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France’s TotalEnergies has voiced support for targeted sanctions against gas revenue flows in Myanmar, in a policy shift that campaigners say could have important implications for the finances of Min Aung Hlaing’s military regime.
Human Rights Watch announced the change in tack, which was spelt out in a letter by Patrick Pouyanné, the French energy giant’s chief executive, in response to a letter from the campaign group urging it to stop gas payments to Myanmar military-controlled entities.
TotalEnergies operates Myanmar’s Yadana offshore gasfield, which pays revenues to the state-owned Myanmar Oil and Gas Enterprise (MOGE), an entity that has been under control of the junta since last year’s military coup.
“I can confirm that our company has, over the last few months, had exchanges with the French and American authorities concerning the implementation of targeted sanctions on financial flows,” Pouyanné said in the letter dated Tuesday.
The company operates Yadana and its pipelines in partnership with MOGE, US company Chevron, and Thailand’s PTT as junior partners.
Since the coup, campaign groups such as Human Rights Watch and Myanmar’s large anti-military protest movement have called for the companies, as well as the US and French governments, to support targeted sanctions against junta-controlled companies.
TotalEnergies had previously argued that imposing sanctions on MOGE would harm ordinary people in Myanmar through jeopardising electricity supplies and the safety of its employees in the country.
Wednesday was not a good time for chancellor Rishi Sunak and Bank of England governor Andrew Bailey to be steering the UK economy.
As G7 finance ministers and central bank governors met in Bonn, Sunak and Bailey had the dubious honour of presiding over the worst inflation in the group of advanced economies.
Official data released on Wednesday showed UK inflation surging to 9 per cent in April, and suggested Britain was enduring the worst of all worlds with its price rises compared with other countries.
Like many European economies exposed to higher gas and electricity prices that have been exacerbated by Russia’s invasion of Ukraine, UK energy costs were 69 per cent higher in April compared with a year ago. The full effects of the war will be felt by British households in October, when the energy price cap is expected to be raised, in a move that is likely to take inflation towards 10 per cent in the autumn.
Meanwhile, the UK labour market is red hot, with unemployment at a near 50-year low, and strong pay growth involving bonuses, according to official data released on Tuesday. In this sense, Britain’s economy is overheating in a similar way to the US’s, and interest rate rises will be needed to cool things down.
Amid the escalating cost of living crisis, the UK’s one saving grace at the moment in international inflation comparisons is that British households allocate only 8.4 per cent of their spending to food, which is beginning to rise sharply in price. IMF studies show that in advanced economies the median proportion is 17 per cent, while in emerging markets it is 31 per cent.
What will concern UK ministers and officials the most is that the country’s inflation problem has more signs of persistence than in many other European countries.
Allan Monks, economist at JPMorgan, highlighted increasing evidence of high levels of inflation “bleeding” from the prices of energy and goods into core services.
He said some of this was due to the hospitality industry resuming charging value added tax at 20 per cent after a period of relief during the coronavirus pandemic, but added: “The underlying gain [in services inflation] was nevertheless firm and indicates a growing domestic, and likely more persistent, component to inflation even as goods pricing moderates.”
With the BoE having a 2 per cent annual inflation target, Kallum Pickering, economist at Berenberg Bank, noted how 80 per cent of the goods and services that the UK statistical agency monitors have price rises exceeding 3 per cent at the moment.
Bailey said on Monday there was not much the BoE could do to stop UK inflation hitting 10 per cent because it was fuelled by global shocks including the Ukraine war and China’s zero-Covid policy, but the fact a wide array of goods and services are recording price rises well above the BoE’s 2 per cent target will be of serious concern inside the central bank.
This situation underpins the case for further interest rate increases, according to Sandra Horsfield, economist at Investec.
She said the spread of inflation to services “ups the ante even further for the Bank of England to respond” because it could not dodge responsibility in this area. “Along with [Tuesday’s] red-hot labour market report, the case for front-loading monetary tightening looks stronger by the day,” she added.
The question for members of the BoE’s Monetary Policy Committee will be whether they can stick to the majority view at their May meeting for a limited number of interest rate rises in the short term, hoping most of the inflation will be extinguished within a year or so. The alternative is to be forced to raise rates significantly to ensure financial pain for households and businesses, and thereby curb actions by people and companies that are currently stoking inflation.
The big worry for the BoE is that high inflation is becoming normal and expected by households, businesses and financial markets.
It risks locking the UK into a so-called wage price spiral, where workers demand pay rises to match higher living costs and companies raise prices to protect their margins in a repeating, self-fulfilling process. If markets expect inflation to stay high, it gets built into financial contracts ranging from the cost of government debt to the price of infrastructure.
As the BoE MPC said in its May monetary policy report, higher inflation expectations are a concern because if they stay too elevated, “wage and price-setting are not consistent with inflation returning to the 2 per cent target in the medium term”.
It noted that whether looking at companies’ predictions of their ability to raise prices, households’ views of future inflation or values in financial markets, “expectations for inflation in two to three years’ time remain above historical averages”.
The BoE said longer-term inflation expectations were little worse than three months ago, but that was not hugely reassuring because they were also up on normal levels. “The MPC will continue to monitor measures of inflation expectations very closely and, importantly, how inflation expectations appear to be affecting wage and price-setting,” it added.
If the emerging signs that the UK has the worst-of-all-worlds inflation are confirmed, the BoE will have to raise interest rates significantly. The central bank has not come to that judgment yet, but further bad news on rising prices would force its hand.
Walking into the baby aisle of my local New York pharmacy these days feels like entering a Soviet supermarket in the 1970s. Shelves usually jammed with cans of powdered baby formula are empty save for a notice warning customers they can buy a maximum of three tins each.
This shortage has fuelled such a national crisis that the White House is scrambling for a response. Formula is out of stock in 43 per cent of US stores and rising. Medical professionals are having to warn desperate mothers not to risk their children’s health by diluting or making their own formula.
The troubles are rooted in a highly concentrated domestic market that was distorted by government intervention and disrupted by pandemic-related hoarding, supply chain issues and safety concerns. This tangled tale holds important lessons for policymakers everywhere as they look to bring production of essential goods closer to home.
The US formula market has long been dominated by just three players: Abbott, Gerber and Mead Johnson, who account for the lion’s share of sales in what had been a sluggish market. The trio owes its strength to the US government. An estimated two-thirds of all formula is purchased through the Women, Infants and Children nutrition programme, a federal funding scheme for low-income families which contracts solely with these three domestic makers. Tight safety restrictions and import duties have squashed competition from Europe and Canada. Fully 98 per cent of US formula is made domestically.
The combination encouraged steady production but left the industry with little reason to invest in additional capacity. Then came Covid and an unexpected dip in the birth rate. The number of daily births had been falling by an average of 0.39 per cent annually from 2000 to 2019, before dropping precipitously in the winter of 2020-21. In the early months of the pandemic, Americans hoarded baby formula along with toilet paper and pasta, but then store orders fell as the birth rate dropped and parents started using up their stockpiles.
Since then, formula makers, like almost everyone else, have struggled to find workers and trucks to make and transport their product. So they were ill-equipped to ramp up when the birth rate recovered and demand surged.
The pressure was felt everywhere, but especially at a Michigan plant belonging to Abbott, the largest supplier. A Food and Drug Administration inspection last year revealed poor practices that failed to control microbial growth, and a whistleblower alleged shoddy record keeping and lax cleaning. Abbott failed to make changes, and tragedy struck. Several babies fell ill, at least four were hospitalised and two died. The plant was shut down in February and Abbott recalled several brands of formula. Price gouging and shortages followed.
On Monday, the FDA and Abbott reached an agreement that could lead to the plant’s reopening. The federal government said in court documents that both the FDA and Abbott’s own sampling found potentially deadly cronobacter bacteria at the plant, although no links were established between the formula and the actual illnesses.
Once the FDA agrees the plant is clean, the company forecasts it will take at least two weeks to restart production and eight weeks for formula to reach supermarket shelves. Danone, which makes a rival formula, has predicted that supplies will remain tight until at least August.
There is a warning in this. US authorities were simply trying to ensure that American babies were fed safe, locally produced formula from reliable sources when they put up trade barriers and limited purchasing contracts. But their interventions left the country dangerously dependent on a small number of suppliers who in turn relied on very few manufacturing plants.
In a positive step, the FDA this week announced plans to loosen the rules on imported formula, and Abbott has been flying in supplies from Ireland. Permanent changes that drop barriers while still protecting babies are needed to give families more options and bring flexibility to the US supply.
The formula debacle could easily be repeated as authorities bring back local production of critical, highly regulated supplies, such as vaccines and personal protective equipment. Government contracts and protectionism can help jump-start production and provide a necessary base, but left unchecked they can lead to complacency and under-investment.
Stimulating a lively market with lots of credible competitors must be the long-term goal, for baby formula and everything else too.
Supply chain disruptions continue to be a major challenge as the world economy recovers from the COVID-19 pandemic. Furthermore, recent developments related to geopolitics and the pandemic (particularly in China) could put further strains on global supply chains. In a January post, we first presented the Global Supply Chain Pressure Index (GSCPI), a parsimonious global measure designed to capture supply chain disruptions using a range of indicators. We revisited our index in March, and today we are launching the GSCPI as a standalone product, with new readings to be published each month. In this post, we review GSCPI readings through April 2022 and briefly discuss the drivers of recent moves in the index.
The chart below provides an update of the GSCPI through April; readers can find a link to the updated data series on our new product page. Between December 2021 and March 2022, the index registered an easing of global supply chain pressures, though they remained at very high levels historically. However, the April 2022 reading suggests a worsening of conditions as renewed strains emerge in global supply chains.
April Data Indicate Worsening of Supply Chain Pressures
Before analyzing this recent pickup in supply chain pressures, we remind readers that the GSCPI is based on two sets of data. Global transportation costs are measured by using data on ocean shipping costs, for we which we employ data from the Baltic Dry Index (BDI) and the Harpex index, as well as BLS airfreight cost indices for freight flights between Asia, Europe, and the United States. We also use supply chain-related components of Purchase Manager Index (PMI) surveys—“delivery times,” “backlogs,” and “purchased stocks”—for manufacturing firms across seven interconnected economies: China, the euro area, Japan, South Korea, Taiwan, the United Kingdom, and the United States. Before combining these data within the GSCPI by means of principal component analysis, we strip out demand effects from the underlying series by projecting the PMI supply chain components on the “new orders” components of the corresponding PMI surveys and, in a similar vein, projecting the global transportation cost measures onto GDP-weighted “new orders” and “inputs purchased” components across the seven PMI surveys.
So, what are the drivers behind recent moves in the GSCPI? The charts below illustrate how each of the underlying variables contributed to the overall change in the GSCPI in the last two months. Each column represents the contribution, in standard deviations, of each component of our index to the overall change in the index during a given period. In the first chart, we examine February-March 2022. We note that the lessening of supply chain pressures over this period was widespread across the various components, which indicated a welcome reduction in global supply chain disruptions. Most of the series in our data set declined over this period; the U.K. “backlog” component worsened and the U.S. “purchased stocks” component increased marginally.
Widespread Improvements Seen across Components in March 2022
In the chart below, we focus on the contributions of the underlying components of the GSCPI from March to April 2022.
Global Supply Chain Pressures Worsen in April 2022
As the chart indicates, the worsening of global supply chain pressures in April was predominantly driven by the Chinese “delivery times” component, the increase in airfreight costs from the United States to Asia, and the euro area “delivery times” component, as other components have eased over the month. These developments could be associated with the stringent COVID-19-related lockdown measures adopted in China, as well as the consequences of the Ukraine-Russia conflict for supply chains in Europe.
Finally, as we noted in our previous post and discuss on our product page, recent GSCPI readings are subject to revision. The chart below compares the current GSCPI release with the previous three releases, showing that revisions can have an impact up to a year back in time. The chart indicates that, based on the current vintage of the GSCPI, the decrease in global supply chain pressures through April occurred at a slighter faster pace than previous GSCPI estimates had suggested.
Revised and Realized Data Can Alter Previous Supply Chain Pressure Readings
In this post, we provide an update of the GSCPI through April 2022. This estimate suggests that the moderation we have observed in recent months has been partially reversed, as lockdown measures in China and geopolitical developments are putting further strains on delivery times and transportation costs in China and the euro area. Forthcoming readings will be particularly interesting as we assess the potential for these developments to further heighten global supply chain pressures.
Gianluca Benigno is the head of International Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.
Julian di Giovanni is head of Climate Risk Studies in the Bank’s Research and Statistics Group.
Jan J.J. Groen is an economic research advisor in the Bank’s Research and Statistics Group.
Adam Noble is a senior research analyst in the Bank’s Research and Statistics Group.
How to cite this post:
Gianluca Benigno, Julian Di Giovanni, Jan Groen, and Adam Noble, “Global Supply Chain Pressure Index: May 2022 Update,” Federal Reserve Bank of New York Liberty Street Economics, May 18, 2022, https://libertystreeteconomics.newyorkfed.org/2022/05/global-supply-chain-pressure-index-may-2022-update/.
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
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