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Health

Moody’s Analytics on Covid outbreaks in Asia, Fed fee hikes in 2023

Moody's Analytics on Covid outbreaks in Asia, Fed rate hikes in 2023

Asian countries need to tame the current waves of the coronavirus outbreak to prepare their economies for future rate hikes by the US Federal Reserve, an economist said Monday.

Fed officials said last week that rate hikes could happen as early as 2023, diverging from earlier comments in March that said the US Federal Reserve doesn’t expect a hike until at least 2024.

Higher US rates would attract overseas investors, and central banks in other countries may have to raise their own rates in defense. Raising interest rates could help countries prevent too much capital from leaving their economies, but increasing interest rates too quickly increases the risk of an economic slowdown.

“The Asian countries need to get Covid under control so that once the Federal Reserve starts raising interest rates, the economies here have an advantage and can make the transition,” said Steve Cochrane, chief economist for Asia-Pacific at Moody’s Analytics CNBC’s “Squawk Box Asia”.

Cochrane predicted that the US Federal Reserve could hike rates by 25 basis points once per quarter starting in 2023. The so-called dot plot of the expectations of individual Fed members indicated two rate hikes this year.

Asian countries need to get a grip on Covid so that as soon as the Federal Reserve raises interest rates, the economies have an advantage here and can also handle the transition.

Steve Cochrane

Chief Economist APAC, Moody’s Analytics

Many economies in Asia, including Japan, Taiwan and Malaysia, have seen a renewed spike in Covid cases in recent months – which has forced authorities to impose stricter social distancing measures. The new waves of infection come as vaccination progress in the region lags behind that in the US and Europe.

The World Bank said in a report this month that economic output in two-thirds of East Asian and Pacific countries will remain below pre-pandemic levels through 2022. Factors dampening potential economic growth in these countries include widespread Covid outbreaks and a collapse in global tourism, the bank said.

Cochrane noted that Covid outbreaks across the region are “stilling” domestic demand and keeping inflation moderate.

The economist said several Asian countries, including China, South Korea and Singapore, are stepping up Covid vaccinations. “It looks good, but it has to go on,” he said.

But other countries, including Thailand, Indonesia and the Philippines, have not effectively controlled the outbreak and do not yet have strong immunization programs, Cochrane added.

– CNBC’s Jeff Cox contributed to this report.

Categories
Business

Value hikes forward, however client corporations hope customers will not discover

Price hikes ahead, but consumer companies hope shoppers won't notice

Shoppers search for items at a Costco wholesale store on August 4, 2020 in Colchester, Vermont.

Robert Nickelsberg | Getty Images

Inflation is coming.

Look no further than Coca-Cola and Procter & Gamble’s plans to hike prices this week to offset rising raw material costs. The cost of raw materials, which range from lumber to resin, is rising, and companies are taking steps to protect profits.

The price increases follow a year of increasing demand for a variety of items, from paper towels to peanut butter jars. Sales of packaged consumer goods rose 9.4% to $ 1.53 trillion last year, according to the Consumer Brands Association. Many manufacturers withdrew advertising and promotions to keep up with demand and gain market share without much marketing.

James Knightley, chief economist at ING International, predicts consumer prices will continue to rise in the near future, up nearly 4% year over year by May. The consumer price index, which indicates how much US consumers pay for a shopping cart, rose 2.6% in March compared to the same period last year, according to the Department of Labor.

The stocks are “too low”.

Low inventory levels help companies improve their pricing power, he said.

“According to the Institute for Supply Management, the latest survey found that 40% of manufacturers say their customer inventories are” too low, “” Knightley said. “This is further evidence that corporate pricing power is increasing.”

Food industry analyst Phil Lempert said numerous factors have increased costs for farmers who pick produce, factories that make packaged consumer goods, and meat packers who process beef, pork and chicken. The ports are congested, the truck drivers are scarce and the food workers have to try to distance themselves socially. That makes it harder to keep up with demand and ship items, from cereals to Italian cheeses, worldwide.

Price increases are secret

Moody’s analyst Linda Montag said she does not see higher prices as a competitive advantage as all consumer businesses face higher raw material costs. In addition to Coke and P&G, PepsiCo, Kimberly-Clark, General Mills and JM Smucker have dealt with price increases. And consumers may not even realize they are paying more for diapers or soda.

“Consumer companies across the board are very adept at implementing price increases without having to forego price increases of five to 10%,” Montag said in an interview.

Some of these methods include using new packaging, selling smaller packaging for the same price, or offering promotions that lower the price until consumers are used to the higher sticker price. Hedging positions also give some manufacturers such as Coke and Pepsi more flexibility to gradually increase their prices, as they do not feel the effects of higher raw material costs for several quarters.

More cash in consumers’ pockets means less risk

Price increases always carry the risk that the demand for these products will decrease. However, Moody’s analyst Chedly Louis said she doesn’t expect consumers to resort to private label products because consumers trust bigger brands during the crisis. This behavior is expected to last longer.

“There is potential for consumers to move to cheaper, lower margin products within P & G’s product portfolio. It’s still P&G, but it’s cheaper,” said Louis.

Many consumers also have more cash in their wallets from doing government stimulus checks and years without travel, sports games, and fine dining.

Not all companies have the same flexibility to raise prices. Piper Sandler downgraded Kraft-Heinz shares on Friday, citing the company’s relatively weak pricing power as the reason for the decision. Analyst Michael Lavery wrote that the company’s pricing power lags behind that of peers like General Mills, Mondelez, and Hershey, so rising prices could hurt demand.

Discounts are rare

Most retailers will pass the higher prices on to consumers. Lempert said grocers are juggling more expensive services like online grocery delivery or roadside collection, leaving little margin for profit margins to absorb higher grocery costs.

Grocery costs had already risen as retailers offered fewer discounts while shoppers cleared shelves last spring and bought more cooking utensils than usual in the months that followed. Phil Tedesco, vice president of Retail Intelligent Analytics at NielsenIQ, said that in a typical month, 31.5% of units will be sold through promotions. In March, only 28.6% of the units were sold through promotions.

“This has resulted in fewer opportunities for shoppers to take advantage of the in-store sale, and as a result, the total cost of food products has increased slightly,” he said.

JP Morgan analyst Ken Goldman wrote in a note to customers Monday that higher prices will help grocers, especially given tough comparisons with last year’s skyrocketing demand.

“Too much inflation is bad for grocers, but a gradual 2-3% (roughly the percentage that producers have to go through) with a shift in the mix towards higher-priced products is likely to help a lot right now,” he said.

– CNBC’s Melissa Repko contributed to this report.

Categories
Politics

Biden tax hikes would possible section in slowly, Treasury Secretary Yellen says

Biden tax hikes would likely phase in slowly, Treasury Secretary Yellen says

Former Federal Reserve Chairman Janet L. Yellen, President-elect Joe Biden, who was elected Treasury Secretary, speaks to the Queen in Wilmington, DE on December 1, 2020.

Demetrius Freeman | The Washington Post | Getty Images

Treasury Secretary Janet Yellen said Thursday that any tax hikes sought by the Biden government to fund spending on large tickets would be phased in.

Yellen, speaking to CNBC’s “Closing Bell,” added that the proposed tax increases would likely come later in 2021 as part of a larger legislative package.

It would “include spending and investing over several years” on agenda items like education and infrastructure, said the CFO. “And likely tax hikes to pay at least part of that, which would likely slowly materialize over time.”

Yellen’s comments are of particular interest to investors who have been searching for months’ insight into the timing or size of future tax increases.

Last month, the new Treasury Secretary testified that the US could afford to impose a higher corporate tax rate that corporations pay on their profits when they coordinate with other economies around the world.

During his campaign, President Joe Biden suggested increasing the corporate rate from the current 21% to 28%. Before former President Donald Trump’s tax cuts in 2017, the U.S. corporate rate was 35%.

Still, Biden and Yellen were both quick to say that plans for a higher corporate rate could not begin until after the Covid-19 threat to the economy passes.

Biden “has said that as part of a larger package that would include significant spending and investment proposals – not now while the pandemic is really depressing the economy – he wants to reverse parts of the 2017 tax cuts that have benefited the highest. Income Americans and big corporations, “Yellen said in January.

Biden’s Treasury Secretary also reiterated her belief that the government’s $ 1.9 trillion proposal could help the US get back to full employment in a year.

“We think it’s very important to have a big package [that] addresses the pain this has caused – 15 million Americans default, 24 million adults and 12 million children who don’t have enough to eat, small businesses fail, “she told CNBC’s Sara Eisen.

“I think the price of too little is much higher than the price of something big. We believe the benefits will far outweigh the costs in the long run,” she said, adding that given the fact, she wasn’t worried historical government spending is about rising inflation.

Yellen is the first woman to lead the finance department.

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