Economy

BUENOS AIRES (Reuters) – Argentina’s central bank is likely to raise its benchmark interest rate by 600 basis points this week to tackle the country’s high inflation, market participants told Reuters on Tuesday. Analysts and local traders consulted by Reuters agreed that the bank could bring the nominal annual rate to 66% from the current rate of 60%. The decision is aimed at fighting the country’s persistent high inflation, which in July is likely to be 7.2%, a Reuters poll showed. The government will publish its July inflation figures on Thursday.”There are expectations for a new important rate hike by the central bank this week, in an attempt to continue recovering a greater appetite for peso placements and at the same time reduce the search for hedging” in dollars, said economist Gustavo Ber.A spokesperson for the central bank told Reuters that the bank’s board of directors will meet on Thursday, while another official source with knowledge of the matter did not rule out a new rate hike, although he did not define the eventual magnitude.In late July, the bank hiked the rate 800 basis points amid a cabinet reshuffle aiming to curb the economic crisis the country is facing.The newly appointed economy “superminister,” Sergio Massa, said his mandate is to stabilize the country’s situation by lowering the fiscal deficit, strengthening the central bank’s scarce reserves and reducing inflation. [nL1N2ZF2RC More

Last week, Brazil’s central bank raised its key interest rate by half a percentage point to battle the impacts of fuel and food shocks that have kept consumer prices rising above 10% a year even as growth remains subdued.The country’s largest brokerage said its net inflows of 43 billion reais ($8.36 billion) were 43% lower from a year ago, while the total purchase value on XP’s credit card rose 161% to 5.5 billion reais. Assets under custody rose 4% to 846 billion reais as people poured money into its diverse range of products such as bonds, derivatives and pension funds, while active client numbers rose 16%.The company’s adjusted net income rose 1% to 1.05 billion reais in the second quarter and net revenue jumped 14%.Retail gross revenue rose 14% to 2.79 billion reais, while institutional revenue saw a 16% jump to 436 million reais. ($1 = 5.1454 reais) More

The typical household energy bill in Britain is forecast to soar to £4,420 next April, more than three times the level it was at the start of 2022, stoking calls for increased state support for families facing energy poverty.But why has Britain’s energy price cap, which dictates a maximum that suppliers can charge the vast majority of the country’s households, climbed so high and how does it compare with what families pay in other countries in Europe?The options facing the incoming prime minister — due to be chosen by members of the ruling Conservative party in early September — are already becoming an issue in the leadership campaign.Why are bills so high?Energy bills have started to rise sharply as gas prices shot higher in the past 12 months, driven primarily by Russia’s squeeze on supplies to Europe.Wholesale gas prices have now reached about 10 times the level they averaged last decade after Russia’s supply curbs intensified following the invasion of Ukraine, with Moscow and the west engaging in economic warfare. While Britain imported only a small percentage of its gas from Russia prior to the war, it is connected by pipeline to the wider European market, which relied on Russia for as much as 40 per cent of its supplies. This means prices paid by British suppliers still track those in the rest of Europe relatively closely. British bill payers, however, are more exposed than their continental peers because the vast majority of homes are heated with gas, and about 40 per cent of electricity is generated by gas-fired power stations — a higher proportion than most European countries.The collapse of dozens of small retail energy suppliers as the gas price rose has also added about £100 to bills. Analysts have pointed out that the tweak by regulator Ofgem to its methodology for calculating the energy price cap has inflated bills further by allowing suppliers to claw back more of the cost of hedging the price of the gas they have to buy in advance and at a faster rate.How do bills compare with the rest of Europe?The situation varies quite dramatically and depends a lot on the degree of state intervention. Some governments on the rest of the continent have gone further than the British government in taking steps to shield consumers. Direct comparisons are difficult but the typical Italian household is forecast to spend around £2,300 annually at present, compared to a current British price cap of £1,971. A July estimate for households in Germany put the average bill at £2,759.France is something of an outlier with president Emmanuel Macron moving to shield consumers almost entirely from soaring prices. After raising gas and electricity bills marginally last year, they have since been largely capped, beyond a 4 per cent rise in household electricity costs. The French state, which owns 84 per cent of energy provider EDF, will nationalise the utility fully as it absorbs the costs.The UK has so far announced a £15bn package that will shave £400 off most household bills, with more going to poorer and more vulnerable families. But this was based on expectations of the price cap reaching £2,800 in October, far below the latest projections for the autumn of £3,582.

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Why have a price cap that doesn’t cap prices?Despite its name, the price cap was not designed to prevent bills rising when it was introduced in 2019; it was meant to prevent suppliers from earning excessive profit margins on consumers less willing or less able to shop around when old fixed-price deals expired.But as wholesale costs have soared, suppliers have largely withdrawn fixed-term deals. About 86 per cent of Britain’s 27.8mn households have now defaulted on to tariffs governed by the price cap. Ofgem, the regulator, announced last week it would review the cap once every three months rather than six months. While that would mean bills falling more quickly if wholesale prices dropped, it also means customers being hit by higher energy costs more rapidly for the foreseeable future unless Russia opens the gas taps soon.Cornwall Insight, the consultancy that put out the latest £4,420 forecast for next spring, has suggested doing away with the cap altogether, adding: “If it is not controlling consumer prices, and is damaging suppliers’ business models, we must wonder if it is fit for purpose.” What are the options for lowering bills?Pressure is mounting on ministers from a range of different interest groups to provide additional help. Poverty campaigners are concerned the poorest households face a choice between “eating and heating” this winter when energy usage peaks. And economists worry that middle-income households will severely cut back their discretionary spending, thereby pitching the UK into a deeper recession than forecast.Liz Truss, who is favourite to become the next prime minister, has maintained she would rather cut taxes than provide more “‘handouts”, even as her allies cautioned that additional support has not been ruled out. She has previously said she would suspend “green” levies on energy bills — meant to help fund investment in low-carbon generation and upgrade housing stock.Rishi Sunak, the other leadership candidate and former chancellor, has previously said he would cut VAT on energy bills. This week he promised to expand the £15bn package of support on the cost of power he announced in May, but has so far not given any details.

The candidates’ costed promises — to suspend “green” levies or cut VAT on bills — would save less than £200 per household.Sir Ed Davey, leader of the Liberal Democrats and a former energy minister, has proposed freezing the price cap at its current level, with the government absorbing the £36bn he estimates that would cost.Davey has suggested expanding a windfall tax on energy companies and using higher VAT receipts to help pay for it. But his estimate of a £36bn cost to the taxpayer could end up being too low, with forward gas prices stubbornly high into 2023.Over the longer term, business secretary Kwasi Kwarteng has proposed breaking the link between gas and electricity prices as more renewables such as wind and solar are added to the grid, a move that Ofgem has backed. More

WASHINGTON — President Biden on Tuesday signed into law a sprawling $280 billion bill aimed at bolstering American chip manufacturing to address global supply chain issues and counter the rising influence of China, part of a renewed effort by the White House to galvanize its base around a recent slate of legislative victories.Standing before business leaders and lawmakers in the Rose Garden, Mr. Biden said the bill was proof that bipartisanship in Washington could produce legislation that would build up a technology sector, lure semiconductor manufacturing back to the United States and eventually create thousands of new American jobs.“Fundamental change is taking place today, politically, economically and technologically,” Mr. Biden said. “Change that can either strengthen our sense of control and security, of dignity and pride in our lives and our nation, or change that weakens us.”The bipartisan compromise showed a rare consensus in a deeply divided Washington, reflecting the sense of urgency among both Republicans and Democrats for an industrial policy that could help the United States compete with China. Seventeen Republicans voted for the bill in the Senate, while 24 Republicans supported it in the House.While Republicans have long resisted intervening in global markets and Democrats have criticized pouring taxpayer funds into private companies, global supply chain shortages exacerbated by the pandemic exposed just how much the United States had come to rely on foreign countries for advanced semiconductor chips used in technologies as varied as electric vehicles and weapons sent to aid Ukraine.Read More on the Relations Between Asia and the U.S.Pelosi’s Taiwan Visit: House Speaker Nancy Pelosi’s trip to Taiwan has exacerbated tensions between the United States and China, which claims the self-governing island as its own. The visit could also undermine the Biden administration’s strategy of building economic and diplomatic ties in Asia to counter Beijing.Reassuring Allies: Amid China’s military exercises near Taiwan in response to Ms. Pelosi’s visit, the Biden administration says its commitment to the region has only deepened. But critics say the tensions over Taiwan show that Washington needs stronger military and economic strategies.CHIPS and Science Act: Congress passed a $280 billion bill aimed at building up America’s manufacturing and technological edge to counter China. It is the most significant U.S. government intervention in industrial policy in decades.In a sign of how Beijing’s rise drove the negotiations for the legislation, Mr. Biden explicitly mentioned China multiple times during his remarks at the bill-signing ceremony.“It’s no wonder the Chinese Communist Party actively lobbied U.S. business against this bill,” the president said, adding that the United States must lead the world in semiconductor production.The bill is focused on domestic manufacturing, research and national security, providing $52 billion in subsidies and tax credits for companies that manufacture chips in the United States. It also includes $200 billion for new manufacturing initiatives and scientific research, particularly in areas like artificial intelligence, robotics, quantum computing and other technologies.The legislation authorizes and funds the creation of 20 “regional technology hubs” that are intended to link together research universities with private industry in an effort to advance technology innovation in areas lacking such resources. And it provides funding to the Energy Department and the National Science Foundation for basic research into semiconductors and for building up work force development programs.“We will bring these jobs back to our shores and end our dependence on foreign chips,” said Senator Chuck Schumer, Democrat of New York and the majority leader, who pumped his fists as he stepped toward the lectern. More

Grim news about the UK economy keeps mounting. Last week, the Bank of England forecast a 15-month recession, with inflation peaking at more than 13 per cent. The energy price cap, which limits how much households can be charged, is now forecast to soar 80 per cent in October from today’s record levels, pushing many into a dire choice between heating and eating over the winter. Mortgage and rental costs are also rising. Yet with the government paralysed as it awaits the outcome of a Conservative leadership contest that is still ignoring the scale of the problem, there is still no clear and realistic near-term cost of living strategy — just when the most vulnerable need it the most.The UK faces its worst bout of stagflation — low growth and high inflation — since the 1970s. A reliance on natural gas imports and a sluggish post-pandemic recovery in its workforce means UK inflation is a toxic mix of the energy-driven type facing continental Europe and the wage pressures at play in the US. Underlying the BoE’s stark forecast was the equally bleak calculation that in order to bring inflation down it needed to lift interest rates enough to cool the jobs market and investment, engineering a downturn in the process.With the central bank now alive to the danger of persistently high inflation, fiscal policy will have to tread carefully as it offsets the cost of living crisis when resources are tight. Weaker growth will shrink any fiscal headroom the Treasury might have had, while the government has already pledged a hefty £37bn across various cost of living packages. Moreover, efforts to support households — whether by tax cuts or direct payments — will add further fuel to inflation, which will in turn be met by tighter monetary policy.So, like the BoE, the government must do its own grim calculus — on how to share out the pain from sky-high inflation. While the Tory leadership candidates have declined to confront this reality, whoever wins will have to do so. With prices moving higher, post-tax household incomes are expected to fall by the most in real terms in more than 60 years. Soaring energy and food prices will continue to hit the vulnerable the hardest, so targeted support to them must be the priority, even if it is inflationary at the margin. Getting money out of the door quickly and efficiently will be crucial. Energy bills could now hit £4,300 a year by January, after the decision to pass on rises in wholesale prices faster. Liz Truss has eschewed “handouts’’ to households, preferring to reverse rises in national insurance and scrap green levies. As well as cutting VAT on energy, Rishi Sunak has hinted at extending the direct payments he provided as chancellor.Cuts to levies and energy VAT will put more money in pockets, but will only tinker at the edges of the problem. Reversing the national insurance increase will do more for higher earners. Building on Sunak’s package of support in May — which included payments to those on means tested benefits, alongside the disabled and pensioners — may be the most viable immediate solution. It would need to be scaled up (it was based roughly on a £2,800 energy price cap) and better targeted; further payments to richer households too would be hard to justify.Any package would need to come alongside efforts to conserve energy and curb demand over the winter. With bills set to remain high into next year, the whole structure of the price cap and support for poorer households also needs to be reviewed. It is time both candidates for prime minister started to engage with the reality of the crisis and set out plans for action. For whoever takes over in September, it will be the most pressing item in their in-tray. More

(Reuters) -Taiwan’s Foxconn, the world’s largest contract electronics maker, on Tuesday said it will build driverless electric tractors for California-based Monarch Tractor at its Lordstown, Ohio, facility starting in early 2023.The announcement comes as heavy machinery manufacturers, including Deere (NYSE:DE) & Co and Georgia-based AGCO, set their sights on the electric vehicle market as the U.S. agriculture industry shifts to smart farming.The agreement with Monarch Tractor is the first manufacturing contract Foxconn, best known for assembling Apple Inc (NASDAQ:AAPL)’s iPhone, has entered since purchasing the Ohio facility that was formerly a General Motors (NYSE:GM) Assembly plant last year.Production for Monarch’s battery powered MK-V series tractor is scheduled to begin in the first quarter of 2023, said Foxconn, formally known as Hon Hai Technology Group.Monarch, which is based in Silicon Valley, debuted its first pilot series, autonomous electric tractor to a select group of farmers last year. The company has since entered into a multi-year licensing agreement with Italian-American vehicle manufacturer CNH Industrial (NYSE:CNHI). CNH Industrial has a minority stake in Monarch Tractor.With competition brewing among farm equipment manufacturers to expand product lines in precision agriculture technology and autonomous machinery, Monarch’s chief executive, Praveen Penmetsa, told Reuters that the company’s business model to target smaller farmers gives them unique opportunity to increase the marketshare while being on the same playing field with bigger manufacturers.”Their technology is focused on the large farm operations and commodity crops. Fruits and vegetable farmers use much smaller tractors so we are focused on smaller farmers – that differentiates us a lot,” Penmetsa said. The company did not disclose the cost of the tractor but said the autonomous software will be sold separately and that farmers will have to pay a monthly fee to access the services. More

The writer is co-founder of Centerview PartnersThe US economy is slowing down. The main dispute among economists is whether we are in for a soft landing or a hard one, and the pessimistic perspective has dominated headlines.But while it is clear that we are in for a difficult period ahead, there is also reason to believe that the American economy is primed for a renewed period of expansion in the years that follow. Most observers tend to view today’s economic challenges through the prism of past downturns. But the US economy operates differently today than it did 40, or even 14, years ago.For a start, the private sector has become more innovative, nimble and proactive in managing through change and uncertainty. Think back to March 2020, when the pandemic caused a near-complete shutdown of global commerce. Thanks to the data, tools and strategies business leaders now have at their disposal, instead of economic Armageddon we embarked on a period of robust growth. (Government policy, of course, played an essential role here.) Executives were quick to overhaul business practices to continue operations. Balance sheets were fortified, remote work was enabled, new technologies were adopted. At the most agile companies, capital investment increased in order to boost competitive positioning. The US labour market is also in better shape today than at the onset of past downturns. June’s strong employment numbers underscore this. While hiring freezes and lay-offs are likely to result in economic pain for many, workers can today more easily and quickly find new employment opportunities thanks to flexible work-from-home options. According to a study by real estate group CBRE published last year, nearly 90 per cent of America’s largest employers plan to continue offering hybrid work policies into the future. Today’s economy is also more dynamic and entrepreneurial. Yes, technology valuations have come down as they have been analysed more rationally. But in the five years ending in 2021, new business formation was a third higher than the preceding five-year period. And we’ve learnt in the decade or so since the recession that followed the financial crisis that economic models do not capture intangibles such as the willingness of a company to continue strategic capital investments through an economic slowdown. As companies reported second-quarter earnings this year, many chief executives adopted proactive belt-tightening on operating expenses but continued high levels of capital investment. Doing otherwise, they know, undermines longer-term growth. Finally, the economy’s prospects are buoyed by government policy. The bipartisan infrastructure plan will provide more than $100bn of infrastructure investment in each of the next five years. The landmark Inflation Reduction Act, narrowly passed last weekend, will help ease inflationary pressure. The US banking system is stable and sound. In the wake of continuing supply shocks, manufacturers are proceeding to onshore production and build duplication into supply chains. And though interest rates are rising, they are starting from a historically low level — 0.25 per cent, which is 95 per cent lower than the average starting rate of the previous four cycles of rate increases by the US Federal Reserve. To be sure, there are risks, from geopolitical instability to rising polarisation, that could impede government effectiveness and, in turn, hurt business confidence. But the US is better positioned for growth than the current economic debate concedes. Look beyond the immediate economic clouds on the horizon — and consider the agile private sector, evolved and improved labour markets and culture of innovation and entrepreneurship — and the long-term forecast may even look sunny.  More

WASHINGTON (Reuters) – A sweeping bill passed by the U.S. Senate on Sunday and intended to fight climate change, lower drug prices and raise some corporate taxes, will bring down inflation over the medium to long term and cut the deficit, rating agencies Moody’s (NYSE:MCO) Investors service and Fitch Ratings told Reuters on Monday.The legislation, known as the Inflation Reduction Act, however, will not bring down inflation “this coming year or next year,” said Madhavi Bokil, senior vice president at Moody’s Investors Service. Charles Seville, senior director of sovereign group economics at Fitch, said that the legislation was disinflationary “but for all the rebranding of the legislation, the impacts on inflation are relatively small and will only really start to compound over the medium and long term as these provisions take effect.” “We do think that this act will have an impact (of cutting inflation) as it increases productivity,” Bokil said, adding her horizon was two to three years.The Senate on Sunday passed the $430 billion bill, a major victory for President Joe Biden, sending the measure to the House of Representatives for a vote, likely Friday. They are expected to pass it and send it to the White House for Biden’s signature.Republicans, arguing that the bill will not address inflation, have denounced it as a job-killing, left-wing spending wish list that could undermine growth when the economy is in danger of falling into recession.Bokil said in the immediate short-term future, inflation was going to be tackled by the Federal Reserve as it raises rates.Inflation expectations are a key dynamic being closely watched by Fed policymakers as they aggressively raise interest rates to contain price pressures running at four-decade highs.While the short-term impact of the legislation on inflation will be modest, the bill still has the potential to bring down inflation expectations, Wendy Edelberg, a senior fellow in economic studies at Washington think tank the Brookings Institution, told Reuters in an email on Monday.Senate Democrats also said the act will cause a deficit reduction of $300 billion over the next decade while the U.S. Congressional Budget Office said the bill would decrease the federal deficit by a net $101.5 billion over that period. The CBO estimated in May that the 2022 federal budget deficit would be $1.036 trillion. Asked about how the legislation would impact the budget deficit, Bokil said: “The savings from the Medicare side as well as the tax changes will more than offset the extra cost.”Seville also said that the bill will reduce deficits and help contain rising healthcare costs.The legislation aims to reduce prescription drug costs by allowing Medicare, the government-run healthcare plan for the elderly and disabled, to negotiate prices on a limited number of drugs.Edelberg also said the bill will lead to “greater corporate tax revenue than we otherwise would see”, which will offset the cost and control the deficit.Moody’s said that the spending bill was complementary to another bill recently passed by Congress, which aimed to subsidize the U.S. semiconductor industry and boost efforts to make the United States more competitive with China.”They move in the same direction, so the Chips Act will also help with alleviating some of the supply chain issues,” Bokil added. (This story adds additional information to title in paragraph 3) More