Economy

Inflation rose quickly in September and a key measure accelerated to the fastest pace since 1982, underlining the persistence of price increases.Prices continued to climb at a brutally rapid pace in September, with a key inflation index increasing at the fastest rate in 40 years, bad news for the Federal Reserve as it struggles to wrestle the cost of living back under control.Overall inflation climbed 8.2 percent over the year through September, according to the latest Consumer Price Index report on Thursday, a slight moderation from August but more than what economists had expected.Even more worrisome, underlying inflation trends are headed in the wrong direction. After stripping out fuel and food — which are volatile and removed to get a better sense of the trajectory — prices climbed 6.6 percent over the year through September. That was the quickest rate since 1982.Inflation has been rapid for a year and a half now, and it is proving stubborn even as the Fed mounts its most aggressive campaign in generations to slow the economy and bring price increases under control. Fast inflation has also triggered the highest Social Security cost-of-living adjustment in decades — an 8.7 percent increase in benefits to retired and disabled Americans, a move that was announced Thursday.Central bankers have quickly raised interest rates from near zero to a range of 3 to 3.25 percent, and investors expect a fourth straight three-quarter-point rate increase at the Fed’s next meeting, which concludes on Nov. 2. After the release of Thursday’s inflation data, they began to bet on another large move at the central bank’s December meeting.“The trend is very troubling,” said Blerina Uruci, a U.S. economist at T. Rowe Price.Markets swung wildly after the report, with stocks falling sharply initially but then surging higher as investors struggled to digest what the data meant for the future. The S&P 500 index closed up 2.6 percent.Higher Fed rates are already slowing the housing market, and are expected to slowly filter through the rest of the economy as they make it more expensive to borrow money for big purchases or business expansions. But consumer demand is taking time to crack: With jobs plentiful and wages rising, Americans are still spending.Inflation F.A.Q.Card 1 of 5What is inflation? More

NEW YORK (Reuters) – The outlook for jobs and spending may be chief among concerns for investors heading into third-quarter U.S. earnings as expectations increase that the Federal Reserve will need to keep an aggressive approach to hiking interest rates.Estimates for the earnings period have been falling, and analysts now expect S&P 500 companies’ earnings to have grown just 4.1% year over year in the quarter compared with an estimated increase of 11.1% at the start of July, according to IBES data from Refinitiv.Reporting on the period ramps up with the release of results from JPMorgan Chase & Co (NYSE:JPM) and other major banks Friday.Stocks have struggled recently, with the S&P 500 falling for a sixth straight session Wednesday, partly because of mounting fears among investors that the aggressive stance by the Fed could tip the world’s largest economy into recession and raise unemployment rates. Stocks rebounded Thursday.Data Thursday reinforced expectations the Fed will deliver a fourth 75-basis-point rate hike next month, with a report showing U.S. consumer prices increased more than expected in September.”There might not be that many disappointments in the actual results compared to the estimates, but they might tone down any optimistic talk just because of the uncertainty,” said Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio.Given the interest rate outlook, investors are keen to hear what company executives say about their plans for hiring and investment spending, which would give strong clues about the health of the U.S. economy.”If we start to hear more about hiring freezes, layoff announcements, reduction in capex… that’s a big red flag,” said Edward Moya, senior market analyst at OANDA in New York.”That means demand destruction is happening, and that will support the argument that they’re bracing for a recession.”Earlier this week, Bloomberg News reported chipmaker Intel Corp (NASDAQ:INTC) is planning a major reduction in headcount in the face of a slowdown in the personal computer market, citing people with knowledge of the situation.Some investors said this earnings season may be too soon to give many indications on changes in capital expenditures, but they will be watching profit margins closely.”Almost any of the indicators we look at, across the board, are giving a very, very clear signal there is likely to be margin pressure in the coming months,” and that would eventually affect capital spending, said Seema Shah, chief global strategist at Principal Asset Management, in London. Nike Inc (NYSE:NKE) in its recent report warned of a margin squeeze from widespread markdowns, creating worries of sector-wide contagion of ballooning inventory.Not all signs point to disappointment this earnings season. On Thursday, Walgreens Boots Alliance (NASDAQ:WBA) Inc reported a better-than-expected quarterly profit, and the company also forecast a “better-than-feared” full-year profit, driving its shares higher.Last month, Rite Aid (NYSE:RAD) cut its full-year forecast, citing concerns about consumer spending pressure and supply chain challenges.Earnings estimates have come down for all of 2022 as well, with S&P 500 profit growth now forecast at 7.4% compared with 9.5% at the start of July, based on Refinitiv data.Indeed, another big risk to third-quarter earnings is the strengthening of the U.S. dollar, which can hurt U.S. multinationals that need to exchange their earnings into dollars.”This season, company managements have a panoply of headwinds to blame when offering up disappointing results,” Jack Ablin, chief investment officer at Cresset Capital in Chicago, wrote in a note this week. More

(Reuters) – U.S. grocery company Kroger (NYSE:KR) Co is in talks to merge with smaller rival Albertsons Companies Inc in a tie-up that would create a supermarket titan, people familiar with the matter said. The merger of the nation’s No. 1 and 2 standalone grocers, if reached, could provide the retailers with a leg up in negotiations with consumer-product makers such as Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL) at a time of steep price hikes. A deal could be announced as soon as this week if the talks do not fall apart, said the sources, who requested anonymity as the discussions are confidential. Major consumer products companies across the world have announced plans to boost prices at a faster pace as they seek to curb the impact of soaring raw materials costs on their margins.Some critics noted that a supermarket merger would lessen competition among U.S. grocery chains and potentially lead to higher prices for American shoppers. A deal would create a combined company with a market valuation of about $47 billion, representing one of the biggest mergers in recent years in the retail space. Neither Kroger nor Albertsons immediately responded to requests for comment. The news was first reported by Bloomberg.Consultant Burt Flickinger, who holds shares of both Kroger and Albertsons, said a merger would give the two supermarket operators more buying power, making it easier for them to compete with Walmart (NYSE:WMT) Inc. Groceries constitute roughly 55% of Walmart’s annual sales. Walmart traditionally has used its clout to demand the lowest possible prices from packaged-food and beverage companies, leaving rivals at a disadvantage in their own negotiations with suppliers. Roughly 25% of all dollars spent on groceries in the United States are spent at Walmart, according to data provided by Euromonitor. Kroger and Albertsons have roughly 8% and 5% of the U.S. grocery market, respectively, according to Euromonitor.COMPETING POWERThe specter of Amazon (NASDAQ:AMZN) may have contributed to the merger talks as well. Michael Pachter, an analyst at Wedbush Securities, estimated the online retailer has taken about $4 billion in market share from Kroger and Albertsons in the past two years — small relative to an $800 billion grocery market but a threat nonetheless. “Amazon scares the bejeezus out of the conventional retailers,” he said.The Seattle-based technology company is betting that the cashierless and contactless payment systems it is adding to stores, including at its subsidiary Whole Foods Market, will win it customers in the long run.Shares of Albertsons were up 11% on Thursday afternoon, while Kroger’s stock slipped 1.4%. Shares of British online supermarket and technology group Ocado (LON:OCDO) Group Plc were up over 10% in late London trade. Kroger is Ocado’s biggest client.Kroger houses supermarket chains such as Fred Meyer, Ralphs and King Soopers. Boise, Idaho-based Albertsons includes the Safeway banner. The razor-thin margins of standalone U.S. supermarket chains have been squeezed from soaring costs and supply-chain disruptions after a boom at the height of the pandemic. Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly nonprofit, said the deal would “squeeze consumers already struggling to afford food.””This merger is a cut and dried case of monopoly power, and enforcers should block it,” Miller said. A deal could be reached as soon as this week, Bloomberg reported, adding that no final decision has been taken and talks could still be delayed or falter. More

U.S. officials pushed to choke off China’s access to critical semiconductor technology after internal debates and tough negotiations with allies.WASHINGTON — In conversations with American executives this spring, top officials in the Biden administration revealed an aggressive plan to counter the Chinese military’s rapid technological advances.China was using supercomputing and artificial intelligence to develop stealth and hypersonic weapons systems, and to try to crack the U.S. government’s most encrypted messaging, according to intelligence reports. For months, administration officials debated what they could do to hobble the country’s progress.They saw a path: The Biden administration would use U.S. influence over global technology and supply chains to try to choke off China’s access to advanced chips and chip production tools needed to power those abilities. The goal was to keep Chinese entities that contributed to potential threats far behind their competitors in the United States and in allied nations.The effort, no less than what the Americans carried out against Soviet industries during the Cold War, gained momentum this year as the United States tested powerful economic tools against Russia as punishment for its invasion of Ukraine, and as China broke barriers in technological development. The Russian offensive and Beijing’s military actions also made the possibility of a Chinese invasion of Taiwan seem more real to U.S. officials.The administration’s concerns about China’s tech ambitions culminated last week in the unveiling of the most stringent controls by the U.S. government on technology exports to the country in decades — an opening salvo that would ripple through global commerce and could frustrate other governments and companies outside China.In a speech on Wednesday on the administration’s national security strategy, Jake Sullivan, the national security adviser, talked about a “small yard, high fence” for critical technologies.“Choke points for foundational technologies have to be inside that yard, and the fence has to be high because these competitors should not be able to exploit American and allied technologies to undermine American and allied security,” he said.This account of how President Biden and his aides decided to wage a new global campaign against China, which contains previously unreported details, is based on interviews with two dozen current and former officials and industry executives. Most spoke on the condition of anonymity to discuss deliberations.The measures were particularly notable given the Biden administration’s preference for announcing policies in tandem with allies to counter rival powers, as it did with sanctions against Russia.With China, the administration spent months in discussions with allies, including the Dutch, Japanese, South Korean, Israeli and British governments, and tried to persuade some of them to issue restrictions alongside the United States.But some of those governments have been hesitant to cut off important commerce with China, one of the world’s largest technology markets. So the Biden administration decided to act alone, without public measures from allies.More on the Relations Between Asia and the U.S.Taiwan: American officials are intensifying efforts to build a giant stockpile of weapons in Taiwan in case China blockades the island as a prelude to an attempted invasion, according to current and former officials.North Korea: Pyongyang fired an intermediate range ballistic missile over Japan for the first time since 2017, when Kim Jong-un seemed intent on escalating conflict with Washington. But the international landscape has changed considerably since then.A Broad Partnership: The United States and 14 Pacific Island nations signed an agreement at a summit in Washington, putting climate change, economic growth and stronger security ties at the center of an American push to counter Chinese influence.South Korea: President Yoon Suk Yeol has aligned his country more closely with the United States, but there are limits to how far he can go without angering China or provoking North Korea.Gregory C. Allen, a former Defense Department official who is now at the Center for Strategic and International Studies, said the move came after consultation with allies but was “fundamentally unilateral.”“In weaponizing its dominant choke-point positions in the global semiconductor value chain, the United States is exercising technological and geopolitical power on an incredible scale,” he wrote in an analysis.The package of restrictions allows the administration to cut off China from certain advanced chips made by American and foreign companies that use U.S. technology.President Biden visited an IBM factory in Poughkeepsie, N.Y., last week.Erin Schaff/The New York TimesU.S. officials described the decision to push ahead with export controls as a show of leadership. They said some allies wanted to impose similar measures but feared retaliation from China, so the rules from Washington that encompass foreign companies did the hard work for them.Other rules bar American companies from selling Chinese firms equipment or components needed to manufacture advanced chips, and prohibit Americans and U.S. companies from giving software updates and other services to China’s cutting-edge chip factories.The measures do not directly restrict foreign makers of semiconductor equipment from selling products to China. But experts said the absence of the American equipment would most likely impede China’s nascent industry for making advanced chips. Eventually, though, that leverage could fade as China develops its own key production technologies.Some companies have chafed at the idea of losing sales in a lucrative market. In a call with investors in August, an executive at Tokyo Electron in Japan said the company was “very concerned” that restrictions could prevent its Chinese customers from producing chips. ASML, the Dutch equipment maker, has expressed criticisms.Chinese officials called the U.S. restrictions a significant step aimed at sabotaging their country’s development. The move could have broad implications — for example, limiting advances in artificial intelligence that propel autonomous driving, video recommendation algorithms and gene sequencing, as well as quashing China’s chip-making industry. China could respond by punishing foreign companies with operations there. And the way Washington is imposing the rules could strain U.S. alliances, some experts say.Top officials in the Biden administration have an aggressive plan to counter the Chinese military’s rapid technological advances.Kevin Frayer/Getty Images“Sanctions that put the United States at odds with its allies and partners today will both undercut their effectiveness and make it harder to enroll a broad coalition of states in U.S. deterrence efforts,” said Jessica Chen Weiss, a professor of government at Cornell University and a recent State Department official.Others have argued that the moves did not come soon enough. For years, U.S. intelligence reports warned that American technology was feeding China’s efforts to develop advanced weapons and surveillance networks that police its citizens.Last October, the intelligence community began highlighting the risks posed by Chinese advances in artificial intelligence, quantum computing and semiconductors in meetings with industry and government officials..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}What we consider before using anonymous sources. Do the sources know the information? What’s their motivation for telling us? Have they proved reliable in the past? Can we corroborate the information? Even with these questions satisfied, The Times uses anonymous sources as a last resort. The reporter and at least one editor know the identity of the source.Learn more about our process.Mr. Sullivan and other officials began pushing to curb sales of semiconductor technology, according to current and former officials and others familiar with the discussions.But some officials, including Commerce Secretary Gina Raimondo and her deputies, wanted to first secure the cooperation of allies. Starting late last year, they said in meetings that by acting alone, the United States risked harming its companies without doing much to stop Chinese firms from buying important technology from foreign competitors.The Trump administration announced restrictions on the Chinese tech giant Huawei and singled out the company as a threat to national security.Qilai Shen for The New York TimesA Diplomatic PushEven as the Trump administration took some aggressive actions against Chinese technology, like barring international shipments to Huawei, it began quiet diplomacy on semiconductor production equipment. U.S. officials talked with their counterparts in Japan and then the Netherlands — countries where companies make critical tools — on limiting exports to China, said Matthew Pottinger, a deputy national security adviser in the Trump administration.Biden administration officials have continued those talks, but some negotiations have been difficult. U.S. officials spent months trying to persuade the Netherlands to prevent ASML from selling older lithography machines to Chinese semiconductor companies, but they were rebuffed.U.S. officials carried out separate negotiations with South Korea, Taiwan, Israel and Britain on restricting the sale and design of chips.Outside of the diplomacy, there was increasing evidence that a tool the United States had used to restrict China’s access to technology had serious flaws. Under President Donald J. Trump, the United States added hundreds of companies to a so-called entity list that prohibited American companies from selling them sensitive products without a license.But each listing was tied to a specific company name and address, making it relatively easy to evade the restrictions, said Ivan Kanapathy, a former China director for the National Security Council.Current and former U.S. officials suspect the Chinese military and previously sanctioned Chinese companies, including Huawei, have tried to gain access to restricted technology through front companies. Huawei declined to comment.Huawei could soon face additional restrictions: The Federal Communications Commission is expected to vote in the coming weeks on rules that would block the authorization of new Huawei equipment in the United States over national security concerns.Biden officials also believed the restrictions issued by the Trump administration against Semiconductor Manufacturing International Corporation, a major Chinese chip maker known as SMIC, had been watered down by industry and were allowing too many sales to continue, people familiar with the matter said.In a call with heads of American semiconductor equipment makers in March, Mr. Sullivan said that the United States was no longer satisfied with the status quo with China, and that it was seeking to freeze Chinese technology, said one executive familiar with the discussion.Mr. Sullivan, who had dialed into the call alongside Ms. Raimondo and Brian Deese, the director of the National Economic Council, told executives from KLA, Applied Materials and Lam Research that rules restricting equipment shipments to China would be done with allies, the executive said.In a statement, the National Security Council said the measures were “consistent with the message we delivered to U.S. executives because the administration has controlled only tools made by U.S. companies where there is no foreign competitor.”A semiconductor plant in Suining, China. The Biden administration took action in August to clamp down on the country’s semiconductor industry.Zhong Min/Feature China/Future Publishing, via Getty ImagesBreakthrough in ChinaAs negotiations with allied governments continued, experts at the Commerce, Defense, Energy and State Departments spent months poring over spreadsheets listing dozens of semiconductor tools made by U.S. companies to determine which could be used for advanced chip production and whether companies in Japan and the Netherlands produced comparable equipment.Then in July came alarming news. A report emerged that SMIC had cleared a major technological hurdle, producing a semiconductor that rivaled some complex chips made in Taiwan.The achievement prompted an explosion of dissatisfaction in the White House and on Capitol Hill with U.S. efforts to restrain China’s technological advancement.The Biden administration took action in August to clamp down on China’s semiconductor industry, sending letters to equipment manufacturers and chip makers barring them from selling certain products to China.Last week, the administration issued the ‌rules with global reach.Companies immediately began halting shipments to China. But U.S. officials said they would issue licenses on a case-by-case basis so some non-Chinese companies could continue supplying their Chinese facilities with support and components. Intel, TSMC, Samsung and SK Hynix said they had received temporary exemptions to the rules.The controls could be the beginning of a broad assault by the U.S. government, Mr. Pottinger said.“The Biden administration understands now that it isn’t enough for America to run faster — we also need to actively hamper the P.R.C.’s ambitions for tech dominance,” he said, referring to the People’s Republic of China. “This marks a serious evolution in the administration’s thinking.”Julian Barnes More

The Social Security Old-Age and Survivors Insurance Trust Fund could be depleted a year or two earlier than expected as a result of larger payouts.The 8.7 percent Social Security cost-of-living increase that was announced on Thursday is welcome news for retirees who are struggling to cope with surging inflation. But it could bring the social safety net program a step closer to insolvency.Annual government reports in June showed that the Social Security Old-Age and Survivors Insurance Trust Fund, which pays out retiree benefits, would be depleted in 2034. At that time, the fund’s reserves will run out, leaving the system reliant on incoming tax revenue. Those funds will provide enough money to cover only 77 percent of scheduled benefits unless Congress intervenes.Social Security is largely funded through payroll taxes, taxes levied on Social Security benefits and interest on money that the trust funds invest.Now that the program will be paying out more to help retirees keep up with rising prices, the program will be under even more pressure to sustain itself. Budget experts warn that the reserves could run out before 2034 as a result of the larger benefits.“This very large COLA increase is likely to bring the year of insolvency forward by a full year,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, referring to the cost-of-living adjustment. “It is just another reminder that procrastinating on addressing these imbalances leaves the people who depend on Social Security particularly vulnerable to a further deterioration in its finances.”The increased outlays for retirees will be partly offset by higher taxes on Americans. Along with the bigger benefits, the maximum amount of earnings subject to the Social Security payroll tax will increase to $160,200 from $147,000. Employers and employees each contribute 6.2 percent of wages up to that salary threshold, which is adjusted every year based on average wage growth.Because wages are rising, the amount of earnings subject to the tax is rising as well.Ms. MacGuineas estimated that the Social Security Trust Fund could have been depleted as much as two years earlier without the offsetting effect of the higher tax threshold.Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities, said the depletion date could be accelerated by as much as two years. But she added that a couple of years of high inflation probably would not fundamentally change Social Security’s long-term financing outlook.“It’s normal for Social Security’s trustees to update the expected reserve depletion date as circumstances change,” Ms. Romig said.Ms. Romig noted that more than 65 million retirees count on Social Security for most of their income and that the cost-of-living increase would ensure that older Americans did not fall into poverty as they aged.The June projections actually showed the depletion date of the fund being delayed by a year, from an earlier projection of 2033, the result of a stronger-than-expected economic recovery in 2021.Anqi Chen, assistant director of savings research at the Center for Retirement Research at Boston College, said the impact of the cost-of-living adjustment on the Social Security Trust Fund would depend on a combination of wage growth and labor force participation in the U.S. economy.“Higher wage growth would mean higher revenue for Social Security and a higher labor force participation would mean more workers contributing to the program, which also means higher revenue,” said Ms. Chen, who is also a senior research economist at the center.The future of Social Security has emerged as a major issue in the midterm elections this year. Republicans have argued that their proposals are intended to protect the long-term viability of Social Security, but Democrats and President Biden have warned that if Republicans take control of Congress they will scale back the program and curb benefits for retirees.“MAGA Republicans in Congress continue to threaten Social Security and Medicare — proposing to put them on the chopping block every five years, threatening benefits, and to change eligibility,” Karine Jean-Pierre, White House press secretary, said in a statement on Wednesday. “If Republicans in Congress have their way, seniors will pay more for prescription drugs and their Social Security benefits will never be secure.” More

Emerging markets that have coped well with the surge in global borrowing costs so far could find themselves in trouble if episodes such as the turbulence in the UK government bond market spread, a top IMF official has warned.Ilan Goldfajn, head of the IMF’s western hemisphere division, told the Financial Times that, while emerging markets had so far been spared a rush into dollar-based assets, investors may flee into markets such as US Treasuries if turbulence intensifies. “It could be the case that what we saw in the UK . . . could become a more generalised vulnerability so that markets become more disorderly,” Goldfajn said in an interview during this week’s IMF meetings in Washington. “In this world something very important will happen for emerging markets . . . the flight to safety.”He added that, while the dollar had risen against most global currencies, this was not yet because of a shift into US safe assets. Investors tend to flock to US markets in times of turmoil owing to their liquid nature and the tendency for the greenback to appreciate in times of uncertainty.So far, many economies in Latin America have managed to evade the worst of the turmoil in global markets triggered by higher US rates through prudent monetary policies. Brazil’s central bank was one of the first to raise rates in March 2021, tightening monetary policy a full year before the Fed. Mexico followed in June, then Chile, Peru and Colombia in quick succession. After aggressive rises, which have pushed rates into double digits in Brazil, Chile and Colombia, Latin America’s central banks are now at or near the peak of their tightening cycle. However, Goldfajn — as a former head of Brazil’s central bank and ex-chief economist of Latin America’s biggest lender Itaú Unibanco — said his past experience made him “always fearful of financial tightening”, especially when this involved US rates rising. The Federal Reserve has this year engaged in its most aggressive monetary tightening since the early 1980s and is considering making its fourth consecutive 75 basis point increase in November. Such an environment was “never very easy for [Latin America] to navigate”, Goldfajn said.In a blog co-authored with IMF colleagues, Goldfajn warned that Latin America now faced a “third shock” from higher global interest rates, on top of the pandemic and Russia’s invasion of Ukraine. Scarcer and costlier financing would hit consumption and investment in a region that has consistently grown more slowly than its emerging market peers over the past decade.These headwinds have led the fund to lower its Latin America growth forecasts for next year. It now predicts the region’s economies will expand just 1.7 per cent in 2023, down from a forecast of 2.5 per cent six months ago and well below the levels predicted for Asia, the Middle East or sub-Saharan Africa.Brazil, the biggest Latin American economy, is now expected to grow by just 1 per cent in 2023 — a prediction that Goldfajn said was based on an expectation of lower growth in China, Brazil’s biggest export market. However, Latin America will perform better this year than was expected back in April, when the fund held its spring meetings. Surging commodity prices, strong external demand and remittances, a rebound in tourism and solid growth momentum after the pandemic led the fund to raise its Latin America growth forecasts for 2022 to 3.5 per cent, largely because Brazil is performing much better than previously expected.Brazil will grow 2.8 per cent this year, the IMF now believes, whereas six months ago its forecasters had expected expansion of only 0.8 per cent. Mexico’s forecast has changed less and now stands at 2.1 per cent for 2022 and 1.2 per cent for 2023.Still under US economic sanctions, Venezuela will be one of the region’s standout performers this year and next, according to the IMF forecasts. After years of economic collapse, the fund predicts the South American oil exporter will grow 6 per cent in 2022 and 6.5 per cent in 2023, which would be its best year in a decade.Although the growth news for Latin America this year was positive, the IMF was less sanguine about inflation. While the region has led the world in raising interest rates and its mostly independent central banks have taken a much more aggressive stance than many peers, the fund said “Latin America will continue facing high inflation for some time”. It raised its regional inflation forecasts to 14.6 per cent for this year and 9.5 per cent next year.“Central banks should stay the course [and] should not ease prematurely,” Goldfajn told the FT. “You need to be mindful that inflation is the most important risk now and the one that needs to be tackled . . . we want to be sure that you don’t get inflation entrenched with wage and price spirals.”His main concern for Latin America, though, remains the risks generated by higher interest rates in the US. “It could be the case that this time around we are better off, maybe monetary policy is better, maybe we’ll have more reserves, maybe our banking systems are more healthy,” he said. “But . . . what worries me is that this tightening is there. It’s going to continue. We’re going to see deceleration, we may even see recessions globally. So that’s not an easy environment in 2023.” More

The US wishes to hobble China’s economy so it can never compete on equal terms. It is hard to interpret last week’s announcement by Washington on semiconductor export controls in any other way. The goal may be military supremacy, rather than economic, but globalisation as we knew it for the last 30 years is clearly at an end. Yet this is only the second most important event for China’s long-term growth trajectory to take place this month.Most important of all is what will happen a few days from now, when Xi Jinping steps out at the national congress of the Chinese Communist party to acknowledge what is almost certain to be a third term as its paramount leader. In office for another five years, Xi is likely to continue China’s turn away from liberalisation and market forces, towards statism and authoritarian rule. The US may struggle to hold China’s economy down, but in this cycle of hostility, Beijing is well on the way to crippling itself.Such shifts in the internal and external environment for Chinese growth affect the answer to the biggest economic and geopolitical question of the 21st century: can China’s rapid expansion continue until its people are as rich as Americans, or at least as rich as neighbours such as the Japanese? If so, then a simple fact comes into play. With four times the population of the US, China’s economy could grow to become four times as large, in which case it would dominate the world — certainly economically, and most likely politically and militarily as well.The obstacles to China’s development, however, now make a different path more probable. That is a future where China still grows, and still becomes the world’s largest economy, but remains well below the income levels of the US. That would be a world of two competing superpowers. The danger is that so close a competition could be even less stable, geopolitically, than an inexorable rise to Chinese dominance.The case for slower Chinese growth was laid out plausibly in a report by Roland Rajah and Alyssa Leng of the Lowy Institute earlier this year. With future population decline locked in by decades of the one-child policy, and diminishing returns to the construction of ever more apartments and infrastructure, China’s future growth depends on higher levels of productivity. However, Rajah and Leng argue that China has underperformed countries such as Japan and South Korea at similar stages in their development; and that the country is struggling with the next round of reforms it needs to keep pushing productivity higher, such as developing a modern financial system that allocates capital efficiently or reforming the “hukou” system of household registration. Unlike its East Asian neighbours, Beijing must now deal with outright hostility from the US towards its attempts to move up the value chain.It is quite possible that optimists on China’s growth are correct, that Beijing will change course and make the reforms it needs to sustain growth and that the country will be able to develop independently any technology the US denies them. But even if China has some success with reforms, Rajah and Leng make the pessimistic case that overall growth will still decelerate from 6 per cent before the Covid-19 pandemic to about 3 per cent by 2030 and 2 per cent by 2040.That creates a very different geopolitical future. China would still overtake the US during the next decade or two, but its economy would only become around 50 per cent bigger at purchasing power parity, which adjusts for prices, and 15 per cent bigger at market exchange rates. The implications of this are not reassuring for global stability. China’s demographics will weigh more and more heavily on its growth, while the US is more open to immigration. The Lowy Institute therefore projects the US starts to outgrow China after 2040. That implies China will achieve a moment of peak economic strength relative to the US at some point during the 2030s. If Chinese policymakers come to believe that is the case, then instead of time being on their side when it comes to rewriting the world order, they may perceive a limited window in which to act.Beijing will also — quite correctly — perceive an effort by the world’s economic superpower to hold China down and keep it relatively poor. That will foster resentment. The world’s largest economy, with a limited window of strength and reasons to begrudge the existing order: it sounds like a recipe for instability. Perhaps the only thing as frightening as runaway growth in China’s economy is the [email protected] More

A BoE report, however, said the clearing house of the London Metal Exchange (LME) ran down nearly its full default fund under a stress test of its base metals service. The LME was forced to halt nickel trading and cancel trades in early March after prices doubled to more than $100,000 per tonne in a surge sources blamed on short covering by one of the world’s top producers.Central counterparties operating in London are a key part of the global financial system’s plumbing, due to their role in helping to clear trades between major financial institutions. “While the stress test was exploratory, with no pass-fail assessments, the results are evidence of the overall resilience of the UK CCPs,” BoE Deputy Governor Jon Cunliffe said in a statement.The BoE said it checked whether the CCPs were resilient to a market stress scenario and to the simultaneous default of the two largest clearing member groups.”While results vary across CCPs, no CCP experienced full depletion of prefunded financial resources or a negative liquidity balance,” the BoE said.”One CCP Clearing Service (LME Base), losses result in close to full depletion of the default fund when the bank’s estimates of concentration costs are included,” the report said.British financial regulators including the BoE launched a sweeping probe in April into how the LME suspended nickel trading and the LME also commissioned its own independent review.The BoE’s CCP exercise started in October 2021 and was designed to be as severe as the worst historical market stress scenario experienced by each CCP up to that point.Recent weeks have witnessed record falls in some British government bond prices, and forced the BoE to stabilise the market due to the risk of a fire sale by liability-driven investment (LDI) funds used by the pensions industry.”We will engage these CCPs on our findings, which will help the Bank target its supervision and inform CCPs’ approach to risk management,” Cunliffe said. More