Economy

OSLO (Reuters) -Norway’s central bank raised its benchmark interest rate by 50 basis points on Thursday, its largest single hike since 2002 and did not rule out making further increases of this size as the country seeks to control inflation.Norges Bank’s monetary policy committee raised the sight deposit rate to 1.25% from 0.75%, exceeding its own forecast made in March of a hike to 1.0%.”Based on the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further to 1.5% in August,” Governor Ida Wolden Bache said in a statement.”A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out.”Of the 20 economists polled by Reuters in advance of Thursday’s announcement, 14 had predicted Norges Bank would hike by 25 basis points (bps) while six said a 50 bps increase to 1.25% was the most likely outcome.For the rest of 2022, Norges Bank’s plan is to raise rates by 25 bps at each of its four remaining policy meetings, although raising them in larger increments may also be an option, Bache told a news conference.”I can’t rule out that future rate hikes could be larger than 25 bps,” she said. The Norwegian currency, the crown, rose to 10.46 against the euro at 0925 GMT from 10.51 just before the rate announcement.The central bank predicted the policy rate could rise to 3% by mid-2023, having previously pointed to a rate of 2.5% by the end of that year.”(This) underlines how stressed central banks are over inflation,” tweeted Torbjoern Isaksson, chief analyst at Nordea Markets in Sweden.Capital Economics, which correctly predicted a 50 bps hike ahead of Thursday’s announcement, said it believed the policy rate was unlikely to rise as much as the central bank now plans.”We are sticking to our current forecast of rates topping out at 2.50% next year, in part because Norwegian households are highly sensitive to higher interest rates. But the risks are to the upside,” it wrote.Norges Bank cut its growth forecast for the Norwegian mainland economy, which excludes oil and gas output, to 3.5% for 2022 from 4.1% seen in March.It raised its core inflation forecast for 2022 to 3.2% from 2.5%, and lifted the prediction for 2023 to 3.3% from 2.4% seen three months ago.The central bank targets core inflation of 2.0% over time.Central banks globally are struggling to contain surging prices in the wake of the COVID-19 pandemic and Ukraine war, leading to a 75 basis point U.S. Federal Reserve rate rise last week, a surprise hike by the Swiss National Bank and new policy tools at the ECB. More

LONDON/TOKYO (Reuters) – Manufacturing growth is slowing from Asia to Europe as China’s COVID-19 curbs and Russia’s invasion of Ukraine disrupt supply chains, while the growing risk of a recession in the United States poses a new threat to the global economy.High prices in the euro zone meant demand for manufactured goods fell in June at the fastest rate since May 2020 when the coronavirus pandemic was taking hold, with S&P Global (NYSE:SPGI)’s headline factory Purchasing Managers’ Index (PMI) falling to a near two-year low of 52.0 from 54.6.A Reuters poll had predicted a more modest drop to 53.9 and the index nudged closer to the 50 mark separating growth from contraction.”June’s euro zone PMI surveys showed a further slowdown in the services sector, while output in the manufacturing sector now seems to be falling outright,” said Jack Allen-Reynolds at Capital Economics.”With the price indices remaining extremely strong, the euro zone appears to have entered a period of stagflation.”There is a roughly one in three chance of a recession in the bloc within 12 months, economists in a Reuters poll published earlier on Thursday predicted. They also said inflation – which hit a record high of high of 8.1% last month – was yet to peak. [ECILT/EU]Jerome Powell, chair of the Federal Reserve, said on Wednesday the central bank was not trying to engineer a recession in the United States to stop inflation but was fully committed to bringing prices under control even if doing so risks an economic downturn.He acknowledged a recession was “certainly a possibility”.Inflation continues to run at least three times higher than the Fed’s targeted level of 2% and it is expected to deliver another 75 basis point interest rate hike next month, according to economists polled by Reuters. [ECILT/US]Despite Powell’s comments a few primary dealers have either started predicting a recession as early as this year or have brought forward their recession calls.U.S. investment firm PIMCO warned on Wednesday that central banks tightening monetary policy to fight persistently high inflation raised the recessionary risk.There is a 40% chance of a U.S. recession over the next two years, with a 25% chance of that happening in the coming year, a Reuters poll found earlier this month.”The global macroeconomic outlook has deteriorated materially since end-2021,” said Fitch Ratings, which slashed this year’s global growth outlook to 2.9% in June from 3.5% in March.”Stagflation, which is characterised by persistent high inflation, high unemployment and weak demand, has become the dominant risk theme since late 1Q22 and a plausible potential risk scenario,” it said in a report released this week.A string of recent data globally showed policymakers are walking a tight rope as they try to defuse inflation pressures without tipping their economies into a steep downturn.U.S. retail sales unexpectedly fell in May and existing home sales tumbled to a two-year low, a sign high inflation and rising borrowing costs were starting to hurt demand.Britain’s economy unexpectedly shrank in April, adding to fears of a sharp slowdown as companies complain of rising production costs. Its PMI also showed signs the economy was stalling as high inflation hit new orders and businesses reported levels of concern that normally signal a recession.[L8N2Y94JP]There is a 35% chance of a British recession within 12 months, another Reuters poll showed. [ECILT/GB]In Asia, South Korea’s exports for the first 10 days of June shrank almost 13% year-on-year, underscoring the heightening risk to the region’s export-driven economies.While Chinese exporters enjoyed solid sales in May, helped by easing domestic COVID-19 curbs, many analysts expect a more challenging outlook for the world’s second-biggest economy due to the Ukraine war and rising raw material costs.The au Jibun Bank flash Japan Manufacturing PMI slipped to 52.7 in June from 53.3 in May, marking the slowest expansion since February. More

JAKARTA (Reuters) – Indonesia’s central bank left interest rates at a record low on Thursday, saying it was monitoring risks from rising inflation while downplaying recent pressure on the rupiah currency.Bank Indonesia is expected to raise rates in the third quarter, analysts say, to shore up a weaker rupiah and guard against capital outflows from aggressive U.S. rate hikes.BI kept the benchmark 7-day reverse repurchase rate at 3.50%, as expected by the majority of economists in a Reuters poll. Its two other policy rates were also unchanged. BI remains one of the few major Asian central banks not to have lifted rates from a pandemic record low since inflation has held within its 2%-4% target range. The Philippine central bank hiked rates for a second consecutive policy meeting on Thursday.BI Governor Perry Warjiyo told a news conference he would continue to monitor inflation, including expectations of price pressures and core inflation and take further monetary normalisation measures accordingly.”Even though Bank Indonesia did not raise interest rates, it does not mean this will disturb our external resilience,” Warjiyo said, citing abundant foreign exchange supply from an expected balance of payments surplus and low current account deficit.Inflation may slightly overshoot its target this year to 4.2% by year-end, he reiterated, adding the authorities had been taking rupiah stabilisation measures to contain imported inflation. Headline inflation in May stood at 3.55% on year.The governor also warned of stagflation risks for the global economy, but maintained BI’s 2022 economic growth forecast for Indonesia of 4.5% to 5.3%.Economists in the Reuters poll expect BI’s first rate hike will come in the next quarter.”The central bank acknowledged the risk of inflation breaching the target in the second half of the year and pressure on the currency from global cues, but did not exhibit any urgency to normalise policy,” Radhika Rao, senior economist at DBS Bank in Singapore, said. The rupiah has this month dropped to its weakest since October 2020 amid capital outflows leading up to and after the Federal Reserve raised U.S. rates by three quarters of a percentage point.However, unlike in previous periods of U.S. monetary tightening when Indonesian financial markets were some of the most volatile, the rupiah is now one of emerging Asia’s best performing currencies having fallen by about 4% so far in 2022.Some analysts expect the rupiah to fall further due to BI’s dovish stance.”With the current dynamic expected to remain in place, we expect IDR weakness to continue in the near term until BI finally decides to adjust monetary policy, possibly in the second half of the year,” ING economist Nicholas Mapa said in a note.During the pandemic, BI cut interest rates by a total of 150 basis points and injected billions of dollars into the financial system. It has announced hefty hikes in banks’ reserve requirement ratio in its first move to normalise monetary policy. More

The ‘Notice to Exporters’ listed new measures including prohibitions on the export to Russia of a range of goods and technology, the export of jet fuel, and the export of sterling or EU denominated banknotes. It also said there were new prohibitions on the provision of technical assistance, and financial services, funds, and brokering services relating to iron and steel imports.The notice set out a further list of goods prohibited for export:- internal repression goods and technology- goods and technology relating to chemical and biological weapons- maritime goods and technology- additional oil refining goods and technology- additional critical industry goods and technology More

Investing.com — Norway’s central bank hiked interest rates by 50 basis points on Thursday, becoming the latest global monetary policy maker to move aggressively in a bid to rein in soaring inflation.Norges Bank said the unanimous decision to raise its policy rate to 1.25% from 0.75% came amid worries that prices may continue to rise due in part to tight spare capacity in the Norwegian economy and a weaker local currency.”A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out,” said Norges Bank Governor Ida Wolden Bache in a statement.The central bank added that borrowing costs will “most likely be raised” even further to 1.5% in August. It also revised up its monetary policy forecast, saying it now predicts a potential uptick in interest rates to around 3% by summer 2023.The move comes after a slew of central banks around the world – including the Federal Reserve, Bank of England, and the Swiss National Bank – unveiled rate hikes recently to cool red-hot inflation. Meanwhile, the European Central Bank has also signaled its intention to increase borrowing costs at its July meeting.  More

BEIJING (Reuters) – Jenny Bai was among 10 high-performing computer science students from different Chinese universities selected by a Beijing-based internet firm for a job upon graduation, following four rounds of arduous interviews.But last month, the company told the students their contract offers were cancelled due to COVID-19 headwinds and the bad state of the economy in general – obstacles facing a record 10.8 million Chinese university graduates this summer.”I’m worried,” said Bai, who graduated this month and did not want to name the firm to stay on good terms. “If I can’t find a job, I’m not sure what I’ll do.”China’s COVID restrictions have battered an economy already slowing due to a property market downturn, geopolitical worries and regulatory crackdowns on tech, education, and other sectors.A cohort of graduates larger than the entire population of Portugal is about to enter one of China’s worst job markets in decades at a time when youth unemployment is already more than three times China’s overall joblessness rate, at a record 18.4%.There is no script for how such high youth unemployment will affect Chinese society.Struggling to find jobs goes against what educated young people have come to expect after decades of breakneck growth, and is awkward for China’s stability-obsessed Communist Party, especially in a year when President Xi Jinping is expected to secure a precedent-breaking third leadership term.”The social contract between the government and the people was you stay out of politics and we will guarantee that every year you’ll do better than last year,” said Michael Pettis, Professor of Finance at Peking University.”So the concern is that once that guarantee breaks apart, what else has to change?” GRAPHIC: Number of graduates in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/xmpjowneevr/chart.png) TOP PRIORITYPremier Li Keqiang has said stabilising the job market for graduates is a top government priority. Companies granting internship posts to new graduates will receive subsidies, on top of other perks aimed at boosting employment in general.Some regional governments have offered cheap loans to graduates looking to launch their own businesses. State-backed firms are expected to pick up some of the slack in private sector entry-level jobs.Rockee Zhang, Managing Director for Greater China at recruitment firm Randstad, says China’s entry-level jobs market was worse even than during the 2008-09 global financial crisis, estimating new jobs falling 20-30% from last year. “This year is a low point, the lowest I’ve seen,” said Zhang, who has been a recruiter for two decades.Expected salaries are also 6.2% lower, according to Zhilian Zhaopin, another recruitment firm.China’s Ministry of Human Resources and Social Security and the Ministry of Education did not respond to requests for comment. GRAPHIC: Expected salary for graduates in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/znvnegxnapl/chart.png) The tech sector has been a significant employer of many Chinese graduates, but this year the industry is trimming its workforce, recruiters say.A regulatory crackdown prompted many of China’s tech giants including Tencent and Alibaba (NYSE:BABA) to make massive job cuts. A combined total of tens of thousands have lost their jobs in the sector this year, five tech industry sources told Reuters. Job cuts varied between China’s roughly 10 biggest tech companies varied but averaged at about 10%, according to a report published in April by Shanghai-based Talent Assessment and Management Consulting group NormStar. The companies did not respond to requests for comment. In April, a nine-month freeze on online gaming licenses over violent content and other issues was lifted, during which time 14,000 firms in the industry shut.Private education, another sector which drew regulatory scrutiny, parted with tens of thousands of workers as well. The largest firm in the industry, New Oriental, has announced 60,000 layoffs. New hiring is slow. A human resources manager at a Tencent business unit, who asked not to be named as they were not allowed to speak to the media, said they were looking to hire “a few dozen” new graduates, compared with about 200 a year previously.“Internet companies have cut tonnes of jobs,” said Julia Zhu of recruitment firm Robert Walters. “If they have the financial resources to bring people in they are now opting for more experienced candidates rather than fresh graduates.” GRAPHIC: Increase in unemployment among urban youth in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/lbvgnxlzgpq/chart.png) Jason Wang, a Beijing-based headhunter who has worked mostly with tech companies in recent years, is now recruiting mainly for state-backed telecommunication firms.”The golden age of internet companies’ hiring sprees has ended,” Wang said.In China, being jobless for some time after graduation is typically frowned upon by employers. Many families see it as a humiliation rather than bad luck with the economy.Taking blue-collar jobs after getting a university degree also often draws disapproval, so to avoid long gaps in their CVs, record numbers are applying for post-graduate studies, official data show. GRAPHIC: Postgraduate enrollments in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/byvrjamkyve/chart.png) Vicente Yu graduated in 2021 but has been unemployed since losing his job at a media company late last year. His savings will cover another month or two of rent and basic expenses in the southern city of Guangzhou.”My dad said you should never come home again, he said he should have raised a dog instead of me,” said the 21-year-old, who has been struggling with anxiety and sleep problems.He spends his nights on social media platforms, where he finds other young people in similar situations.”I look at all those people who are like me, who couldn’t find a job, and get some solace from it.”^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Number of graduates in China https://tmsnrt.rs/3N5ZYlTExpected salary for graduates in China https://tmsnrt.rs/3OeMmGiIncrease in unemployment among urban youth in China https://tmsnrt.rs/3n7IJpFPostgraduate enrollments in China https://tmsnrt.rs/3ybIHmPPostgraduate enrolments in China (interactive) https://tmsnrt.rs/3tSO9ISNumber of graduates in China (interactive) https://tmsnrt.rs/3QGpgdiIncrease in unemployment among urban youth in China (interactive) https://tmsnrt.rs/3xCGKhWExpected salary for graduates in China (interactive) https://tmsnrt.rs/3Nq7TL3^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ > More

Hi everyone, this is Lauly writing from the heat of Taipei. I’m sending this week’s #techAsia from a traditional breakfast restaurant without air conditioning. It’s across the street from one of iPhone assembler Foxconn’s plants in New Taipei City, where I just attended an Apple component supplier’s annual general meeting.The AGM season has been a great chance to take the rising temperature of Taiwan’s hundreds of tech suppliers as they grapple with world economic turmoil. My colleague Cheng Ting-Fang and I have attended dozens of such gatherings over the past month and we kept hearing one big fear: global economic slowdown stoked by inflation, Chinese Covid lockdowns and their aftermath, and war in Ukraine.The economic woes have weakened consumer demand, leaving the PC industry with mounting piles of unsold stock. Chinese smartphone-makers Xiaomi, Oppo, and Vivo have likewise slashed their production forecasts. Samsung, the world’s largest smartphone and TV maker, has asked suppliers to halt shipments while it reviews its swelling inventories, as Nikkei Asia reported exclusively last week.We highlight below how companies across the tech industry are facing soaring production costs due to surging prices of materials, metals, chemicals, and labour costs.We will work through the sweltering Taipei summer to give you the answers to the question on everyone’s minds: which will be the next tech businesses to take a big hit?Yangtze shoots the rapidsChina’s Yangtze Memory is closing the technology gap on international rivals as it leads Beijing’s push to build a homegrown semiconductor industry and end its reliance on foreign chips, writes Nikkei Asia’s Cheng Ting-Fang.The Wuhan based-company has already reached full capacity at a first plant that now churns out 100,000 wafers a month. About two-fifth of these are on 128-layer 3D NAND flash memories — only about one generation behind global leaders Samsung and Micron.NAND flash memories are key storage components in electronic devices including smartphones, PCs, servers and connected cars.The ramp-up has put Yangtze Memory on the chip production world map dominated until now by Samsung, Micron, SK Hynix, Kioxia and Western Digital.The Chinese company now plans to bring production online at a second plant as early as the end of 2022 to further increase its global market share. That has already more than tripled from 1.3 per cent in 2019 to nearly five per cent in 2021, Counterpoint Research data shows.Yangtze Memory could even become an Apple supplier soon, in what would be a big diversification of a client base still dominated by local storage makers. Apple has tested Yangtze’s flash memories and could place its first order in “small quantities” as soon as this year, sources told Nikkei Asia.“Believe me, Yangtze Memory is doing better than most outsiders think,” a veteran chip industry executive who has worked with Samsung, Intel and Micron told Nikkei Asia. “It’s the best example that China can really build a viable player from scratch after many years even under the threat of geopolitical tension. It is still small . . . but it could become somebody in years to come.”The Chinese chipmaker was founded in 2016 and has enjoyed strong support from Beijing. It has also strived to keep a low international profile to avoid becoming a target of the kind of US sanctions that have hit Chinese peers including Semiconductor Manufacturing International Co. and Huawei.Chipmakers battered

Prices are surging for key chipmaking materialsCategoryMaterialUsed inPrice increase since mid-2020 (as of early June 2022)ChemicalsSlurryChemical-mechanical polishingOn average 5-6 per cent, up to 40 per cent in some casesPhotoresistLithographyOn average 20 per cent, up to 100 per cent in some cases Phosphoric acidEtching About 100 per centElectric-grade IPAWafer cleaningSynchronising with crude oil price GasNeon gasLithographyMore than 100 per cent, up to 200-300 per cent in some casesMetalNickelSemiconductor-grade stainless steelUp about 130 per centAluminiumSputtering and deposition (part of chipmaking process)More than 75 per centCopperChip, electronics manufacturingMore than 70 per centPalladiumChip, chip substrate manufacturingAbout 3 per cent (increased more than 50 per cent in March 2022)PlatinumSputtering and deposition (part of chipmaking process)About 25 per centOthersWafersSubstrate that chips are fabricated onOn average 10-20 per centAjinomoto build-up filmHigh-end chip packaging materialUp about 100 per centSources: Nikkei Asia analysis; London Metal Exchange; SunSirs; Nomura Securities

Every material you can think of in the semiconductor industry has become much more expensive these days.Costs of wafers, chemicals, metals and gases have soared because of supply shortages and logistical problems driven by the Covid-19 pandemic and war in Ukraine. Booming demand for chips for applications such as 5G connectivity and electric vehicles has further stoked the trend.Some essential materials have more than doubled in price over the past two years, according to a detailed analysis by Nikkei Asia’s Cheng Ting-Fang and Lauly Li.Vincent Liu, an industry veteran and president of Taiwan’s LCY Chemical, a supplier to global chipmakers, issued a warning about the consequences of the input cost rises: “Those could eventually be passed on to consumers.”Musk’s China reversalAmerican tech titans have always had a love-hate relationship with the Chinese Communist party, the Financial Times’ Edward White and Eleanor Olcott write.From Bill Gates to Larry Page and Steve Jobs to Mark Zuckerberg, each has faced uncomfortable compromises, unpopular concessions or moments of uncontainable crisis as they sought to carve out chunks of the world’s factory floor and biggest consumer market.Now Elon Musk, the richest man on earth and boss of Tesla and SpaceX, has landed in the crosshairs of Beijing’s national security and data hawks.Since Russia’s invasion of Ukraine in late February, Musk’s commercial rocket and satellite business SpaceX has been sending Starlink satellites to support the besieged country.But Chinese military and security experts have attacked the Starlink programme over its alleged links to the American military. Chinese officials fear a scenario where thousands of Musk’s satellites are deployed to surveil China — or, even more sensitively, support Taiwan. SpaceX hasn’t commented on the concerns.Data collection is also a key problem for Musk. Tesla has been successful in China. But Beijing is cracking down on cross-border data flows and data collection from individuals and locations near military or politically sensitive sites.Tesla has already promised to store information collected in China in local data centres — a significant blow to the global data gathering efforts that are critical to the company’s research and development.The challenges mark a stunning shift in favour in China for the 50-year-old Musk, where he has inspired a cult following as the “Silicon Valley Iron Man”.Shanghai’s lockdown nightmareThe Chinese government finally lifted its draconian two-month Covid lockdown in Shanghai a few weeks ago, but the scars on both citizens and businesses will last much longer, write Nikkei Asia’s Cissy Zhou, Lauly Li, Cheng Ting-Fang and CK Tan.The Greater Shanghai area, which includes the nearby cities of Kunshan and Suzhou in Jiangsu Province, is one of the world’s biggest electronics manufacturing hubs. Half of Apple’s top 200 suppliers have manufacturing facilities in the region, where hundreds of thousands of workers keep the industry running.But China’s status as a supply chain hub is being severely tested by Beijing’s “zero-Covid” policy. The management and wellbeing of tens of thousands of workers suffering the psychological trauma of isolation became a huge challenge for many companies.An executive at an Apple supplier, who asked to be known by the pseudonym Tony Tseng, told Nikkei Asia: “The most terrifying thing about this Omicron [variant] wave isn’t the virus but the fearful atmosphere spreading among our employees and workers.”He said more than 40 of the company’s 25,000 workers showed signs of mental disorder during the lockdown. One of them even started to claim he was President Xi Jinping, breaking equipment in the factory and becoming aggressive toward nurses, he added.Tseng said his top priority was not restarting production — but the psychological health of the employees. “We have to take care of them, and the bottom line is that we can’t have anyone die because of this pressure.”It is a stark reminder that the costs of “zero-Covid” go much deeper than the disruption during the Shanghai lockdown itself.Suggested readsTSMC says it will make ultra-advanced 2nm chips by 2025 (Nikkei Asia)Alibaba seeks to crack South Asia on path to global expansion (FT)‘Let it rot’: China’s tech workers struggle to find jobs (FT)Robot boats gobble plastic waste from Vietnam to Malaysia (Nikkei Asia)NetEase shares fall after nationalist backlash in China over Winnie the Pooh post (FT)Tencent to open third data center in Japan on gaming demand (Nikkei Asia)Workers at embattled crypto operator Terraform Labs put on South Korea’s no-fly list (FT)Influencers abandon TikTok Shop in latest blow to UK ecommerce venture (FT)Sony steps up image sensor tech, targeting 60% market share (Nikkei Asia)ByteDance to shut Shanghai game development studio (Nikkei Asia)#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at [email protected] More

Good morning. Jay Powell told Congress yesterday that a recession is “certainly a possibility”, while Bill Dudley, never one to mince words, wrote that one is “inevitable” in the next year or so. Yields and oil fell hard, which feels very recession-y. Stocks, a day after rallying for no reason, held steady, also for no apparent reason. If you can make sense of it, write to us: [email protected] and [email protected]. Also, listen to Rob talk about the Federal Reserve breaking things.The supply side isn’t coming to the rescueThe Fed doesn’t want to tighten the economy into a recession, but unless inflation starts cooling down fast, it’s prepared to do so. The Fed, alas, cannot create new sources of supply or unclog supply chains. It only controls monetary policy, which slows inflation by reducing demand, and therefore growth.Having looked dumb relying on supply before, it doesn’t want to wait for problems that it can’t control to get fixed. A wise policy. But might the Fed get lucky? The data on supply tells a mixed story.The trend in energy costs, which seep into all sorts of prices, doesn’t look promising. Forecasts are for a summer cost surge in America, with wholesale energy prices trebling from last summer in some parts of New England. Russia is cutting off gas to Europe just as a big US gas export terminal caught fire, knocking more supply offline for a few months.For supply chains, it’s less dire, if still not great. The New York Fed’s index of global supply chain pressure gives a good sense of the big picture. It pulls together data on freight costs, backlogs and shipping delays — stripping out demand to find how much inflation pressure is coming from supply constraints. Things are better than late last year, but we’re far from normal:You see this basic trend — better but still bad — popping up all along the supply chain. Here, for instance, is how much it costs to send a shipping container from China to the US west coast:Or read what executives at big corporations are saying. In general, larger companies will see better supply-chain conditions first, because they can pay top dollar to secure whatever shipping is available, including more expensive air freight. Some charter their own ships. So we read through several recent earnings calls to get a sense of sentiment. Here, to give one indicative example, is DuPont’s chief executive, Edward Breen, earlier this month:Yes, so a little better, but it’s tough. Like the teams are working seven days a week and getting containers booked ahead of time. It’s crazy. Going into different ports on the east coast of the US, instead of the west coast — but we’re doing fine. We’re working our way through it. But it’s not normal times, I don’t want to [leave] you with that impression, but it’s just getting a little bit better and mainly because of the Chinese — China, it was so bad, and that’s easing up now.Less globalised companies than DuPont are saying similar things. The co-chief executive of Lennar, a US homebuilder, called the peak on supply-chain pressures during Tuesday’s earnings call:There were still intermittent disruptions and an increase in construction costs. But for the first time since the disruptions began, we saw a flattening in cycle time [ie, total time to build a house]. Over the past four months, cycle time has expanded by only five days, which we believe signals [a] peak.That is good news, but it will take months or years to show up in inflation data. The Fed is not keen to wait. Early signs that inflation expectations are unmooring have thoroughly spooked the central bank. Nice, growth-friendly disinflation from the supply side, it seems, isn’t coming to save us.Instead, what we might soon get are supply-side gluts that will lower inflation — but also hurt growth. Recall the bullwhip effect, where companies buy too much during times of scarcity, ending up with excess inventory that later becomes a problem. Last time we wrote about this in May, we noted that inventory-to-sales ratios didn’t look bloated by historical standards. But they have grown exceptionally fast. The latest data, published last week, showed all industries but cars and furniture expanding inventories merrily:

Too much in stock eventually means selling at a discount, as in Target’s huge clearance sale this month. Or it means putting in fewer orders, as in Samsung freezing procurement thanks to bulging inventories. Both are drags on growth.What is happening in inventories is linked to what has happened in supply chains, explains Eytan Buchman of Freightos, a freight booking platform. He told Unhedged:One of the most important lessons businesses have learnt over the past couple years is when you can import something, import it. You don’t know whether they’ll be blockages in the port in Shenzhen, or lines of ships waiting to dock in Long Beach. You don’t know what the cost will be.Such uncertainty incentivised companies to build supply buffers, even in the face of lower projected demand. But now, between swelling stocks and easing demand from monetary tightening and the pivot to services, it’s adding up to a “classic bullwhip period”. Buchman added:So they’ve been building up an inventory. And suddenly there’s this decline in demand from customers. A very large chunk of our [clients] are attributing it to inflation. So now they have more inventory than they’ve ever had, they’ve paid more to import it than they ever have, but the demand they were expecting to make up for that is suddenly starting to evaporate.If inflation is your top priority, perhaps these gluts are welcome. But it is another reason to suspect a recession is around the corner. (Ethan Wu)Some Unhedged loose endsReaders pointed out a couple of mistakes, or at least failures of transparency, in this week’s letters that we should clarify.In Tuesday’s discussion of the bond market, Rob compared the yield on the two-year Treasury bond with the yield on the HYG ETF, and quoted the yield on the latter as 5.2 per cent. Readers objected that the yield on HYG is actually over 8 per cent. Well, sort of. The higher number is the yield on the fund’s underlying bond portfolio. It is not the yield on the ETF, which is in fact 5.2 per cent (taking the last monthly distribution and multiplying it by 12). Why the difference? The HYG managers will have bought many of the bonds in the portfolio when rates were lower, and as rates have risen, the prices of those bonds have fallen, increasing the yield on the portfolio (but not the ETF).Eventually, as the HYG portfolio turns over, its distributions should rise to meet the portfolio yield. But for now, if you want the most liquid available exposure to the high-yield market you will have to live with 5.2 per cent, as against 3 per cent on the shorter duration, credit-risk-free two-year Treasury. We know which we would take, but we are paranoid.In Wednesday’s letter on the European debt mess, loads of readers thought Rob was a dunce to characterise the mathematics of the situation this way:Italy’s debt is 150 per cent of gross domestic product. Its 10-year bonds, for example, yield 3.7 per cent. Of course it will have sold debt at lower yields than that, but as old debt rolls over, the cost will rise. GDP, on the other hand, is not going to grow at anywhere near 5.5 per cent (3.7 per cent x 150 per cent). So the Italian debt burden is set to grow steadily bigger relative to GDP.There are two things left out here that are, as readers insisted, important. The first is inflation and the second is the budget deficit. Inflation increases nominal growth, which is what matters to the debt/GDP ratio. And inflation is high now. The second is that if Italy can run a primary (that is, pre-interest) surplus, then it has more breathing room to service debt — since it doesn’t need to tap capital markets to pay for basic spending.There is a maths mistake implied in the above: debt can grow at 3 per cent, not of GDP but of itself, and the debt/GDP ratio remains unchanged. That is, at a 150 per cent debt/GDP ratio, with nominal economic growth of (say) 3 per cent, debt can grow by 4.5 per cent of GDP and the ratio remains stable.My point, however, remains. High inflation will make debt more bearable — but this will of course be a tax on Italians’ real incomes; not an attractive solution. Italy ran a primary deficit of 3.7 per cent next year. And its debt payments are headed up, as a percentage of GDP, unless spreads narrow or it is able to fund itself with cheap short-term debt (which would create another risk). Bring on fiscal union.One good readA study shows rightwing Germans tend to be hotter, or maybe hot Germans tend to be rightwing (hat tip to Tyler Cowen for flagging this). More