.Migrant workers at its Tilburg warehouse in the Netherlands, run by US-listed GXO Logistics on behalf of the world’s second largest fashion retailer, said that security protocols designed to prevent product theft were eating into their break times.The accusations come as retailers race to meet demand during the Black Friday and Christmas peak season at a time of constricted labour supply, mounting pressure on logistics staff.The Federation of Dutch Trade Unions (FNV) said GXO had refused to open dialogue about requiring staff to work six days a week, leading 700 workers to petition the company over working conditions, saying their breaks had been reduced. Warehouse management refused to accept the petition, the union said. GXO told H&M it would accept the petition but not while being filmed as FNV had demanded.H&M said it strives to act ethically, transparently and responsibly and expects the same of its partners, while it had highlighted to GXO that its sustainability commitments require freedom of association for workers in its supply chain.“We are confident that as the directly involved parties, GXO and FNV will use their best efforts to be fair, respectful and constructive in their dialogue and set the right actions for next steps,” it said.GXO said it supports the right of free assembly and addresses staff concerns through Works Councils — internal employee representative bodies. “We comply with all labour regulations and policies and allegations to the contrary are false,” it added.FNV says asking employees to raise their concerns through Works Councils — which it argues are vulnerable to the influence of management representatives — is not in line with H&M’s own guidelines on migrant workers, which allows for freedom of association with any trade union.In an email response to the union, H&M said it “will take a neutral position” because it believed GXO’s local management offered to accept the petition and had not strayed from the retailer’s labour relationship principles and sustainability commitments.Thulsi Narayanasamy, head of labour rights at the Business & Human Rights Resource Centre, said that “H&M is yet to take responsibility directly for these workers in the same way it has for garment suppliers, despite warehouses and delivery drivers being a core part of their supply chain.”A Slovakian working at the warehouse said he had only 35 minutes to rest during his physically demanding eight-hour shifts instead of 45 minutes.“We tried to hand out the petition and go to the office. They blocked the doors with security. They wouldn’t let workers go out or in of the warehouse as if we are some kind of criminals,” he said.The workers, mostly employed through agencies, come from Poland, Bulgaria, Slovakia, Spain and Lithuania.Aneta, who recently stopped working at the warehouse, said the pressure had been building in recent months with packing targets rising to 250 items an hour.

“I’m not sure if H&M knows about everything happening in the warehouse,” she said. “Management tells us ‘if H&M wants to know something then tell H&M you don’t speak English’.” The accusations come as conditions within multinational supply chains are under greater scrutiny. Dyson, the British appliance maker, terminated a partnership with ATA IMS this week after a whistleblower accused the Malaysian parts maker of labour rights abuses, while online behemoth Amazon faced strikes in Europe on Friday over pay and conditions.Some governments are seeking to make multinationals responsible for labour issues in their supply chain. Germany passed a law in June requiring large companies to ensure social and environmental standards are applied throughout their supply chains. More

What are central bank digital currencies?Central bank digital currencies, or CBDCs, are an attempt to bring some of the purported upsides of private digital currencies to the world of public money, under the auspices of national central banks. This also means that CBDCs will, in theory, be safe in times of financial crisis.Comparisons are often made with cryptocurrencies, as some proposed CBDCs could make use of the same blockchain technology. This is not necessarily the case, however. In fact, unlike the best known blockchain — that used by bitcoin — which is essentially a decentralised database, central banks in most cases are likely to control their own private blockchains. How far have plans progressed?While there are few fully developed and deployed CBDCs, several countries have initiatives at advanced stages. In China, the e-yuan CBDC is one of the most advanced among large economies. In February, the government handed out lunar new year “red packets” containing the digital coins to encourage uptake.One of the few countries with a fully deployed CBDC is the Bahamas, whose Sand Dollar was piloted in 2019 and launched properly a year later, as a collaboration between the central bank, payment card group Mastercard and digital payments platform Island Pay.

Other leading economies in Europe and North America are still at the exploration stage. In the UK, the Bank of England and the Treasury announced a CBDC task force to co-ordinate studies of a potential “Britcoin”, though it has yet to present any concrete findings. In the US, Federal Reserve chair Jerome Powell said in September that the central bank would “soon” release research on the costs and benefits of deploying a CBDC. Cryptocurrencies have become an increasingly polarised topic in the US, with similar division reported among Fed officials on the idea of a public digital currency.Why are governments trying to create CBDCs?The impetus for CBDCs in western countries has been inspired, at least in part, by two potential challenges — the first driven by fears over private companies outstripping regulators’ powers and the second by geopolitical concerns. Stablecoins pegged to US dollars have seen massive uptake over the past year. The nominal value of their coins in circulation has risen from less than $30bn to about $140bn. While much of that is kept within the cryptocurrency ecosystem, there are growing efforts to use stablecoins for quick, cheap transfers. Novi, the digital wallet from Meta (formerly Facebook), is trialling the pax dollar stablecoin for transfers, including remittances in Guatemala and parts of the US. (Meta’s own stablecoin, diem, is yet to launch — concerns about a coin owned and operated by the social network have been central to stablecoin regulation.)

Regulators have raised concerns about private stablecoins on several fronts, including the challenges they might pose to financial stability and the effectiveness of monetary policy, as well as consumer welfare. Some believe an effective CBDC might reduce consumers’ desire to rely on stablecoins, or at least offer greater protection for retailers.There are also concerns about China’s e-yuan project, one of the more advanced CBDC initiatives. Beijing aims to expand the system ahead of the Beijing Winter Olympics in February. Critics in the US have voiced fears that its deployment would allow the Chinese government to block shoppers from using the coin at stores that fell foul of their policies, as well as allowing for mass surveillance.Proponents of CBDCs say they offer benefits that have often been attributed to stablecoins, including lower costs and faster payment settlements than existing systems in some parts of the world. There is also discussion about their ability to implement monetary policy more effectively, such as providing economic stimuli after financial crises.

Video: What are stablecoins and how do they work?

What are the risks?One concern around CBDCs is the potential impact on traditional retail banks. If consumers have access to liquid cash, fully backed by central banks, CBDCs may become a safe haven in case of economic instability, thereby taking cash out of banks and potentially leading to bank runs. In a similar vein to concerns around Beijing’s control of the e-yuan, there are debates around the ethics of “programmable money”. If a central bank has the ability effectively to control consumer spending, this could potentially undermine fundamental rights and free choice.Finally, there is a longstanding concern over financial inclusion that has only grown during the pandemic, as efforts to digitise money have been supercharged. CBDCs may be beyond the reach of those with older devices or without access to digital wallets, requiring care to avoid further disenfranchising the old and vulnerable. More

NEW DELHI (Reuters) – Data was expected to show that India’s economic recovery strengthened in the July-September quarter, helped by a pick-up in consumer spending, though the spread of the Omicron coronavirus variant raised fears for the future.Asia’s third-largest economy has been seeing a rebound from last year’s deep slump, boosted by rising vaccination rates and a pick-up in government spending. A Reuters survey of 44 economists projected GDP data – due out at 1200 GMT on Tuesday – will show 8.4% year-on-year growth in the September quarter, the fastest pace among major economies, vs a 7.5% contraction in the same quarter last year.But as the market awaited the figures, health authorities said they were tightening testing at airports, in the wake of the spread of the Omicron variant. Prime Minister Narendra Modi on Saturday ordered a review of plans to ease travel curbs. Fast-moving indicators including exports, electricity generation, rail freight and bank deposits showed improving signs of growth momentum in October while vehicle sales, fuel sales and tax collection showed slower growth. Private economists have said economy is on the cusp of recovery helped by a resilient farm sector growth, but risks included slowing global growth, rising manufacturing prices as well as new variants of COVID-19.”COVID risks have resurfaced globally and (these need to be watched) for implications for the timing of monetary policy normalization,” Shubhada Rao, economist at Mumbai-based QuantEco Research, said. The Reserve Bank of India (RBI), which has cut key interest rates to record lows and infused massive liquidity to shore up economy, is widely expected to suck out liquidity before normalising rates amid growing inflationary concerns. RBI has forecast annual growth of 9.5% in the current fiscal year. More

(Reuters) – The dollar hovered on Tuesday above the one-week low against major peers it hit last week, as fears eased that the new Omicron coronavirus variant would derail the U.S. recovery and delay Federal Reserve interest rate hikes.The safe-haven yen stabilised some half a percent off its strongest level since Nov. 11, reached on Monday. The euro meandered about a third of a percent below Monday’s one-week high.The risk-sensitive Australian dollar drifted about 0.4% from a three-month low.Traders took comfort from remarks by President Joe Biden that the United States would not reinstate lockdowns, as well as a South African doctor’s comments that the new strain causes milder symptoms. In testimony prepared for Congress later Tuesday, Fed Chair Jerome Powell says Omicron could cause inflation pressures to last longer.That would potentially speed the need for rate hikes, whereas traders initially reacted to Omicron’s discovery by pushing back bets for Fed tightening because of the risk to growth. Money markets currently see good odds of a first rate rise in July, but one is not fully priced until September.At the same time, the World Health Organization warned of a “very high” risk of infection surges from Omicron, and countries around the world have reacted quickly to tighten border controls.”A less dire assessment of Omicron has enabled the (dollar index) to clawback some its decline,” but “the somewhat underwhelming bounce in global markets suggests that there is still a heightened level of concern about the Omicron variant,” Westpac strategists wrote in a research note.Continued strength in the U.S. economy will buoy the greenback, the strategists predict, while the Aussie continues to look weak and a break below $0.7106 “just looks like a matter of time.”The dollar index, which measures the currency against six major rivals, last traded at 96.203, up from a low of 95.973 from Friday, when it suffered its biggest one-day drop since May.The greenback added 0.24% to 113.80 yen, after dropping to 112.99 on Monday. Australia’s dollar edged higher to $0.7146, continuing its recovery form Friday’s low at $0.71125.The euro was about flat at $1.12955, off Monday’s high at $1.1335. The single currency had slumped to a nearly 17-month trough of $1.1186 as European Central Bank policy makers stuck to their dovish stance in the face of heated inflation. The latest reading on euro area consumer prices is due later Tuesday. More

TOKYO (Reuters) – Japan’s industrial output rose in October for the first time in four months, but the slower-than-expected pace underscored the lingering impact of global supply chain disruptions.The data suggested Japan’s tepid recovery from the impact of the pandemic may last a while longer due to ongoing risks such as supply snags, global commodity inflation and a slowdown in Chinese economy.Factory output grew 1.1% from the previous month in October, government data showed on Wednesday, marking the first increase since June. It compared with a 1.8% gain forecast in a Reuters poll of economists and followed a 5.4% decline in the previous month.Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to jump 9.0% in November, followed by a 2.1% gain in December.Separate data on Tuesday showed Japan’s jobless rate stood at 2.7% in October, down from the previous month, while an index gauging job availability fell to 1.15 from 1.16 in September.After a contraction in July-September, the world’s third-largest economy is expected to rebound in the current quarter thanks to uptick in consumption partly due to the lifting of the pandemic-induced state of emergency curbs. More

The Confederation of British Industry said its quarterly survey of the services sector showed the quickest growth in costs for both business and consumer services companies since the survey began in 1998.Separate data from Lloyds (LON:LLOY) Bank showed a record 50% of businesses plan to raise prices and a quarter of them expect to raise pay by 3% or more over the next 12 months.”Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter,” CBI economist Charlotte Dendy said.Both surveys took place in the first half of November, before news of the Omicron variant of COVID-19 dented the confidence of financial market investors who now see a roughly 60% chance that the BoE will raise rates in December.British consumer price inflation hit a 10-year high of 4.2% in October and the BoE expects it to reach nearly 5% next year.In the short run, higher interest rates will not reduce pressure from a global surge in energy prices and supply chain difficulties. But they may reduce knock-on effects that would come if companies increase prices, and workers ask for higher pay, in anticipation of permanently higher inflation.Tuesday’s CBI data showed businesses already think they will be unable to pass on higher costs in full. Although average selling prices are expected to rise by a record amount, profit growth is expected to stall over the coming three months for services firms, due to the rise in costs.The CBI reported the fastest hiring since 2015 by business and professional services companies.Data from recruitment website Indeed, also released on Tuesday, showed vets, optometrists, auditors, animators and truck technicians were the roles that their customers were finding it hardest to fill. More