Deficits as a share of the economy are expected to grow from 5.3 percent this year to 6.9 percent of GDP in a decade, “a level exceeded only five times since 1946,” the independent budget office noted on Wednesday.
Debt held by the public is also expected to reach its highest level ever recorded in the next 10 years, hitting 118 percent of GDP in 2033. The debt could skyrocket to 195 percent of GDP by 2053, thanks to growing interest costs and increased mandatory spending on programs like Medicare and Social Security, CBO analysts said.
Inflation will “gradually” slow this year as demand starts to sync more closely with supply. But the budget office projects that inflation will be higher this year and next year than originally anticipated, with the Federal Reserve likely hitting its target inflation rate of 2 percent in 2027.
Just last spring, the budget office said inflation would likely cool to the Central Bank’s target sometime after 2024, after initially predicting prices would reach that point by the end of last year.
Due to the Federal Reserve’s rapid interest rate hikes, economic activity is also expected to stagnate this year, with falling inflation and rising unemployment. The unemployment rate is projected to climb from 3.6 percent at the end of 2022 to more than 5 percent by the end of this year.
Real GDP growth is expected to rebound as the Central Bank eases up on interest rate hikes, averaging 2.4 percent annually through 2027.
The budget office cautioned that its economic projects are subject to change based on a variety of factors, including fluctuations in the labor market and the ongoing war in Ukraine.
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( With inputs from : www.politico.com )
Chennai: In a shocker, consumer price index (CPI) inflation touched 6.5 per cent in January, the Ministry of Statistics & Programme Implementation said on Monday, after being 5.72 per cent in December and 5.88 per cent in November last year, and economists termed it “worrisome”.
“CPI inflation moved to 6.5 per cent in January is higher than our expectations and is worrisome. Sequentially, inflation has snapped a two-month contractionary streak as food inflation and core inflation remained firm,” Rajani Sinha, Chief Economist, CARE Ratings told IANS.
“Today’s inflation shocker led by food as well as consistently higher core inflation momentum has depicted we are far from the ‘durable disinflation’ process,” said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
Sinha said while vegetable prices contracted for the third straight month, the momentum was not strong enough to counter the sharp rise in essentials such as cereals, meat, fish, milk, and eggs.
“The contribution of food inflation to overall inflation rose to 44 per cent in January from 37 per cent in December. Meanwhile, core inflation has remained sticky at 6.3 per cent as inflation for housing, personal care and healthcare moved higher,” she added.
According to Sinha, going forward, the sticky core inflation will remain a concern though the average CPI inflation is expected to moderate to 5.1 per cent in FY24 on the back of softening prices of cereals and pulses.
The monetary policy tightening so far, and some fizzling of pent-up demand should also help ease CPI inflation.
“This upside inflation surprise comes after RBI revised down its 4QFY23 CPI forecast by 20bps in the last MPC policy. This shows how uncertain the inflation trajectory can get, for even near-term estimates and possibly explains why they maintained the current stance of withdrawal of accommodation to keep policy flexibility ahead,” Arora said.
According to her, 4QFY23 inflation may now be possibly 50 bps higher than the RBI’s revised estimate and could also force the RBI to further tighten their stance ahead.
“From the policy perspective, we believe that further rate hikes are unlikely. However, we need to be cautious as RBI (Reserve Bank of India) has left the window open for possibility of another rate hike in case of a sustained rise in inflation,” Sinha said.
New Delhi: Retail inflation breached the RBI’s comfort zone and rose to a three-month high of 6.52 percent in January, mainly on account of a spike in food prices, as per government data released on Monday.
The inflation rate based on the Consumer Price Index (CPI) stood at 5.72 percent in December and 6.01 percent in January 2022.
The inflation rate for the food basket was at 5.94 percent in January, up from 4.19 percent in December.
The previous high was 6.77 percent in October.
The Reserve Bank has been mandated by the central government to ensure that retail inflation remains at 4 percent with a margin of 2 percent on either side.
New Delhi: The Opposition criticised the economic policies of the Union government on Wednesday, saying that unemployment and poverty have risen in the country due to it.
Congress MP Gaurav Gogoi, while initiating the debate on the Union Budget in Lok Sabha, said that the Union government had failed to control inflation.
He added that an “A” grade should be given to the Union Budget, not the one which is given in schools, but the one which stands for Adani, whom it is meant to benefit.
The budget, Gogoi said, had nothing for the common man while all announcements were for a particular corporate group.
The Congress MP said that the government has announced capital expenditure to the tune of Rs 10 lakh crore, of which nearly Rs five lakh crore was for infrastructure projects such as highways, railways and airports.
These assets would be built with public money, which would later be monetised to ‘crony capitalists’, he claimed.
Gogoi said there was no additional allocation for public sector undertakings that pay dividends to the government, nor are there any allocations for the armed forces, he alleged.
The government has not made adequate allocation for the armed forces to deal with the challenge posed by China, he said.
Gogoi claimed that while other countries are decreasing their dependence on China, India’s imports from that country were on the rise.
He added that greater investment was needed in education and manufacturing sectors.
The Lok Sabha was later adjourned for the day due to lack of quorum.
Colombo: Sri Lanka’s inflation decreased to 54.2 percent in January from 57.2 percent in December 2022, the country’s Department of Census and Statistics reported.
Inflation of food dropped to 60.1 percent in January from 64.4 percent in December, the department said on Tuesday.
Inflation in the non-food category decreased to 51 percent in January from 53.4 percent in the previous month, it added.
In November, the inflation was 65 per cent, Xinhua news agency reported.
Last week the country’s central bank kept interest rates unchanged, stating that the current tight monetary policy was necessary to tame inflation and restore economic stability.
It said that inflation will be reduced to single digits by the end of the year.
Hyderabad: Telangana has the highest inflation rate in the country, revealed the Economic Survey 2022-23 tabled in the Parliament on Tuesday by Finance Minister Nirmala Sitharaman.
According to the report, Telangana has an inflation rate of 8.7 percent between April and December 2022 against the national average of 6.8 percent for the same period.
The report also shows that the inflation in rural Telangana was 9.2 percent while it was 8.3 percent in the urban areas.
Telangana, West Bengal, Maharashtra, Madhya Pradesh, Haryana, and Andhra Pradesh saw especially high rates of inflation in 2022-23.
Fuel and clothing were the major contributors for the surge in inflation. Another contributing factor was food inflation due to high prices of tomatoes as a result of crop damage and supply disruption due to unseasonal heavy rains in states like Telangana, Karnataka, Tamil Nadu, and Andhra Pradesh between April-December 2022.
Reacting to the Economic Survey report, Telangana BJP President Bandi Sanjay Kumar blamed the Bharat Rashtra Samithi (BRS) government for the high inflation.
Sanjay said that fuel is a major contributor to rise in inflation. “BRS government won’t reduce VAT on petrol/diesel prices even though the Centre and majority of states reduced it. KCR continued to push the burden on common man,” he said.
The BJP leader also slammed the BRS for boycotting President Droupadi Murmu’s address to the joint session of both houses of the Parliament. “It is a shame that the BRS boycotted the speech when an adivasi woman was addressing both houses of Parliament for the first time after being elected President,” tweeted Sanjay, who is also a Member of Parliament.
Union Minister G. Kishan Reddy has also attacked BRS for boycotting the President’s speech. “Skipping 1st joint address of Hon’ble President shows total lack of respect for a tribal daughter of India Time to respect India’s highest office and institutions,” tweeted the minister.
He alleged that BRS and Chief Minister KCR’s only focus is his own family. He said they have no respect for the Constitution, conventions, and common courtesies.
LONDON — Public sector workers on strike, the cost-of-living climbing, and a government on the ropes.
“It’s hard to miss the parallels” between the infamous ‘Winter of Discontent’ of 1978-79 and Britain in 2023, says Robert Saunders, historian of modern Britain at Queen Mary, University of London.
Admittedly, the comparison only goes so far. In the 1970s it was a Labour government facing down staunchly socialist trade unions in a wave of strikes affecting everything from food deliveries to grave-digging, while Margaret Thatcher’s Conservatives sat in opposition and awaited their chance.
But a mass walkout fixed for Wednesday could yet mark a staging post in the downward trajectory of Rishi Sunak’s Conservatives, just as it did for Callaghan’s Labour.
Britain is braced for widespread strike action tomorrow, as an estimated 100,000 civil servants from government departments, ports, airports and driving test centers walk out alongside hundreds of thousands of teachers across England and Wales, train drivers from 14 national operators and staff at 150 U.K. universities.
It follows rolling action by train and postal workers, ambulance drivers, paramedics, and nurses in recent months. In a further headache for Sunak, firefighters on Monday night voted to walk out for the first time in two decades.
While each sector has its own reasons for taking action, many of those on strike are united by the common cause of stagnant pay, with inflation still stubbornly high. And that makes it harder for Sunak to pin the blame on the usual suspects within the trade union movement.
Mr Reasonable
Industrial action has in the past been wielded as a political weapon by the Conservative Party, which could count on a significant number of ordinary voters being infuriated by the withdrawal of public services.
Tories have consequently often used strikes as a stick with which to beat their Labour opponents, branding the left-wing party as beholden to its trade union donors.
But public sympathies have shifted this time round, and it’s no longer so simple to blame the union bogeymen.
Sunak has so far attempted to cast himself as Mr Reasonable, stressing that his “door is always open” to workers but warning that the right to strike must be “balanced” with the provision of services. To this end, he is pressing ahead with long-promised legislation to enforce minimum service standards in sectors hit by industrial action.
Sunak has made tackling inflation the raison d’etre of his government, and his backbenchers are reasonably content to rally behind that banner | POOL photo by Oli Scarff/Getty Images
Unions are enraged by the anti-strike legislation, yet Sunak’s soft-ish rhetoric is still in sharp relief to the famously bellicose Thatcher, who pledged during the 1979 strikes that “if someone is confronting our essential liberties … then, by God, I will confront them.”
Sunak’s careful approach is chosen at least in part because the political ground has shifted beneath him since the coronavirus pandemic struck in 2020.
Public sympathy for frontline medical staff, consistently high in the U.K., has been further embedded by the extreme demands placed upon nurses and other hospital staff during the pandemic. And inflation is hitting workers across the economy — not just in the public sector — helping to create a broader reservoir of sympathy for strikers than has often been found in the past.
James Frayne, a former government adviser who co-founded polling consultancy Public First, observes: “Because of the cost-of-living crisis, what you [as prime minister] can’t do, as you might be able to do in the past, is just portray this as being an ideologically-driven strike.”
Starmer’s sleight of hand
At the same time, strikes are not the political headache for the opposition Labour Party they once were.
Thatcher was able to portray Callaghan as weak when he resisted the use of emergency powers against the unions. David Cameron was never happier than when inviting then-Labour leader Ed Miliband to disown his “union paymasters,” particularly during the last mass public sector strike in 2011.
Crucially, trade union votes had played a key role in Miliband’s election as party leader — something the Tories would never let him forget. But when Sunak attempts to reprise Cameron’s refrains against Miliband, few seem convinced.
QMUL’s Saunders argues that the Conservatives are trying to rerun “a 1980s-style campaign” depicting Labour MPs as being in the pocket of the unions. But “I just don’t think this resonates with the public,” he added.
Labour’s current leader, Keir Starmer, has actively sought to weaken the left’s influence in the party, attracting criticism from senior trade unionists. Most eye-catchingly, Starmer sacked one of his own shadow ministers, Sam Tarry, after he defied an order last summer that the Labour front bench should not appear on picket lines.
Starmer has been “given cover,” as one shadow minister put it, by Sunak’s decision to push ahead with the minimum-service legislation. It means Labour MPs can please trade unionists by fighting the new restrictions in parliament — without having to actually stand on the picket line.
So far it seems to be working. Paul Nowak, general secretary of the Trades Union Congress, an umbrella group representing millions of U.K. trade unionists, told POLITICO: “Frankly, I’m less concerned about Labour frontbenchers standing up on picket lines for selfies than I am about the stuff that really matters to our union” — namely the government’s intention to “further restrict the right to strike.”
The TUC is planning a day of action against the new legislation on Wednesday, coinciding with the latest wave of strikes.
Sticking to their guns
For now, Sunak’s approach appears to be hitting the right notes with his famously restless pack of Conservative MPs.
Sunak has made tackling inflation the raison d’etre of his government, and his backbenchers are reasonably content to rally behind that banner.
As one Tory MP for an economically-deprived marginal seat put it: “We have to hold our nerve. There’s a strong sense of the corner (just about) being turned on inflation rising, so we need to be as tough as possible … We can’t now enable wage increases that feed inflation.”
Another agreed: “Rishi should hold his ground. My guess is that eventually people will get fed up with the strikers — especially rail workers.”
Furthermore, Public First’s Frayne says his polling has picked up the first signs of an erosion of support for strikes since they kicked off last summer, particularly among working-class voters.
“We’re at the point now where people are feeling like ‘well, I haven’t had a pay rise, and I’m not going to get a pay rise, and can we all just accept that it’s tough for everybody and we’ve got to get on with it,’” he said.
More than half (59 percent) of people back strike action by nurses, according to new research by Public First, while for teachers the figure is 43 percent, postal workers 41 percent and rail workers 36 percent.
‘Everything is broken’
But the broader concern for Sunak’s Conservatives is that, regardless of whatever individual pay deals are eventually hammered out, the wave of strikes could tap into a deeper sense of malaise in the U.K.
Inflation remains high, and the government’s independent forecaster predicted in December that the U.K. will fall into a recession lasting more than a year.
More than half (59 percent) of people back strike action by nurses, according to new research by Public First, while for teachers the figure is 43 percent, postal workers 41 percent and rail workers 36 percent | Joseph Prezioso/AFP via Getty Images
Strikes by ambulance workers only drew more attention to an ongoing crisis in the National Health Service, with patients suffering heart attacks and strokes already facing waits of more than 90 minutes at the end of 2022.
Moving around the country has been made difficult not only by strikes, but by multiple failures by rail providers on key routes.
One long-serving Conservative MP said they feared a sense of fatalism was setting in among the public — “the idea that everything is broken and there’s no point asking this government to fix it.”
A former Cabinet minister said the most pressing issue in their constituency is the state of public services, and strike action signaled political danger for the government. They cautioned that the public are not blaming striking workers, but ministers, for the disruption.
Those at the top of government are aware of the risk of such a narrative taking hold, with the chancellor, Jeremy Hunt, taking aim at “declinism about Britain” in a keynote speech Friday.
Whether the government can do much to change the story, however, is less clear.
Saunders harks back to Callaghan’s example, noting that public sector workers were initially willing to give the Labour government the benefit of the doubt, but that by 1979 the mood had fatally hardened.
This is because strikes are not only about falling living standards, he argues. “It’s also driven by a loss of faith in government that things are going to get better.”
With an election looming next year, Rishi Sunak is running out of time to turn the public mood around.
Annabelle Dickson and Graham Lanktree contributed reporting.
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( With inputs from : www.politico.eu )
Global growth is slowing down less than previously expected, the International Monetary Fund said Tuesday in its updated World Economic Outlook.
World output is set to grow by 2.9 percent this year, down from 3.4 percent in 2022, weighed down by tightening monetary policy and the war in Ukraine.
That’s an increase of 0.2 percentage points compared with the 2.7 percent and 3.2 percent figures forecasted in October, thanks to stronger-than-expected growth in the third quarter of 2022.
Growth will resume in 2024 at 3.1 percent.
“This time around, the global economic outlook hasn’t worsened,” Pierre-Olivier Gourinchas, IMF chief economist and research director, wrote in a blog post. “That’s good news, but not enough.”
Eurozone growth is expected to reach 0.7 percent this year—a 0.2 percentage-point upgrade — and 1.6 percent next. In 2022, the IMF reviewed eurozone growth upward to 3.5 percent from 3.1 percent previously because of lower energy prices and additional demand-side support measures.
Global headline inflation has peaked in the third quarter of last year, the Fund said, pushed down by a decline in commodity prices. But so-called core inflation, which excludes volatile energy and food prices, has yet to peak, spurred on by tight labor markets which generate strong wage growth.
The IMF expects global inflation to fall this year to 6.6 percent and to 4.3 percent in 2024, down from 8.8 percent in 2022 on average. Both headline and peak inflation are expected to remain higher than pre-pandemic levels in 2024.
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( With inputs from : www.politico.eu )
Yet that progress could be in jeopardy: As Federal Reserve officials prepare to meet next week to raise interest rates again, their inflation-fighting crusade — which Fed Chair Jerome Powell has vowed to continue — has sparked fears of a recession, meaning that workers could be forced to give up those hard-fought gains.
The economy added 4.5 million jobs in 2022, and data to be released on Thursday is expected to show that GDP increased by an annualized 2.8 percent in the last three months of the year, defying downturn worries for the time being. But that may change since the impact of the Fed’s aggressive rate hikes has not yet been fully felt in the economy.
Bernstein acknowledged the difficulty ahead. “A key part of our message is we’ve got more work to do,” he said.
Prices have been cooling for the past six months. The consumer price index rose 6.5 percent across all of last year, down from 9.1 percent for the 12 months ending in June. Average hourly earnings grew more slowly — 4.6 percent — over that time period. But a steady drop in inflation in the second half of the year helped income surpass price increases, bringing real worker pay roughly to the same level it was prior to the pandemic.
With unemployment still at modern lows, some in Washington and on Wall Street have held out hope that price spikes can cool further. Indeed, Wall Street investors expect the Fed to scale back the size of the rate hikes at its Feb. 1 meeting and beyond, partly because of the progress on inflation.
Prices have come down in many areas, but it’s the cost of gas that has drawn the most attention. That’s partly because White House officials have driven home the price declines for months by touting them on Twitter and in speeches — though the price is driven by global factors that are mostly outside of Biden’s control.
“When we did start to see gas prices go down, it did correspond to a period of increasing support for Biden,” Democratic pollster Carly Cooperman said, pointing to the party’s better-than-expected results in the midterm elections.
Still, she said, inflation has to recede a lot more for Biden to reap the full political benefit. “As long as voters find that their cost of living is expensive, it’s going to be hard to convince [them] there’s real improvement,” she said.
Workers will bear the brunt of any miscalculation by the Fed — whether it’s the central bank failing to sufficiently tame prices or hitting the brakes on the economy too hard. There’s also a danger that stronger wages themselves will stoke broader inflation, leading to even higher interest rates and perhaps a deeper economic slump in the coming years.
Income gains have been fed by a labor market with a shortage of workers, giving people more leverage to seek higher pay, particularly when switching jobs. Powell is closely watching inflation in core services industries where paychecks are often businesses’ largest expense.
“Inflation is coming down faster than we may have expected based on wage growth alone, but that’s unsurprising, given that inflation was driven up by factors that weren’t driven by wage growth,” said Daniel Zhao, lead economist on Glassdoor’s economic research team.
New research that has garnered attention within the administration as well as among top commentators in the field suggests there’s still a way this could end well.
In a draft paper, economists Guido Lorenzoni and Iván Werning found that, in the wake of an economic shock, inflation-adjusted wages might drop at first but then begin to rise as part of a normal recovery. That is, there’s room for workers to increase their take-home pay without it being worrisome to the Fed.
“You get a shock that makes the price of, say, energy inputs or microchips or lumber more expensive,” said Lorenzoni, a professor at the University of Chicago Booth School of Business. “Firms are faster to move, so they start raising prices. Workers catch up a little slower, so at the beginning, the [inflation-adjusted] wage goes down. But then workers keep catching up. At some point, firms are happy because the shock goes away. Then workers catch up.”
“If that’s the story, it kind of fits the data because it looks like real wages originally fell, now they’re recovering,” he said. “The important thing is, that is not a signal that things are completely out of whack.”
Fed officials aren’t yet convinced, worrying that the rapid increase in wages will keep inflation from going all the way back down to their 2 percent target, though wage growth has already showed signs of deceleration.
“It seems likely that returning inflation to 2 percent will require wage growth to slow substantially,” Dallas Fed President Lorie Logan said in a speech last week.
For the time being, Biden is touting the income gains. Non-supervisory workers have slightly higher incomes than they had before the pandemic, and people with low-paying jobs have fared better than their higher-earning counterparts, as restaurants, hotels, and warehouses compete for a finite pool of employees.
“It all adds up to a real break for consumers,” Biden said earlier this month.
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( With inputs from : www.politico.com )
PARIS — German Chancellor Olaf Scholz raised optimism on Sunday that the EU and the U.S. can reach a trade truce in the coming months to prevent discrimination against European companies due to American subsidies.
Speaking at a press conference with French President Emmanuel Macron following a joint Franco-German Cabinet meeting in Paris, Scholz said he was “confident” that the EU and the U.S. could reach an agreement “within the first quarter of this year” to address measures under the U.S. Inflation Reduction Act that Europe fears would siphon investments in key technologies away the Continent.
“My impression is that there is a great understanding in the U.S. [of the concerns raised in the EU],” the chancellor said.
Macron told reporters that he and Scholz supported attempts by the European Commission to negotiate exemptions from the U.S. law to avoid discrimination against EU companies.
The fresh optimism came as both leaders adopted a joint statement in which they called for loosening EU state aid rules to boost home-grown green industries — in a response to the U.S. law. The text said the EU needed “ambitious” measures to increase the bloc’s economic competitiveness, such as “simplified and streamlined procedures for state aid” that would allow pumping more money into strategic industries.
The joint statement also stressed the need to create “sufficient funding.” But in a win for Berlin, which has been reluctant to talk about new EU debt, the text says that the bloc should first make “full use of the available funding and financial instruments.” The statement also includes an unspecific reference about the need to create “solidarity measures.”
EU leaders will meet early next month to discuss Europe’s response to the Inflation Reduction Act, including the Franco-German proposal to soften state aid rules.
The relationship between Scholz and Macron hit a low in recent months when the French president canceled a planned joint Cabinet meeting in October over disagreements on energy, finance and defense. But the two leaders have since found common ground over responding to the green subsidies in Washington’s Inflation Reduction Act. Macron said that Paris and Berlin had worked in recent weeks to “synchronize” their visions for Europe.
“We need the greatest convergence possible to help Europe to move forward,” he said.
But there was little convergence on how to respond to Ukraine’s repeated requests for Germany and France to deliver battle tanks amid fears there could be a renewed Russian offensive in the spring.
Asked whether France would send Leclerc tanks to Ukraine, Macron said the request was being considered and there was work to be done on this issue in the “days and weeks to come.”
Scholz evaded a question on whether Germany would send Leopard 2 tanks, stressing that Berlin had never ceased supporting Ukraine with weapons deliveries and took its decisions in cooperation with its allies.
“We have to fear that this war will go on for a very long time,” the chancellor said.
Reconciliation, for past and present
The German chancellor and his Cabinet were in Paris on Sunday to celebrate the 60th anniversary of the Elysée treaty, which marked a reconciliation between France and Germany after World War II. The celebrations, first at the Sorbonne University and later at the Elysée Palace, were also a moment for the two leaders to put their recent disagreements aside.
Paris and Berlin have been at odds in recent months not only over defense, energy and finance policy, but also Scholz’s controversial €200 billion package for energy price relief, which was announced last fall without previously involving the French government. These tensions culminated in Macron snubbing Scholz by canceling, in an unprecedented manner, a planned press conference with the German leader in October.
At the Sorbonne, Scholz admitted relations between the two countries were often turbulent.
“The Franco-German engine isn’t always an engine that purrs softly; it’s also a well-oiled machine that can be noisy when it is looking for compromises,” he said.
Macron said France and Germany needed to show “fresh ambition” at a time when “history is becoming unhinged again,” in a reference to Russia’s aggression against Ukraine.
“Because we have cleared a path towards reconciliation, France and Germany must become pioneers for the relaunch of Europe” in areas such as energy, innovation, technology, artificial intelligence and diplomacy, he said.
On defense, Paris and Berlin announced that Franco-German battalions would be deployed to Romania and Lithuania to reinforce NATO’s eastern front.
The leaders also welcomed “with satisfaction” recent progress on their joint fighter jet project, FCAS, and said they wanted to progress on their Franco-German tank project, according to the joint statement.
The joint declaration also said that both countries are open to the long-term project of EU treaty changes, and that in the shorter term they want to overcome “deadlocks” in the Council of the EU by switching to qualified majority voting on foreign policy and taxation.
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( With inputs from : www.politico.eu )
