Economy

WASHINGTON (Reuters) – U.S. Energy Secretary Jennifer Granholm is expected to meet with refining executives on June 23 to discuss gasoline prices, sources familiar with the matter told Reuters.The planned talks come as President Joe Biden, under pressure over high gasoline prices, has demanded that oil refining companies explain why they are not putting more fuel on the market as they reap windfall profits. More

ROME (Reuters) – Diana Parini left her waitressing job at an Italian Alpine resort last month because she was fed up with the pay and conditions: eight euros per hour, of which six were paid cash-in-hand with no welfare or pension contributions.Parini, 44, who has a modern languages degree, went home to Milan to work as a dogsitter. Millions of others have similar stories in Italy, where much work is unregulated and – uniquely in Europe – wage growth has been stagnant for 30 years.With consumer prices surging across the euro zone, there are signs wages are also climbing – but not in Italy, the bloc’s third-largest economy.Negotiated wages in the single-currency area rose 2.8% in the first quarter from a year earlier, driven by a 4% gain in Germany. In Italy they increased just 0.6%.The pattern is familiar. Organisation for Economic Cooperation and Development (OECD) data on inflation-adjusted wages in 22 European countries shows that between 1990 and 2020, pay rose 6% in Spain and over 200% in the Baltic states. Italy was the only country where wages fell, registering a 3% decline. The OECD figures have triggered an anguished debate on “la questione salariale” (the salary issue) – or why Italy is unable to generate stable, well-paid jobs.The answer, economists say, lies in a vicious circle of underinvestment, especially in education and technology, low productivity and weak economic expansion. And it has deep roots.”We chose the wrong growth model back in the 1980s,” says Francesco Saraceno, economics professor at Rome’s Luiss University and Sciences-Po in Paris.”To respond to globalisation we tried to compete with emerging markets by lowering costs instead of following the German example of investing in higher quality production. That meant keeping salaries low.”PRODUCTIVITY PROBLEMItaly has been the most sluggish of the 19 euro zone economies since the single currency’s launch in 1999. Labour productivity, measured roughly as output per hour worked, has risen just 13% since 1995, according to the Bank of Italy, compared to 44% in Germany.Behind those figures lies a web of problems that include a rapidly ageing population and a low-skilled workforce.By joining the euro Italy also lost the quick fix of being able to devalue its currency to maintain competitiveness.A large shadow economy is part of the picture. Some Italians, especially in the poor south, top up regular jobs with casual work which does not show up in official wage statistics, and is usually even more badly paid. Parini, a passionate climber, has spent several winters working at Alpine resorts. Like many hospitality sector jobs, they were all paid at least partly “cash-in-hand”. Reforms since the 1990s have partially deregulated Italy’s labour market, increasing the scope for temporary, low-paid contracts which now account for the majority of new jobs. In April the number of temporary workers stood above 3.15 million, the highest since 1977.Tito Boeri, a labour economist at Milan’s Bocconi university, says Italy has a dysfunctional labour market split between protected workers mostly hired before the reforms and low-paid ones without job protection hired afterwards.”The real problem is that it is very hard for people to pass from temporary to permanent contracts,” he said.MINIMUM WAGE? NO THANKSOne of just six European Union countries without a statutory minimum wage, Italy has one of the highest proportions of “working poor” on wages below 60% of the average.Yet when the EU approved a directive last week laying out common rules for minimum wages and tackling labour abuses and in-work poverty, it got a lukewarm reception in Italy.Many firms, backed by rightist parties, fear higher costs, while trade unions reject any interference in the wage bargaining process and argue that pay could actually fall towards a statutory minimum.Boeri criticised the union stance as “a question of power”, saying with millions of Italians excluded from collective bargaining, “the current system isn’t working”.Some employers complain a “citizens’ wage” poverty relief scheme offering about 450 euros per month – roughly 25% of Italy’s average take-home pay – to the unemployed makes it impossible for them to find staff.”When we are looking for young people to give them a job, we have a big competitor: the citizens’ wage,” says Carlo Bonomi, head of employers lobby Confindustria.Economics professor Saraceno says this exemplifies Italy’s plight: “It means some companies think 500 euros a month is a good salary, which is absurd.”To reverse the situation, Saraceno says Italy needs to shift the tax burden from salaries to rents and wealth, while launching a long-term public investment programme.Some 200 billion euros ($208.36 billion) of EU pandemic recovery funds Rome is due to receive through 2026 is a major opportunity, he said, allowing Italy to adopt reforms while increasing spending, rather than reducing it as in the past.In the near term, Mario Draghi’s government is studying measures to reduce the so-called tax wedge, the difference between the salary an employer pays and what a worker takes home, officials have told Reuters.Boeri says Italy’s priority should be reforms to increase service sector competition and improve the civil justice system and state bureaucracy, but he sees little progress.”Has this government of national unity passed reforms that can allow us to grow significantly? Unfortunately it hasn’t,” he said. ($1 = 0.9599 euros) More

LONDON (Reuters) -The Bank of England stuck to its gradual increases in interest rates on Thursday, as other central banks took more urgent action, but said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation it now sees topping 11%.A day after the U.S. Federal Reserve raised rates by the most since 1994 with a 75 basis point hike, the BoE increased Bank Rate by another 25 basis points even as it warned that Britain’s economy would shrink in the April-June quarter.The Monetary Policy Committee voted 6-3 for the hike to 1.25%, the same breakdown as in May with the minority voting for a 50 basis-point increase.Britain’s benchmark rate is now at its highest since January 2009, when borrowing costs were slashed as the global financial crisis raged. It was the fifth time the BoE has raised rates since December when it became the first major central bank to tighten monetary policy following the COVID-19 pandemic. But some critics say it is moving too slowly to stop the rise in inflation from becoming entrenched in pay deals and inflation expectations, damaging the economy over the long term.”The scale, pace and timing of any further increases in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures,” the BoE said.”The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”Sterling fell more than a cent against the U.S. dollar before recovering its losses while British government bond yields rocketed.Investors moved to price in a more than 50% chance of a 50 basis-point rise at the BoE’s next scheduled meeting on Aug. 4, although some analysts thought Britain’s poor economic outlook would stay its hand.”The Bank of England was the earliest of its peers to begin policy normalisation, and now faces some of the most acute risks to near-term growth,” Vivek Paul, UK Chief Investment Strategist, BlackRock (NYSE:BLK) Investment Institute, said.”That means the Bank is further along in the journey to get rates to a neutral level – and likely to serve as a case study of how central banks will enact monetary policy as recession risks increase.” As in May, MPC members Catherine Mann, Jonathan Haskel and Michael Saunders voted for a bigger, 50 basis-point increase.   Economists polled by Reuters had forecast the 6-3 vote to raise rates to 1.25% but investor bets on a bigger move had risen in recent days, with sterling tumbling and after reports that the Fed was considering its rare 75 basis-point move.The BoE noted that the market path for British interest rates had risen materially since the May meeting, even though there had been relatively little news since then.It dropped its guidance from May when it said most MPC members believed “some degree of further tightening in monetary policy may still be appropriate in the coming months”.GLOBAL STRUGGLE   Central banks around the world are trying to contain inflation that is hitting levels not seen in decades after the reopening of the global economy after the pandemic and Russia’s invasion of Ukraine.   Last week the European Central Bank said it would lift borrowing costs for the first time since 2011 in July and again in September.Earlier on Thursday, the Swiss National Bank unexpectedly raised its main rate for the first time in 15 years while Hungary’s central bank hiked its one-week deposit rate.    The BoE is raising rates even though it has warned a sharp economic slowdown is coming.   Consumer price inflation hit a 40-year high of 9% in April, more than four times the BoE’s 2% target, and the central bank said on Thursday it would peak slightly above 11% in October, when energy bills go up again.   Britain’s inflation surge looks set to last longer than in many other economies, partly reflecting its mechanism for domestic power tariffs but also because of the hit to trade from leaving the European Union.   A chronic lack of workers to fill vacancies is worrying the BoE because it could lead to a jump in wages that further feeds inflation.   A fall in the pound in recent weeks, caused largely by rising interest rate expectations elsewhere, threatens to add to inflation pressure in Britain.The BoE said sterling had been “particularly weak against the U.S. dollar”.It said Britain’s economy would shrink by 0.3% in April-June, rather than growing 0.1% over the three months as it predicted in May.The forecast for a contraction in the current quarter came despite finance minister Rishi Sunak’s announcement of measures in late May to help households hit by the jump in inflation. The BoE said those measures could boost growth by 0.3% and push inflation 0.1 percentage points higher in the first year. More

BERN/LONDON (Reuters) – Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, and hinted at even higher borrowing costs to come to tame soaring inflation that is eroding savings and squeezing corporate profits.Fuelled initially by soaring oil prices in the wake of Russia’s invasion of Ukraine, inflation has broadened out to everything from food to services with double digit readings in parts of the continent. Such levels have not been seen in some places since the aftermath of the oil crisis of the 1970s.The Swiss National Bank and the National Bank of Hungary both caught markets off guard with big upward steps, just hours after their U.S. counterpart the Federal Reserve lifted rates by the most in almost three decades.The Bank of England meanwhile lifted borrowing costs by the quarter point markets had expected.The moves come just a day after the European Central Bank agreed plans in an emergency meeting to contain borrowing costs in the bloc’s south so it could forge ahead with rates rises in both July and September.”We are in a new era for central banks, where lowering inflation is their only objective, even at the expense of financial stability and growth,” George Lagarias, Chief Economist at Mazars Wealth Management said. The day’s biggest moves came in Switzerland where the SNB raised its policy rate to -0.25% from the -0.75%, a step so large, not a single economist polled by Reuters had predicted it.The first SNB hike since 2007 is unlikely to be the last, however, and the bank could be out of negative territory this year, some economists said.”The new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future,” SNB Chairman Thomas Jordan told a news conference.The Swiss franc jumped almost 1.8% against the euro on the decision and was headed for the biggest daily rise since January 2015 when the SNB unhooked the franc from its euro peg.TIGHTROPEIn London, the Bank of England was more cautious but said it was ready to act “forcefully” to stamp out dangers posed by an inflation rate heading above 11%.It was the fifth time that the BoE has raised borrowing costs since December and the British benchmark rate is now at its highest since January 2009. Three of nine rate setters however voted for a bigger, 50 basis point increase, suggesting that the bank will be under pressure to keep raising rates, even as economic growth slows sharply.”Central bankers are teetering along a tightrope, with the biggest concern that raising rates too quickly could tip economies into recession,” Maike Currie, Investment Director for Personal Investing at Fidelity International said. “Monetary policy tightening is a very blunt tool to manage a very precarious situation.”Despite the hike, sterling fell sharply as some in the market had bet on a bigger move given the Fed’s 75 basis points hike the previous evening. The weaker currency, however, means higher imported inflation and further pressure to raise rates.The pound was last at $1.2085 against the dollar, down three quarters of a percent on the day. In Budapest meanwhile, the Hungarian central bank unexpectedly raised its one-week deposit rate by 50 basis points to 7.25% at a weekly tender, also to tame stubbornly rising inflation now running in double-digits.Barnabas Virag, the bank’s deputy governor said the increase far was from the last and the bank would continue its rate hike cycle with “predictable and decisive” steps until it sees signs that inflation is peaking, probably in the autumn.The hike also comes as the nation’s currency has lost close to 7% of its value this year, increasing inflation further via higher import prices. More

Inflation across Eastern Europe has surged since Russia’s invasion of neighbouring Ukraine amplified already strong price pressures following the coronavirus pandemic, forcing central banks across the region into sharp interest rate hikes.Orban’s price caps have been a mainstay of efforts by his nationalist government to shield households from the higher cost of living, but even with these measures, inflation rose into double-digit territory last month.The short announcement on Orban’s Facebook page did not contain further detail, likely indicating that the measures would be extended in their current form.The National Bank of Hungary, already in its third-steepest rate hike cycle since the collapse of communism, was forced to raise its one-week deposit rate further on Thursday to shore up the forint, which fell to a record low versus the euro this week.So far there is little evidence that the bank’s rate rises have meaningfully curbed inflation, which could exceed the NBH’s 9.8% forecast for the full year issued in March, Deputy Governor Barnabas Virag told reporters earlier in the day.Orban’s government set a 480 forint ($1.25) per litre limit on fuel prices in mid-November and followed up with caps on some food staples in February. The measures have lopped 5 to 6 percentage points off headline inflation, Orban has said.The scope of the fuel price cap was recently narrowed to cars with a Hungarian licence plate, triggering conflict with the European Union, while Hungarian energy group MOL has called for the gradual phasing out of the measure.The extension of a cap on mortgage rates to shield borrowers from the higher cost of borrowing will be an additional hit to banks in Hungary, already slapped with a big windfall tax as part of Orban’s measures to cut the budget deficit. At 1201 GMT, MOL shares traded 2.3% lower at 2,832 forints on the Budapest Stock Exchange, underperforming the blue chip index, which fell 1%. Shares in Hungary’s OTP Bank fell 0.4%. ($1 = 383.3 forints) More

Countries that have raised their policy interest rate this year Arrow lengths are each country’s most recent increase in percentage points. Saudi Arabia The Eurozone rate will increase by 0.25 in July. Countries that have raised their policy interest rate this year Eurozone rate will increase by 0.25 in July. United States South Korea Saudi […] More

The Federal Reserve raised its benchmark interest rates three-quarters of a percentage point in its most aggressive hike since 1994.
According to the “dot plot” of individual members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, an upward revision of 1.5 percentage points from the March estimate.
Officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March.

The Federal Reserve on Wednesday launched its biggest broadside yet against inflation, raising benchmark interest rates three-quarters of a percentage point in a move that equates to the most aggressive hike since 1994.
Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75%, the highest since just before the Covid pandemic began in March 2020.

Stocks were volatile after the decision but turned higher as Fed Chairman Jerome Powell spoke in his post-meeting news conference.
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said. He added, though, that he expects the July meeting to see an increase of 50 or 75 basis points. He said decisions will be made “meeting by meeting” and the Fed will “continue to communicate our intentions as clearly as we can.”

“We want to see progress. Inflation can’t go down until it flattens out,” Powell said. “If we don’t see progress … that could cause us to react. Soon enough, we will be seeing some progress.”
FOMC members indicated a much stronger path of rate increases ahead to arrest inflation moving at its fastest pace going back to December 1981, according to one commonly cited measure.
The Fed’s benchmark rate will end the year at 3.4%, according to the midpoint of the target range of individual members’ expectations. That reflects an upward revision of 1.5 percentage points from the March estimate. The committee then sees the rate rising to 3.8% in 2023, a full percentage point higher than what was expected in March.

2022 growth outlook cut

Officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March.
The inflation projection as gauged by personal consumption expenditures also rose to 5.2% this year from 4.3%, though core inflation, which excludes rapidly rising food and energy costs, is indicated at 4.3%, up just 0.2 percentage point from the previous projection. Core PCE inflation ran at 4.9% in April, so the projections Wednesday anticipate an easing of price pressures in coming months.
The committee’s statement painted a largely optimistic picture of the economy even with higher inflation.

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“Overall economic activity appears to have picked up after edging down in the first quarter,” the statement said. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
Indeed, the estimates as expressed through the committee’s summary of economic projections see inflation moving sharply lower in 2023, down to 2.6% headline and 2.7% core, expectations little changed from March.
Longer term, the committee’s outlook for policy largely matches market projections which see a series of increases ahead that would take the funds rate to about 3.8%, its highest level since late 2007.
The statement was approved by all FOMC members except for Kansas City Fed President Esther George, who preferred a smaller half-point increase.
Banks use the rate as a benchmark for what they charge each other for short-term borrowing. However, it feeds directly through to a multitude of consumer debt products, such as adjustable-rate mortgages, credit cards and auto loans.
The funds rate also can drive rates on savings accounts and CDs higher, though the feed-through on that generally takes longer.

‘Strongly committed’ to 2% inflation goal

The Fed’s move comes with inflation running at its fastest pace in more than 40 years. Central bank officials use the funds rate to try to slow down the economy – in this case to tamp down demand so that supply can catch up.
However, the post-meeting statement removed a long-used phrase indicating that the FOMC “expects inflation to return to its 2 percent objective and the labor market to remain strong.” The statement only noted that the Fed “is strongly committed” to the goal.
The policy tightening is happening with economic growth already tailing off while prices still rise, a condition known as stagflation.

First-quarter growth declined at a 1.5% annualized pace, and an updated estimate Wednesday from the Atlanta Fed, through its GDPNow tracker, put the second quarter as flat. Two consecutive quarters of negative growth is a widely used rule of thumb to delineate a recession.
Fed officials engaged in a public bout of hand-wringing heading into Wednesday’s decision.
For weeks, policymakers had been insisting that half-point – or 50 basis point – increases could help arrest inflation. In recent days, though, CNBC and other media outlets reported that conditions were ripe for the Fed to go beyond that. The changed approach came even though Powell in May had insisted that hiking by 75 basis points was not being considered.
However, a recent series of alarming signals triggered the more aggressive action.
Inflation as measured by the consumer price index rose 8.6% on a yearly basis in May. The University of Michigan consumer sentiment survey hit an all-time low that included sharply higher inflation expectations. Also, retail sales numbers released Wednesday confirmed that the all-important consumer is weakening, with sales dropping 0.3% for a month in which inflation rose 1%.
The jobs market has been a point of strength for the economy, though May’s 390,000 gain was the lowest since April 2021. Average hourly earnings have been rising in nominal terms, but when adjusted for inflation have fallen 3% over the past year.
The committee projections released Wednesday see the unemployment rate, currently at 3.6%, moving up to 4.1% by 2024.
All of those factors have combined to complicate Powell’s hopes for a “soft or softish” landing that he expressed in May. Rate-tightening cycles in the past often have resulted in recessions.
Correction: Core PCE inflation ran at 4.9% in April. An earlier version misstated the month.

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The Bank of England raised interest rates by 0.25 percentage points on Thursday and warned it expected inflation to climb above 11 per cent before the end of the year.The increase — the fifth time the bank’s Monetary Policy Committee has tightened policy in back-to-back meetings — takes the BoE’s benchmark rate to 1.25 per cent. But in a split vote, the committee held back from making a bigger 0.5 percentage point move, which won support from just three members.The BoE nonetheless signalled that it would “act forcefully” if needed to prevent high inflation becoming more persistent.It also changed its guidance on the likely path of interest rates at future meetings, saying that the scale, pace and timing of further increases would reflect the evolving economic outlook, and that the committee would be “particularly alert to indications of more persistent inflationary pressures”. It had previously said “some degree of further tightening” might be appropriate in the coming months”.The measured approach is in contrast with the more aggressive action taken this week by the US Federal Reserve, which on Wednesday raised its benchmark rate by 0.75 percentage points, while signalling that further rate increases could be both larger and swifter than expected.The pound fell after the Bank of England announcement, extending early losses to trade 0.9 per cent lower at $1.2066.The BoE acknowledged that excess inflation was no longer due only to global events, with inflationary pressures strengthening in consumer services, and core consumer goods inflation now higher in the UK than in the US or eurozone.It now expects CPI inflation, which hit a 40-year high of 9 per cent in April, to rise slightly above 11 per cent in October — higher than its May forecasts suggested — reflecting more recent estimates of the likely increase in regulated energy prices.It also said the government’s newly announced cost of living support could boost GDP by 0.3 per cent, and raise CPI inflation by 0.1 percentage points in the first year, although it plans to assess the impact in more detail in its August forecasts.Although the BoE’s staff now expect GDP to fall by 0.3 per cent in the second quarter of the year — a weaker outcome than projected in the bank’s May forecasts — the committee saw little change in the outlook for growth, with consumer spending and business sentiment broadly holding up.

It also saw little change in hiring and wage pressures in the labour market, with businesses telling the BoE they expected to struggle with recruitment for at least the next 12 months. There was a risk that “some self-sustaining momentum in domestically generated inflation would persist” even as the economy slowed, the committee noted.Committee members Jonathan Haskel, Catherine Mann and Michael Saunders voted for a larger rate increase, arguing that policymakers should “lean strongly against risks that recent trends in pay growth, firms’ pricing decisions and inflation expectations . . . would become more firmly embedded”.However, the majority favoured a smaller 0.25 per cent increase, arguing that demand might already be starting to slow in line with the BoE’s May forecasts — which had shown inflation falling below its 2 per cent target within three years. More