USA: Private sector business activity growth accelerates to fastest for eight months in March

US service providers registered a sharp upturn in business activity in March, according to the latest PMI™ data. The expansion in output quickened to the fastest for four months, amid stronger demand conditions and a steeper rise in new orders. Client demand strengthened despite a record rate of charge inflation. Output prices increased markedly as a faster rise in cost burdens was largely passed through to customers.

At the same time, pressure on capacity built despite employment rising at the steepest pace for almost a year. Backlogs of work expanded at the strongest rate since the series began in October 2009. Longer term growth expectations were less upbeat, however, as confidence in the year-ahead outlook slipped to the weakest for five months.

The seasonally adjusted final S&P Global US Services PMI Business Activity Index registered 58.0 in March, up from 56.5 in February, but lower than the earlier released ‘flash’ estimate of 58.9. The increase in business activity was steep and the quickest in 2022 so far, accelerating further from January’s Omicron-induced slowdown. Many companies stated that the easing of COVID-19 restrictions boosted footfall, with stronger client demand and a steeper rise in new business driving up output.

Service providers signalled a marked rise in new orders at the end of the first quarter, as new client acquisition and the further easing of COVID-19 restrictions strengthened demand conditions. The pace of new business growth was the fastest since June 2021 and quicker than the series average.

Total new sales were also supported by stronger foreign client demand during March. New export orders rose at a robust rate that was the sharpest for ten months. Companies noted that fewer restrictions on travel encouraged customer spending and drove new business from abroad.

On the price front, firms recorded a substantial increase in output charges during March. The rise in selling prices was the sharpest on record (since October 2009), as service providers reportedly passed through higher costs to clients, where possible.

The rapid uptick in output prices stemmed from a faster increase in input prices.The rate of cost inflation accelerated to the quickest since December’s series-record high, and was the third-steepest on record. Where higher cost burdens were reported, firms linked this to broad-based increases in input prices. Companies once again highlighted hikes in fuel, energy and wage bills as driving inflation.

In line with a faster rise in new orders, services firms recorded the quickest accumulation of backlogs on record in March. The pace of increase in the level of outstanding business accelerated for the first time since last October. Companies also stated that input shortages exacerbated challenges in working through incomplete business.

Higher levels of backlogs of work were noted despite employment rising at the fastest pace in almost a year. Although firms hired additional staff in response to greater business requirements, the receipt of new orders continued to place pressure on capacity.

Meanwhile, business expectations regarding the outlook for output over the coming year remained upbeat at the end of the first quarter. Optimism was buoyed by increased marketing activity and hopes of greater client demand and the reduced impact of any further COVID-19 variant. That said, the degree of confidence dropped to a five-month low amid inflation concerns.

The S&P Global US Composite PMI Output Index* posted 57.7 in March, up from 55.9 in February, to signal a sharp expansion in business activity across the private sector. The rate of growth was the fastest since last July, as manufacturers and service providers recorded steeper upturns in output.

Supporting the sharper uptick in activity was the quickest rise in new business since June 2021. Domestic and foreign client demand strengthened as easing COVID-19 restrictions continued to boost new sales.

Meanwhile, inflationary pressures intensified as supplier costs soared. Input prices rose at one of the fastest rates on record, whilst costs passed through to customers drove up output charges at the joint-sharpest pace since data collection began in October 2009.

Although private sector employment grew at a steep pace, pressure on capacity mounted amid severe raw material shortages, with backlogs of work expanding at a series-record rate.

Fed’s Brainard Says Reducing Elevated Inflation ‘Is of Paramount Importance’ Federal Reserve governor Lael Brainard expects the central bank to approve significant reductions in its $9 trillion asset portfolio at its policy meeting early next month.

(…) “It is of paramount importance to get inflation down,” Ms. Brainard said Tuesday at a virtual conference hosted by the Federal Reserve Bank of Minneapolis. “Accordingly, the committee will continue tightening monetary policy methodically through a series of interest-rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”

Longer-dated Treasury securities sold off sharply after Ms. Brainard’s remarks, which emphasized how the portfolio runoff would be larger and faster than the last time the Fed shrank its holdings. The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, jumped to 2.554% Tuesday, from 2.465% just before she spoke and 2.409% on Monday.

Ms. Brainard’s remarks were notable not only because she is one of Fed Chairman Jerome Powell’s top lieutenants in shaping the central bank’s monetary-policy agenda but also because she had been one of the most vocal advocates last year warning against prematurely pulling back its stimulus. Ms. Brainard focused her remarks on the potential for higher inflation to hit low-income Americans hardest, and her shift underscores the Fed’s alarm at high inflation and its urgency to withdraw stimulus quickly. (…)

Ms. Brainard said on Tuesday that the Fed would allow the portfolio to shrink faster than last time and that it would have a much shorter phase-in of the larger reinvestment caps. (…)

Ms. Brainard expected that the asset-portfolio runoff would further remove stimulus beyond those projections so that the Fed would reach a “more neutral position later this year,” she said. “The full extent of additional tightening” after that will depend “on how the outlook for inflation and employment evolves.”

Ms. Brainard didn’t provide a forecast for inflation in her prepared remarks, but she said Russia’s invasion of Ukraine was a “seismic geopolitical event” that had delivered a global commodity supply shock likely to further boost inflation and exacerbate disrupted global supply chains.

At the same time, Ms. Brainard said she expected several factors to bring supply and demand into better balance this year, which could bring inflation down. She cited factors including a slowdown in foreign growth, a decrease in U.S. federal spending, an increase in the supply of workers and a drop in demand because of higher borrowing costs. (…)

• BIS Head Says Era of Weak Inflation Might Be Over Agustín Carstens suggests possibility of painful adjustment as public gets used to higher interest rates again

(…) “We may be on the cusp of a new inflationary era,” Mr. Carstens said. “The forces behind high inflation could persist for some time. New pressures are emerging, not least from labor markets, as workers look to make up for inflation-induced reductions in real income.”

What’s more, “some of the structural disinflationary winds that have blown so intensely in recent decades may also be waning,” Mr. Carstens said. “In particular, there are signs that globalization may be retreating,” he said, adding that between pandemic impacts and geopolitical issues, some companies might be pulling back from the sprawling global supply chains that had been delivering low inflation over recent decades. (…)

He said that central banks might not be able to continue shrugging off supply-related price shocks. Central banks generally don’t push up rates to try to temper such increases, but Mr. Carstens said that might need to change, because these supply shocks can be the tinder for a broader inflation fire. (…)

“It seems clear that policy rates need to rise to levels that are more appropriate for the higher inflation environment,” Mr. Carstens said, and “most likely, this will require real interest rates to rise above neutral levels for a time in order to moderate demand.” (…)

Add Declining Immigration to Problems Weighing on the Labor Market Industries that depend on foreign-born employees face high job vacancy rates and wage pressures. It’s a struggle for many nursing homes and house builders.

(…) For several years after the 2007-09 recession, roughly a million people moved to the U.S. annually. That pace started to slow during the Trump administration and fell to a trickle after the Covid-19 pandemic started.

The slowdown has left the U.S. with 2.4 million fewer immigrants of working age—about 1% of the working-age population—than if pre-2017 immigration trends had continued, according to Giovanni Peri, a labor economist at the University of California, Davis. The change is being felt as the economy rebounds and many employers struggle to replace workers who were laid off or quit since early 2020, contributing to wage pressure and inflation. (…)

In the 12 months ended last June 30, about 247,000 people moved to the U.S., less than a quarter of the 2016 level and half that of 2019, according to U.S. census data. Those figures don’t distinguish between people who came to the U.S. legally and those who didn’t.

In five top countries where people receive green cards to work in the U. S.—Mexico, the Dominican Republic, Vietnam, the Philippines and China—the fiscal year ended last September saw declines of half to two-thirds in green-card issuance from two years prior, according to Department of Homeland Security figures. (…)

The Fed is thus clearly engaged in trying to reduce demand to fight largely restricted supply-induced inflation. This when the war in Ukraine is totally upsetting world supplies of energy, food and semi-conductors. So far, businesses have been able to pass on their cost increases. But if the Fed successfully crimps demand, profit margins will initially decline faster than inflation.

• Global manufacturers are stockpiling inputs to protect revenues and margins, boosting demand and prices along the way.

From my lens, Europe, UK and China appear most vulnerable to a margin squeeze from slower revenue growth and broadly rising prices, particularly energy costs.

North American economies look relatively better but that hawkish Fed could upset financial markets before actually stifling demand.

China: Services activity drops in March as virus containment measures tighten

The recent rise in COVID-19 cases in China and restrictions to limit the spread of the virus led to a marked drop in service sector activity at the end of the first quarter of 2022. The fall coincided with a steep decline in new work, which was often linked to restrictions on mobility and reduced customer numbers. Average input costs rose at an accelerated and solid pace, while prices charged by services companies rose only slightly. The ongoing pandemic and war in Ukraine meanwhile weighed on business confidence, which edged down to its lowest for just over a year-and-a-half in March.

The seasonally adjusted headline Business Activity Index fell from 50.2 in February to 42.0 at the end of the first quarter, to signal a renewed contraction of services activity. Furthermore, the rate of reduction was the steepest seen since the initial onset of the pandemic in February 2020 and sharp. Businesses frequently mentioned that tighter virus containment measures had disrupted operations and weighed on client demand in March.

Chinese services companies registered a solid and accelerated fall in total new work at the end of the opening quarter. Notably, the rate of decline was the fastest since March 2020. Pandemic-related restrictions, notably those on mobility, were frequently attributed to lower customer numbers and softer demand conditions. New export business fell for the third month running. Though modest, the rate of decrease was the fastest since October 2020.

Staffing levels at services companies fell in March, as has been the case throughout the first quarter, though the rate of reduction was only fractional. Panel members indicated that the pandemic and softer demand conditions had reduced firms’ appetite for additional staff.

At the same time, disruption to business operations led to a further increase in the level of outstanding business at Chinese service providers. Though mild, the rate of accumulation was the quickest seen since last December.

March survey data signalled a stronger rise in input costs faced by services companies. The rate of inflation was solid overall and quicker than the series average. Companies cited greater costs for raw materials, energy, food, transport and greater expenditure on pandemic-protection measures as having driven up cost burdens in the latest survey period.

Although expenses rose at a quicker pace, fees charged by services companies rose only slightly during March. Moreover, the rate of increase was the softest seen in the current seven-month period of inflation. While some firms raised their charges due to higher input costs, others mentioned that pricing power was limited due to subdued demand conditions and efforts to attract new business.

When assessing the 12-month outlook for business activity, Chinese services companies were generally upbeat that output would expand over the next year. However, the degree of optimism slipped to its lowest for19 months amid concerns over how long business operations would be impacted by the pandemic, and the war in Ukraine.

German Factory Orders Fall as Economy Faces Ukraine War Fallout Demand declined 2.2% in February from the previous month, driven by a slump in foreign orders. That’s worse than all but one prediction in a Bloomberg survey of economist, which saw a median estimate of a 0.3% drop. (…) A panel of advisers to Chancellor Olaf Scholz last week lowered its growth projection to 1.8% from 4.6% for this year, while warning that a recession is possible because of the country’s high dependence on Russian energy. Inflation reached 7.6% in March — the highest level since records began after reunification in the early 1990s. Companies including BMW AG, BASF SE and ThyssenKrupp AG have already warned that their earnings will slip. On Monday, Deutsche Bank AG Chief Executive Officer Christian Sewing said a recession “would presumably be inevitable” if Germany was cut off from deliveries of Russian oil and natural gas. (…) A total energy embargo against Russia is now unstoppable, whatever Germany thinks The dam has broken after the Bucha massacre. European public opinion will not tolerate the continued funding of Vladimir Putin’s war machine with purchases of oil, gas, coal. Nor will German public opinion. An energy embargo has become unstoppable as systematic atrocities against civilians come to light. The West’s phoney war against Russia is giving way to a harsher phase, entailing real sacrifices and necessary risks to uphold our liberal principles. (…) This has large and unpredictable consequences for the global economy. Equity markets have not yet priced in the political escalation. (…) A greater test comes this month as pre-invasion sales contracts fade from the picture and shippers struggle to secure insurance and financing for fresh Russian cargoes. The International Energy Agency says sales of crude and petroleum products could fall by 3m barrels per day in April out of total Russian exports of 7.8m barrels per day. But as long as Europe is still buying Russian oil, it is politically impossible to pressure India and the consuming states of East Asia, let alone China, to forgo discounted barrels on the open market. The oil will make its way out somehow. Germany’s corporate elites are fighting a rearguard action to head off further sanctions, warning of a dangerous chain reaction if governments succumb to the mood of the moment. “Emotionally, one can understand an embargo. But if it comes, it will very probably tip the whole European economy into a recession with long lasting consequences. We mustn’t let this out of our sight,” said Christian Sewing, president of the German banking federation (BdB). Martin Brudermuller, head of the chemical giant BASF, predicted a catastrophic wave of bankruptcies. “If gas supplies from Russia were cut off overnight, it could push Germany into the worst crisis since the end of the Second World War. Do we really want to destroy our whole economy?” he told the Frankfurter Allgemeine. Mr Brudermuller said BASF might have to shut down its plant at Ludwigshafen, the biggest integrated chemical plant in the world. Consumers would learn a hard lesson in supply chains. “People seem to make no connection at all between a boycott and their own job. As if our economy and our prosperity were set in stone,” he said. Chancellor Olaf Scholz has stuck closely to the script, bowing to the great industrial combines much like his predecessors. He has lashed out at German academic economists for suggesting that a full embargo is  manageable if the country is willing to accept some contraction of GDP, angrily calling them “irresponsible”. The academics are right. There is by now a small literature on how it can be done, by the Bruegel think tank, by the IEA, and by the University of Bonn. The winter is over and Europe has enough gas to muddle through until next November, relying on supplies from Norway, North Africa, and Central Asia, extra liquefied natural gas from the US, and a reprieve for Holland’s Groningen gas fields. Old-fashioned “demand destruction” can do the rest in extremis but might never be needed. The calculated gamble is that Putin would be forced to the table long before then. Europe imports 4.5m barrels per day of Russian oil, gasoil, jet fuel, and so forth. That is a frightening quantity but remember that global oil demand collapsed by 29m barrels per day in the early phase of the pandemic. Washington is releasing 1m barrels per day from its petroleum reserve, and has secured a commitment from US drillers to accelerate production as a patriotic duty. Citigroup expects the US to add a further 1.3m barrels per day this year, mostly from shale. The IEA has revised down its global demand forecast for this year by almost 1m barrels per day. Venezuela and Iran could add 1.8m barrels per day between if and when sanctions are unwound, though not immediately. The Saudis and Opec Gulf states have so far refused to tap their estimated 2m barrels per day of spare capacity, keeping prices at nosebleed levels through cartel practices. But if they persist, they endanger the US defence umbrella. They will have to decide which side they are on soon enough. Everything has to come together but the West can withstand an oil embargo on Russia. The effect of any shortage would be spread globally through the price mechanism, with China and India suffering much of the brunt. They would have a strong incentive to push for an end to war in Ukraine. It all comes down to whether Europe is willing to give up its comfortable status quo. For the German coalition it means recognising that its position is untenable, and risks frittering away 70 years of hard-won moral and diplomatic credibility. (…) Two-thirds of the population wants an end to business-as-usual appeasement. They back the Polish plan for a full cut-off of energy purchases, a full ban on Russian ships entering EU ports, and a full expulsion of all Russian banks from SWIFT. The splash across the front of Die Welt last night accused the German government of “joint guilt for the massacres of Bucha and Mariupol”. This is the new mood. Former Chancellor Gerhard Schroder, and now a paid Kremlin agent, has become a pariah. This week it is the turn of President Frank-Walter Steinmeier to explain his actions, after the Ukrainian ambassador refused to be in the same room and accused him of “creating a spider’s web of contacts with Russia for decades”. (…) Wolfgang Münchau from EuroIntelligence says Germany (and Italy) is objectively “the financial sponsor of Russian war crimes” and risks paying an exorbitant reputational price the longer it goes on. The fate of the European project is itself in question this week. “If Germany resists, I expect at least some member states to question the wisdom of aligning themselves strategically with a country that keeps pursuing its self-interest at the expense of others,” he said. Mr Münchau said the EU has a bad record of standing up to Germany, allowing Berlin to frame the eurozone debt crisis falsely as a morality tale of fiscal profligacy, rather than a tale of financial imbalances caused first and foremost by German economic policy itself. But strategic collusion with the Kremlin is becoming too much to swallow. “Forget the platitudes about the EU showing unprecedented unity. We Europeans like to congratulate ourselves on the half-measures we take in response to every crisis. If we fail again, as we did so many times in the past, the moral case for European integration can no longer be made,” he said. Germany is going to have to decide where its priorities lie. This morning: Charles Michel, President of the European Council, confirmed that the bloc is banning imports of coal from Russia as part of a fifth wave of sanctions. He said: “I think that measures on oil, and even gas, will also be needed sooner or later.” European Commission President Ursula von der Leyen added: “These sanctions will not be our last sanctions. Now we have to look into oil and revenues the Russia gets from fossil fuels.” (The Telegraph) Germans to Face Higher Meat and Dairy Prices as War Boosts Costs German consumers should expect to pay more for dairy produce and meat as production costs hit “extraordinary” levels, according to the country’s farmers union. Moscow’s invasion of Ukraine has boosted key input costs such as fertilizer, which has tripled in price in Germany. Natural gas has also spiked and is starting to feed through into the prices charged in Germany’s food chain. Further jumps are likely in June as half-year contracts between food processors and retailers are renewed, said Udo Hemmerling, deputy secretary general at farmers union DBV. “This week, dairy processors increased their prices on some goods by 10% due to the extraordinary cost of energy,” Hemmerling said in an interview. “In June, we will see higher prices and then the farmer can get a share.” Already Stalled In U.S., Global Minimum Tax Hits European Roadblock Poland has vetoed an EU plan to implement a 15% minimum tax rate by the end of 2023, leaving an international overhaul agreed upon last year in limbo.

Eurozone growth remains strong in March amid record surge in inflation

The eurozone economy maintained a strong rate of growth in March, easing only slightly from February’s five-month high as looser COVID-19 restrictions continued to accommodate rising levels of business activity. The main impetus to the expansion was provided by the service sector, where growth edged slightly higher, as manufacturing output rose at a softer pace. New orders also increased at a solid rate in March, although new business from export markets deteriorated as the war in Ukraine reportedly impacted cross-border trade.

Business confidence meanwhile took a significant hit, slumping to a 17-month low as rising geopolitical tensions and inflation weighed on the outlook. Amid surging energy, fuel and commodity prices, input cost inflation accelerated to a survey high in March. To combat margin pressures, prices charged for eurozone goods and services were raised to the quickest extent on record.

The seasonally adjusted S&P Global Eurozone PMI® Composite Output Index posted 54.9 in March, a slight decline from 55.5 in February but still indicative of strong growth in business activity across the eurozone. The expansion was driven by the service sector, where output rose at a marginally faster pace than in February. Manufacturing production was also up over the month, although the expansion was the weakest seen over the current 21-month sequence of increases. According to panellists, the upturn was supported by a further loosening of COVID-19 containment measures, which led to higher activity levels at clients and boosted demand for goods and services.

(…) overall inflows of new work increased at a weaker pace than previously. This was partly explained by new export orders, which fell for the first time since November 2020. However, the loss of momentum in total new business growth was particularly pronounced at manufacturers as the war in Ukraine, a renewed flare-up of supply chain issues and steep inflationary pressures weighed on demand for goods. The expansion in new business at services providers was more resilient, but still weakened nonetheless. (…)

Nevertheless, despite an increased number of firms expecting greater headwinds to growth over the coming 12 months, employment levels continued to increase across the eurozone. Moreover, the rate of jobs growth accelerated slightly to a four-month high. The expansion in workforce numbers coincided with a further accumulation in outstanding business. Backlogs of work rose for a thirteenth successive month in March. (…)

The S&P Global Eurozone PMI Services Business Activity Index edged up fractionally to 55.6 in March, from 55.5 in February, signalling a strong rate of expansion in service sector output at the end of the first quarter. Overall, the rate of growth was the quickest in four months.

(…) employment growth accelerated in March to its strongest since last November. Despite the upturn in staffing numbers – which extended the current run of jobs growth to 14 months – the level of outstanding business continued to increase at a solid pace.

Prices data pointed to an intensification of inflationary pressures in March, with both input costs and output charges rising at rates which far surpassed their previous records seen in February.

Chris Williamson, Chief Business Economist at S&P Global:

The outlook for growth has therefore deteriorated at a time when the inflation outlook has worsened. A recession is by no means assured, as the extent to which the economy could suffer in the coming months will depend on the duration of the war and any changes to both fiscal and monetary policy. It certainly seems likely however that the solid expansion seen in March will prove hard to sustain and there is clearly a greater risk of the economy stalling or contracting during the second quarter.

U.S. Factory Orders Decline as Shipments and Inventories Rise in February

Manufacturers’ new orders fell 0.5% (+12.6% y/y) during February following a 1.5% January gain, revised from 1.4%. A 0.6% decline had been expected in the Action Economics Forecast Survey. Transportation equipment orders declined 5.3% (+8.7% y/y), weighed down by a 30.4% fall in orders for nondefense aircraft & parts. Orders excluding transportation increased 0.4% (13.4% y/y) after improving 1.2% in January.

Unfilled orders increased 0.4% (8.4% y/y) in February after a 0.9% rise in January. Excluding transportation, unfilled orders edged 0.1% higher (13.4% y/y) following a 0.5% rise in January. Transportation backlogs increased 0.6% (6.0% y/y) after surging 1.1%. (…)

Inventories of manufactured goods rose 0.6% in February (9.7% y/y) after rising 0.8% in January. Transportation equipment inventories edged 0.1% higher (5.5% y/y) while excluding transportation inventories gained 0.8% (10.8% y/y) after a 1.0% rise in January.

Mercedes-Benz puts 5,600 workers on vacation in Brazil due to chips shortage

Mexican Factories Gain in Supply-Chain Revamps Procurement bids to suppliers in Mexico are surging, says a tech firm that also sees purchasing from China slipping

(…) Last year, large American manufacturers solicited chemicals, produce and construction materials and other goods from six times as many suppliers based in Mexico as they did in 2020, according to procurement software firm Jaggaer. At the same time, the number of suppliers in China that received procurement bids declined by 9% in 2021, Jaggaer said, using data from its 30 biggest U.S. manufacturing customers with an average of over $30 billion in annual revenues.

The push for suppliers in Mexico comes as more companies say they are resetting their supply chains by adding suppliers and bringing some production closer to end users. The effort is aimed at bolstering resilience and reliability following a series of shocks to supply networks brought on by Covid-19 outbreaks, port bottlenecks, extreme weather and geopolitical conflicts. (…)

The added suppliers tend to be closer to the buyer and its customers, he said. The company tracked a 514% increase from 2020 to 2021 in Mexican suppliers receiving bids from its big U.S. buyers and a 155% increase in Latin American suppliers receiving bids over the same period.

At the same time, the company found those manufacturers sought goods from 26% fewer suppliers in the Asia-Pacific region.

A separate survey of 2,000 U.S. and U.K. chief executives by London-based procurement and supply chain consulting firm Proxima Group found that 15% had moved production closer to their home countries or sourced from suppliers in nearby regions, and 26% were looking into doing so. (…)

• John Authers: How to Be a Winner From De-Globalization

(…) The painful irony is that the timing is wrong again. As Mexico’s opening into globalization was overshadowed by China’s, Lopez Obrador is creating an autarky when at last Mexico has another chance to benefit from the global economy. Under the current administration, foreign investors aren’t attracted to Mexico. Mariana Campero shows in the Peterson Institute survey that private flows of investment into Mexico were dwindling even before Lopez Obrador won election and made his massively unpopular decision to cancel Mexico City’s new airport in October 2018. Since then, the country has seen a consistent decline in both private and public investment:

(…) The pattern for the rest of the region is different. Countries like Brazil or Colombia should benefit from higher commodity prices. But the current rally has been driven by de-globalization and constriction of supply, rather than the wave at the beginning of this century that stemmed from globalization and increasing demand. So perhaps it isn’t surprising that Latin American stocks are benefiting far less this time around. (…)

Canada, John?

  

Treasury Stops Russia From Paying Debt Through U.S. Accounts The decision adds another complication to Russia’s attempts to keep meeting debt obligations.

Ukraine War Sanctions Hit Home for Everyday Russians Russian consumers are skipping big-ticket purchases and planting vegetable gardens to prepare for a long stretch of economic pain.

The first independent data for March showed that Russian factories had their biggest drop in activity since the start of the pandemic. That is a sign that job losses are likely. The European Bank for Reconstruction and Development projected the economy will shrink by 10% this year with no rebound in sight. (…)

Consumers expect prices to rise 18% over the next year, according to a central bank survey taken in March. (…)

The expected increase in unemployment will force the government to boost social spending while funding the war. According to a February survey by state-run pollster VtSIOM, only a third of Russians have savings. The average monthly salary last year in Russia was 56,545 rubles, or approximately $670, according to state statistics agency Rosstat. (…)

In 2020, imports accounted for 75% of sales of nonfood consumer goods in the Russian retail market, according to a study by the Higher School of Economics in Moscow. Studies show the self-sufficiency effort also drove prices higher. (…)

(…) “Life is on pause now,” he says. (…) adding his economic woes pale in comparison to what is happening in Ukraine. (…)

   

How the Ukraine War Will Likely End

By: George Friedman

(…) The problem, then, is that Putin cannot stop, nor can he reach an agreement with Ukraine that he will keep. Every deal – except for surrender by the enemy – is a revelation of weakness on the part of a weak country and a weak ruler. The only alternatives are ineffective action because the force he sent to war was the wrong force from a country that didn’t have the right one.

He can reach a genuine cease-fire, but if he does, he’s finished. Not being able to defeat the Ukrainians, and held in contempt by others, destroys the myth of his power. Continuing the war endlessly reveals the same thing. As this goes on, Putin’s primary task is to pretend that the defeat is not happening because anything less than victory is a defeat. Every agreement must end in betrayal, and as it happens with guerrillas, they get stronger the longer the war drags out.

A crucial question is whether Russia has strategic reserves. The army has been in the field for over a month, in weather that is still cold, at the end of a logistical line that is problematic. It has been fighting a highly motivated, mobile light infantry force familiar with the terrain. It cannot go on indefinitely. Russia has to rotate its forces. Strategically, it must send more. Instead, it is executing a bloody withdrawal. You don’t fight for the same ground twice unless you have to.

This means that Putin’s war plan is shattered. The resistance has been effective and his troops need a relief he cannot provide. Putin will feint in other directions – perhaps in the Baltics or Moldova – but he lacks the force to fight on another front. He can’t sustain this war easily, especially in the face of NATO soldiers who have so far stayed out of the fray.

Even so, I cannot predict what a leader will do in the end. But for now, it’s clear to me that Putin will cling to power and blame everyone around him. But every day the war goes on, Putin gets weaker. Ukraine should not be able to resist, NATO should not be united, American economic warfare should not be so powerful. Putin is growing more desperate. He has mumbled about nuclear weapons, the sign of utmost desperation.

But he knows he and anyone he may love will die in a nuclear exchange. Even if he is prepared to commit suicide rather than capitulate, he knows that the order to launch must go through several hands, and each of those hands knows that the counterstrike will kill their loved ones. Therein lies the weakness of nuclear war: Retaliating is one thing, initiating another. Putin trusts few people, and he doesn’t know how reliable anyone would be in this situation – nor what the Americans might do if they saw preparation for a Russian launch.

If Putin gives up his position, he is compromised, and perhaps lost. The buzzards are circling. So he must continue to fight until he is forced out and someone else not responsible for the disaster takes over and blames it all on Putin. I think that this can’t end until Putin is pulled from the game.

Obviously, I am moving here away from geopolitical analysis into the political. The former tries to minimize individual influence while the latter emphasizes it. That gives my forecast an inevitable imprecision. But given the situation on the ground, and given Russian internal dynamics, it does seem that all the forces coming to bear on Putin dictate a certain direction. The war will end, but the war is evolving in a way that creates unique pressures on the Russian political system, and, because of the nature of the system, that pressure pivots on Putin.

This is not the only outcome. Ukraine might collapse. Russia might collapse. The Russian army may devise a strategy to win the war. A settlement that is respected might be reached. All of these are possible, but I don’t see much movement in any of these directions. A political end is what I would bet on, with the Russians taking the short end of the stick. I wouldn’t have thought this on the first day of the war, but I think this is likely the shape of the last day.

Covid Cases in China Hit Record, as Shanghai Extends Lockdown