Economy

Inflation is making “rapid progress” towards the Fed’s 2% target due to improvements in the supply of labor, goods and services, Kashkari said. While there may be some signs of economic weakness, he added, the overall story right now is one of continued growth and low unemployment — not of an economy stressed by the impact of a high Fed policy rate.”These data lead me to question how much downward pressure monetary policy is currently placing,” on the economy, even though high interest rates are helping keep inflation expectations in check, he said. “The current stance of monetary policy may not be as tight” as suspected.”The implication of this is that…it gives the (Federal Open Market Committee) time to assess upcoming economic data before starting to lower the federal funds rate, with less risk that too-tight policy is going to derail the economic recovery,” he said. The Fed at its policy meeting last week held interest rates steady at the current 5.25% to 5.5% range adopted in July. However, U.S. central bankers signaled they’d be ready to lower the benchmark rate after gaining more confidence inflation will continue to slow.Debate in coming weeks will center around whether incoming data help build more certainty about the path of inflation, and how the sorts of risk calculations Kashkari mentioned figure into the discussion. More

In January, Turkish inflation logged its biggest monthly jump since August with a 6.7% rise from December, while year-on-year inflation hit nearly 65%.
Food, beverages and tobacco, as well as transportation, all increased between roughly 5% and 7% month on month, while housing was up 7.4% since December.
The figures come two days after Turkey’s appointment of a new central bank governor, Fatih Karahan.

A tram passes shoppers as it travels along Istiklal Street in the Beyoglu district of Istanbul, Turkey, on Tuesday, Dec. 19, 2023.
Bloomberg | Bloomberg | Getty Images

In January, Turkish inflation logged its biggest monthly jump since August with a 6.7% rise from December, while year-on-year inflation hit nearly 65%, according to the Turkish central bank’s figures released Monday.
The consumer price index for the country of 85 million people increased by 64.86% annually, up slightly from 64.77% in December. Sectors with the largest monthly price rises were health at 17.7%, hotels, cafes and restaurants at 12%, and miscellaneous goods and services at just more than 10%. Clothing and footwear was the only sector showing a monthly price decrease, with -1.61%.

Food, beverages and tobacco, as well as transportation, all increased between roughly 5% and 7% month on month, while housing was up 7.4% since December.
The monthly rises, economists say, stem from a significant increase to the minimum wage that Turkey’s government mandated for 2024. The minimum wage for the year has risen to 17,002 Turkish lira ($556.50) per month, a 100% hike from January 2023.
Turkey’s central bank has been on a prolonged mission to bring down inflation, implementing eight consecutive interest rate hikes since May 2023, for a cumulative 3,650 basis points. The bank’s latest increase, on Jan. 25, raised the key interest rate by 250 basis points to 45%.
The more conventional approach follows several years of unorthodox policy during which Ankara refused to tighten rates despite ballooning inflation. The lira is down 38% against the dollar year to date and has lost more than 80% of its value against the greenback over the last five years. 
The latest inflation print comes just days after Turkey’s central bank governor, Hafize Gaye Erkan, announced her resignation, saying Friday that the decision was due to a “reputation assassination” campaign and the need to protect her family.

Erkan became the bank’s central governor by presidential decree in June 2023, and led — along with Turkish Finance Minister Mehmet Simek — the turnaround in Turkey’s monetary policy and subsequent series of interest rate rises.

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.
Anadolu Agency | Anadolu Agency | Getty Images

She was replaced on Saturday by the central bank’s deputy governor, Fatih Karahan, who spent nearly a decade as an economist at the Federal Reserve Bank of New York.
January’s inflation figures “highlight the continued strength of services inflation and may put pressure on new central bank governor Karaham to restart the central bank’s tightening cycle,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a research note.
“The fact that inflation didn’t rise significantly more than expected in January is positive given the uncertainty about the impact of the minimum wage hike,” Peach wrote. “But the figures present a small setback to the disinflation process and highlight the continued strength of services inflation. For now, the central bank’s end-year inflation forecast of 36% remains intact.”   More

SHANGHAI (Reuters) – Chinese workers packed into trains on Monday, heading home for the Lunar New Year holidays with worries about their jobs and a stuttering economy overshadowing the build-up to the long-awaited family reunions.People are expected to make a record 9 billion journeys before and after the Feb. 10-17 break – usually a time for celebration and relaxation.But this year, many said they were worried what they might find when, or even if, their employers call them back.”Business was not very good,” said Wang Jinzhu, looking back at the past year at the electric toothbrush maker where he works. Sales were down 30% at the business that exports most of its products to the U.S. and Europe.”I feel my days were tougher than in previous years… I think 2024 could be even harder,” the 42-year-old said before boarding a train in Shanghai to the central Henan province.Many factories in China have been locked in a relentless price war for shrinking business as higher interest rates and rising protectionism abroad squeeze demand for their goods.Producer prices have fallen for 15 straight months, crushing profit margins and endangering workers’ incomes and jobs, adding another major headache for the world’s second-largest economy, already reeling from a property crisis and a debt crunch.China’s economy grew 5.2% last year. But for many – including unemployed graduates, property owners who feel poorer as their flats lost value and the workers earning less that a year ago – it felt like it was shrinking. Nie Yating, who has worked in a Shanghai pet hospital for the past six months, said many of her colleagues saw their monthly pay drop by at least 1,000 yuan ($139) as the business continued to struggle to get back on its feet after the COVID lockdowns.”The company had expanded quickly and then came the pandemic: they closed branches, fired staff and it’s affecting wages as well,” the 24-year-old said before her trip to her hometown of Anqing in the southwest.In recent months, Chinese authorities have ramped up efforts to project confidence in the economy and calm nervy financial markets, with stocks lingering around five-year lows. On Friday, a headline in the official Communist Party newspaper People’s Daily proclaimed: “The entire country is filled with optimism.” But Wu Kan, who runs a small dredging business with six boats and a dozen workers, had little reason to feel confident about the rest of 2024.Instead of travelling back home, he was heading to the eastern province of Shandong to try to collect overdue payments from clients. He has been paying his workers’ wages from his own pocket.”Money is tight and the economy, post-COVID, feels in a bad shape. People are generally short of money,” Wu said.    “If I can’t collect the money I’m won’t be able to make any investments in the new year.” One option, he said, was to shut the business down.($1 = 7.1984 Chinese yuan renminbi) More

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TORONTO (Reuters) – Canada’s plan to cut the maximum lending rate for regulated institutions could give illicit financiers an opportunity to step in and serve distressed customers, leading to a rise in criminal activity, a study released on Monday showed.Finance Minister Chrystia Freeland in the 2023 Federal budget laid out plans to amend the Criminal Code to cap the top annual consumer lending rate for all regulated financial institutions at 35% from 47% to combat predatory lending practices. This marks the first time in over 40 years that Canada has targeted the peak lending rates, also called the criminal rate of interest.But the move would lead to a rise in illicit financial activities, endangering Canadians already struggling with increasing costs of living, the Ontario Association of Chiefs of Police (OACP) and Canadian Lenders Association (CLA) said in a statement.”The legislation has the potential to create a vacuum for criminals to fill,” said Barry Horrobin, Co-Chair of the OACP’s Community Safety and Crime Prevention Committee.Horrobin argued that illegal predatory lenders could take advantage of Canadians by operating online from outside the bounds of Canadian jurisdiction.The proposal would restrict access to credit for about 4.7 million Canadians, about 16% of the nation’s population with active credit files, forcing them to rely on payday or illegal lending to meet their credit needs, the study, based on case studies from Quebec, California and Britain, showed.About 8.5 million Canadians rely on non-prime lenders, according to the CLA, which represents over 300 lenders. Given the “notable profit margins” of many of these lenders, suggestions that lenders might deny credit to some of the most vulnerable Canadians is “entirely irresponsible,” Katherine Cuplinskas, a spokesperson for the Finance Department said.The Bank of Canada has raised its benchmark interest rate to a 22-year high of 5% to fight inflation. The prime lending rates for the country’s top six lenders hover around 7%, but sub-prime borrowers have to pay significantly more.The study said a significant number of regulated lenders would need to exit the market due to their inability to serve the higher-risk non-prime segment, potentially leading to an increase in criminal activities, including illegal lending and loan sharking.At the same time, several consumer advocacy groups have cheered the government’s move saying it is the first step to tackling predatory lending. More

BANGKOK (Reuters) – Thai Prime Minister Srettha Thavisin said on Monday four consecutive months of negative inflation were a sign of economic weakness and called for fiscal and monetary policy coordination, raising pressure on the central bank to ease monetary policy.Thailand’s headline consumer price index (CPI) fell 1.11% in January from a year earlier, data showed on Monday, versus a forecast drop of 0.82% in a Reuters poll.The decline in January was the fourth in as many months and was driven by government energy subsidies, lower food prices, and last year’s high base, the commerce ministry said.”It’s a sign of economic weakness,” Srettha said, adding fiscal and monetary policy must go together, otherwise “it would be difficult to solve the problem”.It was the ninth straight month that headline inflation was below the central bank’s target range of 1% to 3%.Srettha has urged the central bank to cut the key rate, currently at a more than decade-high of 2.50%, to help Southeast Asia’s second-largest economy he says is in crisis.Earlier on Monday, Deputy Finance Minister Julapun Amornvivat shared a similar view, saying low inflation was worrying while high interest rates were the people’s burden and the central bank should help address the problem.Four consecutive months of negative inflation mean “purchasing power is disappearing,” he said.Despite lower inflation and government pressure on the Bank of Thailand (BOT) to ease policy, it is expected to leave its policy rate unchanged on Wednesday, a Reuters poll showed.BOT Governor Sethaput Suthiwartnarueput recently told Reuters the current policy rate was “broadly neutral” and the economy was not in crisis.The BOT left its key rate steady at its November review, having raised it by 200 basis points since August 2022 to curb inflation.The commerce ministry predicted headline CPI would fall 0.7% year-on-year in the first quarter, with government measures to lower living costs the main factor.”There is still no deflation yet as the core rate remains positive,” Poonpong Naiyanapakorn, head of the ministry’s trade policy and strategy office, told a briefing.The core CPI, which stripe out fresh food and energy prices, rose 0.52% year-on-year in January, versus a forecast rise of 0.57%.For 2024, the ministry maintained its forecast for headline inflation at between -0.30% and 1.7%, after last year’s 1.23%.(This story has been refiled to add a dropped word ‘negative’ in paragraph 1) More

LONDON (Reuters) – Sovereign debt sales from developing nations scaled an all-time record for January at $47 billion led by major and less risky emerging markets but a lack of investor flows into dedicated funds could curtail a nascent recovery for riskier issuers.The start of the year – generally a busy time for debt sales of all sorts – has seen Saudi Arabia, Mexico, Hungary, Romania and a raft of others deliver some big ticket bond issuance. At the same time, flows into dedicated emerging market debt funds remained in the doldrums. Year-to-date, investors pulled about $1.6 billion out of dedicated emerging market hard-currency funds, according to Morgan Stanley data. That follows outflows of around $80 billion in 2022 and around half of that again last year. “Usually at this stage you would have seen money starting to come in”, said Paul Greer, portfolio manager of emerging markets debt and foreign exchange at Fidelity International. “I think there’s still a bit of an allocation towards equity markets. That money will eventually come back into fixed income and emerging markets would benefit. It’s just taking longer than I thought,” Greer added. While the early days of the year were dominated by higher-rated issuers, January also saw a reopening of some corners of the fixed income primary markets that had recently been dormant: Ivory Coast became the first Sub-Saharan nation to tap international capital markets in almost two years. Benin is in the process of following suit. But this might turn out to be an exception. Thys Louw, portfolio manager for emerging markets hard currency debt strategy at Ninety One, said that the main concern of the divergence between issuance and flows into these dedicated funds means that high yield issuers won’t be tapping the markets anytime soon. “There’s some cash on the sidelines… but I am still cautious. You will need to see inflows to say ‘Kenya, you can go, Nigeria you can go,” Louw added.DEPLETED CASH According to JPMorgan calculations, adding coupons to maturities and comparing to gross issuance should have left dedicated emerging markets hard currency funds with a $78 billion cash pile to invest over the past two years. But taking into account outflows, that would have shrunk to just $8 billion, the bank said in a recent note to clients.Demand for recent issuance, especially from higher-rated governments, would have also come from crossover funds, JPMorgan added. Crossover investors do not necessarily invest in emerging markets but are permitted by their mandates to do so. Lower-rated issuers hold less appeal for those asset managers.”If you split the emerging markets into two halves, the higher quality emerging market debt is traded very similar to Europe,” said Dan Farrell, head of International Short Duration, Northern Trust (NASDAQ:NTRS) Asset Management.”But then if you look at the lower end of the emerging markets, they’re in a very different fiscal space and it’s not actually an attractive option for investors.”Analysts at Morgan Stanley estimate almost $165 billion of EM sovereign debt will be issued this year, a roughly 20% increase on 2023. The bank predicts that high-yield issuers Oman, Serbia, Turkey, Bahrain, Uzbekistan and Colombia could all be tapping markets this year. Much will also hinge on when and how fast the U.S. Federal Reserve, the European Central Bank and other G10 central banks will start cutting interest rates. “We have not yet seen a return of stability in rates and macro environment due to still-prevailing uncertainty on the timing of central banks’ policy rates cut for the rest of the year,” said Alexis Taffin de Tilques, head of CEEMEA DCM at BNP Paribas (OTC:BNPQY). “Markets will focus on the higher-grade issuers.” More