Economy

“It doesn’t end here,” Truss told Times Radio referring to the West’s move to block certain Russian banks’ access to the SWIFT international payment system.”I’ve got a meeting today with my G7 counterparts I am going to be pressing for further tightening against Russia, particularly including the access to Russian oil and gas,” she said, warning Russian leaders they could be prosecuted for war crimes. More

Corporate America is lifting prices and bragging about bigger profits as consumers open their wallets and spend heartily.Doughnut sellers, milkshake purveyors, tire manufacturers and rental car agencies are all discovering that something is different about America’s pandemic-weathered economy: People are willing to pay more for the goods and services they want to buy.Companies are taking advantage of a moment of hot and seemingly unshakable demand — one in which consumers are spending “with a vengeance,” to borrow the words of one executive — to cover rising costs and to expand their profit margins to prepandemic or even record levels. Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last.If it pans out, that trend that could have big economic implications.Planned corporate price adjustments could continue to boost inflation, which is running at its fastest pace in 40 years. The Federal Reserve is trying to assess whether businesses and households are changing their expectations in a way that might make rapid price gains a more permanent feature of the economic landscape.A selection of comments from recent earnings calls show just how companies are thinking about this moment..Rental Car CostsEverything related to automobiles seems to be increasing in cost, and rental cars are the vanguard of that trend. Company leaders are trying to make the profitable moment last.“The overall rent-a-car industry still has more demand than supply,” Joe Ferraro, the president and chief executive officer at Avis Budget Group, the rental car company, said on a Feb. 15 earnings call. “Given the current trends, we are cautiously optimistic about what a rebound in demand could mean once Covid is behind us,” he added.The year “2021 showed us what’s possible,” he said, noting also that he expects the first quarter of 2022 to be the most profitable in the country’s history.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.The company has realized, “especially given what we’ve been through in the last two years,” that targeting the most possible rentals — effectively competing by offering lower prices — is “not how you maximize profit,” Brian Choi, its chief financial officer, said on the call.“We choose instead to compete based on the quality of our product and our service,” he said.Tire DemandDemand for cars has also bolstered the market for tires.“It’s a really very, very good constructive pricing environment that we’ve seen right now, probably the best in recent memory,” Richard J. Kramer, the chief executive at Goodyear, said on a Feb. 11 earnings call.The company does look to its competitors as it makes its price increases — but they, too, are charging more.“There are nine competitors that we tend to track, and seven out of the nine have announced price increases in the first quarter, and one of the ones who hadn’t raised prices right at the end of last year,” Darren Wells, its chief financial officer, said on the call. Goodyear saw profit margins expand last year, driven in part by price increases.Sizing Up Beef CostsThe restaurant family that includes Outback Steakhouse, Bloomin’ Brands, is planning to raise prices about 5 percent across its brands to cover rising labor and food costs — and, by pairing that with efficiency improvements, it is managing to increase its profits.“It became clear that the 3 percent pricing we previously discussed was not be enough to offset the increased inflationary pressures our industry is facing,” said Christopher Meyer, the chief financial officer at Bloomin’ Brands, speaking of the last quarter. “Given that we had not taken a material menu price increase since 2019, we are confident that 5 percent is appropriate.”Mr. Meyer noted that operating inflation was 4.9 percent and labor inflation was 8.9 percent in the final quarter of 2021, but that the company had managed to increase its profits through improving efficiency by simplifying its menu and by cutting food waste.In 2022, he said, the company expects beef inflation “in the mid-to-high teens” and wage inflation “in the high single-digit range.”Recovering Profits in FoodShake Shack is among the companies hoping to benefit as consumers spend.Amy Lombard for The New York TimesAs beef and other food costs have increased, so have Shake Shack’s menu prices. But officials think consumers will be able to spend through the burger and ice cream inflation as virus risks fade and foot traffic picks up in the cities where its stores are located.Inflation F.A.Q.Card 1 of 6What is inflation? More

BRUSSELS (Reuters) -Soaring energy prices and a geopolitical crisis over Russia’s invasion of Ukraine are looming over the European Union’s attempts to agree a raft of tougher climate change laws, raising concerns that some could be delayed or scaled back.In the weeks after the European Commission unveiled the world’s biggest package of green policies last July, wildfires ripped through the Mediterranean and floods ravaged western Europe. From Greece to Germany, governments called for urgent action to address climate change.Seven months later, as EU policymakers are negotiating how to turn those proposals into binding laws, the political context is starkly different.Europeans’ energy bills are soaring. Gas prices ended Thursday 300% higher than in July, pushed upwards as the invasion of Ukraine by Russia, Europe’s top gas supplier, sharpened concerns of energy supply shocks. EU carbon prices are near record levels. Eurozone inflation is at an all-time high.Brussels has billed Europe’s green transition as its escape route from reliance on Russian energy and the 300 billion euros EU countries spend on oil and gas imports each year. It will require huge investments upfront, but ultimately bring down costs and give European industry an edge in global green technologies.Immediate concerns about cost, however, are dominating negotiations on the climate proposals among EU countries and the European Parliament. A majority from both must approve the laws.While soaring gas prices are the main driver of recent increases in energy bills, a growing number of states – especially from the bloc’s poorer east – warn of public pushback if ambitious green goals hike costs in future.”We used to be a fairly sizable group of countries arguing for more ambition. We’re not a huge number left,” one EU diplomat said.CARBON MARKETSThe EU proposals are designed to deliver the bloc’s target to cut emissions 55% by 2030, from 1990 levels, putting the world’s third-biggest economy on a path that, if followed globally, could avoid global warming’s worst impacts.They include a 2035 ban on new petrol and diesel cars, taxes on polluting jet fuel and carbon border tariffs on imports of high-carbon goods. A proposed new emissions trading system (ETS) is particularly contentious. That would introduce carbon costs for transport and buildings – costs that fuel suppliers may pass on to consumers through higher bills.”What is the cost and who will pay? We are warning that if we don’t discuss this we will lose popular support for the whole project,” said a senior diplomat from one EU country.The Commission proposed using revenues from the new market to shield low-income households from the costs. Critics still warn of a political backlash.Pascal Canfin, chair of the European Parliament’s environment committee, said the ETS proposal was so contentious it could “freeze the whole package” of climate laws.Groups representing more than 200 of the EU assembly’s 705 lawmakers this month proposed amendments to scrap the new ETS, according to documents seen by Reuters.Soaring energy costs are also looming over reforms of the EU’s existing carbon market, which forces power plants and industry to buy permits when they emit CO2.CO2 permit prices soared by 150% last year and are now trading around 90 euros per tonne – a near-record level that analysts say could incentivise key green industrial technologies such as CO2 capture facilities.But as CO2 costs have increased, so too have calls for intervention to dampen price spikes. Parliament’s lead negotiator this month proposed rules making it easier for policymakers to release more permits into the ETS if prices rise rapidly. Countries including Poland, Spain and Romania back the idea, although others warn against undermining the price signal for low-carbon investments. “Any intervention on pricing is undesirable,” one EU diplomat said.BALANCING ACTThe European Parliament and EU countries plan to confirm their positions on the biggest proposals, including the carbon market, by July. The Commission has urged negotiators to strike deals before a U.N. climate summit in November, strengthening the EU’s diplomatic hand to convince other countries to improve their plans.EU officials expect some talks to spill into 2023. Contentious proposals may be escalated to EU leaders, raising the bar for approval as they take decisions unanimously.The challenge is to ensure that the final package will still deliver the EU’s legally-binding emissions targets.”Everybody’s saying the targets are too high and too binding. The problem is that if you add all of those concerns, you are going to miss your 2030 target,” said Lucie Mattera, head of think tank E3G’s Brussels office.Green lawmaker Bas Eickhout said he was optimistic some plans could be made more ambitious, such as proposals to expand renewable energy and tighten CO2 limits for cars.”The member states on each file are becoming a bit more careful,” Eickhout said. “Well, they promised the 55% so they will have to deliver.” More

MOSCOW (Reuters) – Russia’s central bank said on Sunday there would be no limit at a “fine-tuning” repo auction it plans to hold on Monday and added that the banking system remained stable after a raft of new sanctions targeting Russia’s financial institutions. The central bank said bank cards were working as normal and that customers’ funds could be accessed at any time. It said it would substantially increase the range of securities that can be used as collateral to get central bank loans. More

LONDON/NEW YORK (Reuters) – A decision by Western allies on Saturday to block “selected” Russian banks from the SWIFT payments system will inflict a crippling economic blow, but also cause much pain to their own companies and banks. And the allies still have room to do more. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a secure messaging system to ensure rapid cross-border payments which has become the principal mechanism to finance international trade. Russian banks denied access to SWIFT will find it harder to communicate with peers internationally, even in friendly countries such as China, slowing trade and making transactions costlier.But the allies, who also vowed curbs on Russian’s central bank to limit its ability to support the rouble, have not yet said which banks would be targeted. That would be crucial to the measure’s impact, said sanctions and banking experts.”The devil will be in the details,” said Edward Fishman, an expert on economic sanctions at the Eurasia Center of the Atlantic Council think tank. “Let’s see which banks they select.”If the list covered the largest Russian banks, such as Sberbank, VTB, and Gazprombank, it would be “an absolutely huge deal,” he wrote on Twitter (NYSE:TWTR).Sberbank and VTB have previously said that they were prepared for any developments. The decision to kick some banks off SWIFT, though not all, could encourage “nesting”, in which Russian entities turn to non-sanctioned banks and large multinationals instead in a bid to access the global financial system, one expert said.Such a workaround for the Russians would create compliance headaches for global banks.”It really is a dagger into the heart of Russian banks,” said Kim Manchester, whose firm provides financial intelligence training programs to institutions. Manchester said the Biden administration had been selective in its sanctions, leaving room to tighten further by blocking more banks and eventually imposing a blanket ban. “It is a creeping barrage.”DEVASTATING BLOW The impact is likely to be devastating for the Russian economy and markets.The sanctions are likely to hit the rouble hard when markets open on Monday, said Sergey Aleksashenko, a former deputy chairman of the Russian central bank who now lives in the United States, leading to the disappearance of many imports to Russia. “This is the end of a significant part of the economy,” Aleksashenko added. “Half the consumer market is going to disappear. These goods will disappear if payments can’t be made for them.”But the impact could be blunted if the listed banks were limited to those already sanctioned and Russia’s central bank was given time to transfer assets elsewhere, said one former senior Russian banker, who spoke on condition of anonymity.”If it is the banks that are already sanctioned, it doesn’t really make a difference. But if it is the top 30 Russian banks then that is an entirely different matter,” he said.”It all sounds very loud and everyone is very glad, but in reality it is a political statement.”Previously announced U.S. sanctions against a handful of Russian banks including Sberbank and VTB, took direct aim at the vast majority of about $46 billion worth of daily foreign exchange transactions by Russian financial institutions. Those sanctions targeted nearly 80% of all banking assets in Russia. As an alternative to SWIFT, Russia has set up its own network, the System for Transfer of Financial Messages (SPFS).It sent about 2 million messages in 2020, or about a fifth of Russian internal traffic, says the central bank, which aims to up this share to 30% in 2023.But SPFS, which limits the size of messages and operates only on weekdays, has found it hard to add foreign members.’FINANCIAL NUCLEAR WEAPON’The decision to block Russian banks from SWIFT has been fraught.Over the past few days, even as Ukraine urged Western nations to kick Russia off the payments system and was backed by countries such as Britain, others, such as Germany, worried about the possible impact on their economies and companies. The SWIFT ban was a “financial nuclear weapon,” French Finance Minister Bruno Le Maire said on Friday. “When you have a nuclear weapon in your hands, you think before using it,” he told reporters.The tide shifted, however, as Russian forces launched an assault on Kyiv and hopes of a diplomatic resolution faded.Earlier on Saturday, Germany, which has the EU’s biggest trade flows with Russia, softened its stance and suggested it was looking for a way to remove Russia from SWIFT while trying to limit the collateral damage.Manchester, the financial intelligence trainer, said the partial ban would force Russian banks to get more creative in accessing the financial system. Multinationals with large treasury operations and banks with SWIFT access could become the new hubs of financial transactions out of Russia. Nesting, he said, was a massive concern for global banks, which would have to ensure that any transactions they support do not violate Western sanctions.Manchester said he spoke on Friday to a contact in the financial crimes division of a global bank.Such banks could face heavy regulatory penalties if they dropped the ball on sanctions, he added.”They are burning the midnight oil to make sense of everything that’s going on,” Manchester said. More

The US has for years used the power of the dollar to cut adversaries off from global finance. Now, it is using the prevalence of American technology to cut Russia off from global chip supplies. Far-reaching export controls announced by Washington are intended to isolate Russia from the world’s tech economy and stymie its military capabilities, while allowing ordinary citizens in the country to still buy mobile phones, dishwashers and laptops.The measure is part of a wave of US and western sanctions in retaliation for Russia’s invasion of Ukraine that have also targeted financial institutions, leading companies and the wealthy oligarchs that surround the administration of President Vladimir Putin.The tech-related export controls are “novel and complex” in their structure, said Kevin Wolf, a former senior commerce department official, designed to have an impact on government and industrial groups rather than ordinary consumers. “What the administration has done here is set out a structure to cut Russia off from chips and said that this is a policy and a mission,” said Wolf. “And this isn’t going to go away. There is massive allied co-operation on this.”The move shuts off supply from leading US groups such as Intel and Nvidia. Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, which controls more than half the global market for made-to-order chips, has also pledged full compliance with the new export controls. The US honed its ability to cut companies off from semiconductors by using its export control powers on Chinese telecoms company Huawei during the Trump administration. After first restricting the sale the US technology to Huawei by putting it on its trade blacklist, Washington ratcheted up pressure by applying the so-called foreign direct product rule. This allowed the US to reach beyond borders and control products made outside the country if they are designed or manufactured using American technology.“Huawei was a trial run,” said Christopher Timura, a trade lawyer at Washington’s Gibson Dunn. “The US didn’t see a dramatic impact on Huawei until it developed the entity list foreign direct product rule.”Using this same power against Russia broadly for some items, and more stringently against a specific list of 49 military entities, means the country is now effectively denied access to high-end semiconductors and other tech imports critical to its military advancement. “Russia is very well prepared but over time this is going to degrade their military capabilities severely,” said Julia Friedlander, a former US Treasury official.

Video: Russia’s invasion of Ukraine: what next? | FT Live

The blockade will also affect Russian tech more broadly, said Jim Lewis, of the Center for Strategic and International Studies. “This puts paid to Russia’s tech ambitions. Russia was already falling behind in emerging tech, and this just pushes them further back.”Putin has tried to wean Russia off dependence on foreign technology after western governments peppered the country with sanctions following its invasion of Crimea in 2014, but the measures had little success. Yandex, Russia’s leading US-listed tech giant, boasts one of the world’s leading supercomputers that powers its automated online translation services and relies on hardware made by US-based Advanced Micro Devices and Nvidia. Dmitry Peskov, Putin’s spokesman, said in January that “dishwashers and other such household items are not the most sacred things in our society, as important as they are for home comforts”.Russia has vowed to respond to the sanctions “based on its own interests” and warned that its countermeasures might be “asymmetric”.Despite these far-reaching US restrictions, analysts have predicted that some Chinese companies, especially those that have themselves been the target of US sanctions, might help Russia circumvent the export controls.

“Now that it’s almost certain that Huawei’s competitors like Ericsson would pull out of Russia and from co-operation in making 5G equipment, this will create space for Huawei,” said Artyom Lukin, an associate professor at Far Eastern Federal University in Vladivostok. “Huawei could monopolise the Russian telecom equipment market: as a result of western sanctions, China could gain 100 per cent control over our country’s tech supplies,” Lukin added.US restrictions on tech exports to Russia might also lure Chinese semiconductor companies to jump into the gap. SMIC, China’s largest chipmaker, is itself under US sanctions. The company was put on the entity list after the US government determined some of the chips it made ended up with users defined as military-linked. SMIC has since lost access to the equipment it needs to build production lines at the most advanced process technology level. It has, however, been able to continue buying machinery for expanding capacity using slightly older technology.A senior Biden administration official rejected the idea that China would help Russia circumvent US sanctions. “China alone can’t supply all of Russia’s critical needs for the military,” the official said. “And it certainly can’t compensate Russia for everything that we’re essentially restricting through these rules, especially as it relates to the production of semiconductors. China accounts for only 16 per cent of global capacity.”Martin Chorzempa of the Washington-based Peterson Institute think-tank said: “Even China, with its thriving technology ecosystem and immense government subsidies, has failed to produce advanced chips. It’s unimaginable that Russia would be capable of doing so.” Additional reporting by Max Seddon in Moscow More

Ethiopia is seeking billions of dollars of foreign investment as it presses on with reforms to open up its state-managed economy and boost flagging growth. Addis Ababa this month launched a fund, aimed at attracting investment for at least $150bn worth of state-owned companies and assets. Ethiopia is keen to regain economic momentum after it slowed during the Covid-19 pandemic and a civil war in the northern region of Tigray. By allowing a degree of private investment, officials in Africa’s second-most populous country said the launch of Ethiopian Investment Holdings marked a key step away from the longstanding state-led development model that promoted national control of sectors such as banking, logistics and telecoms. “The establishment of EIH is a strong testament that the government’s economic reform agenda for growth and resilience is well on track,” Mamo Mihretu, the fund’s founding chief executive, told the Financial Times.Ethiopia’s economy grew at near double-digit rates for the best part of two decades. However, the IMF said in its latest forecast that it expanded only 2 per cent last year, and it omitted growth projections for 2022 “due to an unusually high degree of uncertainty”. 

Ethiopia has planned a series of privatisations, including the sale of a stake in Ethio Telecom © Tiksa Negeri/Reuters

Ethiopia has historically followed a state-led development model, partly funded by infrastructure investment from China and a high level of local savings. The EIH is the latest stage in a reform process aimed at encouraging expansion of the private sector in one of the region’s economic powerhouses, a country of 115mn people.Under Abiy Ahmed, prime minister since 2018, Ethiopia has committed to opening up its economy and has planned a series of privatisations, including the sale of a stake in Ethio Telecom. The government allocated the country’s first telecoms licence last year, while Abiy this week pledged in parliament to open the banking and financial sector to foreign investors.“The Covid pandemic and the conflict in Tigray are subsiding, so now the talk here is how we can revamp the Ethiopian economy,” said Mehrteab Leul, managing partner at Ethiopian corporate lawyer MLA, which advises foreign investors. “Years back, the underlying principle of the Ethiopian economy was a developmental economy with the state having the leading role. But now the thinking is that the private sector should have a big role.”Ethiopia has joined two dozen other African countries that have established sovereign wealth funds. The first was Botswana’s Pula Fund, set up in 1994. Ethiopia has more than 40 state-owned enterprises, including Africa’s largest carrier Ethiopian Airlines; Commercial Bank of Ethiopia, the country’s biggest bank; and significant federal land holdings. However, it is unclear how much interest there will be from international investors. Of several companies that had expressed interest in last year’s telecoms auction, only two consortiums submitted offers.The aim of the EIH was to “make the most” of the value of state-owned assets through professional management, Mamo said. “By optimising the value of the range of assets the government owns, EIH will be a booster to the Ethiopian economy.” Mamo, previously a senior economic adviser to Abiy, sees the EIH as a strategic development sovereign fund on similar lines to Singapore’s Temasek Holdings and Abu Dhabi’s Mubadala Investment Company.Temasek was established in 1974 to manage the government’s stakes in telecoms, airline, manufacturing and shipping companies. The Turkey Wealth Fund, set up in 2016, is anchored in government stakes in some of the nation’s biggest companies, including Turkish Airlines, Turk Telekom and three large banks. Analysts described these types of sovereign funds — which are not tied to commodities, as in Chile and Norway — as akin to holding companies that help enterprises develop best practice and identify poor management. They can also act as a partner for foreign direct investment.“Sovereign wealth funds in countries like Turkey, Morocco or Egypt, which don’t have ‘excess’ profits to bank from commodities, are . . . a way for the state to retain primacy in a private sector and . . . help leverage state assets to up investment. I think both apply in Ethiopia’s case,” said Charlie Robertson, global chief economist at Renaissance Capital.“This is Ethiopia’s attempt to find more sources of investment inflows via debt, which would support its investment-led growth model,” he added. More

WASHINGTON (Reuters) – The SWIFT international payments system said on Saturday it was preparing to implement Western nations’ new measures targeting certain Russian banks in coming days.”We are engaging with European authorities to understand the details of the entities that will be subject to the new measures and we are preparing to comply upon legal instruction,” it said in a statement. More