“No great cause for celebration”
As food and energy supply problems continue, policymakers continue to try to find ways to provide their constituents with some relief. While many of the policy decisions may be a bit like bailing with a thimble, it’s becoming clear that policymakers are willing to crack a few eggs to make an omelet, even if that policy leads to “no soup for you” or some pain.
Amid the energy market fireworks we’ve been covering and the rising cost of living in the UK, the UK government appears to agree with the bill discussed here and has decided to go after oil companies. With the oil and gas sector making “extraordinary profits”, a new “25% tax on the profits of energy producers” has been introduced but “will be phased out once oil and gas prices fall back to more normal levels”. In the meantime, the tax will “help fund a new package of benefits” that will include “one-off direct payments”. Following the footsteps of the “Economic Impact Payments” checks in the US, “around eight million low-income households will receive £650 in two installments later this year, while a further eight million pensioners will receive £300”. As the article from CNN notes, “Households have taken a big hit”, with the head of the UK’s energy regulator saying that “he expected annual bills for millions of households to jump 40%”. Admittedly, that was already baked in… (Related, Japan’s core CPI, with mobile phones having dropped out, came in at 2.1% for April, the first time the measure had exceeded the BoJ’s 2% target in seven years.)
However, the UK isn’t alone in taking policy steps whose fruits may be bittersweet. The EU is considering “auctioning off part of a stock of Emissions Trading Scheme certificates” as it seeks to “shift away from its dependence on Russian energy”. India has throttled the export of both sugar and wheat. And Malaysia has decided to curb the export of chickens at the start of next month. The “short-term measure” was intended to “address the domestic supply shortage” (Malaysian retailers had already started rationing chicken sales) and would remain in effect “until domestic prices and production stabilise”. While this could impact Singapore’s national dish (the country imports roughly one-third of its chicken supply from Malaysia), the Malaysian prime minister was clear on the intention of the policy, saying, “The government’s priority is our own people”.
P.S. Bridgewater’s Bob Prince thinks we are on the cusp of stagflation. The latest Richmond Fed Manufacturing Survey should bolster his confidence. The survey’s headline index dropped into contractionary territory at -9, while Prices Paid hit the highest level since the series began in 1992.
