Economy

A senior Federal Reserve official has countered rebukes that the US central bank will cause a painful recession as it attempts to tame sky-high inflation, instead forecasting the economy will show continued “strength and resilience” despite far tighter monetary policy.In a speech delivered on Tuesday, John Williams, president of the New York Fed, acknowledged the central bank’s task to “turn down the heat” on a red-hot economy without undue hardship would be difficult, but said it was “not insurmountable”.The message from Williams — a close confidant of Fed chair Jay Powell and a voting member of the Fed’s monetary policy setting committee — was delivered at a tumultuous time for financial markets, which have whipsawed violently in recent days as investors prepare for an end to the pandemic-era stimulus measures that central banks worldwide have had in place for the past two years.US borrowing costs are also sharply higher, led by a jump in the 10-year Treasury yield, a benchmark that underpins borrowing costs and equity valuations worldwide. It now trades at about 3 per cent, up 1 percentage point since March.The Fed has already raised its benchmark policy rate from near-zero levels to a new target range of 0.75 per cent to 1 per cent, having delivered its first half-point rate rise since 2000 just last week. The central bank is poised to repeat the move at its meetings in June and July, with elevated odds of a similar adjustment in September. Traders broadly expect the federal funds rate to reach 2.7 per cent by the end of the year, a level economists project will begin to crimp economic activity, especially as the Fed’s planned reduction of its $9tn balance sheet gets under way next month.Given the extent to which inflation has overshot the Fed’s 2 per cent target, with one measure of core inflation that strips out volatile items such as food and energy hovering at 5.2 per cent, many economists fear the Fed will need to be far more aggressive in terms of tightening monetary policy if it is to contain price pressures. At risk is a sharp contraction in economic growth and job losses.“It’s unlikely the Fed is going to be able to manage that to a soft landing,” said Randal Quarles, a former top official who departed the central bank late last year, in a recent public appearance. “The effect is likely to be a recession.”

Williams on Tuesday instead boasted of an “advantage” the central bank has this time around, as he built the case for why he expects core inflation to descend to nearly 4 per cent this year and 2.5 per cent next year without a significant deterioration in the unemployment rate and economic growth.“Our monetary policy tools are especially powerful in the very sectors where we see the greatest imbalances and signs of overheating — such as durable goods and housing,” he said. “Higher interest rates will cool demand in these rate-sensitive sectors to levels better aligned with supply. This will also turn down the heat in the labour market, reducing the imbalance between job openings and available labour supply.” More

NEW YORK (Reuters) – Emerging market debt and equity portfolios saw foreign investor outflows for a second straight month in April, data from the Institute of International Finance showed on Tuesday, building on record outflows from China in the first quarter.Portfolios posted a net outflow of $4.0 billion last month, compared to outflows of $7.8 billion in March and inflows of $39.8 billion in April 2021.China saw a net outflow of $1 billion with debt posting outflows of $2.1 billion and equities a $1.0 billion inflow.”A combination of COVID lock-downs, depreciation, and perceived risk of investing in countries whose relationships with the West are complicated may be the main drivers of recent capital outflows from China,” Jonathan Fortun, economist at the IIF, said in a statement.BlackRock (NYSE:BLK) said on Monday it cut its exposure to Chinese stocks and government bonds citing China’s ties to Russia, which have “created a new geopolitical concern that requires more compensation for holding Chinese assets.”More broadly, JPMorgan (NYSE:JPM) said economic growth in emerging markets is set to slow “sharply” this quarter weighed by China, Russia and the spread of tighter monetary conditions.(Graphic: EM portfolios see net outflows for second month, https://graphics.reuters.com/GLOBAL-EMERGING/EMBARGOED/gkvlgkydqpb/chart.png)Emerging markets excluding China saw net outflows of $2.9 billion, with $10.5 billion exiting equities, the most since March 2020, and $7.6 billion flowing into debt, most of which went to local currency bonds according to the IIF.Regionally, emerging Europe saw a net inflow of $2.8 billion while all others posted outflows. More

LONDON (Reuters) -Britain said on Tuesday it will require its regulators to help the City of London remain a globally competitive financial centre after being largely cut off from the European Union due to Brexit.The government outlined planned legislation marking the biggest changes to UK capital markets in years to exploit what it sees as “Brexit freedoms” to set financial rules which had hitherto been written in Brussels for decades.Restrictions on 3,200 investment firms will be eased to attract more stock and bond trading in London and the sector will be encouraged to use new technologies, cryptocurencies, and to outsource to technology providers safely. A core aim is to make regulation nimbler, including insurance capital rules, by moving chunks of detailed rulemaking from lawmakers to the regulators, who would be under close scrutiny of parliament.Financial services minister John Glen has already said that the new growth and international competitiveness objective for the Bank of England and Financial Conduct Authority would be secondary to their top aim of keeping markets, consumers and companies safe and sound.Banks have called for a stronger focus on competitiveness, but the government faced pushback from the Bank of England, which warned against a return to the “light touch” era that ended with lenders being bailed out in the financial crisis.Banking, insurance and investment trade associations, along with the City of London, said the law should include specific metrics and criteria for regulators to demonstrate they are meeting their new competitiveness objective.Regulators should develop a new culture grounded in proportionate, fair and predictable regulation, they said.”Legislation should include public reporting duties which require dynamic benchmarking against other international regulators,” their joint statement said.CASH SAFEGUARDSThe bill will also safeguard cash as a means of payment after being overtaken by ‘contactless’ cards and other forms of electronic payments.Around 5.4 million adults rely on cash and lawmakers are concerned with the rate of bank branch and cash machine closures, particularly in rural and less well-off areas.The government is also cracking down on payments fraud.”Banks can be required by the regulator to reimburse victims of authorised push payment fraud,” it said, referring to customers being deceived into authorising a payment to a criminal.Separately, the government flagged legislation on ‘smart data’ to broaden open banking, which requires lenders to share customer data with third parties who offer rival services. More

European equities and US stock futures rose on Tuesday, as markets steadied after global growth fears drove sharp falls in the previous session.The Stoxx Europe 600 share index added 1 per cent, while futures trading implied Wall Street’s broad S&P 500 gauge would gain 0.6 per cent. Tuesday’s gains came after global equities on Monday posted their worst day since June 2020. Despite Tuesday’s bounceback, investors remained negative about the global outlook and the risk of the US central bank — which last week raised its interest rate by half a percentage point for the first time since 2011 — going so far to curb scorching inflation that it chokes off growth in the world’s largest economy. “The broad context for markets is not great,” said Salman Baig, portfolio manager at Unigestion, in reference to the Federal Reserve tightening monetary policy, persistently high global inflation, Russia’s invasion of Ukraine and an economic slowdown in China driven by stringent coronavirus policies. Baig added that in equity markets, he would expect “the troughs to continue to be deeper and the peaks to be lower, and that we are basically trending down.” Signalling expectations of further swings to come, the Vix index — known as Wall Street’s “fear gauge” — registered a reading of 33 on Tuesday, well above its long-term average of 20.The FTSE All-World index of developed and emerging markets shares had on Monday dropped 3 per cent to its lowest level in more than a year. The losses followed bleak data showing Chinese exports slowed sharply last month, which came on the heels of signs of slowdowns in the German and French manufacturing sectors.Meanwhile, New York-based investment house BlackRock this week reversed its bullish stance on China, downgrading its “modest overweight” rating on the country’s stocks and bonds to neutral over the deteriorating economic outlook — despite promises of support from Beijing last month.Futures contracts tracking Wall Street’s tech-heavy Nasdaq 100 rose 0.9 per cent on Tuesday, after the broader Nasdaq Composite closed more than 4 per cent lower. The prospect of the US central bank raising interest rates has in recent months lessened the appeal of more speculative stocks, whose valuations are flattered by ultra-low borrowing costs.Tech stocks had been “at the epicentre of the sell-off this year, so if you’re looking to buy the dip, that’s where you look first and foremost,” said Patrick Armstrong, chief investment officer at Plurimi Group. “But companies that are only going to make earnings in 10 years’ time? I wouldn’t buy those today and there are still speculative excesses [in tech valuations].” Altaf Kassam, investment strategist at State Street Global Advisors, warned the market mood would remain pessimistic because central banks were unable to tackle inflation without hurting economic growth. “There’s really no good outcome in the near term,” he said. “If central banks are too dovish, inflation gets out of control, but if they focus on inflation and raise interest rates, which is one of the few tools they have, that will have a big impact on growth.”

US inflation data due on Wednesday is expected to show that consumer prices rose 8.1 per cent year on year in April, following an 8.5 per cent increase in March. The yield on the 10-year US Treasury note fell 0.06 percentage points to 3.02 per cent, after the government debt instrument — seen as a proxy for borrowing costs worldwide — rallied late in the previous session as investors moved into haven assets. Bond yields fall as their prices rise.In Asia, Hong Kong’s Hang Seng share index fell 1.8 per cent. An index of Chinese tech groups listed in the territory declined by 3.2 per cent.This story has been amended to clarify that the fall in global equities, rather than Wall Street stocks, on Monday was the steepest since 2020. More

Their houses are piggy banks, their retirement accounts are up and their bosses are eager to please. When the boom ends, everything will change.This is an era of great political division and dramatic cultural upheaval. Much more quietly, it has been a time of great financial reward for a large number of Americans.For the 158 million who are employed, prospects haven’t been this bright since men landed on the moon. As many as half of those workers have retirement accounts that were fattened by a prolonged bull market in stocks. There are 83 million owner-occupied homes in the United States. At the rate they have been increasing in value, a lot of them are in effect a giant piggy bank that families live inside.This boom does not get celebrated much. It was a slow-build phenomenon in a country where news is stale within hours. It has happened during a time of fascination with the schemes of the truly wealthy (see: Musk, Elon) and against a backdrop of increased inequality. If you were unable to buy a house because of spiraling prices, the soaring amount of homeowners’ equity is not a comfort.The queasy stock market might be signaling that the boom is ending. A slowing economy, renewed inflation, high gas prices and rising interest rates could all undermine the gains achieved over the years. But for the moment, this flood of wealth is quietly redefining retirement, helping fuel Silicon Valley and stoking a boom in leisure and entertainment. It is boosting corporate profits by unprecedented amounts while also giving just about everyone the notion that a better job might be within reach.More than 4.5 million workers voluntarily quit in March, the highest number since the government started keeping this statistic in 2000, the Bureau of Labor Statistics reported last week. A few years ago, the monthly total was between three million and 3.5 million.“Maybe it’s easier to focus on the negative, but a huge number of people, maybe 40 million households, have been doing pretty well,” said Dean Baker, an economist who was a co-founder of the liberal-leaning Center for Economic and Policy Research. “You’d have to go back to the late 1990s to find a similar era. Before that, the 1960s.”This widespread wealth throws light on why the number of workers who say they expect to be working past their early 60s has fallen below 50 percent for the first time. It accounts for the abundance of $1 billion start-ups known as unicorns — more than 1,000 now, up from about 200 in 2015. It offers a reason for the rise in interest in unionizing companies from Amazon to Apple to Starbucks, as hourly workers seek to claim their share.And it helps explain why Dwight and Denise Makinson just returned from a 12-day cruise through Germany.“Our net worth has reached the millionaire level due to our investments, which was unfathomable when we were married 40 years ago,” said Mr. Makinson, 76, who is retired from the U.S. Forest Service.The couple, who live in Coeur d’Alene, Idaho, have company. There are 22 million U.S. millionaires, Credit Suisse estimates, up from fewer than 15 million in 2014.The State of Jobs in the United StatesThe U.S. economy has regained more than 90 percent of the 22 million jobs lost at the height of pandemic in the spring of 2020.April Jobs Report: U.S. employers added 428,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the fourth month of 2022.Trends: New government data showed record numbers of job openings and “quits” — a measurement of the amount of workers voluntarily leaving jobs — in March.Job Market and Stocks: This year’s decline in stock prices follows a historical pattern: Hot labor markets and stocks often don’t mix well.Unionization Efforts: Since the Great Recession, the college-educated have taken more frontline jobs at companies like Starbucks and Amazon. Now, they’re helping to unionize them.“I used coupons to buy things. One of my daughters would say, ‘Mom, that’s so embarrassing,’” said Ms. Makinson, 66, a registered nurse. “But we believed in saving. Now she uses coupons, too.”Denise and Dwight Makinson in their backyard in Coeur d’Alene, Idaho. Their net worth has reached the millionaire level.Margaret Albaugh for The New York TimesEvery economic transaction has several sides. No one thought home prices in 2000 were particularly cheap. But in the last six years, prices have risen by the total value of all housing in 2000, according to the Case-Schiller index. In many areas of the country, it has become practically impossible for renters to buy a house.This is fracturing society. Even as the overall homeownership rate in 2020 rose to 65.5 percent, the rate for Black Americans has severely lagged. At 43.4 percent, it is lower than the 44.2 percent in 2010. The rate for Hispanics is only marginally better.That disparity might account for the muted sense of achievement.“It’s a time of prosperity, a time of abundance, and yet it doesn’t seem that way,” said Andy Walden, vice president of enterprise research at Black Knight, which analyzes financial data.Shawn and Stephanie McCauley said the value of their house 20 miles north of Seattle had shot up 50 percent since they bought it a few years ago, a jump that was typical of the market.“We are very fortunate right now given the situation for many others during the pandemic,” said Mr. McCauley, 36, who works for a data orchestration company. “Somehow we are doing even better financially, and it feels a bit awkward.”Even for those doing well, the economy feels precarious. The University of Michigan’s venerable Index of Consumer Sentiment fell in March to the same levels as 1979, when the inflation rate was a painful 11 percent, before rising in April.Politicians are mostly quiet about the boom.“Republicans are not anxious to give President Biden credit for anything,” said Mr. Baker, the economist. “The Democrats could boast about how many people have gotten jobs, and the strong wage growth at the bottom, but they seem reluctant to do this, knowing that many people are being hit by inflation.”The initial coronavirus outbreak ended the longest U.S. economic expansion in modern history after 128 months. A dramatic downturn began. The federal government stepped in, generously spreading cash around. Spending habits shifted as people stayed home. The recession ended after two months, and the boom resumed.Jerome H. Powell, the Federal Reserve chair, recently warned that there were too many employers chasing too few workers, saying the labor market was “tight to an unhealthy level.” But for workers, it’s gratifying to have the upper hand in looking for a new position or career.“Both my husband and I have been able to make job changes that have doubled our income from five years ago,” said Lindsay Bernhagen, 39, who lives in Stevens Point, Wis., and works for a start-up. “It feels like it has mostly been dumb luck.”A decade ago, the housing market was in chaos. Between 2007 and 2015, more than seven million homes were lost to foreclosure, according to Black Knight. Some of these were speculative purchases or second homes, but many were primary residences. Egged on by lenders, people lived in houses they could not easily afford.Now the reverse is true. People own much more of their homes than they used to, while the banks own less. That acts as a shield against foreclosures, which in 2019 were only 144,000, according to Black Knight. (During the pandemic, foreclosures mostly ceased due to moratoriums.)The equity available to homeowners reached nearly $10 trillion at the end of 2021, double what it was at the height of the 2006 bubble, according to Black Knight. For the average American mortgage holder, that amounts to $185,000 before hitting loan-to-value tripwires. The figure is up $48,000 in a year — about what the average American family earns annually, according to some estimates.Even very new homeowners feel an economic boost.“We never had enough for a down payment, but then in summer of 2020, we got a good tax return, a stimulus check and had a little money in the bank,” said Magaly Pena, 41, an architect for the federal government. She and her husband bought a townhouse in the Miami suburb of Homestead.Ms. Pena, a first-generation immigrant from Nicaragua, likes to check out the estimated value of her house and her neighbors on the real estate website Redfin. “Sometimes I’ll check it every day for three days,” she said. “It’s been crazy — everything has skyrocketed.”In 2006, homeowners cashed in their equity. Sometimes they used the money to double down on another house or two. In 2022, there’s little sense of excess. One reason is that lenders and the culture in general are no longer so encouraging about that sort of refinancing. But owners are also more cautious.Brian Carter, an epidemiologist in Atlanta, said he and his wife, Desiree, had about $250,000 in equity in their home but didn’t plan to draw on it.“I was 27 in 2007 and watched a lot of people lose their houses because they couldn’t leave their equity alone,” he said. “That included my next-door neighbor and the family across the street. I don’t want to worry.”Those who take a boom for granted often get upstaged by reality. In May 2000, the entrepreneur Kurt Andersen said raising money for a media start-up called Inside was as easy “as getting laid in 1969.” That was a few weeks after the stock market peaked. Seventeen months and one merger later, Inside shut down. (Mr. Andersen clarified in an email that he did not actually have sex until the 1970s.)In 2000, the start-up downturn was the first sign of wider economic trouble. This time it may be simply that people are doing too well. “U.S. households in best shape in 30 years … but does it matter?” Deutsche Bank asked in a research note last month.Its logic: Households have more cash than debt for the first time in decades, which is theoretically good. But all that money is encouraging spending, which is propelling inflation, which is forcing the Fed to push up interest rates. The result: a recession late next year.Ashley Humphries, 31, feels prepared for most any scenario. Six years ago, she was a graduate teaching assistant making $12,000 a year. Now she earns a low six figures as a senior product manager for a parking app developer in Atlanta.“I’ve lived out some childhood dreams like dyeing my hair vibrant colors and seeing ‘Phantom of the Opera’ from the front row,” Ms. Humphries said. She got a dog named Kylo, put a bit of her income in the stock market and bought a Tesla. She just left on a Caribbean cruise. Two of them, in fact, one after the other.Ashley Humphries and Kylo. “I’ve lived out some childhood dreams,” she said.Kendrick Brinson for The New York Times More

WASHINGTON — In Kansas, the Democratic governor has been pushing to slash the state’s grocery sales tax. Last month, New Mexico lawmakers provided $1,000 tax rebates to households hobbled by high gas prices. Legislatures in Iowa, Indiana and Idaho have all cut state income taxes this year.A combination of flush state budget coffers and rapid inflation has lawmakers across the country looking for ways to ease the pain of rising prices, with nearly three dozen states enacting or considering some form of tax relief, according to the Tax Foundation, a right-leaning think tank.The efforts are blurring typical party lines when it comes to tax policy. In many cases, Democrats are joining Republicans in supporting permanently lower taxes or temporary cuts, including for high earners.But while the policies are aimed at helping Americans weather the fastest pace of inflation in 40 years, economists warn that, paradoxically, cutting taxes could exacerbate the very problem lawmakers are trying to address. By putting more money in people’s pockets, policymakers risk further stimulating already rampant consumer demand, pushing prices higher nationally.Jason Furman, an economist at Harvard University who was an economic adviser under the Obama administration, said that the United States economy was producing at full capacity right now and that any additional spending power would only drive up demand and prices. But when it comes to cutting taxes, he acknowledged, the incentives for states do not always appear to be aligned with what is best for the national economy.“I think all these tax cuts in states are adding to inflation,” Mr. Furman said. “The problem is, from any governor’s perspective, a lot of the inflation it is adding is nationwide and a lot of the benefits of the tax cuts are to the states.”States are awash in cash after a faster-than-expected economic rebound in 2021 and a $350 billion infusion of stimulus funds that Congress allocated to states and cities last year. While the Biden administration has restricted states from using relief money to directly subsidize tax cuts, many governments have been able to find budgetary workarounds to do just that without violating the rules.Last week, Gov. Ron DeSantis of Florida signed a $1.2 billion tax cut that was made possible by budget surpluses. The state’s coffers were bolstered by $8.8 billion in federal pandemic relief money. Mr. DeSantis, a Republican, hailed the tax cuts as the largest in the state’s history.“Florida’s economy has consistently outpaced the nation, but we are still fighting against inflationary policies imposed on us by the Biden administration,” he said.Adding to the urgency is the political calendar: Many governors and state legislators face elections in November, and voters have made clear they are concerned about rising prices for gas, food and rent.“It’s very difficult for policymakers to see the inflationary pressures that taxpayers are burdened by right now while sitting on significant cash reserves without some desire to return that,” said Jared Walczak, vice president of state projects with the Center for State Tax Policy at the Tax Foundation. “The challenge for policymakers is that simply cutting checks to taxpayers can feed the inflationary environment rather than offsetting it.”The tax cuts are coming in a variety of forms and sizes. According to the Tax Foundation, which has been tracking proposals this year, some would be phased in, some would be permanent and others would be temporary “holidays.”Next month, New York will suspend some of its state gas taxes through the end of the year, a move that Gov. Kathy Hochul, a Democrat, said would save families and businesses an estimated $585 million.In Pennsylvania, Gov. Tom Wolf, a Democrat, has called for gradually lowering the state’s corporate tax rate to 5 percent from 10 percent — taking a decidedly different stance from many of his political peers in Congress, who have called for raising corporate taxes. Mr. Wolf said in April that the proposal was intended to make Pennsylvania more business friendly.States are acting on a fresh appetite for tax cuts as inflation is running at a 40-year high.OK McCausland for The New York TimesMr. Furman pointed to the budget surpluses as evidence that the $1.9 trillion pandemic relief package handed too much money to local governments. “The problem was there was just too much money for states and localities.”A new report from the Tax Policy Center, a left-leaning think tank, said total state revenues rose by about 17.6 percent last year. State rainy day funds — money that is set aside to cover unexpected costs — have reached “new record levels,” according to the National Association of State Budget Officers.Yet those rosy budget balances may not last if the economy slows, as expected. The Federal Reserve has begun raising interest rates in an attempt to cool economic growth, and there are growing concerns about the potential for another recession. Stocks fell for another session on Monday, with the S&P 500 down 3.2 percent, as investors fretted about a slowdown in global growth, high inflation and other economic woes.Cutting taxes too deeply now could put states on weaker financial footing.The Tax Policy Center said its state tax revenue forecasts for the rest of this year and next year were “alarmingly weak” as states enacted tax cuts and spending plans. Fitch, the credit rating agency, said recently that immediate and permanent tax cuts could be risky in light of evolving economic conditions.“Substantial tax policy changes can negatively affect revenues and lead to long-term structural budget challenges, especially when enacted all at once in an uncertain economic environment,” Fitch said.The state tax cuts are taking place as the Biden administration struggles to respond to rising prices. So far, the White House has resisted calls for a gas tax holiday, though Jen Psaki, the White House press secretary, said in April that President Biden was open to the idea. The administration has responded by primarily trying to ease supply chain logjams that have created shortages of goods and cracking down on price gouging, but taming inflation falls largely to the Fed.The White House declined to assess the merits of states’ cutting taxes but pointed to the administration’s measures to expand fuel supplies and proposals for strengthening supply chains and lowering health and child care costs as evidence that Mr. Biden was taking inflation seriously.“President Biden is taking aggressive action to lower costs for American families and address inflation,” Emilie Simons, a White House spokeswoman, said.The degree to which state tax relief fuels inflation depends in large part on how quickly the moves go into effect.Gov. Laura Kelly backed a bill last month that would phase out the 6.5 percent grocery sales tax in Kansas, lowering it next January and bringing it to zero by 2025. Republicans in the state pushed for the gradual reduction despite calls from Democrats to cut the tax to zero by July.Understand the 2022 Midterm ElectionsCard 1 of 6Why are these midterms so important? More

Millions of people started a “side hustle” to make some extra cash during the pandemic, but how can you judge if it’s possible to scale yours up into a fully-fledged business? On Money Clinic podcast this week, presenter Claer Barrett travels to Norwich to meet 24-year-old Evvia. She works as a full-time care assistant, but in her spare time, is a fledgling fashion designer.A year ago, she started a vintage knitwear business from her bedroom. Today, her Loupy Studio label has over 40,000 followers on Instagram, and she is receiving orders from all over the world.

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Evvia’s creations are in such hot demand, she will have to scale back her hours at work to keep up — but she wonders how this might knit together financially. Jo Ellison, editor of How to Spend It, gives her verdict on whether Evvia should increase her prices, and talks about the financial challenges facing young designers. Plus, chartered accountant Deborah Edwards from Raised Up Finance unravels important questions about tax, different company structures and how entrepreneurs like Evvia can develop a growth mindset for their businesses. To listen, click on the link above, or search for Money Clinic wherever you get your podcasts. If you would like to be a future guest on the show, please email [email protected] or follow Claer on social media @ClaerB. More

Rising protectionism is exacerbating chaos in global food markets brought on by the war in Ukraine, with governments clamping down on exports of staples including grains, cooking oil and pulses.Soaring food prices and, in some cases, the threat of social unrest have led to an increase in exporters banning overseas sales or putting in place other restrictions such as taxes or quotas. These protectionist steps have only driven up the food import bill further for countries dependent on international markets for important food commodities, hitting some of the poorest in the world.Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, warned protectionism would only artificially boost prices, already at record levels, fuelling global food insecurity. “This is going to increase global poverty rates. And in extreme situations, it may induce authoritarian regimes to become more oppressive,” she said.Before the invasion of Ukraine, droughts and Covid-19 labour restrictions had driven international food prices higher. The war has led to 23 countries turning to food protectionism, according to the US think-tank International Food Policy Research Institute (IFPRI). The share of restricted products in the world food trade measured in calories was 17 per cent, the same level seen during the 2007-08 food and energy crisis, said the IFPRI. Indonesia last month became the latest country to announce an export ban, stopping overseas sales of palm oil. The commodity is the most traded vegetable oil in the world, used in everything from cakes to cosmetics. Jakarta’s decision has been another blow for consumers already struggling with a jump in cooking prices because of the invasion of Ukraine, a leading sunflower oil supplier. Supermarkets in the EU and UK have rationed cooking oil as shoppers have rushed to stockpile. The move by the leading palm oil exporter has meant that, together with Ukrainian and Russian sunflower oil, more than 40 per cent of supplies on the international vegetable oil market have become difficult to access.

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Jakarta’s first-ever blanket ban on exports of the edible oil, implemented as the country prepared for feasting at the end of Ramadan, appears to have paid off politically. After a rapid decline, approval ratings for President Joko Widodo climbed 4 percentage points to 64 per cent in the latest survey by pollster Indikator.But as the ban staved off discontent in Indonesia, it stoked chaos elsewhere. Pakistan, whose new government is already contending with an inflation crisis, soon formed an official task force to address its palm oil supplies. Islamabad has sought to reassure the public by seeking guarantees from Indonesian officials that Jakarta would resume shipments before the end of the month, according to Usman Qureshi, joint secretary in Pakistan’s commerce ministry.Although agricultural commodity traders do not expect the ban to last long, some warned that the unexpected move had affected Indonesia’s reputation as a place to do business. One palm oil trader in Singapore said: “I will diversify my exposure [away from Indonesia] a bit more going forward.”David Laborde, a senior research fellow at IFPRI, said the export restrictions had created a domino effect, reducing world supply to those who needed it. “You end up undermining the world trade system,” he said, adding that by limiting access to international markets, restrictions also reduced incentives for farmers to grow crops. “You hurt your own farming system and your own food supplies.”Traders are now focused on whether India will announce a food export ban.

One of the world’s largest wheat producers, the country’s exports rose to a record high of more than 7mn tonnes in the year ended March, helping fill the shortfall caused by the Ukraine war. But searing heat in March and April, where temperatures of up to 45C hit large parts of India’s wheat belt, have heightened concerns about the country’s domestic supply. With several more weeks of heat expected before the onset of the annual monsoon next month, the government this week downgraded its forecast for the current wheat crop by 5 per cent to 105mn tonnes for the year to June.Prices quoted on wheat markets around the world have risen over the past few days following reports that New Delhi was also considering restricting exports to protect domestic stocks from further shortfalls.But India’s food secretary Sudhanshu Pandey disputed that restrictions were an option, saying the country had enough to meet its domestic needs. “Wheat exports are on,” he told reporters on Wednesday, adding that the arrival of Argentina’s own wheat crop from June should ease pressure on Indian and global supplies.Traders said any restrictions on Indian exports would shock international markets. “The world has been relying on India for alternative supplies at a time when global inventories are historically tight and supplies remain severely restricted from the Black Sea,” said Kona Haque, head of research at ED&F Man, an agricultural commodities trading house. Any suggestion that India might move to ban exports would cause “global wheat markets to panic and prices to rise”, she warned. More