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Geneva — Workers have seen their slice of the global income pie shrink significantly over the past two decades, swelling inequality and depriving the combined labor force of trillions, the U.N. said Wednesday. 

The United Nations’ International Labor Organization said that the global labor income share — or the proportion of total income in an economy earned by working — had fallen by 1.6 percentage points since 2004. 

“While the decrease appears modest in terms of percentage points, in 2024 it represents an annual shortfall in labor income of $2.4 trillion compared to what workers would have earned had the labor income share remained stable since 2004,” the ILO said in a report. 

The study highlighted the COVID-19 pandemic as a key driver of the decline, with almost half of the reduction in labor income share taking place during the pandemic years of 2020-2022.  

The global crisis exacerbated existing inequalities, particularly as capital income has continued to concentrate ever more among the wealthiest, it said. 

“Countries must take action to counter the risk of declining labor income share,” Celeste Drake, the ILO deputy director-general, said in a statement. 

“We need policies that promote an equitable distribution of economic benefits, including freedom of association, collective bargaining and effective labor administration, to achieve inclusive growth, and build a path to sustainable development for all.” 

Deepening inequality

The ILO stressed that technological advances, including automation, were a key driver of the declines in labor income share. 

“While these innovations have boosted productivity and output, the evidence suggests that workers are not sharing equitably from the resulting gains,” the U.N. labor agency said. 

It voiced particular concern that the artificial intelligence boom risked deepening inequality further.  

“If historical patterns were to persist… the recent breakthroughs in generative AI could exert further downward pressure on the labor income share,” the report said, stressing “the importance of ensuring that any benefits of AI are widely distributed”. 

The ILO found that workers currently rake in just 52.3 percent of global income, while capital income — earned by owners of assets like land, machines, buildings and patents — accounts for the rest. 

Since capital income tends to be concentrated among wealthier individuals, the labor income share is widely used as a measure of inequality. 

It also helps measure progress towards the U.N. sustainable development goal aimed at significantly reducing inequality between and within countries between 2015 and 2030. 

“The report indicates slow progress as the 2030 deadline approaches,” ILO said. 

The report also emphasized the stubbornly high incidence of young people who are not in employment, education or training (NEET). 

Since 2015, the global percentage has slipped slightly, from 21.3% to 20.4% this year. 

But there are major regional differences, with a third of youth in Arab states and nearly a quarter in Africa falling into the NEET category.  

The report also highlighted a large gender gap, with the global NEET incidence among young women standing at 28.2% — more than double the 13.1% seen among young men. 
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Abuja, Nigeria — Barely 48 hours after Nigeria’s state-owned oil company made a startling revelation, hundreds of commuters joined a line stretching many kilometers for fuel at an NNPC outlet in the capital.

In a statement Sunday, Nigeria’s state oil firm, NNPC Limited, said that financial constraints are hampering its ability to import gasoline.

The statement acknowledged local media reports in July that the oil regulator owed oil traders more than $6 billion — double its debt compared with April.

Nigeria depends on imports to meet its daily demand for gasoline — more than 66 million liters — and NNPC is the sole importer of fuel.

Abuja resident John Prince said he’d been waiting in line for hours.

“When I came in the morning, they were not selling [gasoline]. They said they were waiting for orders from above. [Now] I’ve been here for the past two hours,” he said.

Prince said that while customers waited, the gasoline station increased prices by nearly 30%.

NNPC said the situation could worsen supply in coming days but also said it is working with the government and other partners to fix the problem.

Fuel shortages have been recurring in Nigeria since last year, despite Nigerian President Bola Tinubu scrapping the fuel subsidy.

Tinubu doubles as petroleum minister, but authorities later reinstated a partial subsidy to curb inflation, the high cost of living and growing public tensions triggered by economic reforms.

But the founder of the Center for Transparency Advocacy, Faith Nwadishi, said corruption and incompetence are to blame.

“It’s just a cocktail of corruption, impunity and no regard for the people of the country,” she said. “I think it’s just another ploy to make Nigerians pay for impunity. It’s quite disheartening. This morning, I had to queue so that I could get fuel to come out. You know — man hours lost, no productivity, and nobody is making any compensation for that. It’s unfortunate.”

Last month, NNPC announced a record $1.9 billion in profits for 2023 but said it was covering for shortfalls in the government’s petrol import bill.

Ogho Okiti, an economic analyst, said, “Every other oil-producing country is smiling now except Nigeria. So, it’s a transparency problem. There’s so much uncertainty. And that heightened uncertainty and volatility will continue to drive the price and, of course, drive the conditions that we see.

“As it is, we’re losing in all ramifications — we’re paying exorbitant prices for fuel, the government is not getting the resources, and the exchange rate is worsening,” Okiti said.

Meanwhile, authorities say the Dangote Oil Refinery in the Lagos area has begun gasoline production and could supply up to 25 million liters this month.

On Tuesday, the Nigerian Midstream and Downstream Petroleum Regulatory Authority entered an agreement with the NNPC to sell crude oil to Dangote refinery in the local currency, the naira.

If that happens, it could significantly address local supply issues and save the country several billions of dollars in foreign exchange.
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Berlin, Germany — EU chief Ursula von der Leyen has made her first picks for her top team, with the key economy vice-president job going to Italy’s far-right nominee, German newspaper Die Welt reported Tuesday.

Von der Leyen, who secured a second term as commission chief in July, is expected to unveil her proposed lineup following a Friday deadline for states to name their nominees.

Die Welt, citing senior EU diplomats and European Commission insiders, said she is set to give Raffaele Fitto from the far-right Brothers of Italy party the executive vice-president portfolio in charge of the economy and post-pandemic recovery.

The job would oversee how the bloc’s pandemic recovery fund worth hundreds of billions of euros is deployed.

Fitto is Rome’s minister for European affairs.

Others to be named EU vice presidents include Valdis Dombrovskis, from Latvia and currently EU’s trade chief. His role will be EU expansion and Ukraine reconstruction, according to the report.

France’s Thierry Breton, the bloc’s internal market commissioner, will take on industry and strategic autonomy according to Die Welt.

Spain’s Environment Minister Teresa Ribera has been chosen for a “transition” portfolio which will include ecology and digital affairs. 

The nominee for the EU’s foreign policy chief, Estonia’s outgoing leader Kaja Kallas, will also be named an executive vice president.  

Each European member state put forward nominees for von der Leyen’s 26-person team.

Slovakia’s Maros Sefcovic, currently an executive vice president, is set to remain as a commissioner in charge of inter-institutional affairs.

Czech Industry and Trade Minister Jozef Sikela will be in charge of energy, while Poland’s ambassador to the EU, Piotr Serafin, will handle budgetary issues.

After the Commission president names her line-up, the candidates undergo confirmation hearings in the European Parliament in September and October. 
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Nairobi — Kenyan officials have long pushed for milk to be pasteurized before it reaches the marketplace, but much of the milk sold is not pasteurized because small-scale vendors and producers can’t afford the expensive machines used in the process. Now, Canadian university graduates have developed a portable, affordable pasteurization machine that could help African farmers cheaply sterilize the dairy product and reduce milk-related disease.

In Kenya, smallholder farmers produce 56% of the milk, with five million dairy cattle generating five billion liters annually. According to Kenya’s Dairy Board, only 28% of that milk is processed by dairy companies, which pasteurize it to kill harmful bacteria.

The remaining 72% is sold directly to consumers by vendors who traditionally heat and reheat the milk over a fire, a method that fails to ensure complete safety.

To address the challenge faced by millions of farmers in Africa and around the world, a group of recent university graduates from Canada has developed a portable pasteurizer machine to help farmers sterilize milk cheaply and in a healthy way.

Miraal Kabir is the head of the startup Safi, which means “pure” in Swahili. She said her technology provides health and economic benefits to users and milk consumers.

“It solves two problems. The main one being the problem of unsafe milk. It allows all of the milk being sold in the market to be safe, which isn’t the case right now. That’s leading to a lot of deaths, a lot of diseases, especially for children under five. And then on a secondary problem that it’s solving, right now in the dairy supply chain, the people who are winning the most are these large processors,” she said.

“They sell milk extremely cheap to these processors who then sell it at a huge premium. And so by allowing small scale farmers to pasteurize the milk themselves and earn the premium of pasteurized milk themselves, we’re actually empowering them financially as well.”

The device is placed on top of a pot. It has a whisk to stir the milk and ensure that it is heated uniformly. It also has a screen and LED lights, which guide the user through pasteurization. A temperature sensor tells the user when the milk is ready.

Moses Sitati is a dairy farmer in western Kenya. His cows produce 60 liters of milk per day, of which 10 liters spoil, meaning it is not suitable for human consumption.

The 40-year-old farmer has been using the pasteurizer for the past 12 months.

“I can sell milk, people can just buy milk and take it at the same time without going and boiling it fast. Now you know when you boil, wait until again by tomorrow so you boil, you are losing the milk, the first thing and also the nutrients. Now the pasteurizer helps to at least store the milk, it helps at least to preserve the milk for a long time,” he said.

In addition to farmers losing their income, raw and unpasteurized milk contains harmful bacteria like salmonella, E. coli, Brucella, tuberculosis, and Q fever.

Sitati is among the 20 farmers and vendors in Kenya and Rwanda who have purchased the pasteurizer.

The father of three happened to get the first product developed by the Safi team, which didn’t satisfy him, but he says he is happy with the final product for its safety and energy consumption.

“The first one could pasteurize milk from two to 10 liters, but this one pasteurized milk from two to 20 liters. The first one didn’t have a lid, so when pasteurizing the milk, it could spill out, so they improved this to put a lid so that there is no milk spilling out when you are pasteurizing. The first one used electricity, and this one uses solar energy. When you charge, you can use it for four hours,” he said.

Last month, the Safi company said it partnered with the Rwandan government, which helped them open for commercialization after taking part in pilot programs.

Kabir said the device tracks pasteurization data, letting farmers prove milk safety and helping regulators monitor it.

“We’ve also incorporated the data software side of things. Our device is actually able to capture all the key pasteurization data and provide it to the farmer themselves or the vendors so that they can prove that they have pasteurized their milk to their customers, but then we’re also able to aggregate all of this data and provide it to governments. Governments and regulators, they’re able to see where milk has been pasteurized, when it was pasteurized, where safe milk is being sold,” said Kabir.

The innovators say they hope to find a good manufacturer to start producing the device next year and make billions of liters of milk disease-free.
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Washington — When Jerome Powell delivered a high-profile speech last month, the Federal Reserve chair came the closest he ever had to declaring that the inflation surge that gripped the nation for three painful years was now essentially defeated.

And not only that. The Fed’s high interest rates, Powell said, had managed to achieve that goal without causing a widely predicted recession and high unemployment.

Yet most Americans are not in the same celebratory mood about the plummeting of inflation in the face of the high borrowing rates the Fed engineered. Though consumer sentiment is slowly rising, a majority of Americans in some surveys still complain about elevated prices, given that the costs of such necessities as food, gas and housing remain far above where they were before the pandemic erupted in 2020.

The relatively sour mood of the public is creating challenges for Vice President Kamala Harris as she seeks to succeed President Joe Biden. Despite the fall of inflation and strong job growth, many voters say they’re dissatisfied with the Biden-Harris administration’s economic record — and especially frustrated by high prices.

That disparity points to a striking gap between how economists and policymakers assess the past several years of the economy and how many ordinary Americans do.

In his remarks last month, given at an annual economic symposium in Jackson Hole, Wyoming, Powell underscored how the Fed’s sharp rate hikes succeeded much more than most economists had predicted in taming inflation without hammering the economy — a notoriously difficult feat known as a “soft landing.”

“Some argued that getting inflation under control would require a recession and a lengthy period of high unemployment,” Powell said.

Ultimately, though, he noted, “the 4-1/2 percentage point decline in inflation from its peak two years ago has occurred in a context of low unemployment — a welcome and historically unusual result.”

With high inflation now essentially conquered, Powell and other central bank officials are preparing to cut their key interest rate in mid-September for the first time in more than four years. The Fed is becoming more focused on sustaining the job market with the help of lower interest rates than on continuing to fight inflation.

Many Americans ‘have taken a big hit’

Many consumers, by contrast, are still preoccupied most by today’s price levels.

“From the viewpoint of economists, central bankers, how we think about inflation, it really has been a remarkable success, how inflation went up, has come back, and is around the target,” said Kristin Forbes, an economist at MIT and a former official at the United Kingdom’s central bank, the Bank of England.

“But from the viewpoint of households, it has not been so successful,” she added. “Many have taken a big hit to their wages. Many of them feel like the basket of goods they buy is now much more expensive.”

Two years ago, economists feared that the Fed’s ongoing rate hikes — it ultimately raised its benchmark rate more than 5 percentage points to a 23-year high in the fastest pace in four decades — would hammer the economy and cause millions of job losses. After all, that’s what happened when the Fed under Chair Paul Volcker sent its benchmark rate to nearly 20% in the early 1980s, ultimately throttling a brutal inflationary spell.

In fact, at Jackson Hole two years ago, Powell himself warned that using high interest rates to defeat the inflation spike “would bring some pain to households and businesses.”

Yet now, according to the Fed’s preferred measure, inflation is 2.5%, not far above its 2% target. And while a weaker pace of hiring has caused some concerns, the unemployment rate is at a still-low 4.3%, and the economy expanded at a solid 3% annual rate last quarter.

While no Fed official will outright declare victory, some take satisfaction in defying the predictions of doom and gloom.

“2023 was a historic year for inflation falling,” said Austan Goolsbee, president of the Chicago Fed. “And there wasn’t a recession, and that’s unprecedented. And so we will be studying the mechanics of how that happened for a long time.”

Measures of consumer sentiment, though, indicate that three years of hurtful inflation have dimmed many Americans’ outlook. In addition, high loan rates, along with elevated housing prices, have led many young workers to fear that homeownership is increasingly out of reach.

‘Inflation overhang’

Last month, the consulting firm McKinsey said that 53% of consumers in its most recent survey “still say that rising prices and inflation are among their concerns.” McKinsey’s analysts attributed the escalated figure to “an ‘inflation overhang.” That’s the belief among analysts that it can take months, if not years, for consumers to adjust emotionally to a much higher level of prices even if their pay is keeping pace.

Economists point to several reasons for the wide gap in perceptions between economists and policymakers on the one hand and everyday consumers and workers on the other.

The first is that the Fed tailors its interest rate policies to manage inflation — the rate of price changes — rather than price levels themselves. So when inflation spikes, the central bank’s goal is to return it to a sustainable level, currently defined as 2%, rather than to reverse the price increases. The Fed’s policymakers expect average wages to catch up and eventually to allow consumers to afford the higher prices.

“Central bankers think even if inflation gets away from 2% for a period, as long as it comes back, that’s fine,” Forbes said. “Victory, mission accomplished. But the amount of time inflation is away from 2% can have a major cost.”

Research by Stefanie Stantcheva, a Harvard economist, and two colleagues found that most people’s views of inflation are very different from those of economists. Economists in general are more likely to regard inflation as a consequence of strong growth. They often describe inflation as a result of an “overheating” economy: Low unemployment, strong job growth and rising wages lead businesses to sharply increase prices without necessarily losing sales.

By contrast, a survey by Stantcheva found, ordinary Americans “view inflation as an unambiguously bad thing and very rarely as a sign of a good economy or as a byproduct of positive developments.”

Her survey respondents also said they believed that inflation stems from excessive government spending or greedy businesses. They “do not believe that (central bank) policymakers face trade-offs, such as having to reduce economic activity or increase unemployment to control inflation.”

Perceived recession

As a result, few consumers probably worried about the potential for a downturn as a result of the Fed’s rate hikes. One opinion survey, in fact, found that many consumers believed, incorrectly, that the economy was in a recession because inflation was so high.

At the Jackson Hole conference, Andrew Bailey, governor of the Bank of England, argued that central banks cannot guarantee that high inflation will never appear — only that they will try to drive it back down when it does.

“I get this question quite often in Parliament,” Bailey said. “People say, ‘Well you failed to control inflation.’ I said no.”

The test of a central bank, he continued, “is not that we will never have inflation. The test of the regime is how well, once you get hit by these shocks, you bring it back to target.”

Still, Forbes suggested that there are lessons to be learned from the post-COVID inflation spike, including whether inflation was allowed to stay too high for too long, both in the U.S. and the U.K. The Fed has long been criticized for having taken too long to start raising its benchmark rate. Inflation first spiked in the spring of 2021. Yet the Fed, under the mistaken impression that high inflation would prove “transitory,” didn’t begin raising rates until nearly a year later.

“Maybe should we rethink … where we seem to be now: ‘As long as it comes back four to five years later, that’s fine,’ ” she said. “Maybe four to five years is too long.

“How much unemployment or slowdown in growth should we be willing to accept to shorten the length of time that inflation is too high?”
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New York — A broadening rally in U.S. stocks is offering an encouraging signal to investors worried about concentration in technology shares, as markets await key jobs data and the Federal Reserve’s expected rate cuts in September.

As the market’s fortunes keep rising and falling with big tech stocks such as Nvidia NVDA.O and Apple AAPL.O, investors are also putting money in less-loved value stocks and small caps, which are expected to benefit from lower interest rates. The Fed is expected to kick off a rate-cutting cycle at its monetary policy meeting on Sept. 17-18.

Many investors view the broadening trend, which picked up steam last month before faltering during an early August sell-off, as a healthy development in a market rally led by a cluster of giant tech names. Chipmaker Nvidia, which has benefited from bets on artificial intelligence, alone has accounted for roughly a quarter of the S&P 500’s year-to-date gain of 18.4%.

“No matter how you slice and dice it you have seen a pretty meaningful broadening out and I think that has legs,” said Liz Ann Sonders, chief investment officer at Charles Schwab.

Value stocks are those of companies trading at a discount on metrics like book value or price-to-earnings and include sectors such as financials and industrials. Some investors believe rallies in these sectors and small caps could go further if the Fed cuts borrowing costs while the economy stays healthy.

The market’s rotation has recently accelerated, with 61% of stocks in the S&P 500 .SPXoutperforming the index in the past month, compared to 14% outperforming over the past year, Charles Schwab data showed.

Meanwhile, the so-called Magnificent Seven group of tech giants — which includes Nvidia, Tesla TSLA.O and Microsoft MSFT.O — have underperformed the other 493 stocks in the S&P 500 by 14 percentage points since the release of a weaker-than-expected U.S. inflation report on July 11, according to an analysis by BofA Global Research.

Stocks have also held up after an Nvidia forecast failed to meet lofty investor expectations earlier this week, another sign that investors may be looking beyond tech. The equal weight S&P 500 index, a proxy for the average stock, hit a fresh record [last] week and is up around 10.5% year-to-date, narrowing its performance gap with the S&P 500.

“When market breadth is improving, the message is that an increasing number of stocks are rallying on expectations that economic conditions will support earnings growth and profitability,” analysts at Ned David Research wrote.

Value stocks that have performed well this year include General Electric GE.N and midstream energy company Targa Resources TRGP.N, which are up 70% and 68%, respectively. The small-cap focused Russell 2000 index, meanwhile, is up 8.5% from its lows of the month, though it has not breached its July peak.

The jobs report “tends to be one of the more market moving releases in general, and right now it’s going to get even more attention than normal.”

Investors are unlikely to turn their back on tech stocks, particularly if volatility gives them a chance to buy on the cheap, said Jason Alonzo, a portfolio manager with Harbor Capital.

Technology stocks are expected to post above-market earnings growth over every quarter through 2025, with third-quarter earnings coming in at 15.3% compared with a 7.5% gain for the S&P 500 as a whole, according to LSEG data.

“People will sometimes take a deep breath after a nice run and look at other opportunities, but technology is still the clearest driver of growth, particularly the AI theme which is innocent until proven guilty,” Alonzo said.
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Algiers — Algeria has been approved for membership in the BRICS New Development Bank (NDB), the country’s finance ministry has  announced.

The decision was taken on Saturday and announced by NDB chief Dilma Roussef at a meeting in Cape Town, South Africa.

By joining “this important development institution, the financial arm of the BRICS group, Algeria is taking a major step in its process of integration into the global financial system,” the Algerian finance ministry said in a statement.

The bank of the BRICS group of nations — whose name derives from the initials of founding members Brazil, Russia, India, China and South Africa — is  aimed at offering an alternative to international financial institutions like the World Bank and IMF.

Algeria’s membership was secured thanks to “the strength of the country’s macroeconomic indicators” which have recorded “remarkable performances in recent years” and allowed the North African country to be classified as an “upper-tier emerging economy,” the finance ministry said.

Membership in the BRICS bank will offer Algeria — Africa’s leading exporter of natural gas — “new prospects to support and strengthen its economic growth in the medium and long term,” it added.

Created in 2015, the NDB’s main mission is to mobilize resources for projects in emerging markets and developing countries.

It has welcomed several country as new members, including Egypt, the United Arab Emirates, Iran and Saudi Arabia. 
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NEW YORK — While many costs have come down for small businesses, rents remain high and in some cases are still rising, forcing many owners into some uncomfortable decisions.

“Every time the rent goes up, we have to raise prices, to keep up with the cost,” said Adelita Valentine, owner of HairFreek Barbers in Los Angeles. “But with the cost of living, it makes it difficult on our customers.”

Other owners are choosing to be late on payments or seeking out new locations where the rent is lower. A few are pushing back against their landlord.

Although inflation is easing, it remains a top concern for small businesses. According to Bank of America internal data, rent payments per small business client rose 11% year-over-year in July. That’s more than twice the increase for renting and owning a residence, a metric known as shelter, according to the government’s monthly Consumer Price Index. That figure rose 5.1% in July.

And although the situation has improved since the height of the pandemic, a survey by business networking platform Alignable of more than 6,000 small business owners found that 41% could not pay their July rent on time and in full. And 52% said they’ve encountered rent spikes in the past six months.

The rent for Valentine’s barbershop rose to $4,000 in January from $3,600 in December, the fifth increase in the past eight years. She had to raise the price for her cuts from $35 to $40.

Two months ago, she moved locations for a cheaper $3,200 rent, but her space is smaller now and she sees fewer families coming in.

“A lot of people can’t afford to take a whole family to get haircuts,” after the price increase, she said.

Peter Yu has owned iPAC Automotive, an auto repair and detailing shop in Ontario, Canada, for six years. He said the rent on the shop typically went up about 4% a year. But when his landlord sold the property to a new owner, Yu’s rent jumped from about $1,800 (2,500 Canadian dollars) to about $2,700 (3,700 Canadian dollars) after three months.

He contemplated moving but decided that the cost of a move would be more than just paying the extra rent.

Yu tried to raise prices a month ago, but customers would come in and say “Oh, its too expensive,” and leave, he said. So, he had to drop the price increase in order to get those customers back.

“When we do try to raise our prices, consumers don’t have the money to pay for it. They’re looking for financing options,” he said. Yu’s services run the gamut from paint correction that costs a few hundred dollars to troubleshooting problematic EV battery and electric drive units for out-of-warranty Teslas that can cost up to $15,000.

So instead, he’s going to try to improve his marketing, close more sales, and find a way to offer more financing.

Standing firm against a landlord sometimes works. Janna Rodriguez has run her home-based The Innovative Daycare Corp. in Freeport, New York, since 2018. When she first signed her lease, she paid $3,500, plus costs including landscaping and maintenance. In 2020, the pandemic began, and her landlord raised her rent to $3,800 and also made her start paying half of the homeowner’s insurance. Last year, the landlord raised her rent to $4,100, plus the additional expenses.

Rodriguez raised her prices for the first time, by $10 per child per week, to help offset the rising rent.

This year she successfully pushed back when the landlord wanted to raise the rent yet again.

“I said to them, if you do that, then I’m going to find another property to move my business to, because at this point now you’re trying to bankrupt a business, right?” 

It’s worked – so far. But Rodriguez is worried about the future.

For others, negotiating a late payment is an option. Nicole Pomije owner of Minneapolis-based The Cookie Cups, which makes cookie kits for kids, has a 372-square-meter office space along with a warehouse where she develops her line of baking kits. Her rent rose 10% this year to $4,000 monthly. Then there are unanticipated bills, such as $1,500 for snow plowing.

“There’s so much stuff that pops up that you just you never expect,” she said. “And it’s always when you never expect it.”

Pomije hasn’t raised prices, but instead tried to mitigate the higher rent costs by buying materials in bulk – like ordering 5,000 boxes instead of 1,000 boxes for a 40% discount — and finding cost savings elsewhere.

Still, there have been several months over the past couple of years where she couldn’t pay rent on time. So, far the landlord has been amenable.

“If we have a conversation like hey, we don’t know if we’re going to make it for the first this month. It might be closer to the tenth,” she said.

Asked if she thinks costs might ease in the future, Pomije said she is focused on the present.

“It’s weird, but I’m trying not to think about the future too much and I’m trying to just do what we have to do, and get ready for a holiday season and just, like, get everything paid on time now,” she said. “And then we’ll kind of reevaluate everything in January.”
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FRANKFURT/TALLINN — Inflation in the euro zone fell to its lowest level in three years in August, setting the stage for a further cut in the European Central Bank’s interest rates next month despite an Olympics-driven surge in the price of services.

The ECB has started winding down a two-year campaign against high inflation that followed the brisk reopening of the economy after the COVID-19 pandemic and Russia’s invasion of Ukraine.

Inflation in the 20 countries sharing the euro currency fell to 2.2% this month, the slowest pace since July 2021 and closing in on the ECB’s 2% target, according to a flash reading by the European Union statistics office, Eurostat.

While the fall was mostly driven by lower energy prices and may even reverse later this year, it was still likely to seal the deal on a second ECB rate cut on Sept 12 after a first move in June.

“The significant drop in headline inflation in August makes the September cut a foregone conclusion,” said Tomas Dvorak, a senior economist at Oxford Economics.

Even ECB board member and prominent policy ‘hawk’ Isabel Schnabel appeared to open the door to more easing on Friday, saying further gradual rate cuts might not derail the disinflation process as some policymakers had feared.

Still, the report showed price growth in the services sector – which is closely watched by policymakers because it better reflects domestic demand rather than external conditions – accelerated to 4.2% from an already high 4.0%.

This was the probable result of a boost from the Olympic Games in Paris, but also greater spending power by workers after some recent pay increases.

“This likely reflects a relatively tight job market, as the decrease in the unemployment rate in July shows,” said Gian Luigi Mandruzzato, senior economist at EFG Asset Management.

For now, markets see about six rate cuts before the end of next year, roughly one more cut than is baked into the ECB’s own economic projections, indicating that markets are more optimistic about the price outlook than the ECB.

This is partly because market economists see a bigger dip than the ECB’s own staff in inflation this autumn.

Policymakers say they will not be confident in the inflation outlook until wage growth slows, with Germany’s central bank especially vocal about this risk.

Still, with inflation now within a whisker of the ECB’s target, the euro zone’s central bankers were likely to broaden their debate from the single-minded focus on inflation to take into account signs of economic weakness.

Wage growth has slowed sharply and unemployment is already rising in around a quarter of the euro zone’s 20 countries. Survey data among firms and households suggest there is further labour market deterioration in store.

Lending has dwindled to a trickle since the ECB jacked up rates last year, causing investment to dry up and hampering sectors that rely on it, such as construction and manufacturing.

This has left euro zone economic growth barely humming along for over a year, with weakness in industrial powerhouse Germany only partly offset by strength in services-oriented countries such as Spain.

“We think the ECB is already behind the curve, fixated too much on current and narrow measures of inflation while not paying enough attention to weak growth, with potential long-term damaging impacts,” Oxford Economics’ Dvorak said.
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Washington — The U.S. economy expanded more than initially estimated in the second quarter this year, the Department of Commerce said Thursday, on stronger consumer spending than originally anticipated.

The world’s biggest economy grew at an annual rate of 3.0% in the April-to-June period, up from 2.8% according to an earlier estimate.

Analysts had expected no revision to the figure.

“The update primarily reflected an upward revision to consumer spending,” the Commerce Department said.

Unexpectedly robust consumption — even in the face of high interest rates — has helped to bolster the U.S. economy in recent times. But with households depleting pandemic-era savings, the anticipation was for consumption to pull back.

In the latest revision, the higher spending was partly offset by downward revisions in areas such as business investment, exports and government spending.

Imports, however, were revised higher.

The 3.0% figure for the second quarter this year was an uptick from 1.4% growth in the first quarter.

The Federal Reserve rapidly increased interest rates to tackle surging inflation in 2022. It is widely expected to make its first post-pandemic rate cut in September. This could provide a boost to the economy.
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Washington — Jobs in the U.S. clean energy industry in 2023 grew at more than double the rate of the country’s overall jobs, and unionization in clean energy surpassed for the first time the rate in the wider energy industry, the Energy Department said on Wednesday.

Employment in clean energy businesses – including wind, solar, nuclear and battery storage — rose by 142,000 jobs, or 4.2% last year, up from a rise of 3.9% in 2022, the U.S. Energy and Employment Report said. The rate was above the overall U.S. job growth rate of 2% in 2023.

Unionization rates in clean energy hit 12.4%, more than the 11% in the overall energy business, it said. That was driven by growth in construction and utility industries and after legislation passed in 2022 including the bipartisan CHIPS Act and President Joe Biden’s Inflation Reduction Act, the department said.

Construction jobs in clean energy, driven by the legislation and private-sector investments, “is expected to continue for decades to build out the clean energy infrastructure that we need,” Betony Jones, the Energy Department’s head of energy jobs, told reporters in a call. While unionized members “might move from project to project, there is continuity of that work in order for workers to make a career in that industry,” she said.

Employment in the utility scale and rooftop solar industries grew 5.3% adding more than 18,000 jobs, it said. The solar installation industry in California, the country’s most populous state, says it has lost more than 17,000 jobs due to high interest rates and the state’s lowering of net meter rates that allow customers to be credited for excess power their rooftop panels generate.

New jobs in fossil fuels were mixed. The natural gas workforce grew by more than 77,000 or 13.3%, while jobs in petroleum fell more than 44,000 or 6%. Coal jobs fell nearly 8,500 or 5.3% as power generation continued to switch from coal to gas, wind and solar. White House climate adviser Ali Zaidi told reporters that the report showed the administration’s commitment to pursue both energy and climate security.

Energy remained a mostly male workforce with an average of 73% in 2023 compared with the national workforce average that was 53% male, the same numbers as in the previous year. Women accounted for about half the energy jobs added in 2022, but only 17% of the jobs added in 2023, the report said.

 
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TORONTO — A workers’ union Friday threatened a strike at one of Canada’s two major freight railroads, only hours after the company’s trains restarted following a potentially devastating stoppage. A government-ordered arbitration hearing wrapped up without a decision, and Canadian National trains were expected to keep moving at least through Monday morning.

CN and Canadian Pacific Kansas City Ltd. locked out their workers Thursday when negotiations over a new labor contract reached a deadline without an agreement. That resulted in a near total shutdown of freight rail in the country for more than a day, until Canadian National resumed its service Friday morning. Trains operated by CPKC remain parked, and its workers, who had already been on strike since Thursday, stayed on the picket line Friday.

The government forced the companies and the union, Teamsters Canada Rail Conference, into arbitration overseen by the Canada Industrial Relations Board — an order the union is challenging. Friday’s nine-hour hearing ended with no order from the board.

The union filed a 72-hour strike notice against CN on Friday morning shortly after it announced that it planned to challenge the arbitration order, union spokesperson Marc-Andre Gauthier said.

If the board orders the union back to work, “the TCRC will lawfully abide by the decision, but will undertake steps to challenge to the fullest extent,” the Teamsters said in a statement. “Unfortunately, this will not provide immediate relief, but the Union is prepared to appeal to federal court if necessary.”

Canadian National, which has about 6,500 workers involved in the dispute, said the impact of the strike notice will depend on the timing of the Canada Industrial Relations Board’s decision. “It is in the national interest of Canada that the CIRB rule quickly, before even more harm is caused,” the railroad said in a written statement. CPKC has about 3,000 engineers, conductors and dispatchers involved.

Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, said the union’s latest actions “will prolong the damage to our economy and jeopardize the wellbeing and livelihoods of Canadians, including union and nonunion workers across multiple industries.”

Labor Minister Steven MacKinnon announced the decision to force the parties into binding arbitration Thursday afternoon, more than 16 hours after the lockout shut down the railroads, saying the economic risk was too great to allow them to continue. The government had declined to order arbitration two weeks ago. MacKinnon said he had hoped that negotiations between the companies and the union on a new contract would succeed.

“This is not about disobeying the minister’s order. It’s about exercising our right,” Teamsters Canada President Francois Laporte said Friday in announcing the strike. “We will exercise our right within the legal framework.”

Canadian National trains had begun rolling at 7 a.m. across Canada, said CN spokesperson Jonathan Abecassis. The development initially appeared to at least partially end a work stoppage that threatened to wreak havoc on the economies of Canada and the United States. Both countries, across all industries, rely on railroads to deliver their raw materials and finished products.

“While CN is focused on its recovery plan and powering the economy, Teamsters are focused on getting back to the picket line and holding the North American economy hostage to their demands,” Abecassis said following the union’s strike notice.

Getting even one of the railroads running again is a relief for businesses. In most past rail labor disputes, only one of the Canadian railroads stopped and the economy was able to weather that disruption.

The negotiations that began last year are hung up on issues around the way workers are scheduled and contract rules designed to prevent fatigue. The railroads had proposed shifting away from the current system that pays workers based on the number of miles they travel, to a system based on the hours they work. The railroads said the switch would make it easier to provide predictable schedules. But the union resisted because it feared the proposed changes would erode hard-fought protections against fatigue and jeopardize safety.

In Canada, another issue at CN is the railroad’s intention to expand a system that allows it to temporarily relocate workers to other parts of its network when it’s short on employees in a certain region.

Regarding wages, the railroads said they both offered raises in line with other recent deals in the industry for what are already well-paying jobs. Canadian National has said its engineers make about $150,000 and conductors earn roughly $121,000 for working 160 days a year, although some of their time off is spent stuck at hotels on the road between train trips while getting required rest. CPKC says its pay is comparable.

Nearly all of Canada’s freight handled by rail — worth more than $730 million a day and adding up to more than 375 million tons of freight last year — stopped Thursday along with rail shipments crossing the U.S. border.

About 30,000 commuters in Canada were also affected because their trains use CPKC’s lines. CPKC and CN’s trains continued operating in the U.S. and Mexico during the lockout.

Billions of dollars of goods move between Canada and the U.S. via rail each month, according to the U.S. Department of Transportation.

“There are a lot of goods and services shipped across borders,” Sean O’Brien, president of the International Brotherhood of Teamsters, said at a rally in Calgary, Alberta, on Friday. “If this company chooses to continue its bad behavior, then it is going to have an impact. … They’ve got a lot of decisions they need to make. And they need to make the most important decision: Reward these workers with what they’ve earned and don’t try to diminish safety just so they need to feed their bottom lines.”
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JACKSON HOLE, Wyoming — The Federal Reserve’s credibility in the eyes of financial markets helped in its battle against inflation over the past two years, but it had to be earned afresh with interest rate hikes that backed up policymakers’ verbal promises to restore price stability, according to new research presented at the Kansas City Fed’s annual research conference in Jackson Hole, Wyoming.

A strong perception in financial markets that a central bank is committed to inflation control can make monetary policy more effective, prompting markets to shift financial conditions faster and lowering inflation with a less-serious hit to economic growth than would otherwise be the case.

While investors came to believe that the U.S. central bank under the leadership of Fed Chair Jerome Powell was serious about defending its 2% inflation target, that belief only formed over time and after the officials began raising the policy interest rate in March 2022 and accelerated the rate hikes over that summer, the researchers found.

“Forecasters and markets were highly uncertain about the monetary policy rule prior to ‘liftoff’ and learned about it from the Fed’s rate hikes,” economists Michael Bauer from the San Francisco Fed, Carolin Pflueger from the University of Chicago, and Adi Sunderam from the Harvard Business School, found in their research. “Substantial rate hikes were apparently necessary for perceptions to shift. … The public did not fully understand the Fed’s strategy and policy rule prior to liftoff.”

The research serves as a warning of sorts against central bankers putting too much weight on the power of “talk therapy” — or the ability to influence economic outcomes with words and promises alone.

Earning public trust

The Fed in recent years has been characterized by a surfeit of speeches and public comments by its officials, whether by the head of the central bank, other members of its presidentially appointed Board of Governors, or its 12 regional bank presidents, under the notion that more transparency is good for public accountability and makes policy more effective.

Fed officials in the recent inflation battle often noted that public belief in their commitment to the inflation target would help on its own to lower the pace of price increases, shorten the time it took for tighter monetary policy to have an impact, and lower inflation with less damage to the job market and other aspects of the “real” economy.

The researchers found, however, that while the Fed under Powell eventually earned the benefit of public trust, it also wasn’t a given.

The research used survey data to quantify how professional forecasters perceived the Fed would respond to higher inflation and found that even as prices began rising in 2021 the expected Fed response to inflation was near zero.

While that could have been attributed to several factors, including a belief that inflation would ease on its own, the researchers concluded it was because forecasters weren’t sure how the central bank would react.

After the first rate increase in March of 2022, however, perceptions began to shift, with forecasters eventually expecting the Fed to respond on an almost one-for-one basis to any rise in inflation.

The change in perceptions coincided with policymakers shifting from the initial quarter-percentage-point move to the first of four 75-basis-point hikes in June 2022, and with a stern speech by Powell at that year’s Jackson Hole conference that reaffirmed his intent to defend the inflation target despite the economic pain it might cause.

As market perceptions about the Fed’s sensitivity to inflation increased, “interest rates became significantly more sensitive to inflation data surprises,” the research found, adding that “the increase in the perceived inflation response likely aided the transmission of monetary policy to the real economy and improved the Fed’s inflation-unemployment tradeoff.”

For future policymakers, the researchers said, the conclusion is clear: Actions speak louder than words.

“Policy rate actions contribute to, and may even be necessary for, the effectiveness of communication, particularly when uncertainty about the monetary policy framework is high,” they found, suggesting the Fed’s quarterly Summary of Economic Projections could be changed to make the central bank’s “reaction function” more explicit. “A timely policy rate response to inflation matters not only for influencing immediate financial conditions, but also for signaling that policymakers are serious.”
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Jakarta, Indonesia — Cellphones, electric pots and pans, and car washing machines were among goods worth $1.3 million destroyed Monday by the Indonesian Trade Ministry in West Java. Alcoholic drinks with an ethyl alcohol or ethanol content ranging from 5% to 20% were also destroyed.

The ministry demolished the goods as part of the government’s crackdown on illegal imports, a major issue that experts say stems from Indonesia’s unpreparedness for the ASEAN-China Free Trade Agreement signed 15 years ago.

Trade Minister Zulkifli Hasan said the goods did not comply with state regulations and lacked a surveyor’s report, goods registration number, or import approval, and exceeded import quotas or failed to meet Indonesian national standards.

This is the third operation conducted by the Trade Ministry, following operations at the Cikarang customs and excise storage area in West Java and at Jakarta’s Cengkareng Port.

On August 6, the Trade Ministry disclosed that $2.9 million of illegal imports were found at the Cikarang facility. The Trade Ministry confiscated 20,000 textile rolls. The National Police seized 1,883 bales of used clothing, while customs’ officers at Tanjung Priok port seized 3,044 bales of used clothing. In addition, hundreds of carpets, towels, cosmetics, footwear and more than 6,500 electronics were seized.

Since its establishment in July, the Anti-Illegal Imports Task Force has been investigating illegal import schemes, collecting data and seizing illegal goods.

The head of the Indonesian National Police’s criminal investigation unit, Wahyu Widada, said, “Illegal imports not only harm the country in terms of revenue loss, but also has an impact on small and medium scale entrepreneurs.”

Mohammad Faisal, executive director of the Center on Reform of Economics, links the current problem to Indonesia’s unpreparedness when it signed the ASEAN-China Free Trade Agreement 15 years ago.

“Indonesia’s domestic industries were not ready to compete with China’s competitive products in the local market. Indonesia had a huge domestic market and very low trade barriers then. It’s not just tariff barriers but also the non-tariff barriers were very limited. So that’s why it’s actually easy for foreign suppliers to enter the Indonesian market,” Faisal said.

According to recent data from the Ministry of Cooperatives and Small and Medium-sized Enterprises (SMEs), approximately 50% of imported textiles and textile products are unregistered. That means the state loses out on $399 million from unpaid taxes and excise duties.

In 2022, China exported $3.95 billion of textiles to Indonesia but only $2.04 billion of Chinese textile imports were recorded. Overall, the financial loss is equal to the potential creation of 67,000 jobs and over $762 million in gross domestic product. Indonesia’s GDP in 2023, according to the World Bank, was $1.37 trillion.

Zulkifli said one of the major obstacles to fighting illegal imports is the existence of an underground economy. The Minister of Cooperatives and SMEs, Teten Masduki, said that almost 30% to 40% of goods sold in Indonesian markets are involved in the underground economy and therefore the state does not receive taxes on them.

As a result, Zulkifli added that Indonesia’s tax ratio is lower than other developed Asian nations such as South Korea, Japan and China.

“Imagine if we sent illegally imported goods to South Korea or China. Don’t expect that to happen, it’s impossible. That’s why these nations can become developed countries. If our “house” continues to get burglarized, how can we move forward?” he said.

Zulfkli announced in late June a plan to impose stiff tariffs of up to 200% on some products. The plan, which is still under review, initially was announced as an import duty on Chinese goods, but the minister said later the duties would apply to all countries.

Indonesia’s Shopping Center Retail and Tenant Association has detected shops suspected of selling illegally imported goods online across North Sumatra to East Java, and some have opened shops at Jakarta’s wholesale shopping centers.

Budihardjo Iduansjah, chairman of the association, said “These Chinese entrepreneurs store their goods at local warehouses and sell them online. But now many have started selling at shops including at International Trade Centers.”

During a visit to shops suspected of selling illegally imported goods from China, VOA spotted clothing with labels written in Mandarin that were sold for $1 each. A seller there admitted that he and many other sellers sold their goods online and shipped the clothes in bulk to resellers across the country.

Zulkifli claims that the investigations carried out by his task force have caused many foreign nationals suspected of dealing in illegal imports to leave.

He plans to work with universities to research the root causes of illegal imports. He is confident that the illegal imports crackdown will continue under President-elect Prabowo Subianto, who will be inaugurated in October.
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