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    Japan’s Economy Shrank 1 Percent as Consumers Fled Covid

    TOKYO — Last December, after two years of stop-and-go growth, Japan’s economic engine seemed like it might finally be revving up. Covid cases were practically nonexistent. Consumers were back on the town, shopping, eating out, traveling. The year 2021 ended on a high note, with the country’s economy expanding on an annual basis for the first time in three years.But the Omicron variant of the coronavirus, geopolitical turmoil and supply chain snarls have once again set back Japan’s fragile economic recovery. In the first three months of the year, the country’s economy, the world’s third largest after the United States and China, shrank at an annualized rate of 1 percent, government data showed on Wednesday. A combination of factors contributed to the decline in growth. In January, Japan had put into place new emergency measures as coronavirus case numbers, driven up by Omicron, moved toward the highest levels of the pandemic. In February, Russia invaded Ukraine, spiking energy prices. And that was before China, Japan’s largest export market and a key supplier of parts and labor to its manufacturers, imposed new lockdowns in Shanghai, throwing supply chains into chaos.The contraction has not been as “extreme” as previous economic setbacks thanks to high levels of vaccine uptake and less wide-ranging emergency measures than during previous waves of the coronavirus, according to Shinichiro Kobayashi, principal economist at the Mitsubishi UFJ Research Institute.But Japan’s economic recovery from the enormous damage done by the pandemic has also not been as fast as the United States, China or the European Union, he said.Understand the Supply Chain CrisisThe Origins of the Crisis: The pandemic created worldwide economic turmoil. We broke down how it happened.Explaining the Shortages: Why is this happening? When will it end? Here are some answers to your questions.A New Normal?: The chaos at ports, warehouses and retailers will probably persist through 2022, and perhaps even longer.A Key Factor in Inflation: In the U.S., inflation is hitting its highest level in decades. Supply chain issues play a big role.“The pace has been slow,” he said, adding that Japan was the “only country among major economies that hasn’t recovered.”Growth is likely to bounce back strongly in the second quarter, analysts said, a pattern that has defined Japan’s economy during the pandemic: Demand has waxed as Covid cases have waned, and vice versa.Still, growth in the coming months will face some tough challenges. The pandemic and the war in Ukraine have fueled big increases in the costs of food and energy in Japan. And moves by the U.S. Federal Reserve to tackle high inflation have caused the value of the Japanese currency, the yen, to plummet. That has driven up costs in the resource-poor country, which is highly dependent on imports for food, fuel and raw materials.Inflation in the country, while still modest, is rising at its fastest pace in years, with consumer prices in Tokyo increasing by 2.5 percent in April. And over the last year, prices for producers have shot up 10 percent, the highest levels since 1980.China’s draconian efforts to keep Covid under control are likely to create additional disruptions for Japanese companies that manufacture, source parts and export their goods there.How the Supply Chain Crisis UnfoldedCard 1 of 9The pandemic sparked the problem. More

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    U.S. to Lift Tariffs on Ukrainian Steel

    WASHINGTON — The Biden administration announced on Monday that it would lift tariffs on Ukrainian steel for one year, halting a measure that President Donald J. Trump placed on that country and many others in 2018.The move comes as the Biden administration looks for ways to assist Ukraine during the Russian invasion. Ukraine is a fairly minor supplier of U.S. steel, shipping about 218,000 metric tons in 2019, to rank 12th among America’s foreign suppliers. However, the sector is a significant source of economic growth and employment for Ukraine, and steel mills have continued to provide paychecks, food and shelter for their workers through the war.When Prime Minister Denys Shmyhal of Ukraine visited Washington last month, he told administration officials that some Ukrainian steel mills were starting to produce again after initially shutting down because of the invasion. He asked the Biden administration to suspend the tariffs, a senior Commerce Department official, who was not authorized to speak publicly before the official announcement, said on Monday.The United States imposed a 25 percent tariff on foreign steel and a 10 percent tariff on foreign aluminum three years ago on national security grounds, arguing that a flood of cheap metal had decimated American manufacturing and posed a threat to its military and industrial capacity.Ukraine is a significant steel producer, ranking 13th globally. Most of the country’s factories and other economic activity have been frozen as workers are called off to fight and shipments of parts and raw materials are disrupted during the war. Many major Ukrainian steel mills halted their operations in late February because of major disruptions to logistics routes required to ship metal out of the country, analysts at S&P Global said.The senior Commerce Department official said that Ukrainian steel plants had been cut off from some of their more traditional markets in the Middle East and Africa, as the war closed shipping lanes through the Black Sea. In order to continue to support its plants, the Ukrainian government is now aiming to move steel by rail to Romania, and then on to markets in Europe, Britain and the United States, the official said.The Commerce Department has noted that the steel industry is uniquely important to Ukraine’s economic strength, employing one in 13 people there.A steel mill in Mariupol under siege by Russian forces sheltered thousands of Ukrainian soldiers and civilians for weeks. Russian and Ukrainian officials said on Saturday that all the women, children and elderly people who had been trapped for weeks in the plant were evacuated.“For steel mills to continue as an economic lifeline for the people of Ukraine, they must be able to export their steel,” Gina M. Raimondo, the commerce secretary, said in the announcement. “Today’s announcement is a signal to the Ukrainian people that we are committed to helping them thrive in the face of Putin’s aggression, and that their work will create a stronger Ukraine, both today and in the future.”The move is one of a variety of economic measures aimed at penalizing Russia and assisting Ukraine. Those include a broad swath of sanctions on Russian entities, export controls that have limited Russian imports and $3.8 billion in arms and equipment for the Ukrainian government, in addition to other direct financial assistance.Senators called on the administration last month to lift the steel tariffs, saying it would help the industry bounce back immediately after the war.“Lifting the U.S. tariff on steel from Ukraine is a small but meaningful way for the U.S. to signal support for Ukraine and to provide stability,” Senators Patrick J. Toomey, Republican of Pennsylvania, and Dianne Feinstein, Democrat of California, wrote in a letter.Many other major steel-producing countries have had their tariffs lifted or eased. During his presidency, Mr. Trump negotiated deals with South Korea, Mexico, Canada and other countries to replace the tariffs with quotas or so-called tariff rate quotas, which restrain the volume of a product coming into the United States but allow at least some of it to be imported at lower tariff rates.Russia-Ukraine War: Key DevelopmentsCard 1 of 3Putin’s Victory Day speech. More

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    The Era of Cheap and Plenty May Be Ending

    Supplies of goods are coming up short in the pandemic, and prices have jumped. Some economists warn that the changes could linger.For the past three decades, companies and consumers benefited from cross-border connections that kept a steady supply of electronics, clothes, toys and other goods so abundant it helped prices stay low.But as the pandemic and the war in Ukraine continue to weigh on trade and business ties, that period of plenty appears to be undergoing a partial reversal. Companies are rethinking where to source their products and stocking up on inventory, even if that means lower efficiency and higher costs. If it lasts, such a shift away from fine-tuned globalization could have important implications for inflation and the world’s economy.Economists are debating whether recent supply chain turmoil and geopolitical conflicts will result in a reversal or reconfiguration of global production, in which factories that were sent offshore move back to the United States and other countries that pose less of a political risk.If that happens, a decades-long decline in the prices of many goods could come to an end or even begin to go in the other direction, potentially boosting overall inflation. Since around 1995, durable goods like cars and equipment have tamped down inflation, and prices for nondurable goods like clothing and toys have often grown only slowly.Those trends began to change in late 2020 after the onset of the pandemic, as shipping costs soared and shortages collided with strong demand to push car, furniture and equipment prices higher. While few economists expect the past year’s breakneck price increases to continue, the question is whether the trend toward at least slightly pricier goods will last.The answer could hinge on whether a shift away from globalization takes hold.“It would certainly be a different world — it might be a world of perhaps higher inflation, perhaps lower productivity, but more resilient, more robust supply chains,” Jerome H. Powell, the Fed chair, said at an event last month when asked about a possible move away from globalization.Still, Mr. Powell said, it’s not obvious how drastically conditions will change. “It’s not clear that we’re seeing a reversal of globalization,” he said. “It’s clear that it’s slowed down.”Prices Have Shot UpPrices for durable goods had been falling for decades. Lately, though, they’ve been a major factor pushing inflation higher.

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    Annual Change in the Personal Consumption Expenditure Index by Category
    Source: Commerce DepartmentBy The New York TimesThe period of global integration that prevailed before the pandemic made many of the things Americans buy cheaper. Computers and other technology made factories more efficient, and they chugged out sneakers, kitchen tables and electronics at a pace unmatched in history. Companies slashed their production cost by moving factories offshore, where wages were lower. The adoption of steel shipping containers, and ever larger cargo ships, allowed products to be whisked from Bangladesh and China to Seattle and Tupelo and everywhere in between for astonishingly low prices.But those changes also had consequences for American factory workers, who saw many jobs disappear. The political backlash to globalization helped carry former President Donald J. Trump into office, as he promised to bring factories back to the United States. His trade wars and rising tariffs encouraged some companies to move operations out of China, although typically to other low-cost countries like Vietnam and Mexico.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: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.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 pandemic also exposed the snowball effect of highly optimized supply chains: Factory shutdowns and transportation delays made it difficult to secure some goods and parts, including semiconductors that are crucial for electronics, appliances and cars. Shipping costs have soared by a factor of 10 in just two years, erasing the cost savings of making some products overseas.Starting late in 2020, prices for washing machines, couches and other big products jumped sharply as production limitations collided with high demand.Inflation has only accelerated since. Russia’s invasion of Ukraine has further snarled supply chains, raising the prices of gas and other commodities in recent months and helping to push the Fed’s closely watched inflation index up 6.6 percent over the year through March.That is the fastest pace of inflation since 1982, and price gains are touching the highest level in decades across many advanced economies, including the eurozone and Britain.Many economists expect price increases for durable goods to cool substantially in the months ahead, which should help calm overall price gains. Data from March suggested that they were beginning to moderate. Rising Fed interest rates could help temper buying, as borrowing to buy cars, machines or home improvement supplies becomes more expensive.But there are still questions about whether — in light of what companies and countries have learned — major products will return to the steady price declines that were the norm before the coronavirus.It’s not clear yet to what extent factories are moving closer to home. A “reshoring index” published by Kearney, a management consulting firm, was negative in 2020 and 2021, indicating that the United States was importing more manufactured goods from low-cost countries.But more firms reported moving their supply chains out of China to other countries, and American executives were more positive about bringing more manufacturing to the United States.Duke Realty, which rents warehouse and industrial facilities in the United States, expects the change to be a source of demand in years to come, though the reworking may take a while. Customers are “now future-proofing their supply chains,” Steve Schnur, the firm’s chief operating officer, said on an earnings call last week.“Some reshoring is occurring — let’s make no mistake about that,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said in an interview. But the data show that most businesses are mitigating risk by building up their inventories and finding additional suppliers in low-cost countries, Dr. Okonjo-Iweala said. That process could end up integrating poorer countries in Africa and other parts of the world more deeply into global value chains, she said.Janet L. Yellen, the Treasury secretary, said last month that supply chains had proved too vulnerable given the pandemic and the war in Ukraine, and urged a reorientation around “a large group of trusted partners,” an approach she called “friendshoring.”The approach might result in some higher costs, she said, but it would be more resilient, and a large enough group would allow countries to maintain efficiencies from the global division of labor.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Governments Tighten Grip on Global Food Stocks, Sending Prices Higher

    Dozens of countries have thrown up trade barriers in the past two months to protect scarce supplies of food and commodities, but experts say the policies will only exacerbate a global food crisis.WASHINGTON — Ukraine has limited exports of sunflower oil, wheat, oats and cattle in an attempt to protect its war-torn economy. Russia has banned sales of fertilizer, sugar and grains to other nations.Indonesia, which produces more than half the world’s palm oil, has halted outgoing shipments. Turkey has stopped exports of butter, beef, lamb, goats, maize and vegetable oils.Russia’s invasion of Ukraine has unleashed a new wave of protectionism as governments, desperate to secure food and other commodities for their citizens amid shortages and rising prices, erect new barriers to stop exports at their borders.The measures are often well intended. But like the panic-buying that stripped grocery store shelves at various moments of the pandemic, the current wave of protectionism will only compound the problems that governments are trying to mitigate, trade experts warn.Export restrictions are making grains, oils, meat and fertilizer — already at record prices — more expensive and even harder to come by. That is placing an even greater burden on the world’s poor, who are paying an ever-larger share of their income for food, increasing the risk of social unrest in poorer countries struggling with food insecurity.Since the beginning of the year, countries have imposed a total of 47 export curbs on food and fertilizers — with 43 of those put in place since the invasion of Ukraine in late February, according to tracking by Simon Evenett, a professor of international trade and economic development at the University of St. Gallen.“Before the invasion, there’s a very small number of attempts to try and restrict exports of food and fertilizers,” Mr. Evenett said. “After the invasion you see a huge uptick.”The cascade of new trade barriers comes as the war in Ukraine, and the sanctions imposed by the West on Russia, are further straining supply chains that were already in disarray from the pandemic. Russia is the world’s largest exporter of wheat, pig iron, nickel and natural gas, and a major supplier of coal, crude oil and fertilizer. Ukraine is the world’s largest exporter of sunflower seed oil and a significant exporter of wheat, pig iron, maize and barley.With countries facing severe threats to supplies of basic goods, many policymakers have quickly dropped the language of open markets and begun advocating a more protective approach. Recommendations range from creating secure supply chains for certain critical materials in friendly countries to blocking exports and “reshoring” foreign factories, bringing operations back to their home countries.In a speech last week, Janet L. Yellen, the Treasury secretary, said the pandemic and the war had revealed that American supply chains, while efficient, were neither secure nor resilient. While cautioning against “a fully protectionist direction,” she said the United States should work to reorient its trade relationships toward a large group of “trusted partners,” even if it meant somewhat higher costs for businesses and consumers.Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said in a speech on Wednesday that the war had “justifiably” added to questions about economic interdependence. But she urged countries not to draw the wrong conclusions about the global trading system, saying it had helped drive global growth and provided countries with important goods even during the pandemic.“While it is true that global supply chains can be prone to disruptions, trade is also a source of resilience,” she said.The W.T.O. has argued against export bans since the early days of the pandemic, when countries including the United States began throwing up restrictions on exporting masks and medical goods and removed them only gradually.Now, the Russian invasion of Ukraine has triggered a similar wave of bans focused on food. “It’s like déjà vu all over again,” Mr. Evenett said.Protectionist measures have cascaded from country to country in a manner that is particularly evident when it comes to wheat. Russia and Ukraine export more than a quarter of the world’s wheat, feeding billions of people in the form of bread, pasta and packaged foods.Mr. Evenett said the current wave of trade barriers on wheat had begun as the war’s protagonists, Russia and Belarus, clamped down on exports. The countries that lie along a major trading route for Ukrainian wheat, including Moldova, Serbia and Hungary, then began restricting their wheat exports. Finally, major importers with food security concerns, like Lebanon, Algeria and Egypt, put their own bans into effect.Mr. Evenett said the dynamic was “still unfolding” and likely to get worse in the months to come. Ukraine’s summer growing season for wheat is being disrupted as fighting keeps farmers away from their fields and pulls workers off to war. And grocery stores in Spain, Greece and Britain are already introducing restrictions on the amount of cereals or oil people can buy.“We’re already feeling the pinch in Europe of limited supplies of these key crops,” he said.Several other consequential export bans on food are unrelated to the war, but they will still play into the global dynamic of rising prices.A palm oil processing plant in Indonesia’s Riau Province. The country has halted outgoing shipments of palm oil, a key ingredient in packaged food.Kemal Jufri for The New York TimesChina began ordering its firms to stop selling fertilizer to other countries last summer, in order to preserve supplies at home, Chad Bown, a senior fellow at the Peterson Institute for International Economics, and Yilin Wang, a research analyst at the institute, wrote in a recent blog post. Now that Russia has also cut off exports of fertilizer, China’s ban will be even more harmful.“China’s decision to take fertilizer supplies off world markets to ensure its own food security only pushes the problem onto others,” they wrote, adding that “China’s ongoing export restrictions could hardly come at a worse time.”Indonesia’s restrictions on palm oil, a key ingredient in packaged foods, detergent and cosmetics, are in line with similar bans the country placed on exporting the product before the war in an attempt to keep the price of oil affordable for Indonesian households.Those measures will add to skyrocketing prices for vegetable oils, driven by a disruption in the supply from Ukraine, the world’s largest producer of sunflower oil.Governments that put these restrictions in place often argue that their duty is to put the needs of their own citizens first, and the W.T.O.’s rules allow countries to impose temporary measures for national security or safety. But the measures can easily backfire, helping to push up global prices further.Price increases for food have been felt particularly keenly in poorer countries in the Middle East and sub-Saharan Africa, which depend on imported food.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Economy Contracted in the First Quarter, but Underlying Measures Were Solid

    The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.Gross domestic product, adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7 percent growth (6.9 percent annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.But choppy waters may lie ahead. The first-quarter data mostly predates the spike in gas prices that has accompanied Russia’s invasion of Ukraine and the lockdowns in China that have threatened to further disrupt global supply chains. The Federal Reserve in March raised interest rates for the first time since the pandemic began, and several more rate increases are expected this year as policymakers seek to tame the fastest inflation in four decades.“We are watching a bunch of seismic changes in real time,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution.The biggest challenge facing the economy is inflation. Consumer prices rose at a 7 percent annual rate in the first quarter, and Americans’ after-tax incomes, adjusted for inflation, fell for the fourth quarter in a row. So far, higher prices have done little to dampen consumers’ willingness to spend, but that will change if inflation keeps outpacing income gains, said Beth Ann Bovino, chief U.S. economist for S&P Global.“There’s a tipping point,” she said. Sometime this year, she added, “I’m expecting to see households starting to respond either by trading down, looking for deals, being less willing to pay higher prices.” More

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    The prospect of lockdowns in Beijing fuels more concerns about supply chain disruptions.

    The prospect of further lockdowns in China prompted a fresh wave of economic anxiety on Monday as investors and companies whose supply chains run through China contemplated the impact of 70 new virus cases that the Beijing government said it had detected over the weekend.The city government ordered one of its districts to test all 3.5 million of its residents for coronavirus in the coming days, a move that may be a prelude to a larger lockdown in China’s capital city. Shanghai, a major port and business center, has been locked down for roughly a month, part of China’s “zero Covid” strategy. Other Chinese cities both large and small have announced their own restrictions on the movement of residents in a bid to keep the virus from spreading.The lockdowns present yet another challenge for global supply chains that have been stressed by pandemic shutdowns and the war in Ukraine, leading to greater competition for goods and higher prices that are fueling inflation worldwide.While the Chinese authorities have sought to keep factories and especially ports operating by keeping workers on the premises in so-called closed-loop systems, the lockdowns have interrupted shipments and lengthened delivery times for many of the global companies that depend on Chinese factories.Phil Levy, the chief economist at Flexport, a freight forwarder, said in an email that while Beijing is an important city, “it is not at the heart of factory production or supply chain operations.” He said lockdowns there would have a more limited impact than previous restrictions in Shanghai and Guangdong, where ports continued to mostly operate.But the effects would depend on where outbreaks occurred — for example whether they shut down a port — and how long lockdowns persisted, Mr. Levy added. “This is a relatively slow part of the year, but there is plenty of catch-up to be done, and things will soon be due to build. The costs will mount the longer this lasts.”The disruptions that are still unfolding in Shanghai and other Chinese cities are likely to reverberate along global supply chains in the coming months. Andrea Huang, a senior director at Overhaul, which monitors company supply chains, said with lockdowns not expected to ease until early or mid-May, the ripple effects for industries like auto and consumer electronics would extend into June or July.In Shanghai, the local authorities on Friday selected some companies in the automotive, semiconductor and other key industries to restart production, but the vast majority of enterprises remain shuttered.Activity at the port has also slowed. According to data from Project44, a logistics platform, the number of vessels that were berthing at the Shanghai port last week had dropped by about half since the lockdown began, while the number of vessels seeking to call at the nearby port of Ningbo jumped as shipping companies tried to get around restrictions. The time that imported containers were spending in the port had also risen sharply, from 4.6 days on March 28 to 14 days on April 23, the company said, as coronavirus testing requirements for truck drivers limited the ability to get containers in and out of the port.Fears of broader lockdowns weighed on global stocks on Monday, while oil and other commodities also fell in anticipation of lower demand.Elisabeth Waelbroeck-Rocha, chief international economist at S&P Global Market Intelligence, said that, in addition to disrupting global supply chains and fueling inflation, coronavirus outbreaks and accompanying lockdowns had undermined Chinese economic growth in March and April, making China unlikely to reach its target of 5.5 percent growth in gross domestic product in 2022.The epicenter of the outbreak shifted from Jilin Province in the northeast to Shanghai, a manufacturing base for high-end auto components, but smaller-scale outbreaks in other regions have largely been brought under control, she wrote in a note. More

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    World Economic Outlook Dims as War and Pandemic Cast a Pall

    The International Monetary Fund’s new World Economic Outlook expects growth to slow to 3.6 percent this year. The group is one of many to slash their forecasts recently.WASHINGTON — The world economy has entered a period of intense uncertainty as a capricious pandemic and the fallout from Russia’s war in Ukraine combine to fuel rapid inflation and weigh on an already fragile global recovery.These colliding challenges are confronting policymakers and central bankers in the United States and Europe as they seek to bring down inflation without slowing growth so much that their economies tip into recession.In the last week, international organizations and think tanks have begun slashing their forecasts for growth and trade as they assess the war’s disruptions to global energy, food and commodity supplies, as well as China’s sweeping lockdowns to contain a renewed coronavirus outbreak.The pall over the world economy was underscored on Tuesday by the International Monetary Fund, which said in its World Economic Outlook that global output was expected to slow this year to 3.6 percent, from 6.1 percent in 2021. That is a downgrade from a January forecast of 4.4 percent growth this year.“Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said at a news briefing on Tuesday. “This crisis unfolds as the global economy has not yet fully recovered from the pandemic.”The impact of Russia’s war on the global economy will be a central topic for policymakers convening in Washington this week for the spring meetings of the International Monetary Fund and the World Bank.As the meetings got underway, policymakers grappled with how to maintain pressure on Russia while keeping the economic recovery on track and protecting the world’s poor from rising prices. While some countries that export commodities will benefit from a period of higher fuel and food prices, for most economies the disruptions weigh heavily.“The war has made an already dire situation worse,” Treasury Secretary Janet L. Yellen said in a speech about rising food insecurity on Tuesday. “Price and supply shocks are already materializing, adding to global inflationary pressures, creating risks to external balances, and undermining the recovery from the pandemic.”On Wednesday, Ms. Yellen plans to attend an opening session that will include Ukraine’s finance minister as the United States looks to stand with allies in opposition to Russia’s invasion, a Treasury official said. However, Ms. Yellen will not attend some Group of 20 sessions, such as those on international financial architecture and sustainable finance, if Russians are participating.Against that backdrop, the I.M.F.’s new data revealed a daunting set of economic headwinds. Mr. Gourinchas said the war was slowing growth and spurring inflation, which he described as a “clear and present danger” for many countries. He added that disruptions to Russian supplies of oil, gas and metals, along with Ukrainian exports of wheat and corn, will ripple through commodities markets and across the global economy “like seismic waves.”He acknowledged that the trajectory of the global economy would depend on how the war proceeded and the ultimate breadth of the sanctions that the United States and its allies in Europe and Asia imposed on Russia.“Uncertainty around these projections is considerable, well beyond the usual range,” Mr. Gourinchas said. “Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports.”Ukraine and Russia are facing the most dire economic consequences from the war. The I.M.F. expects the Ukrainian economy to contract by 35 percent this year, while Russia’s economy is projected to shrink 8.5 percent. Mr. Gourinchas noted that the Russian authorities had so far managed to prevent a collapse of their financial system and avoided bank failures but said further sanctions targeting Russia’s energy industry could have a significant impact on its economy.The sweeping sanctions that America and its allies have already imposed on Russia are the main factor contributing to the downward revision of the I.M.F.’s global growth outlook, Mr. Gourinchas said. He added that a tightening of restrictions on Russian energy exports would be an “adverse scenario” that would further slow output around the world.Rising prices around the world show no signs of abating, the I.M.F. said, even if supply chain problems ease. It expects inflation to remain elevated throughout the year, projecting it at 5.7 percent in advanced economies and 8.7 percent in emerging markets. Inflation hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981.An empty street in Shanghai this week. The World Bank warned that the lingering pandemic and Covid-19 lockdowns in China could amplify income inequality and poverty rates.Aly Song/ReutersOther international organizations and research groups have also pared back their global growth forecasts. Economists at the Peterson Institute for International Economics, a Washington think tank, expect global growth to decline from a rapid 5.8 percent in 2021 to 3.3 percent annually in 2022 and 2023.The World Bank also expressed alarm this week about the state of the global economy, warning that the lingering pandemic, Covid-19 lockdowns in China and higher inflation could amplify income inequality and poverty rates. It lowered its 2022 growth forecast to 3.2 percent from 4.1 percent.“I’m deeply concerned about developing countries,” David Malpass, the World Bank president, said on Monday. “They’re facing sudden price increases for energy, fertilizer and food, and the likelihood of interest rate increases. Each one hits them hard.”According to the Bank of International Settlements, more than half of emerging economies have inflation rates above 7 percent. And 60 percent of “advanced economies,” including the United States and the euro area, have inflation over 5 percent, the largest share since the 1980s, the bank said.In Britain, inflation climbed to 7 percent in March, the highest level in 30 years.An April 12 survey of global investors by BofA Securities found that more than two-thirds were pessimistic about global growth prospects in the months ahead.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Fuel Prices Send Airfares Higher, but Travelers Seem Ready to Pay

    Supplies are not keeping up with demand, and costs may go higher, experts say.A stunning rise in the cost of jet fuel has sent airfares soaring, and industry experts say they are likely to go higher. For now, though, travel-starved consumers seem more than willing to pay up.Jet fuel prices have settled somewhat since Russia’s invasion of Ukraine sent them skyrocketing last month, but the market remains extremely volatile. The problem is particularly severe in New York, where the cost of the fuel rose about fourfold to just over $7.50 a gallon before dipping back to $5.30 in recent days.Supply is broadly constrained and prices have spiked across the country. The Energy Department this week said that the inventory level for East Coast jet fuel stood at 6.5 million barrels, the lowest since the agency began keeping track in 1990.“Jet fuel has made the most parabolic move I’ve ever seen for any transportation fuel,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. “It’s just insane.”The surge in prices has implications not only for airfares but also for the already high costs of global shipping. On Wednesday, for example, Amazon announced plans to impose its first “fuel and inflation surcharge” for sellers whose goods it stores and delivers.Airlines have been able to pass on some of their added fuel expense to consumers, many of whom are more than eager to travel after being denied the opportunity for two years.At the start of this year, the average cost of a round-trip domestic flight was $235, according to Hopper, an airfare-tracking app. Since then, ticket prices have risen 40 percent, to $330. Adit Damodaran, an economist at Hopper, which tracks prices for flights and hotels, said the company expects another 10 percent rise, to $360, by the end of May, before prices drop again in the summer.“Not only are the current prices that travelers are paying extremely high compared to historic price data, but the rate of increase has also been particularly steep since January,” he said.In addition to the rising cost of jet fuel, Mr. Damodaran said, the surge in airfares can also be attributed to typical seasonal patterns and the fact that demand was suppressed at the start of the year as the Omicron coronavirus variant spread.Some airlines have also cut flights in response to persistent staff shortages, creating greater competition and driving up fares for the flights that remain.Carriers typically pass on to consumers as much as 60 percent of a volatile rise in the price of fuel, experts said, a process that usually takes months. This time, however, the industry has been able to pass along costs more quickly, in large part because of high demand and a shift in consumer behavior during the pandemic toward buying tickets closer to the date of travel.“We are successfully recapturing a significant portion of the run-up in fuel,” Ed Bastian, the chief executive of Delta Air Lines, told investment analysts and reporters on a call on Wednesday. “This is occurring almost in real time, given the strong demand environment.”Mr. Bastian said that Delta, the first major carrier to report financial results for the first three months of this year, had seen a strong rebound so far and that it was preparing for a robust spring and summer.Delta paid an average price of $2.79 per gallon of jet fuel in the quarter, up 33 percent from the last quarter of last year. The price included a saving of 7 cents per gallon from the airline’s oil refinery outside Philadelphia. Delta said it expected the price of fuel to rise another 15 to 20 percent over the next three months, to between $3.20 and $3.35 per gallon, a range that includes an approximately 20-cent savings attributable to the refinery.Prices for jet fuel, like gasoline and diesel, generally go up and down with crude oil.In February, American Airlines reported that the price it paid per gallon of jet fuel had risen more than a third over the past year, from $1.48 in 2020 to $2.04 in 2021. At the time, it said that each sustained one-cent rise in the per-gallon price would increase its fuel expense for 2022 by about $40 million. This week, American estimated that it had paid $2.80 to $2.85 per gallon in the first quarter of the year.Rising fuel costs and fares seem to be doing little to dissuade consumers. Mr. Bastian said Wednesday that March was Delta’s best sales month ever, beating a record set in 2019, despite having 10 percent fewer seats available. That comes as fares for domestic flights were up about 20 percent across the board between March 2019 and March 2022, according to an analysis by the Adobe Digital Economy Index, which draws on online sales from six of the top 10 U.S. airlines.Refueling at San Francisco International Airport. Some jet fuel shipments were diverted from the East Coast to the West as California prices began to climb.Justin Sullivan/Getty Images“We’ve all been stuck at home for two years, and I think now that we have the opportunity to get out, there’s going to be a lot of willingness to pay,” said Joe Rohlena, lead airline analyst for Fitch Ratings. “If it remains expensive to travel further out, then you may see that kind of willingness to pay higher ticket prices back off.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More