Economy

OTTAWA (Reuters) – The Bank of Canada has “considerable space” left to raise interest rates this year, Governor Tiff Macklem said on Thursday, and did not rule out a rare 50-basis-point move if needed to rein in hot inflation.The central bank, increasingly concerned about spiking prices, hiked rates for the first time in more than three years on Wednesday and said it was prepared to act aggressively if need be to keep inflation expectations grounded.”There is certainly considerable space to raise interest rates over the course of the year,” Macklem said in a question and answer session after a speech to a business audience. “If we have to move more quickly, we are prepared to do that,” he added. “I am not going to rule out a 50-basis-point move in the future.”He did not elaborate when asked what conditions would merit such a hike.The Bank of Canada last hiked by 50 basis points in May 2000. Inflation in Canada hit a 30-year high of 5.1% in January and price pressures are broadening, making buying necessities like gas and groceries more expensive.Earlier, Macklem told the CFA Society of Toronto the bank would act “with determination” to rein in soaring prices, saying a failure to act decisively would make it much more painful to bring inflation back to target.Even with food and gas prices rising quickly, inflation expectations remain well-anchored, Macklem said. “Canadians can expect us to use our tools with determination to keep them that way,” he said. “The lesson from history is that if inflation expectations become unmoored, it becomes much more costly to get inflation back to target.”The central bank made clear interest rates remained its primary monetary policy tool, to be complimented by its first-ever quantitative tightening program, a reference to the process of allowing the government bonds purchased during the pandemic to roll off its balance sheet. Macklem said the central bank did not intend to actively sell bonds, nor did he give a timeframe for starting QT, saying only that it “would be a natural next step” following Wednesday’s rate increase.In the current reinvestment phase, the Bank of Canada buys roughly C$1 billion ($789 million) worth of government bonds each week to keep the size of its balance sheet constant.The Canadian dollar was trading 0.4% lower at 1.2675 to the greenback, or 78.90 U.S. cents.On Wednesday, the central bank raised its policy rate to 0.5% from a record low 0.25%, its first increase since October 2018. ($1 = 1.2672 Canadian dollars) More

NEW YORK (Reuters) – With surging oil prices, concerns about the hawkishness of the Federal Reserve and fears of Russian aggression in Eastern Europe, the mood on Wall Street feels like a return to the 1970s. Other than bell-bottoms, the only thing missing so far is stagflation, which occurs when an economy experiences rising inflation and slowing growth at the same time. Yet some investors now think that it is not far off.They are recalibrating their portfolios for an expected period of high inflation and weaker growth. Sanctions on top commodity exporter Russia have helped lift the price of Brent crude by some 80% in the last year to around $116 a barrel, stoking concerns that higher energy costs will continue pushing up consumer prices while pressuring global growth.At the same time, market volatility stemming from geopolitical strife has made investors less certain over how aggressive the Federal Reserve will be in tightening monetary policy to tame soaring inflation. Investors now expect the Fed to take rates from zero to 1.5% by February 2023, compared with 1.75% or higher just a few weeks ago. [FEDWATCH] The percentage of fund managers who believe stagflation will set in within the next 12 months stood at 30%, compared with 22% last month, a survey from BoFA Global Research showed. “Our base case is still not 1970s stagflation, but we’re getting closer to that ZIP code,” said Anders Persson, chief investment officer of global fixed income at Nuveen. The threat of stagflation is especially worrisome to investors because it cuts across asset classes, leaving few places to hide. A diversified portfolio of global equities, bonds and real estate could end up losing 13% in the event that rising oil prices cause stagflation, according to a stress test model by MSCI’s Risk Management Solutions research team. The last major stagflationary period began in the late 1960s. Spiking oil prices, rising unemployment and loose monetary policy pushed the core consumer price index up to a high of 13.5% in 1980, prompting the Fed to raise interest rates to nearly 20% that year.The S&P 500 fell a median of 2.1% during quarters marked by stagflation over the last 60 years, while rising a median 2.5% during all other quarters, according to Goldman Sachs (NYSE:GS). With bond prices hit by recent market volatility, Persson is looking for opportunities to position in high-yield debt, which he believes may be a good hedge against future stagflation-fueled declines. Worries that stagflation may hit Europe harder due to its heavier reliance on energy imports will likely cause some investors to edge away from the region’s assets, said Paul Christopher, head of global market strategy at Wells Fargo (NYSE:WFC) Investment Institute. Moving out of U.S. assets and into European ones became a popular trade near the end of 2021, as U.S. stocks rose to comparatively high valuations. OPPORTUNITY IN COMMODITIES Stagflation in Europe would likely resemble the long period of low growth and high inflation the United States experienced in the 1970s, Christopher said. “In Europe, if energy prices go too high then factories will have to shut down,” he said. Nuveen’s Persson estimates that a Brent crude price of $120 per barrel will sap 2 percentage points from the economy of the EU. Rising oil prices will likely shave 1 percentage point from the U.S. economy, due in part to the country’s greater domestic supply and lower taxes. U.S.-focused equity funds have gained $44.5 billion in inflows since the start of February, while world stock funds have pulled in, losing $2 billion in outflows, according to ICI data. Funds focused on commodities have notched $7.7 billion in inflows since the start of the year, including the largest one-week net gain since August 2020, ICI data showed. Those inflows have come amid sharp price gains in raw materials that have benefited assets linked to commodity exporters such as Australia, Indonesia and Malaysia.”We see a long wave of opportunity in commodities that we haven’t seen in a long time,” said Cliff Corso, chief investment officer at Advisor Asset Management. His fund has been building positions in commodities and emerging market equities from oil-rich countries such as Mexico as a hedge against the potential of higher inflation or stagflation. A robust job market and domestic sources of energy should leave U.S. equities, especially dividend-paying companies, more attractive than other global assets even in the face of rising inflation, said Lindsey Bell, chief markets and money strategist at Ally. “The consumer remains healthy and has been able to absorb higher inflation thus far,” she said. More

Some retailers, including Victoria’s Secret, are warning about business impacts from the Ukraine crisis. Others, like Nike, have suspended operations in Russia.
“We are deeply troubled by the devastating crisis in Ukraine and our thoughts are with all those impacted, including our employees, partners and their families in the region,” a Nike spokeswoman said.
Analysts say the biggest concern for retailers is how long the conflict and the surrounding uncertainty drag on.

Employees put wooden shields on the window of Louis Vuitton shop in Kyiv on February 24, 2022 as Russia’s ground forces invaded Ukraine from several directions today, encircling the country within hours of Russian President announcing his decision to launch an assault.
Sergei Supinsky | AFP | Getty Images

Rising inflation and global supply chain strains remain top of mind for retailers as they navigate the post-holiday earnings season. But also making its way into conversations with analysts and investors is Russia’s invasion of Ukraine, which entered its second week on Thursday.
A number of retailers have temporarily halted operations in Russia, either as a signal of corporate condemnation of the war or because these companies are unable to carry on business in the country due to imposed sanctions impacting logistics.

Some, such as Victoria’s Secret, are warning that uncertainty created by the war could weigh on business in the first quarter and potentially beyond.
The biggest concern for many retailers will likely be the duration of the crisis, said Chuck Grom, an analyst with Gordon Haskett.
“You have to think the longer it goes on, the more problematic” it gets, Grom said. “In other words, the consumer spends more time getting absorbed with the situation.”
Retailers are already trying to gauge future demand in still unpredictable times and keep shelves stocked without ordering too much merchandise. Businesses are trying to lure consumers back into their stores as Covid cases wane and immunity increases. Yet it could prove to be trickier than this time a year ago, when President Joe Biden and Congress signed off on stimulus payments to families.
Pittsburgh-based clothing retailer American Eagle Outfitters said Wednesday it is taking the war between Russia and Ukraine into consideration when forecasting its outlook for the year, though it didn’t offer specifics on how much of a financial impact the war could have on consumer demand. American Eagle doesn’t operate any brick-and-mortar shops outside of North America and Hong Kong, but it ships merchandise to 81 countries.

Chief Financial Officer Michael Mathias said on an earnings conference call that the retailer is cognizant of multiple factors currently at play: Rising inflation, the fact that American Eagle is beginning to lap a period during which stimulus payments were issued to many consumers last spring, and continued disruption in the global supply chain, “including the war in Ukraine.”
“Against this backdrop, we’re taking a cautious view,” Mathias said.
American Eagle warned that its earnings will decline in the first half of the year compared with prior-year levels, in large part due to heightened freight costs. It does expect earnings to rebound in the back half.
Lingerie retailer Victoria’s Secret, which has a small presence in Russia, also made a slight mention of the war. When it reported its fiscal fourth-quarter results Wednesday, it said inflation and “global unrest” will create a challenging environment in the coming months. Victoria’s Secret issued a disappointing outlook for the first quarter but said it believes the third quarter will be an inflection point for better results.
Kohl’s Chief Executive Michelle Gass was asked Tuesday, on an earnings conference call with analysts, about the situation in Ukraine and how it might hurt the department store chain’s business.
“We’re prepared that there’s going to be an environment of a lot of uncertainty. We certainly contemplated that as we guided this year,” Gass said on the call. “We’ll stay close and be responsive.”

Retailers shut stores and make contingency plans

All of this could weigh heavily on the American consumer. Companies, from food producers to auto makers, will likely bear greater burdens from skyrocketing oil prices and ongoing supply chain headaches. Price increases are often passed on to the customer.
“There are implications for U.S. retailers in the higher cost of energy, because of the interruption of and disruption in energy markets,” said David French, senior vice president of government relations at the National Retail Federation, the leading retail trade group. “And there are implications for U.S. retailers in food prices, because of the significance of Ukraine and Russia … as major agricultural regions.”
“Those are probably the biggest first-order effects,” he said, adding that many U.S.-based retailers have modest exposure to Russia and Ukraine, if any. He did mention Ukraine being a major hub for companies outsourcing IT help, however, which could become a larger issue if the crisis persists.
French emphasized that even during the pandemic, consumers have been reporting that their confidence is down but at the same time they’re shopping as if consumer confidence is way up. Holiday retail sales in 2021 surged a record 14.1% from prior-year levels, according to NRF, in spite of inflation and the spreading omicron variant.
BMO Capital Markets analyst Simeon Siegel echoed this sentiment. “Setting aside what it says about humanity, as we learned with Covid, people are really good about not letting things bother them until it knocks at their door,” Siegel said.
At the same time, companies have been quick to take a stance on the Kremlin’s invasion of Ukraine.
Furniture retailer Ikea said Thursday it is closing all of its stores in Russia, stopping production in the country and halting all exports and imports to and from Russia and Belarus.
“The war has both a huge human impact and is resulting in serious disruptions to supply chain and trading conditions, which is why the company groups have decided to temporarily pause Ikea operations in Russia,” the company said in a statement.
Nike, fast-fashion retailer H&M, and coat maker Canada Goose have all said they’re suspending sales in Russia, too.
A statement on Nike’s website in Russia says the sneaker giant can’t currently guarantee product delivery in Russia. A Nike spokeswoman told CNBC that given the rapidly evolving situation, along with increased operational challenges, Nike decided to pause its business in the region.
“We are deeply troubled by the devastating crisis in Ukraine and our thoughts are with all those impacted, including our employees, partners and their families in the region,” the spokeswoman said.
British online fashion retailers Boohoo and Asos have also both suspended sales in Russia. On Thursday, the off-price retailer TJX said in a securities filing that it would be selling its 25% stake in the low-cost Russian apparel retailer Familia, which has more than 400 stores in Russia. As a result of the sale, TJX said it may have to report impairments charges.
Craig Johnson, founder of the retailer consulting group CGP, said he expects that retailers or brands with a presence in central and eastern Europe are likely already developing, if not implementing, contingency plans.
“Contingency plans are most critical for in-store and back office employees and hours of operations,” Johnson said. “But they also include plans for physical and cyber security, vendor and public communications, and trimming or delaying merchandise receipts as warranted.”
This story is developing. Please check back for updates.

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Western sanctions against Russia have already prompted banks around the world to halt business in the country. International money-transfer firms have followed suit. Companies including Remitly Global, Wise (formerly known as TransferWise) and Zepz, have all suspended service to Russia. The retreat is unlikely to have a material effect on the companies’ revenue, for now. But for those which still operate in the country, business has been brisk. MoneyGram, which agreed to be taken private last month, said transfers to Russia were up more than 50 per cent compared with the 30-day average during the week of the invasion. Nearly $10bn in remittances flowed into Russia in 2020, according to the World Bank, nearly double the amount ten years earlier. Getting money into Ukraine — where remittances account for about 10 per cent of the country’s gross domestic product — gets trickier as Russia’s attacks on Ukraine intensify. Although Wise still functions in Ukraine, it has capped transfers to GBP 2,500. Those looking to move money in and out of Russia have found workarounds. Chinese payment networks Alipay and UnionPay offer one way to bypass western sanctions. Cryptocurrency offers another. Crypto exchanges such as Coinbase have thus far resisted calls to bar Russian users.While remittance companies’ direct exposure to Russia is modest, there are ripple effects to consider. Tajikistan, Kyrgyzstan and Uzbekistan rely heavily on cash transfers sent home by migrant workers in Russia. Remittances accounted for 26 per cent of Tajikistan’s GDP and 31 per cent of Kyrgyzstan’s GDP in 2020. The collapse of the rouble and deteriorating economic conditions in Russia could disrupt these flows.The bigger threat to the industry would be the effect of Russia’s invasion on the global economy. Spiralling inflation, the possibility of rising interest rates, could put the brakes on America’s economic recovery. The country is one of the world’s largest sources of remittances. A slowdown there would too mean bad news for those enterprises whose business model depends upon helping immigrants move money around. More

Initial claims for unemployment insurance totaled 215,000, below the 225,000 estimate.
That was the lowest level since Jan. 1 and comes a day ahead of the closely watched nonfarm payrolls report for February.
A separate report showed Q4 productivity up 6.6%, slightly less than expected, but with a rise in unit labor costs that was well ahead of estimates.

Initial claims for unemployment insurance totaled 215,000, the lowest tally since the beginning of the year and fewer than Wall Street estimates, the Labor Department said Thursday.
Economists surveyed by Dow Jones had been looking for first-time filings to come in at 225,000 for the week ended Feb. 26.

A separate report from the Bureau of Labor Statistics showed that nonfarm productivity rose 6.6% in the fourth quarter, slightly less than the estimate for 6.7%. However, unit labor costs rose 0.9%, well ahead of the expected 0.3%.
On jobless claims, last week’s total represented a decline of 18,000 from the previous week and was the lowest since Jan. 1.
Continuing claims, which run a week behind the headline number, edged higher to 1.48 million. However, the four-week moving average, which smooths out weekly volatility, moved down to 1.54 million, the lowest level since April 4, 1970.

The total of those receiving benefits under all programs fell further, dropping to 1.97 million, a decline of 62,625.
The jobless numbers come a day before the BLS’ closely watched nonfarm payrolls report. Wall Street is looking for a gain of 440,000 in February, following up the much stronger-than-expected 467,000 total in January.

Companies are still trying to fill nearly 11 million job openings at a time when the worker shortage has expanded to unprecedented levels. There are about 4.4 million more employment openings than there are unemployed workers looking for jobs.
Wages have surged in the current environment, with average hourly earnings up 5.7% in January, a level well above anything seen in the pre-pandemic environment, according to Labor Department data going back about 15 years.
Unit labor costs continued to increase in the last three months of 2021, though at a lower pace than the previous quarter due in large part to the jump in productivity. A 7.5% rise in hourly compensation was largely offset by the 6.6% productivity rise. For the full year, unit labor costs were up 3.6%, down from the 4.3% gain in 2020.
Federal Reserve policymakers are about to tackle the inflation issue with an expected series of rate increases.
Fed Chairman Jerome Powell on Wednesday called the labor market “extremely tight” and said he expects the first rate hike to come at the central bank’s policymaking meeting later this month.

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The writer is a research fellow at the Hoover Institution, Stanford UniversityOf all the sanctions the west imposed on Russia last week, sanctioning Russia’s central bank is by far the most fateful. “We will cause the collapse of the Russian economy,” said Bruno Le Maire, France’s finance minister. This is not hyperbole. And if managed smartly by the west, these sanctions can also stop the war in Ukraine and beyond.The possibility stems from an unsung feature of any modern central bank. The Russian central bank is, like others, not only the lender of last resort to commercial banks in its domestic currency, the rouble, but also the lender of last resort in foreign exchange. FX reserves support the exchange rate and the value of the rouble, ensure the stability of the banking system and its deposits, prevent runs on banks, bail out the foreign debt of state and private corporations and manage the sovereign wealth fund.Western sanctions strike at these foundations of the Russian economy. And this has become possible because of the digitalisation of international finance.Unlike in times past, most components of FX reserves are not physical certificates of government bonds or piles of cash in dollars, euros, pounds and yen. In the 21st century, they are electronic book entries on the computer ledgers of the Federal Reserve Bank of New York, the European Central Bank, European national central banks, the Bank of England, the Bank of Japan and Swiss commercial banks. This digitalisation separates ownership and control of FX reserves. Russia owns them but western issuers and computerised holders of these assets control access to them. At the end of February, they collectively closed Russia’s access to these assets, froze them and banned all private transactions with the Russian central bank so that it cannot sell securities and cannot withdraw cash from western banks. From a source of economic strength during peacetime, FX reserves turned into the source of a crash during war. Within a fateful 24 hours, the Russian central bank and Russians lost access to 60 per cent of FX reserves, $388bn out of a total $643bn. They lost access to entire arrays of assets: securities and deposits in western central banks ($285bn) and in western commercial banks and brokerages ($103bn). The Russian central bank is left with $135bn worth of gold in its vaults, $84bn of Chinese securities denominated in renminbi, a $5bn position in the IMF and a residual $30bn in actual cash, dollars and euros. (These are my calculations from central bank data).With 60 per cent of FX reserves out of commission, Russia has to rely on the remaining 40 per cent, but there is no freedom to operate there either. The central bank cannot sell gold for dollars and euros because all transactions with it are prohibited and foreign bankers and dealers do not want to invite western wrath. The IMF reserve position is untouchable. Some $84bn in Chinese securities could, hypothetically, have been sold back to China, with a discount, to be paid in dollars, cut to $50bn, but China’s state banks have already refused financial deals with Russia. Which leaves only $30bn in cash — too little to prevent financial and economic ruin. The rouble is already in freefall and the run on banks in full swing. Russian corporate and individual depositors have $280bn in dollar and euro denominated account balances with Russian commercial banks. Banks cannot have that much foreign cash on hand and the central bank doesn’t have cash to save them. Now people want to withdraw rouble deposits, not because they are afraid that next time the roubles won’t be there but because they expect that next time their bank won’t be there. The Russian people saw bank failures during the default of 1998 and expect no less. The final implosion will be over supply chains. Businesses will demand dollars for payments. The successful part of the economy, producers of natural resources and high-value goods, will operate in dollars. The rest will have to resort to barter and endure supply interruptions, work stoppages and unemployment. The government may ban foreign currency transactions and demand that businesses trade only in roubles. This is unenforceable. The economy will break and a GDP contraction follow. These developments will weaken the Russian war effort but, alas, may not be sufficient to stop the war. But something else may. The west can offer the Russian government a deal: cash for peace. This is akin to the IMF practice of conditional loans. The west has frozen $388bn in Russian assets. We can offer to unfreeze assets in tranches, say, $50bn a piece to save their economy in exchange for withdrawing forces from Ukraine, pledging not to ever use nuclear weapons and, generally, starting a return to humanity. More

Fourteen years ago Zoltan Poszar, a Credit Suisse analyst, learned about the power of financial contagion. Back then, he was working at the Federal Reserve investigating the plumbing of the credit world.When Lehman Brothers collapsed in 2008, he saw how unexamined interlinkages in the market’s financial “pipes” could generate unexpected shocks, particularly in the tri-party repurchase sector (where short-term loans are extended against collateral between multiple parties).Today, however, Poszar is pondering whether a similar chain reaction might occur as a result of western sanctions on Russian institutions. “We are dealing with pipelines here — financial and real,” he recently told clients. “If you jam the flows by making [Russian] banks unable to receive and send payments, you have a problem [like] when a tri-party clearing bank did not return cash to money funds for fear of ending up with an intraday exposure to Lehman.”Investors should take note. Thankfully there is no sign of serious problems in those financial pipes right now, let alone a Lehman Brothers-style shock. Yes, there are hints of stress in some market corners; the gap between the price of cash Bunds and derivatives, say, has swung sharply wider (seemingly because investors are grabbing securities they can use as collateral in deals).European bank shares have sold off, amid fears about their loan exposures to Russia. There is concern that some emerging market funds will dump non-Russian assets to cover losses on frozen Russian holdings. And there is also gossip among traders about whether the dramatic swings in commodity prices or interest rates have wrongfooted some overleveraged hedge funds; memories of the 1998 collapse of the Long-Term Capital Management fund are being revived.Yet what is perhaps most notable about markets this week is how smoothly they have continued to function in the face of unprecedented financial “shock and awe”. This might be explained away by the fact that the overall scale of Russian financial assets is relatively small compared to the global financial system as a whole. However, another important factor is that western regulators and investors are more skilled in dealing with shocks than they were before 2008 — precisely because they have had so much practice with the financial crisis, the Covid pandemic and a decade of quantitative easing. It has become almost normal for risk managers to imagine six (once) impossible things before breakfast, to paraphrase Lewis Carroll. However, it would be dangerous to be too complacent. One reason is that the full impact of sanctions has not really rippled through the system yet; the formal exclusion of seven Russian banks from the Swift messaging system only comes into effect on March 12. Another is that we simply do not know how a freeze of Russian assets will ricochet around interlinked contracts.The main point that investors need to understand, notes Adam Tooze, a professor at Columbia University, is that “Russia’s reserve accumulation, like reserve accumulation by other oil and gas producers such as Norway or Saudi Arabia, is a source of funding in western markets — [and] part of complex chains of transactions that may now be put in jeopardy by the sanctions.” It is hard to track the nature of these chains with precision, since cross-border data on financial flows and counter parties is patchy. Consider, for example, the situation around US treasuries. Back in the spring of 2018 it was widely reported, on the back of US Treasury data, that the Russian central bank had sold $81bn of its $96bn pile of treasuries holdings, apparently to avoid future sanctions. That sounded dramatic. However, Benn Steil and Benjamin Della Rocca, economists at America’s Council on Foreign Relations, later did a forensic analysis of different national data bases. From this, they decided that $38bn of those Russian holdings had simply gone “missing” from the US data; Russia had seemingly “moved [the bonds] outside of the United States to protect against US seizure” — primarily to Belgium and the Cayman Islands. Whether they are still there is unclear, Steil tells me.Yet while these flows are opaque, Poszar has also crunched through (different) arcane data bases, in a bid to track both the $450bn of non-gold foreign exchange reserves recorded on the books of the Russian central bank holds, and the estimated $500bn of liquid investors apparently owned by the Russian private sector.That leaves him guessing that Russian players have “just over $300bn [held] in short-term money market instruments” outside Russia and “about $200bn of this represents the lending of US dollars in the FX swap market”. How these contracts (and other interlinked derivatives deals) will be handled in the face of sanctions is unclear; but lawyers are currently scrambling to find some answers. Don’t get me wrong: by highlighting the risks in this financial pipework I am not predicting a Lehman-style shock. Nor am I suggesting that these dangers are a reason for the west to roll back sanctions. My point, rather, is this: financial war, like the real variety, creates unpredictable aftershocks and collateral damage. It would be naive to think this will only hit Russian [email protected] More

British businesses expect inflation to rise at its fastest pace for five years, according to a Bank of England survey, as the war in Ukraine pushed up energy prices to their highest level in decade.Chief financial officers forecast inflation to rise to 4.8 per cent this year — its highest since the Decision Makers Panel survey began in 2017. The expectation was 4.5 per cent in the DMP’s January survey.Business groups reported that prices rose by an annual rate of 5.4 per cent in the three months to February, twice the rate over the same period last year.The survey, conducted between February 4 and 18 across nearly 3,000 businesses, predated Russia’s attack on Ukraine, which has pushed the price of oil to its highest level since 2008.As a result, Steffan Ball, economist at Goldman Sachs, expects that the consumer energy price cap set by the UK energy authority twice a year will rise by 55 per cent in October. This means “the peak in headline inflation shifts from April to October, rising to 9.5 per cent in October and remaining above 7 per cent through 2023 Q1,” Ball explained. He expects inflation to rise to 8.5 per cent in April, up from 5.5 per cent in January.The DMP survey suggests that domestic price pressures were strong even before the surge in energy prices following the Russian invasion of Ukraine. Monetary policy setters at the Bank of England have often quoted high business inflation expectations from the DMP survey in recent months to support the need for further monetary policy tightening.Earlier this week Michael Saunders, an external member of the BoE’s monetary policy committee, said the expectations of rising prices shown in the survey “threaten to keep CPI inflation above the 2 per cent target even once the effect of high energy effects fade, unless restrained by monetary policy”. Saunders voted for a rate hike of 50 basis points at the BoE’s January meeting, when rate-setters decided to increase the rate by 25 basis points to 0.5 per cent. He said the DMP survey showed that across a wide range of sectors “firms believe they can pass on rapid cost increases to prices.” In an earlier speech, Catherine Mann, a member of the MPC, also said the survey showed that businesses’ pricing expectations had solidified “an upside inflation risk for 2022”.The survey also showed that domestic price pressures were partly caused by widespread labour shortages. In February, nearly 90 per cent of businesses reported they were finding it more difficult to recruit new employees. Nearly 60 per cent of the businesses surveyed reported that recruiting was “much harder”, up 4 percentage points from the previous month.The labour shortages come as businesses continue to hire to deal with current demand. Businesses reported employment to have grown by an annual rate of 3.8 per cent in the three months to February, the fastest pace in nearly five years. Employment growth for the year ahead was 3.1 per cent, close to the five years high of 3.5 per cent reached in September. More