WASHINGTON — Consumer prices in the United States picked up last month, a sign that inflation remains a persistent challenge for the Federal Reserve and for President Joe Biden’s reelection campaign, both of which are counting on a steady easing of price pressures this year. 

Prices rose 0.4% from January to February, higher than the previous month’s figure of 0.3%, the Labor Department said Tuesday. Compared with a year earlier, consumer prices rose 3.2% last month, faster than January’s 3.1% annual pace. 

Excluding volatile food and energy prices, so-called “core” prices also climbed 0.4% from January to February, matching the previous month’s increase and a faster pace than is consistent with the Fed’s 2% target. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed. 

Pricier gas pushed up overall inflation, with pump prices rising 3.8% just from January to February. Grocery prices, though, were unchanged last month and are up just 1% from a year earlier. The cost of clothing, used cars and rent also increased in February, raising the inflation figure. 

Despite February’s elevated figures, most economists expect inflation to continue slowly declining this year. At the same time, the uptick last month may underscore the Fed’s cautious approach toward interest rate cuts. 

Overall inflation has plummeted from a peak of 9.1% in June 2022, although it’s now easing more slowly than it did last spring and summer. The prices of some goods — from appliances to furniture to used cars — are falling after clogged supply chains during the pandemic sent prices soaring higher. There are more new cars on dealer lots and electronics on store shelves. 

By contrast, prices for dental care, car repairs and other services are still rising faster than they did before the pandemic. Car insurance has shot higher, reflecting rising costs for repairs and replacement. And after having sharply raised pay for nurses and other in-demand staff, hospitals are passing their higher wage costs on to patients in the form of higher prices. 

Voter perceptions of inflation are sure to occupy a central place in this year’s presidential election. Despite a healthy job market and a record-high stock market, polls show that many Americans blame Biden for the surge in consumer prices that began in 2021. Although inflationary pressures have significantly eased, average prices remain far above where they stood three years ago. 

In his State of the Union speech last week, Biden highlighted steps he has taken to reduce costs, like capping the price of insulin for Medicare patients. The president also criticized many large companies for engaging in “price gouging” and so-called “shrinkflation,” in which a company shrinks the amount of product inside a package rather than raising the price. 

“Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said. 

Fed Chair Jerome Powell signaled in congressional testimony last week that the central bank is getting closer to cutting rates. After meeting in January, Fed officials said in a statement that they needed “greater confidence” that inflation was steadily falling to their 2% target level. Since then, several of the Fed’s policymakers have said they believe prices will keep declining. One reason, they suggested, is that consumers are increasingly pushing back against higher prices by seeking out cheaper alternatives. 

Most economists expect the Fed’s first rate cut to occur in June, although May is also possible. When the Fed cuts its benchmark rate, over time it reduces borrowing costs for mortgages, car loans, credit cards and business loans. 

One factor that could keep inflation elevated is the still-healthy economy. Although most economists had expected a recession to occur last year, hiring and growth were strong and remain healthy. The economy expanded 2.5% last year and could grow at about the same pace in the first three months of this year, according to the Federal Reserve’s Atlanta branch. 

Last week, the Labor Department said employers added a robust 275,000 jobs in February, the latest in a streak of solid hiring gains, and the unemployment rate stayed below 4% for the 25th straight month. That is the longest such streak since the 1960s. 

Still, the unemployment rate rose from 3.7% to 3.9%, and wage growth slowed. Both trends could make the Fed feel more confident that the economy is cooling, which could help keep inflation falling and lead the central bank to begin cutting rates. 
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BEIJING — China needs to do more to boost employment and stabilize its property market, top officials acknowledged Saturday, as policymakers struggle to revive the country’s battered economy. 

Beijing is grappling with a prolonged property sector crisis, record youth unemployment and a global slowdown hammering demand for Chinese goods. 

Youth unemployment hit an unprecedented 21.3% in mid-2023 before officials paused publishing monthly figures. 

Home prices have in turn fallen for months, with several major property developers struggling to stay afloat. 

And on the sidelines of a weeklong annual meeting of the country’s rubber-stamp parliament Saturday, officials acknowledged the difficulties in reversing both trends. 

“Overall employment pressure has not lessened, and there are still structural contradictions to be solved,” said Wang Xiaoping, minister of human resources and social security. 

“A portion of workers face some challenges and problems in employment, and more effort needs to be made to stabilize employment,” Wang said. 

But Beijing is “confident about maintaining the continued stability of the employment situation,” she said. 

Housing Minister Ni Hong, in turn, told reporters that fixing the property market — which long accounted for around a quarter of China’s economy — remained a challenge. 

“The task of stabilizing the market is still very difficult,” he said, pointing to state efforts to reduce interest rates and lower down payments. 

Real estate companies that “need to go bankrupt should go bankrupt, and those that need restructuring should be restructured,” Ni said, adding that market players who “harm the interests of the masses should be resolutely investigated and dealt with according to the law.” 

But despite the deep trouble with the housing market, he insisted that Beijing’s “bottom line” of avoiding “systemic risks” in the property sector had been maintained. 

Meetings in Beijing this week have been dominated by the economy and security. 

On Tuesday, top leaders set an ambitious growth target of around 5% for 2024 — a goal analysts said was ambitious given the headwinds facing the Chinese economy. 

Premier Li Qiang acknowledged the objective would “not be easy” given the “lingering risks and hidden dangers” still present in the economy. 

Investors have called for much greater action from the state to shore up the flagging economy. 
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CAIRO — Egypt said Wednesday it has reached a deal with the International Monetary Fund to increase a bailout loan to $8 billion. 

Prime Minister Moustafa Madbouly announced the news in televised comments on Wednesday. Egypt has for months negotiated with the IMF to increase a $3 billion bailout loan that both parties reached in 2022. 

Madbouly said the new deal will enable the government to receive loans from other financial institutions, including the World Bank. 

The announcement came hours after Egypt’s Central Bank raised its main interest rate and floated the currency. 

The measures have been among the key demands of the IMF. They are meant to combat inflationary waves and attract foreign investment as the country experiences a staggering shortage of foreign currency. 

Following the currency announcement, the pound began floating and within hours lost more than 60% of its value against the dollar. By early afternoon, commercial banks were trading the U.S. currency at more than 50 pounds for $1, up from about 31 pounds for the dollar. 

The Egyptian economy has been hit hard by years of government austerity, the coronavirus pandemic, the fallout from the war in Ukraine, and most recently, the Israel-Hamas war in Gaza. 

The war in Ukraine, which rattled the global economy, hit cash-strapped Egypt where it is financially vulnerable — the most populous Arab country is the world’s biggest importer of wheat and needs to buy most of its food from other countries to help feed its population of more than 104 million people. 
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Taipei, Taiwan — China’s top leaders set an ambitious economic growth target of 5% for 2024 Tuesday, vowing to “seek progress while maintaining stability” amid a sluggish economy and weak confidence among investors and consumers. 

Delivering his first work report since assuming the second-most powerful position in China last October, Chinese Premier Li Qiang acknowledged that China faces an environment characterized by opportunities, risks, and challenges but emphasized that favorable conditions still outweigh unfavorable factors, according to China’s official Xinhua News Agency.

In the face of weak economic growth worldwide and the lack of a solid foundation for China to stabilize its economic growth, Li said Beijing will continue to adopt “proactive fiscal policy and prudent monetary policy” to cope with the long list of economic challenges.

According to Li, the Chinese government plans to issue about $139 billion in special treasury bonds over the next few years while offering support to debt-laden local governments and sticking with the strategy of “high-quality growth,” which focuses on driving growth through innovation. 

Li said China would mobilize resources across the country to “promote the construction of a modern industrial system, accelerate the development of new productive forces,” and allow innovation to drive economic growth, according to readouts on China’s state-run Xinhua news agency.

Li’s speech comes as China faces a long list of economic challenges, including an ongoing real estate crisis, low consumer and household confidence, and weak external demand. While Li promised to expand domestic demand and increase efforts to attract foreign investment, some economists say that unless China initiates fundamental economic reforms, these plans may only be “policy slogans.”  

“A lot of the strategic industries in China are controlled by state-owned enterprises and their investment efficiency is quite low,” Wang Kuo-chen, an expert on the Chinese economy at the Chunghwa Institute for Economic Research in Taiwan, told VOA by phone. 

In his view, even if China tries to increase support for private enterprises, state-owned enterprises, or military enterprises continue to control strategic industries in the country, it will be difficult for the Chinese government to emerge from the current economic turmoil.  

“If Beijing doesn’t fundamentally change its economic model, it’ll be hard for China to implement new economic strategies such as high-quality development and new productive forces,” Wang told VOA.  

Despite the doubt expressed by some economists, other analysts say the Chinese government will continue to concentrate resources on technological innovation in the near future.  

“The whole government work report is focusing on modernization with Chinese characteristics and new productive forces,” Wang Hsin-hsien, an expert on Chinese politics at National Chengchi University in Taiwan, told VOA in a phone interview.  

He said a large part of Li’s speech focuses on technological innovation, which may also be Beijing’s response to the U.S.-led effort to restrict its access to some core technologies, such as advanced semiconductor chips. “These policy proposals have a lot to do with challenges that China faces internationally,” Wang said.  

Apart from the outline of Beijing’s economic measures over the next year, Li Qiang also highlighted the need for China to strengthen social security and services, including a comprehensive strategy to cope with its rapidly aging population and measures to tackle youth unemployment.

Since China’s National People’s Congress passed revisions to the state secrets law just days before the “Two Sessions,” Li reiterated the need for the Chinese government to “safeguard national security and social stability.” “[We should] the overall concept of national security while strengthening the national security system,” he said in the speech.  

Some analysts say Li’s speech shows that security remains the top concern for the Chinese government. According to statistics shared by Ruihan Huang, a senior associate at Chicago-based think tank MarcoPolo, the word security was mentioned 28 times in this year’s government work report, which is three times more than last year.

As Li doubled down on the importance of prioritizing national security in his speech, some experts told VOA that such a governance model imposes a cost on the Chinese economy. “When [a government] invests one unit more in security, in the short term, it at least means one unit less in something else, including in growth,” Ian Chong, a political scientist at the National University of Singapore, told VOA by phone. 

While some analysts describe Li’s speech and the content of China’s government work report as “unsurprising,” the Chinese government’s decision to cancel the premier’s press conference at the end of the annual legislative meeting is still a precedence-breaking move that reflects the diminishing power that the premier possesses under the current Chinese political system. 

The Chinese government “has redefined the role of premier as an implementer of decisions made by the Politburo, a top decision-making body, under the general secretary’s leadership,” Dali Yang, a political scientist at the University of Chicago, told VOA by phone. 

As the world now interprets the signals reflected through Li Qiang’s speech Tuesday, Chong in Singapore thinks the outside world’s perception of China will likely remain unchanged in the short term.  

“Ultimately, what investors want is certainty, and for there to be more certainty, there has to be more transparency in data and that compliance is straightforward to follow,” he told VOA. “While Li Qiang talks about confidence, the instruments that allow for confidence aren’t really there.”
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China kicked off its annual session of parliament Tuesday in Beijing. VOA’s Bill Gallo, who attended the event, says Chinese leaders are trying to put a positive spin on the many economic problems they face.
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WASHINGTON — An inflation gauge favored by the Federal Reserve increased in January, the latest sign that the slowdown in U.S. consumer price increases is occurring unevenly from month to month.

The government reported Thursday that prices rose 0.3% from December to January, up from 0.1% in the previous month. But in a more encouraging sign, prices were up just 2.4% from a year earlier, down from a 2.6% annual pace in December and the smallest such increase in nearly three years.

The year-over-year cooldown in inflation is sure to be welcomed by the White House as President Joe Biden seeks re-election. Still, even though average paychecks have outpaced inflation over the past year, many Americans remain frustrated that overall prices are still well above where they were before inflation erupted three years ago. That sentiment, evident in many public opinion polls, could pose a threat to Biden’s re-election bid.

Inflation, as measured by the Fed’s preferred gauge, fell steadily last year after having peaked at 7.1% in the summer of 2022. Supply chain snarls have eased, reducing costs of parts and raw materials, and a steady flow of job seekers has made it easier for employers to limit wage increases, one of the drivers of inflation. Still, inflation remains above the central bank’s 2% annual target.

Excluding volatile food and energy costs, prices rose 0.4% from December to January, up from 0.1% in the previous month. And compared with a year earlier, such so-called “core” prices rose 2.8%, down from 2.9% in December. Economists consider core prices a better gauge of the likely path of future inflation.

Some of January’s inflation reflects the fact that companies often raise prices in the first two months of the year, leaving January and February price data high compared with the rest of the year. But the costs of hospital and doctors’ services are also rising to offset the sizable pay raises commanded by nurses and other in-demand health care workers.

That trend could help keep inflation elevated in the coming months. But by early spring, most analysts expect prices to settle back to the milder pace of increases that occurred in the second half of 2023, when inflation eased to a 2% annual rate.

January’s uptick in inflation helps explain the concern expressed by many Fed officials, including Chair Jerome Powell, about potentially cutting interest rates too soon this year. One influential official, Christopher Waller of the Fed’s Board of Governors, said this month that he would want to see two more months of inflation data after January’s to determine whether prices were cooling sustainably toward the Fed’s target level.

Beginning in March 2022, the Fed raised its benchmark rate 11 times to attack the worst bout of inflation in 40 years. Those rate hikes have helped cool inflation drastically. But they have also made borrowing much more expensive for consumers and businesses. In particular, high loan rates have throttled sales in the economy’s crucial homebuying sector. Conversely, rate cuts by the Fed, whenever they happen, would eventually lead to lower borrowing costs across the economy.

Thursday’s inflation data mirrors figures released earlier this month that showed that the government’s more widely followed consumer price index also rose faster in January than it had in previous months. The Fed prefers the measure reported Thursday, in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.

Several Fed officials have said they’re optimistic that inflation will continue to fall back toward the Fed’s target level, with some downplaying the recent pickup in prices as a one-time jump.

“The path will continue to be bumpy, and we should not overreact to individual data readings,” Susan Collins, president of the Federal Reserve Bank of Boston, said Wednesday. “I remain what I call a ‘realistic optimist’ in thinking that the economy is on a path to 2% inflation on a sustained basis while maintaining a healthy labor market.”

Some other officials sound more uncertain. Jeffrey Schmid, the new president of the Federal Reserve Bank of Kansas City, said this week that “when it comes to too-high inflation, I believe we are not out of the woods yet.”

Outside the Fed, most economists envision a steady, if fitful, slowdown of inflation in the coming months. Economists at Goldman Sachs project that core inflation, as measured by the Fed’s preferred gauge, will drop rapidly to just 2.2% by May — low enough for the Fed to initiate rate cuts in June.
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London — Europe’s automakers and their already-stretched suppliers face a tough year as they race to cut costs for electric models to counter leaner Chinese rivals which are bringing cheaper vehicles to challenge them on their home turf.

A big question is how much more Europe’s automakers can squeeze out of suppliers that have already started laying off workers, with many smaller companies hard hit by supply chain issues during the pandemic.

The difference between Europe’s legacy automakers and more EV-focused Chinese manufacturers will be on stark display this week at the Geneva car show, which is returning after a four-year hiatus due to the pandemic.

The only major companies holding media events are France’s Renault and China’s SAIC Motors and the BYD Company — two of several of the country’s automakers that have set their sights on Europe.

Renault is launching its electric R5 and SAIC’s MG brand will unveil its M3 hybrid. Meanwhile, BYD’s Seal sedan is shortlisted for the Car of the Year award. If it wins, it would be the first Chinese model to get the prestigious award.

“They really are like chalk and cheese,” Nick Parker, a partner and managing director at consulting firm AlixPartners, said of the legacy European automakers and their Chinese rivals.

Unlike European automakers that are reliant on external suppliers with separate supply chains for fossil-fuel and electric, their Chinese rivals are highly vertically integrated, producing almost everything in-house and keeping costs down.

That helps them undercut their European rivals. In Britain, BYD’s electric Dolphin hatchback starts at 25,490 pounds ($32,300), about 27% less than Volkswagen’s equivalent ID.3 model. Tesla works in the same way.

Chasing those rivals means European automakers’ profit margins could be “heavily challenged” moving forward because there is only so much they can squeeze out of external suppliers, AlixPartners’ Parker said.

The challenge has been made more difficult by a slower-than-expected shift to EVs, leaving legacy automakers stuck with their dual supply chains. Data this week showed EU fully-electric car sales in January fell 42.3% from December.

Both Renault and Stellantis have stressed their EV cost-cutting efforts this month while Mercedes toned down expectations for EV demand and said it will update its traditional lineup well into the next decade.

Stellantis CEO Carlos Tavares has gone further, telling suppliers that with 85% of EV costs related to purchased materials, they need to bear a proportionate burden in reducing costs.

“I am translating that reality to my partners: If you don’t do your part of the job, then you exclude yourself,” he said.

Nickel and aluminum prices have also risen this week as Western countries expanded sanctions lists against Moscow, highlighting the lingering risks to raw materials prices even though there was no mention of the two metals.

Job cuts

Many legacy suppliers are already feeling the strain of cost cuts with FORVIA, Continental and Bosch all recently announcing or warning of layoffs, with more expected.

To preserve their profits, automakers focused production on higher-margin models during the recent semi-conductor shortage, but that meant less revenue and less upside for their suppliers.

Now industry experts say well-capitalized larger suppliers can adapt to the new reality but warn that plenty of smaller ones are teetering on the edge, like Germany’s Allgaier which filed for insolvency in July.

That means Europe’s automakers face a delicate balancing act between cutting costs to fend off Chinese rivals and avoiding pushing their suppliers too far. Philip Nothard, insight director at dealer services firm Cox Automotive, says automakers may even have to step in to bailout struggling suppliers.

“The risk is if (European automakers) try and screw those suppliers down too much, they’ll either push them into administration or they’ll push them into seeking different markets,” he said.
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Geneva — Since late last century and the early days of the web, providers of digital media like Netflix and Spotify have had a free pass when it comes to international taxes on films, video games and music that are shipped across borders through the internet.

But now, a global consensus on the issue may be starting to crack.

As the World Trade Organization opens its latest biannual meeting of government ministers Monday, its longtime moratorium on duties on e-commerce products — which has been renewed almost automatically since 1998 — is coming under pressure as never before.

This week in Abu Dhabi, the WTO’s 164 member countries will take up a number of key issues: Subsidies that encourage overfishing. Reforms to make agricultural markets fairer and more eco-friendly. And efforts to revive the Geneva-based trade body’s system of resolving disputes among countries.

All of those are tall orders, but the moratorium on e-commerce duties is perhaps the matter most in play. It centers on “electronic transmissions” — music, movies, video games and the like — more than on physical goods. But the rulebook isn’t clear on the entire array of products affected.

“This is so important to millions of businesses, especially small- and medium-sized businesses,” WTO Director-General Ngozi Okonjo-Iweala said. “Some members believe that this should be extended and made permanent. Others believe … there are reasons why it should not.” 

“That’s why there’s been a debate and hopefully — because it touches on lives of many people — we hope that ministers would be able to make the appropriate decision,” she told reporters recently.

Under WTO’s rules, major decisions require consensus. The e-commerce moratorium can’t just sail through automatically. Countries must actively vote in favor for the extension to take effect.

Four proposals are on the table: Two would extend the suspension of duties. Two — separately presented by South Africa and India, two countries that have been pushing their interests hard at the WTO — would not.

Proponents say the moratorium benefits consumers by helping keep costs down and promotes the wider rollout of digital services in countries both rich and poor.

Critics say it deprives debt-burdened governments in developing countries of tax revenue, though there’s debate over just how much state coffers would stand to gain.

The WTO itself says that on average, the potential loss would be less than one-third of 1% of total government revenue.

The stakes are high. A WTO report published in December said the value of “digitally delivered services” exports grew by more than 8% from 2005 to 2022 — higher than goods exports (5.6%) and other-services exports (4.2%).

Growth has been uneven, though. Most developing countries don’t have digital networks as extensive as those in the rich world. Those countries see less need to extend the moratorium — and might reap needed tax revenue if it ends.

South Africa’s proposal, which seeks to end the moratorium, calls for the creation of a fund to receive voluntary contributions to bridge the “digital divide.” It also wants to require “leading platforms” to boost the promotion of “historically disadvantaged” small- and medium-sized enterprises.

Industry, at least in the United States, is pushing hard to extend the moratorium. In a Feb. 13 letter to Biden administration officials, nearly two dozen industry groups, including the Motion Picture Association, the U.S. Chamber of Commerce and the Entertainment Software Association — a video-game industry group — urged the United States to give its “full support” to a renewal.

“Accepting anything short of a multilateral extension of the moratorium that applies to all WTO members would open the door to the introduction of new customs duties and related cross-border restrictions that would hurt U.S. workers in industries across the entire economy,” the letter said.

A collapse would deal a “major blow to the credibility and durability” of the WTO and would mark the first time that its members “changed the rules to make it substantially harder to conduct trade,” wrote the groups, which said their members include companies that combined employ over 100 million workers. 
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Washington — Inflation has changed the way many Americans shop. Now, those changes in consumer habits are helping bring down inflation.

Fed up with prices that remain about 19%, on average, above where they were before the pandemic, consumers are fighting back. In grocery stores, they’re shifting away from name brands to store-brand items, switching to discount stores or simply buying fewer items like snacks or gourmet foods.

More Americans are buying used cars, too, rather than new, forcing some dealers to provide discounts on new cars again. But the growing consumer pushback to what critics condemn as price-gouging has been most evident with food as well as with consumer goods like paper towels and napkins.

In recent months, consumer resistance has led large food companies to respond by sharply slowing their price increases from the peaks of the past three years. This doesn’t mean grocery prices will fall back to their levels of a few years ago, though with some items, including eggs, apples and milk, prices are below their peaks. But the milder increases in food prices should help further cool overall inflation, which is down sharply from a peak of 9.1% in 2022 to 3.1%.

Public frustration with prices has become a central issue in President Joe Biden’s bid for re-election. Polls show that despite the dramatic decline in inflation, many consumers are unhappy that prices remain so much higher than they were before inflation began accelerating in 2021.

Biden has echoed the criticism of many left-leaning economists that corporations jacked up their prices more than was needed to cover their own higher costs, allowing themselves to boost their profits. The White House has also attacked “shrinkflation,” whereby a company, rather than raising the price of a product, instead shrinks the amount inside the package. In a video released on Super Bowl Sunday, Biden denounced shrinkflation as a “rip-off.”

Consumer pushback against high prices suggests to many economists that inflation should further ease. That would make this bout of inflation markedly different from the debilitating price spikes of the 1970s and early 1980s, which took longer to defeat. When high inflation persists, consumers often develop an inflationary psychology: Ever-rising prices lead them to accelerate their purchases before costs rise further, a trend that can itself perpetuate inflation.

“That was the fear — that everybody would tolerate higher prices,” said Gregory Daco, chief economist at EY, a consulting firm, who notes that it hasn’t happened. “I don’t think we’ve moved into a high inflation regime.”

Instead, this time many consumers have reacted like Stuart Dryden, a commercial underwriter at a bank who lives in Arlington, Virginia. On a recent trip to his regular grocery store, Dryden, 37, pointed out big price disparities between Kraft Heinz-branded products and their store-label competitors, which he now favors.

Dryden, for example, loves cream cheese and bagels. A 12-ounce tub of Kraft’s Philadelphia cream cheese costs $6.69. The store brand, he noted, is just $3.19.

A 24-pack of Kraft single cheese slices is $7.69; the store label, $2.99. And a 32-ounce Heinz ketchup bottle is $6.29, while the alternative is just $1.69. Similar gaps existed with mac-and-cheese and shredded cheese products.

“Just those five products together already cost nearly $30,” Dryden said. The alternatives were less than half that, he calculated, at about $13.

“I’ve been trying private-label options, and the quality is the same and it’s almost a no-brainer to switch from the products I used to buy a ton of to just the private label,” Dryden said.

Alex Abraham, a spokesman for Kraft Heinz, said that its costs rose 3% in the final three months of last year but that the company raised its own prices only 1%.

“We are doing everything possible to find efficiencies in our factories and other parts of our business to offset and mitigate further price increases,” Abraham said.

Last week, Kraft Heinz said sales fell in the final three months of last year as more consumers traded down to cheaper brands.

Dryden has taken other steps to save money: A year ago, he moved into a new apartment after his previous landlord jacked up his rent by about 50%. His former apartment had been next to a relatively pricey grocery store, Whole Foods. Now, he shops at a nearby Amazon Fresh and has started visiting the discount grocer Aldi every couple of weeks.

Samuel Rines, an investment strategist at Corbu, says that PepsiCo, Kimberly-Clark, Procter & Gamble and many other consumer food and packaged goods companies exploited the rise in input costs stemming from supply-chain disruptions and Russia’s invasion of Ukraine to dramatically raise their prices — and increase their profits — in 2021 and 2022.

A contributing factor was that millions of Americans enjoyed solid wage gains and received stimulus checks and other government aid, making it easier for them to pay the higher prices.

Still, some decried the phenomenon as “greedflation.” And in a March 2023 research paper, the economist Isabella Weber at the University of Massachusetts, Amherst, referred to it as “seller’s inflation.”

Yet beginning late last year, many of the same companies discovered that the strategy was no longer working. Most consumers have now long since spent the savings they built up during the pandemic.

Lower-income consumers, in particular, are running up credit card debt and falling behind on their payments. Americans overall are spending more cautiously. Daco notes that overall sales during the holiday shopping season were up just 4% — and most of it reflected higher prices rather than consumers actually buying more things.

As an example, Rines points to Unilever, which makes, among other items, Hellman’s mayonnaise, Ben & Jerry’s ice cream and Dove soaps. Unilever jacked up its prices 13.3% on average across its brands in 2022. Its sales volume fell 3.6% that year. In response, it raised prices just 2.8% last year; sales rose 1.8%.

“We’re beginning to see the consumer no longer willing to take the higher pricing,” Rines said. “So companies were beginning to get a little bit more skeptical of their ability to just have price be the driver of their revenues. They had to have those volumes come back, and the consumer wasn’t reacting in a way that they were pleased with.”

Unilever itself recently attributed poor sales performance in Europe to “share losses to private labels.”

Other businesses have noticed, too. After their sales fell in the final three months of last year, PepsiCo executives signaled that this year they would rein in price increases and focus more on boosting sales.

“In 2024, we see … normalization of the cost, normalization of inflation,” CEO Ramon Laguarta said. “So we see everything trending back to our long-term” pricing trends.

Jeffrey Harmening, CEO of General Mills, which makes Cheerios, Chex Cereal, Progresso soups and dozens of other brands, has acknowledged that his customers are increasingly seeking bargains.

And McDonald’s executives have said that consumers with incomes below $45,000 are visiting less and spending less when they do visit and say the company plans to highlight its lower-priced items.

“Consumers are more wary — and weary — of pricing, and we’re going to continue to be consumer-led in our pricing decisions,” Ian Borden, the company’s chief financial officer, told investors.

Officials at the Federal Reserve, the nation’s primary inflation-fighting institution, have cited consumers’ growing reluctance to pay high prices as a key reason why they expect inflation to fall steadily back to their 2% annual target.

“Firms are telling us that price sensitivity is very much higher now,” Mary Daly, president of the Federal Reserve Bank of San Francisco and a member of the Fed’s interest-rate setting committee, said last week. “Consumers don’t want to purchase unless they’re seeing a 10% discount. … This is a serious improvement in the role that consumers play in bridling inflation.”

Surveys by the Fed’s regional banks have found that companies across all industries expect to impose smaller price increases this year. The New York Fed says companies in its region plan to raise prices an average of about 3% this year, down from about 5% in 2023 and as much as 7% to 9% in 2022.

Such trends suggest that companies were well on their way to slowing their price hikes before Biden’s most recent attacks on price gouging.

Claudia Sahm, founder of SAHM Consulting and a former Fed economist, said, “consumers are more powerful than President Biden.”
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Washington — Trying to keep up with customer demand, Batesville Tool & Die began seeking 70 people to hire last year. It wasn’t easy. Attracting factory workers to a community of 7,300 in the Indiana countryside was a tough sell, especially having to compete with big-name manufacturers nearby like Honda and Cummins Engine. 

Job seekers were scarce. 

“You could count on one hand how many people in the town were unemployed,” said Jody Fledderman, the CEO. “It was just crazy.” 

Batesville Tool & Die managed to fill just 40 of its vacancies. 

Enter the robots. The company invested in machines that could mimic human workers and in vision systems, which helped its robots “see” what they were doing. 

The Batesville experience has been replicated countlessly across the United States the past couple of years. Worker shortages have led many companies to invest in machines. They’ve also been training the workers they do have to use advanced technology so they can produce more with less. 

The result has been an unexpected productivity boom, which helps explain a great economic mystery: How has the world’s largest economy stayed so healthy, with brisk growth and low unemployment, despite brutally high interest rates that are intended to tame inflation but that typically cause a recession? 

To economists, strong productivity growth provides an almost magical elixir. When companies roll out more efficient technology, their workers can become more productive: They increase their output per hour. A result is that companies can often boost profits and raise pay without having to jack up prices. Inflation can remain in check. 

The Fed’s aggressive streak of rate hikes — 11 of them starting in March 2022 — managed to bring inflation from a four-decade high of 9.1% to 3.1%. But, to the surprise to the economists who’d forecast a recession, the higher borrowing costs have caused little economic hardship. 

Perhaps the likeliest explanation is the greater efficiencies that companies like Batesville Tool & Die have managed to achieve. Before productivity began its resurgent growth last year, a rule of thumb was that average hourly pay could rise no more than 3.5% annually for inflation to stay within the Fed’s 2% target. That would mean that today’s roughly 4% average annual pay growth would have to shrink. Higher productivity means there’s now more leeway for wage growth to stay elevated without igniting inflation. 

The productivity boom marks a shift from the pre-pandemic years, when annual productivity growth averaged a tepid 1.5%. Everything changed as the economy rocketed out of the 2020 pandemic recession with unexpected vigor, and businesses struggled to re-hire the many workers they had shed. 

The resulting worker shortage sent wages surging. Inflation jumped, too, as factories and ports buckled under the strain of rising consumer orders. 

Desperate, many companies turned to automation. The efficiency payoff began to arrive almost a year ago. Labor productivity rose at a 3.6% annual pace from last April through June, 4.9% from July through September and 3.2% from October through December. 

At Reata Engineering & Machine Works, “efficiency was kind of forced on us,” CEO Grady Cope said. With the job market roaring, the company, based in Englewood, Colorado, couldn’t hire fast enough. Meantime, its customers were starting to balk at paying higher prices. 

So Reata installed robots and other technology. Software allowed it to automate the delivery of price quotes to customers. That process used to require two weeks. Now, it can be done in 24 hours. 

Many economists and business people say they’re hopeful that the productivity boom can continue. Artificial intelligence, they note, is only beginning to penetrate factory floors, warehouses, stores and offices and could accelerate efficiency gains. 

Automation raises fears that machines will replace human workers, killing jobs. Some workers supplanted by robots do often struggle to find new work and end up settling for lower pay. 

Yet history suggests that in the long run, technological improvements actually create more jobs than they destroy. People are needed to build, upgrade, repair and operate sophisticated machines. Some displaced workers are trained to shift into such jobs. And that transition is likely to be eased this time by the retirement of the vast baby boom generation, which is causing labor shortages. 

Some of today’s productivity gains may be coming not just from advanced technology but also from more satisfied workers. The tight labor markets of the past three years allowed Americans to change jobs and find others that pay better and make them happier and more productive. 

Justin Thompson, of Kalamazoo, Michigan, felt burned out by his job as a police officer, with its 16-hour workdays .”I was literally running myself into the ground,” he said. 

Thompson’s wife saw a job posting for operations manager at a charter airline. Even without airline experience, his wife felt he could use skills he gains as a Marine Corps infantryman — handling logistics for missions — during tours in Iraq and Afghanistan. 

She was right. Omni Air International hired him in 2019. 

Thompson, 43, loves the new job, which allows him to work from home when he’s not traveling. And his Marine experience — which included developing ways to improve efficiency — has proved invaluable. 

Other workers have switched from low-skill jobs to those that allow them to be more productive. 

At Reata Engineering, staffers were trained to use new sophisticated equipment. 

“The whole point is not to lay people off,” said Cope, the CEO of Reata Engineering. “The point is to make people do jobs that are more interesting” — and pay better, too. 
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WASHINGTON — The U.S. government should block the import of low-cost Chinese autos and parts from Mexico, a U.S. manufacturing advocacy group said Friday, warning they could threaten the viability of American car companies. 

“The introduction of cheap Chinese autos — which are so inexpensive because they are backed with the power and funding of the Chinese government — to the American market could end up being an extinction-level event for the U.S. auto sector,” the Alliance for American Manufacturing said in a report. 

The group argues the United States should work to prevent automobiles and parts manufactured in Mexico by companies headquartered in China from benefiting from a North American free trade agreement. “The commercial backdoor left open to Chinese auto imports should be shut before it causes mass plant closures and job losses in the United States,” the report said. 

Vehicles and parts produced in Mexico can qualify for preferential treatment under the U.S.-Mexico-Canada trade agreement as well as qualifying for a $7,500 electric vehicle, or EV, tax credit, the report noted. 

The Chinese embassy in Washington said in response that China’s automobile exports “reflect the high-quality development and strong innovation of China’s manufacturing industry. … The leapfrog development of China’s auto industry has provided cost-effective products with high quality to the world.” 

The issue has received new interest after news reports that China’s BYD Company plans to set up an EV factory in Mexico. BYD, known for its cheaper models and a more varied lineup, recently overtook its biggest rival, Tesla, to become the world’s top EV maker by sales. 

Tesla announced plans almost a year ago to build a factory in the northern Mexican state of Nuevo Leon. In October, Mexico said a Chinese Tesla supplier and a Chinese technology company would invest nearly a billion dollars in the state. 

A bipartisan group of U.S. lawmakers has urged the Biden administration to hike tariffs on Chinese-made vehicles and investigate ways to prevent Chinese companies from exporting to the United States from Mexico. 

A group of lawmakers urged U.S. Trade Representative Katherine Tai to boost the 27.5% tariff on Chinese vehicles and said her office “must also be prepared to address the coming wave of [Chinese] vehicles that will be exported from our other trading partners, such as Mexico, as [Chinese] automakers look to strategically establish operations outside of [China].” 

Alliance for Automotive Innovation CEO John Bozzella has said that proposed U.S. environmental regulations could let China gain “a stronger foothold in America’s electric vehicle battery supply chain and eventually our automotive market.” 

The U.S. Treasury issued guidelines in December on the $7,500 EV tax credit aimed at weaning the U.S. EV supply chain away from China. 
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HONG KONG — Dior has postponed a fashion show set to be held in Hong Kong next month, a city official confirmed Saturday, dealing a blow to the financial hub’s ambitions to boost its economy through major events.

Hong Kong is courting top international celebrities and brands in the hope of rebooting its reputation, which has been battered by years of social unrest and strict pandemic curbs. 

The Dior fashion show — meant to feature artistic director Kim Jones and the men’s autumn collection — was to be one of several “mega events” touted last month by Hong Kong’s culture, sports and tourism chief, Kevin Yeung, as part of the city’s drive to become an event capital. 

But Yeung’s office confirmed to AFP on Saturday that it had “just been notified” by organizers that the fashion show would not go ahead as scheduled on March 23. 

“Large-scale events are postponed from time to time, and we continue to welcome large-scale events to take place in Hong Kong,” a spokesperson for Yeung’s office said. 

Dior said the show had been “postponed indefinitely” without giving specifics, according to a company statement quoted by the South China Morning Post. 

According to the South China Morning Post, the event was expected to cost about $100 million ($12.8 million U.S.) and draw nearly 1,000 attendees.  

Louis Vuitton in November held its men’s pre-fall 2024 show in Hong Kong, led by creative director Pharrell Williams and drawing celebrity guests from China and South Korea. 

The much-hyped runway show was seen as a boon to Hong Kong’s international image and a sign of the luxury giant’s commitment to Asian markets. 
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Ukraine’s economy shrank 29% in 2022, the year Russia launched its full-scale invasion. In addition, Ukrainian businesses were destroyed, exports were halted and millions of people were displaced. But in 2023, Ukranian officials’ say, the economy actually grew 5%. Eastern Europe Bureau Chief Myroslava Gongadze reports from Kyiv.
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Kenyan companies, facing economic challenges, are turning to artificial intelligence to reduce production and advertising expenses. That’s causing anxiety among artists and ad agencies, who fear reduced income and job losses if AI can replace the work they’ve always done. Mohammed Yusuf reports from Nairobi.
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PARIS — Farmers are protesting across the European Union, saying they are facing rising costs and taxes, red tape, excessive environmental rules and competition from cheap food imports.

Demonstrations have been taking place for weeks in countries that include France, Germany, Belgium, the Netherlands, Poland, Spain, Italy and Greece.

While many issues are country-specific, others are Europewide. Here is a detailed look at the problems that have prompted the protest movement across the bloc and in individual nations.

Imports

Demonstrations in eastern Europe have focused on what farmers say is unfair competition from large amounts of imports from Ukraine, for which the EU has waived quotas and duties since Russia’s invasion.

Polish farmers have been blocking traffic at the border with Ukraine, which Kyiv says is affecting its defense capability and helping Russia’s aims.

Meanwhile, Czech farmers have driven their tractors into downtown Prague, disrupting traffic outside the farm ministry.

The farmers resent the imports because they say they put pressure on European prices while not meeting environmental standards imposed on EU farmers.

Renewed negotiations to conclude a trade deal between the EU and South American bloc Mercosur have also fanned discontent about unfair competition in sugar, grain and meat.

Rules and bureaucracy

Farmers take issue with excessive regulation, mainly at EU level. Center stage are new EU subsidy rules, such as a requirement to leave 4% of farmland fallow, which means not using it for a period of time.

They also denounce bureaucracy, which French farmers say their government compounds by overcomplicating implementation.

In Spain, farmers have complained of “suffocating bureaucracy” drawn up in Brussels that erodes the profitability of crops.

In Greece, farmers demand higher subsidies and faster compensation for crop damage and livestock lost in 2023 floods.

Rising diesel fuel costs

In Germany and France, the EU’s biggest agricultural producers, farmers have railed against plans to end subsidies or tax breaks on agricultural diesel. Greek farmers want a tax on diesel to be reduced.

In Romania, protests in mid-January were mainly against the high cost of diesel.

Income

In France, many producers say a government drive to bring down food inflation has left them unable to cover high costs for energy, fertilizer and transport.

What are governments doing?

The European Commission late last month proposed to limit agricultural imports from Ukraine by introducing an “emergency brake” for the most sensitive products — poultry, eggs and sugar — but producers say the volume would still be too high.

The commission has also exempted EU farmers for 2024 from the requirement to keep some of their land fallow while still receiving EU farm support payments, but they would need to instead grow crops without applying pesticides.

French Prime Minister Gabriel Attal announced measures that include controls to ensure imported foods do not have traces of pesticides banned in France or the EU and talks to get farmers higher prices and loosen bureaucracy and regulation.

Paris and Berlin have both relented to the pressure and rowed back on plans to end subsidies or tax breaks on agricultural diesel. In Romania, the government has acted to increase diesel subsidies, address insurance rates and expedite subsidy payments.

In Portugal, the caretaker government has announced an emergency aid package worth 500 million euros ($541 million), including 200 million euros ($217 million) to mitigate the impact of a long-running drought.

Why farmers are protesting, by country:

FRANCE

EU red tape
Diesel prices
Need more support to shore up incomes
Access to irrigation
Criticism over animal welfare and use of pesticides

POLAND

Cheap imports from Ukraine
EU regulation

CZECH REPUBLIC

Bureaucracy
Cheap imports
EU farm policy

SPAIN

"Suffocating bureaucracy" drawn up in Brussels that they say erodes the profitability of crops
Trade deals that they say open the door to cheap imports

PORTUGAL

Insufficient state aid, subsidy cuts
Red tape

ROMANIA

Cost of diesel
Insurance rates
EU environmental regulations
Cheap imports from Ukraine

BELGIUM

EU requirement to leave 4% of land fallow
Cheap imports
Subsidies favoring larger farms

GREECE

Demands for higher subsidies and faster compensation for crop damage and livestock lost in 2023 floods
Diesel tax and surging electricity bills
Falling state and EU subsidies 

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ABUJA, Nigeria — Nigerians are facing one of the West African nation’s worst economic crises in years triggered by surging inflation, the result of monetary policies that have pushed the currency to an all-time low against the dollar. The situation has provoked anger and protests across the country.

The latest government statistics released Thursday showed the inflation rate in January rose to 29.9%, its highest since 1996, mainly driven by food and non-alcoholic beverages. Nigeria’s currency, the naira, further plummeted to 1,524 to $1 on Friday, reflecting a 230% loss of value in the last year.

“My family is now living one day at a time (and) trusting God,” said trader Idris Ahmed, whose sales at a clothing store in Nigeria’s capital of Abuja have declined from an average of $46 daily to $16.

The plummeting currency worsens an already bad situation, further eroding incomes and savings. It squeezes millions of Nigerians already struggling with hardship due to government reforms including the removal of gas subsidies that resulted in gas prices tripling.

A snapshot of Nigeria’s economy

With a population of more than 210 million people, Nigeria is not just Africa’s most populous country but also the continent’s largest economy. Its gross domestic product is driven mainly by services such as information technology and banking, followed by manufacturing and processing businesses and then agriculture.

The challenge is that the economy is far from sufficient for Nigeria’s booming population, relying heavily on imports to meet the daily needs of its citizens from cars to cutlery. So it is easily affected by external shocks such as the parallel foreign exchange market that determines the price of goods and services.

Nigeria’s economy is heavily dependent on crude oil, its largest foreign exchange earner. When crude prices plunged in 2014, authorities used its scarce foreign reserves to try to stabilize the naira amid multiple exchange rates. The government also shut down the land borders to encourage local production and limited access to the dollar for importers of certain items.

The measures, however, further destabilized the naira by facilitating a booming parallel market for the dollar. Crude oil sales that boost foreign exchange earnings have also dropped because of chronic theft and pipeline vandalism.

Monetary reforms poorly implemented

Shortly after taking the reins of power in May last year, President Bola Tinubu took bold steps to fix the ailing economy and attract investors. He announced the end of costly decadeslong gas subsidies, which the government said were no longer sustainable. Meanwhile, the country’s multiple exchange rates were unified to allow market forces to determine the rate of the local naira against the dollar, which in effect devalued the currency.

Analysts say there were no adequate measures to contain the shocks that were bound to come as a result of reforms including the provision of a subsidized transportation system and an immediate increase in wages.

So the more than 200% increase in gas prices caused by the end of the gas subsidy started to have a knock-on effect on everything else, especially because locals rely heavily on gas-powered generators to light their households and run their businesses.

Why is the naira plummeting in value?

Under the previous leadership of the Central Bank of Nigeria, policymakers tightly controlled the rate of the naira against the dollar, thereby forcing individuals and businesses in need of dollars to head to the black market, where the currency was trading at a much lower rate.

There was also a huge backlog of accumulated foreign exchange demand on the official market — estimated to be $7 billion — due in part to limited dollar flows as foreign investments into Nigeria and the country’s sale of crude oil have declined.

Authorities said a unified exchange rate would mean easier access to the dollar, thereby encouraging foreign investors and stabilizing the naira. But that has yet to happen because inflows have been poor. Instead, the naira has further weakened as it continues to depreciate against the dollar.

What are authorities doing?

Central Bank of Nigeria Gov. Olayemi Cardoso has said the bank has cleared $2.5 billion of the foreign exchange backlog out of the $7 billion that had been outstanding. The bank, however, found that $2.4 billion of that backlog were false claims that it would not clear, Cardoso said, leaving a balance of about $2.2 billion, which he said will be cleared “soon.”

Tinubu, meanwhile, has directed the release of food items such as cereals from government reserves among other palliatives to help cushion the effect of the hardship. The government has also said it plans to set up a commodity board to help regulate the soaring prices of goods and services.

On Thursday, the Nigerian leader met with state governors to deliberate on the economic crisis, part of which he blamed on the large-scale hoarding of food in some warehouses.

“We must ensure that speculators, hoarders and rent seekers are not allowed to sabotage our efforts in ensuring the wide availability of food to all Nigerians,” Tinubu said.

By Friday morning, local media were reporting that stores were being sealed for hoarding and charging unfair prices.

How are Nigerians coping with tough times?

The situation is at its worst in conflict zones in northern Nigeria, where farming communities are no longer able to cultivate what they eat as they are forced to flee violence. Pockets of protests have broken out in past weeks, but security forces have been quick to impede them, even making arrests in some cases.

In the economic hub of Lagos and other major cities, there are fewer cars and more legs on the roads as commuters are forced to trek to work. The prices of everything from food to household items increase daily.

“Even to eat now is a problem,” said Ahmed in Abuja. “But what can we do?”
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MUNICH — China’s foreign minister told a gathering of international security policy officials Saturday that trying to shut China out of trade in the name of avoiding dependency would be a historic mistake.

Wang Yi spoke at the Munich Security Conference. Host Germany wants to avoid over-reliance on trade with an increasingly assertive China and diversify its supply of key goods in an approach it calls “de-risking.” That’s in line with the approach of other industrial powers in the Group of Seven, which has stressed that it doesn’t seek to harm China or thwart its development.

Beijing has criticized the strategy.

“Today … more people have come to realize that the absence of cooperation is the biggest risk,” Wang said through an interpreter. “Those who attempt to shut China out in the name of de-risking will make a historical mistake.”

“The world economy is like a big ocean that cannot be cut into isolated lakes,” he said. “The trend toward economic globalization cannot be reversed. We need to work together to make globalization more universally beneficial and inclusive.”

Wang also renewed China’s pushback against allegations of forced labor in the western Xinjiang region, where it is accused of running labor transfer programs in which Uyghurs and other Turkic minorities are forced to toil in factories as part of a longstanding campaign of assimilation and mass detention.

He complained of “fabricated information from different parties” and asserted that the aim is “to stop the development of China.”
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