This article discusses two covers of The Economist magazine. One cover focuses on the dangers of persistent inflation and the dilemma facing central bankers, while the other cover discusses Ukraine's future as a prosperous and democratic country.
### Summary
The Russian stock market's recent gains are a facade and the country's economy is in decline, according to Yale researchers. Russia's frozen foreign assets and the depreciation of the ruble have artificially inflated stock market profits. Additionally, the economy is suffering from a loss of confidence, with people and money fleeing to neighboring countries.
### Facts
- 📉 The Russian stock market's recent gains are an illusion, masking the true state of the country's struggling economy.
- 🧊 Russia has frozen inflows and outflows of foreign assets, preventing investors from cashing out and propping up the stock market.
- 💸 The depreciation of the ruble has artificially inflated the value of Russian stocks, as the country's commodities are sold in foreign currencies.
- 💼 Workers, academics, and oligarchs are leaving Russia, taking with them technical and intellectual capital essential to the country's economy.
- 💔 Trust in President Vladimir Putin and confidence in the Russian economy have eroded, leading to a lack of domestic and foreign investment.
- 🌍 Neighboring countries like Armenia, Georgia, and Kyrgyzstan have become destinations for Russian money and talent fleeing the country.
- 📉 Experts warn that Russia's economy could continue to decline and the country may even become a failed state if the costly war in Ukraine persists.
### Summary
Russia's currency, the ruble, has plunged to a 16-month low, leading to surging prices of sushi due to the country's economic challenges and rift with the West.
### Facts
- 💰 Russia's currency, the ruble, hit a 16-month low last week, as the country's current account suffers from Western sanctions.
- 🍣 Local prices of sushi in Russia are expected to surge by as much as 30% in the coming weeks due to the weakened ruble and strained relations with the West.
- 📈 Russia's official inflation rate reached a five-month high of 4.3% in July, but some economists estimate it to be over 60%.
- 🍱 Restaurateurs in Russia are already facing increased costs of sushi ingredients, such as rice, fish, and seaweed, which are imported and dependent on the dollar exchange rate.
- 💸 The embattled ruble sank past 100 to the dollar, prompting the Russian central bank to raise interest rates significantly.
- 📉 Capital outflows, reduced reliance on Russian oil by European nations, and falling export revenues have added to Russia's economic challenges.
- 🇷🇺 President Vladimir Putin held an emergency meeting to discuss measures for stabilizing the exchange rate, including export restrictions and limits on foreign currency movement.
Russia's stock market is performing well on the surface, but experts believe it is an illusion meant to hide the declining state of Russia's economy, which is likely to continue suffering as long as President Putin remains in power.
Russian President Vladimir Putin has called for measures to control rising inflationary risks in the country and maintain a high level of industrial output, as he prepares for re-election and deals with the strain of military operations in Ukraine.
Investments in Russia's stock market are deceptive and likely to go nowhere as the country's economy spirals downwards under President Vladimir Putin's rule, according to Yale researchers.
Federal Reserve Chair Jerome H. Powell stated in a speech at the Jackson Hole symposium that the central bank is prepared to raise interest rates further if needed, signaling that they do not believe inflation is fully under control. The Fed will proceed cautiously and assess economic data as they determine whether to make further policy adjustments.
The president of the Federal Reserve Bank of Philadelphia believes that the US central bank has already raised interest rates enough to bring inflation down to pre-pandemic levels of around 2%.
The Russian economy is facing several major issues, including a labor shortage, soaring inflation, a tumbling ruble, the risk of recession, a real estate bubble, and the nationalization of foreign businesses, which could lead to stagnation and a fall in GDP growth in the long term.
President of the European Central Bank, Christine Lagarde, stated that interest rates in the European Union will need to remain high to combat inflation, despite progress being made, emphasizing the challenges posed by disruptions in the global and European economies.
The Russian ruble's recent volatility and decline in value reveals the underlying struggle of funding the military without damaging the national currency or causing inflation, while the Kremlin's efforts to stabilize the economy in the short term may not prevent long-term economic decline and stress on the ruble.
The Federal Reserve is considering whether to raise interest rates even higher to combat inflation, but some policymakers, like Raphael Bostic, believe it is unnecessary and advocate for keeping the rates at their current level until 2024.
Bank of Canada Governor Tiff Macklem suggests that interest rates may not be high enough to bring inflation back down to target, emphasizing the need for further restrictive monetary policy to restore price stability.
The Wall Street Journal reports a notable shift in the stance of Federal Reserve officials regarding interest rates, with some officials now seeing risks as more balanced due to easing inflation and a less overheated labor market, which could impact the timing of future rate hikes. In other news, consumer credit growth slows in July, China and Japan reduce holdings of U.S. Treasury securities to record lows, and Russia's annual inflation rate reached 5.2% in August 2023.
Russian President Vladimir Putin acknowledged that inflation in Russia has made it nearly impossible for businesses in the country to plan, but he brushed off longer-term concerns, stating that the problems are not "insurmountable."
Russia's economy ministry has raised its 2023 inflation forecast from 5.3% to 7.5% due to the impact of the war in Ukraine, and President Putin has acknowledged that high inflation is causing difficulties for businesses.
The Russian central bank has raised its key interest rate to 13% in response to inflationary pressures and a weak rouble, and warns that rates will remain high for a considerable period of time, with further rate increases possible in the future.
New research suggests that elevated interest rates may not have been the main cause of the decline in inflation, sparking a debate about whether the Federal Reserve needs to raise rates again.
Nouriel Roubini, CEO of Roubini Macro Associates, predicts that advanced economies will not achieve 2% inflation in the near future due to structural changes in the global economy, suggesting that a new normal of 3% to 4% inflation may be more likely over time.
The Federal Reserve officials signal that they believe they can control inflation without causing a recession, with forecasts of higher economic growth and unchanged inflation outlook.
Russia's economy is facing stagnation due to poorly timed interest rate hikes and high inflation, according to economists, despite President Putin's claims that the country's financial problems are manageable.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
Russia's economic resilience, fueled by demand from the global south, is surprising analysts and oligarch Oleg Deripaska, who had previously predicted Russia would run out of money next year due to sanctions.
Minneapolis Federal Reserve President, Neel Kashkari, is uncertain if the current interest rate is sufficient to control inflation, as sectors of the economy that normally react to rate hikes continue to perform well.
Germany's inflation rate in September slowed to the lowest level since Russia invaded Ukraine, potentially leading the European Central Bank to reconsider its interest rate hikes.
The Russian rouble's decline is causing tensions between the central bank and finance ministry, as inflation rises and growth slows, threatening the country's ability to wage war effectively.
Overall inflation has moderated recently in the United States and euro area, but core inflation remains sticky, creating a challenge for central banks trying to meet their inflation targets. Financial conditions have eased, complicating the fight against inflation by preventing a slowdown in aggregate demand. The combination of loose financial conditions and a monetary policy tightening cycle may have dulled the effectiveness of monetary policy. There are risks of a repricing of risk assets and potential vulnerabilities in the financial sector, emphasizing the need for central banks to remain determined in their fight against inflation.
The Russian rouble has experienced a significant decline in value this year, decreasing almost 30% against the US dollar, leading to concerns of further depreciation and economic challenges for the country.
The Federal Reserve officials suggested that they may not raise interest rates at the next meeting due to the surge in long-term interest rates, which has made borrowing more expensive and could help cool inflation without further action.
Russia's economy is being increasingly structured around war, with nearly one-third of the country's spending next year devoted to defense, redirecting funds from sectors like health care and education; however, the economic impacts of the war, including inflation and a weakened ruble, are causing concerns for citizens and the government alike.
Atlanta Federal Reserve Bank President Raphael Bostic believes that the US central bank does not need to raise interest rates further and does not see a recession on the horizon, despite the slowing economy and falling inflation caused by previous rate hikes. He also emphasized that the recent conflict between Israel and Hamas creates uncertainty and could impact the global economy.
Atlanta Federal Reserve Bank President Raphael Bostic believes that the U.S. central bank does not need to raise interest rates further, and he sees no recession on the horizon, despite the impact of previous rate hikes on the economy and inflation. Bostic also acknowledges the uncertainty created by the conflict between Israel and Hamas, but remains prepared for unexpected events.
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