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Indian Central Bank Cuts Rates

March 19, 2013 by Leave a Comment

MUMBAI — The Indian central bank lowered its benchmark policy rates by 0.25 percentage point Tuesday for the second time this year in an effort to help revive economic growth.

The rate cut was overshadowed by a political crisis when a major ally in the governing coalition quit, raising fresh doubts about Prime Minister Manmohan Singh’s ability to push through changes and regain investors’ confidence.

In its midquarter policy review, the Reserve Bank of India lowered its benchmark rate to 7.5 percent, as expected, and reduced another important number, the reverse repo rate — the rate at which it borrows from banks — to 6.5 percent.

It also left the cash reserve ratio for banks unchanged at 4 percent, in line with expectations.

The Indian economy is on track to grow at its slowest pace in a decade, about 5 percent in the fiscal year ending this month, and had been expected to experience modest improvement in the coming year. A recent uptick in wholesale inflation, rising consumer inflation driven by food prices and a record current account deficit limit the central bank’s ability to stimulate the economy, despite pressure from a government that is facing elections in 2014.

“Even as the policy stance emphasizes addressing the growth risks, the headroom for further monetary easing remains quite limited,” the bank said in its statement.

That caution reinforced market expectations that the Reserve Bank of India, which left rates on hold for nine months before cutting them in January, will only lower them a further 0.25 or 0.5 percentage point in the fiscal year that begins in April.

After an initially muted reaction to the widely expected rate cut, Indian stocks and the rupee fell on news that a political party leader, Dravida Munnetra Kazhagam, would leave the governing coalition because of differences over the government’s stand on war crimes accusations in Sri Lanka. Bond yields rose slightly.

The withdrawal leaves Mr. Singh’s coalition at the mercy of smaller parties that are skeptical of changes like land-acquisition legislation aimed at increasing investment in infrastructure.

“As the coalition becomes more fractured and depends on outside support from parties that have a narrow agenda, the very act of policy making gets diluted,” said Abheek Barua, chief economist at HDFC Bank.

The current account deficit reached a record 5.4 percent in the quarter that ended in September and is expected to end the 2012-13 fiscal year at its highest level ever.

“Although capital inflows, mainly in the form of portfolio investment and debt flows provided adequate financing, the growing vulnerability of the external sector to abrupt shifts in sentiment remains a key concern,” the central bank said.

In the government’s budget announced at the end of February, Finance Minister P. Chidambaram said the fiscal deficit would fall to 5.2 percent of gross domestic product in the current fiscal year and 4.8 percent in the next year, targets intended to help stave off a sovereign credit rating downgrade to “junk” status.

Article source: http://www.nytimes.com/2013/03/20/business/global/indian-central-bank-cuts-rates.html?partner=rss&emc=rss

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Britain Names and Shames Accused Tax Scofflaws

February 22, 2013 by Leave a Comment

LONDON — A hairdresser in Liverpool and a knitwear manufacturer in Nottingham were among the first nine people and companies publicly branded tax scofflaws by the British authorities as part of a government “name and shame” campaign.

On its Web site, Her Majesty’s Revenue Customs on Thursday published the names and addresses of accused tax cheats, along with the amount the department says they owe. The individuals and small businesses owe a combined £1.8 million, or $2.7 million, in fines and unpaid taxes. The department said the list would be updated every three months.

The campaign is intended to encourage Britons to pay their taxes in full and put pressure on tax dodgers to come forward, the government said, but some lawmakers and pressure groups argued that it failed to address the real problem in Britain: tax avoidance strategies used by large corporations.

“The publication of these names sends a clear signal that cheating on tax is wrong and reassures people who pay their taxes — the vast majority — that there are consequences for those who refuse to tell Her Majesty’s Revenue Customs about their full liability,” David Gauke, exchequer secretary to the Treasury, said in a statement.

Executives of Starbucks, Amazon and Google were questioned by lawmakers in November over concerns that the companies were not paying enough tax in Britain, given the sales they generate here. The companies responded that they had been unfairly singled out, but a month later Starbucks bowed to public pressure and said it would pay more corporate tax in Britain.

Going after tax cheats and making it harder for individuals and companies to find loopholes in the tax system is one of Prime Minister David Cameron’s top goals. At a time of austerity — and when average households are increasingly squeezed by rising electricity and food prices — the government is under pressure to be seen as doing more to limit tax evasion and avoidance. In January, Mr. Cameron said those avoiding taxes “need to wake up and smell the coffee.”

Britain missed out on £5 billion in revenue in the tax year that ended in 2011 because of tax-avoidance methods and about £4 billion from tax evasion, according to the tax authorities. The Public Accounts Committee, a group of lawmakers representing the largest political parties, called on the authorities Tuesday to consider naming and shaming those who promote tax avoidance strategies to make them less attractive to individuals and companies.

The nine names published on the Web site also include a wine merchant, a grocery store and a bus operator. UK Uncut, a campaign that combats tax avoidance, said the step showed the authorities “spent time and money going after small companies that avoid tax, but so far we’ve seen no serious action from the government to claw back the billions avoided by global giants.”

Chris Morgan, head of tax policy at KPMG in London, said the naming and shaming campaign was a “perfectly reasonable step” and would help to deter people from not declaring their full income. The tax bills of large corporations are a different matter because companies generally declare their income properly, he said, but their tax obligations can be interpreted in different ways.

Judith Freedman, a professor of taxation law at Oxford University, agreed.

“The people who have been named on the Web site deliberately evaded taxes” and were penalized for it, she said, adding that there was “no penalty you could levy against the big companies.”

“So far, no one has proven that they have done something wrong,” she said. “You might not like what they do, but it is no secret.”

Article source: http://www.nytimes.com/2013/02/23/business/global/britain-names-and-shames-accused-tax-scofflaws.html?partner=rss&emc=rss

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Inflation in China Eases, but Food Prices Up Sharply

October 14, 2011 by Leave a Comment
Opinion »

The Case for Herman Cain’s Flat Tax

He’s been ridiculed right and left, but Room for Debate asks, is his “9-9-9” plan so far-fetched?

Article source: http://www.nytimes.com/2011/10/14/business/global/inflation-in-china-eases-but-food-prices-up-sharply.html?partner=rss&emc=rss

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Fair Game: New Rule Gives Commodities Speculators a Break

September 24, 2011 by Leave a Comment

But these hardships for consumers provide another reason to check in on Dodd-Frank, that package of financial reforms that Congress passed in 2010. Here’s why:

Congress told federal regulators to write rules that would ensure that Dodd-Frank does what it’s supposed to do, which includes protecting consumers. But the Commodity Futures Trading Commission has proposed rules that critics say might actually encourage speculation in the commodities markets, rather than reduce it.

Senator Bill Nelson, a Florida Democrat, says that as things stand, the C.F.T.C.’s plan could cost ordinary Americans.

“Despite a clear directive from Congress to rein in excessive speculation, regulators still are listening too much to Wall Street and not acting quickly enough to protect American consumers,” Mr. Nelson said last week.

Granted, prices of various commodities, including heating oil and gasoline, fell last week amid all the economic gloom. But that’s no reason to give speculators a pass.

There are those who reject the notion that financial speculation has made commodity prices more volatile and even driven up prices in recent years. Some of them work for the C.F.T.C.

But Michael Greenberger, a professor at the University of Maryland Law School, says that a majority of academic studies on this issue — from Texas AM, Rice and Stanford — demonstrate the ill effects of speculation on energy and food prices.

Indeed, a bipartisan report by the Senate Permanent Subcommittee on Investigations in 2009 concluded that there was “significant and persuasive evidence” that skyrocketing wheat prices reflected high levels of speculation in that market.

That report highlighted trading linked to commodities indexes and other financial instruments, a field that’s exploded with the growth of commodity index investment funds.

“Dodd-Frank was intended to include these commodity index swaps with strict limitations on the participation of speculators in the commodities staples futures markets,” Mr. Greenberger says. But the response from the C.F.T.C. “is a horrifically weak rule.”

At the center of the debate are rules that would place a cap on how many financial contracts traders can accumulate for any given commodity. The idea is to prevent a small group from dominating an entire market.

The C.F.T.C. has proposed a limit of 25 percent of the deliverable supply of the underlying commodity. Mr. Nelson last week proposed a bill that would put that position limit at 5 percent of the deliverable supply. He says the C.F.T.C.’s limit is so high that it would encourage speculation and make markets more volatile.

The C.F.T.C. declined to comment, as the rule is still being considered.

Commodity index funds are big business. Such funds have attracted as much as $350 billion from investors in recent years. As such players have grown, the influence of commercial traders, like food producers and airlines that use the commodities markets to hedge against price swings, has declined. Hedging has gotten more expensive, and those higher costs have been passed on to consumers. Dodd-Frank determined that position limits were a solution to excessive speculation.

Mr. Nelson’s bill, the Anti-Excessive Speculation Act of 2011, sets limits in energy contracts that would apply to speculators as a class of traders, aiming to cap the overall level of speculation in the market at its historic 25-year average. In the oil markets, speculative trading accounts for about half of all trading. He says his plan would reduce that figure to about 20 percent. He cited research showing that speculators may add $21 to $27 — or about 25 percent at current prices — to the price of a barrel of oil.

“This legislation aims to ensure that prices at the pump better reflect the true supply and demand for oil — and not the activities of speculators,” he says.

The C.F.T.C. proposal has drawn other criticism as well. It also would allow for greater position limits for commodities contracts that are settled for cash, rather than by physical delivery of the underlying goods. Most of these financial contracts trade on unregulated exchanges.

The proposal would let traders in cash-settled contracts hold five times the amount of contracts allowed for traders of physically settled versions in the final days of trading, or the so-called spot month. Traders employing this higher limit cannot participate in the market for the physically settled contracts.

That’s a bad idea, according to the Commodity Markets Oversight Coalition, a group of commodities end-users including smallish heating oil companies in Vermont, New Mexico and Maine. In a comment letter to the C.F.T.C., the group said that because the spot month is when futures prices converge with the spot price of an underlying commodity, allowing five times the leverage in cash contracts at that time would probably increase volatility and costs for end users who are hedging.

“The adoption of the current proposed rulemaking will increase the threat of price manipulation, especially in the final days of trading,” the group wrote, adding that Congress didn’t intend to allow position limits to give favorable treatment to unregulated exchanges at the expense of regulated markets.

Interestingly, a recent enforcement action filed by the C.F.T.C. against several crude oil speculators seems to confirm the possibility for manipulation using outsize amounts of cash-settled contracts. Outlining the case filed last May against Parnon Energy, based in California, and its affiliate Arcadia Petroleum, which is based in London, the C.F.T.C. accused the companies of manipulating the market for crude oil in early 2008 using a combination of physically settled and financially settled contracts.

At the time the C.F.T.C. contended that the manipulation took place, there were market-imposed limits on the number of physically settled contracts a trader could hold but no caps on the cash-settled version. The scheme generated $35 million in improper profits, the C.F.T.C. said.

Parnon denied the C.F.T.C.’s accusations and is contesting them in federal court.

According to the Federal Energy Regulatory Commission, the collapse of the $10 billion Amaranth Advisors hedge fund in 2006 also involved manipulation conducted through a combination of cash-settled and physically delivered contracts, in that case, for natural gas. Once again, there were limits on the physical contracts but none on those settled for cash. The Energy Regulatory Commission settled with Amaranth Advisors in 2009 for $7.5 million.

The C.F.T.C. might still change its proposal. The commission is expected to vote by mid-October. Stay tuned.

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Inflation Slowed in August, Reflecting a Weak Economy

September 15, 2011 by Leave a Comment

The rate of inflation in the United States slowed slightly in August, when a rise in food prices was tempered by easing prices for gasoline and automobiles, according to government statistics released on Thursday.

The Labor Department said that the Consumer Price Index rose 0.4 percent last month, a slight deceleration compared with the 0.5 percent rise in July.

The index, although it reflects just one month of data, is one of a number of closely watched indicators that guide economists and financial market analysts assessing the state of the economy. Other economic reports released on Thursday showed weakness in the jobs market and an uncertain outlook for manufacturing.

“The story is very much the same: that economic growth is slow,” said Kurt J. Rankin, economist for PNC, about Thursday’s data. “But because consumer confidence and business sentiment are both weak and remain weak, positive but slow growth is edging toward stagnation.”

The inflation figures for August reflected the volatility in prices for items such as food and energy. Prices for gasoline moderated, with a 1.9 percent rise in August after a 4.7 percent jump in July. Food prices rose 0.5 percent compared with 0.4 percent in July.

When those components were stripped from the index, the core C.P.I. showed that prices rose in August at the same rate as in July, 0.2 percent. That was in line with analysts’ forecasts in a survey compiled by Bloomberg News.

On a year-over-year basis, the core C.P.I. was up 2 percent in August compared with 1.8 percent in July.

Paul Ballew, a former Federal Reserve economist and now chief economist at Nationwide, said that the August C.P.I. number was consistent with expectations, such as with automobile prices, which were basically flat in August.

“Those pockets of weakness were in areas already expected and known,” he said.

Of more importance to investors were events in the European debt crisis and speculation as to what Federal Reserve policy makers would say after a meeting next week, Mr. Ballew said. Although the chairman of the Fed, Ben S. Bernanke, has given no sign that there would be fresh stimulus measures, market watchers were anticipating any measures that would help promote the economic recovery in the United States, especially in the critical sectors of jobs and housing.

Mr. Rankin said that the year-over-year core C.P.I. was 2 percent, bumping up against the Fed’s target rate.

“Initially Bernanke’s goal has been to prevent deflation,” Mr. Rankin said. But the central bank cannot raise rates, he added, because it would slow economic activity.

In addition, the latest figures show that inflation is set to outpace wage growth, which would be a “significant blow” to potential economic growth because 70 percent of the economy is based on consumer spending, Mr. Rankin said.

“Even those with jobs are not able to put that money back into the economy in a way that would create jobs,” he said. “Now we are getting to the point with this inflation number, even those with jobs are less capable of driving economic activity.”

A weekly report from the Labor Department on Thursday suggested that the labor sector was continuing to struggle. For the second consecutive week, initial claims for jobless benefits rose, increasing by 11,000 in the week ended Sept. 10 to 428,000. That was up from the previous week’s 417,000, which was revised up from 414,000.

Economists generally take any level over 400,000 as a continued sign of weakness in the labor market.

Joshua Shapiro, chief United States economist at MFR Inc., said in a research note that the latest claims figures were another indication that there was “little or no upward impetus” to net gains in payroll employment.

In addition, the Federal Reserve reported on Thursday that industrial production increased 0.2 percent in August after having advanced 0.9 percent in July.

Total industrial production for August was 3.4 percent above its year-earlier level, the Fed added.

Manufacturing, an important component in the data that economists looked to for its role in jobs and the economic recovery, rose 0.5 percent, the Federal Reserve report said.

Cliff Waldman , an economist for the Manufacturers Alliance, said that the August report on industrial production showed that the United States manufacturing sector was at a crossroads, with a rebound from the Japanese earthquake on one side against a slowdown in global economic activity on the other.

Despite sold gains in aerospace and furniture output, for example, there were signs that manufacturing was starting to feel the brunt of a sharp United States economic slowdown, Mr. Waldman said.

“The most likely near-term course for the U.S. manufacturing sector is positive but slowing growth,” he said in a statement responding to the Fed report. “However, with the U.S. economy at a near standstill and world growth slowing quickly, a dimmer outlook for U.S. factories cannot be ruled out.”

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China Inflation Rises Less Than in Previous Month

September 9, 2011 by Leave a Comment

The government’s Consumer Price Index rose by 6.2 percent over the previous August, according to the National Board of Statistics. That compares with a 6.5 percent rise in July. Producer prices were up 7.3 percent, slightly less than 7.5 percent jump in July.

Analysts cautioned, however, that inflation was likely to remain a long-term problem in a fast-growing economy in which middle-class demand for food and goods was rising and once-cheap manual labor was becoming more expensive.

Taming inflation has been the top economic priority of China’s leaders, who fear that high prices could fuel social unrest. Evidence that price increases are slowing down gives them some leeway to address the impact on of economic problems in the West, which are likely to reduce the exports on which China’s growth depends.

Inflation is “down but not out,” Alistair Thornton, a China analyst at IHS Global Insight, wrote in an early analysis of the state figures. Part of the decrease, he said, came from easing price increases for pork, one of the nation’s staple foods.

Food prices, which account for about a third of the Consumer Price Index, rose by 13.4 percent that month when compared with the previous year. But inflation in goods other than food actually rose last month to 3 percent, a 10-year high , he said.

“A lot of people have made the argument that China’s inflation is not concerning because it’s all food prices, all weather and supply shocks — bad harvests and the like,” Mr. Thornton said. “But the fact that non-food inflation is the highest it’s been in over a decade indicates there is something significant there.”

The government has been aggressively working to tame inflation for much of the year. China’s central bank, the People’s Bank of China, has repeatedly raised interest rates and bank reserve requirements to drain excess money out of the system, and restricted purchases of property to dampen land speculation. the latest figures show that new-home prices dropped or remained steady compared to June in 31 of 70 major cities, and average residential land prices declined nine percent month-on-month.

The government originally pledged to keep the annual inflation rate under four percent in 2011, but Premier Wen Jiabao, the top economic policy maker, more recently said the hope now is to keep it beneath five percent.

Signs of moderating inflation may enable the government to turn its attention to stimulating domestic demand, a move Western economic policymakers have urged China to make for years, J.P. Morgan wrote in a note on the latest figures.

“Support for domestic demand will come from the consumer side through employment growth, rising wages, and a higher individual income tax threshold and from the investment side through social infrastructure projects, such as the affordable housing program, water infrastructure and agricultural investments,” the firm’s China expert, Jing Ulrich, wrote.

A shift to domestic demand would help China’s economy weather any drop in exports related to slowing demand for good in the economically sapped West.

China’s stock markets rose in early trading, apparently in response to the better news on inflation.

Article source: http://www.nytimes.com/2011/09/09/business/global/china-inflation-rises-less-than-expected.html?partner=rss&emc=rss

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G-20 Officials Agree on Steps to Stabilize Food Prices

June 23, 2011 by Leave a Comment

The agreements were hailed by ministers as important steps, although some advocates said they did not go far enough, especially in tackling biofuel subsidies.

The initiatives included creating a database on food stocks to be managed by the United Nations’ Food and Agriculture Organization in Rome; a joint international research program on wheat; strengthening support for research into rice production; and a “rapid response forum” among Group of 20 members to assess and respond to food crises.

While investment in production was encouraged, the ministers did not offer specifics.

The ministers also agreed, in hard bargaining late Wednesday night, to remove export restrictions on food for humanitarian purposes and reaffirmed their opposition to export bans — an issue that will be taken up by the World Trade Organization. They asked the World Food Program to develop a pilot program for regional humanitarian food reserves.

“Concrete, very precise and ambitious measures will be taken,” the chairman of the meeting, the French agricultural minister, Bruno Le Maire, told reporters. “Better transparency in agricultural markets will translate into less price volatility.”

The president of the World Bank, Robert B. Zoellick, called the steps made here “modest,” saying, “It’s just a start, but it’s progress.” Mr. Zoellick was pleased, he said in an interview, that the Group of 20 had finally focused on agriculture and the continuing crisis he sees in food supply, especially for poorer countries with weaker links to the world’s financial and commodity markets.

Food stocks of wheat and corn are too low, he suggested, given the increasing demand for feed stocks from China, India and the developing world, where people are eating more meat. Keeping up with that increasing demand will not allow a growth in emergency food stocks unless more action is taken, he said. And if there is an unforeseen event or disastrous weather, these stocks might quickly disappear and prices would soar.

“We’re in a danger zone for a number of years,” he said. “If you get a bad weather event, you get hammered.”

The 24-page declaration was the result of months of negotiations. China and India, in particular, had been reluctant to release data on stocks, which are seen as strategic. Final agreement was obtained only at a dinner Wednesday night, attended by, among others, President Nicolas Sarkozy of France and Pascal Lamy, the chief of the World Trade Organization.

In general, Mr. Zoellick said, the Group of 20 allowed countries like China and India to take more collective responsibility for world crises and challenges. “This is where the G-20 can work, as long as they don’t feel ordered around by the bigger countries,” he said, citing the agreement by Beijing and New Delhi on food stocks. “They know it’s in their interest to do it.”

This first-of-a-kind meeting was called by France, the current holder of the Group of 20 and Group of 8 presidencies, after world food prices hit record levels earlier this year, raising concerns about a replay of the riots in some countries in 2007 and 2008.

The current spike — driven by drought in Western Europe, a Russian export ban last summer and bad weather in Canada and Australia — contributed to the social and political unrest in the Arab world this year.

In recent weeks there has been a slight letup in food prices, but the main wheat futures contract traded in Chicago remains up about 50 percent from its level a year ago. And few analysts expect a major retrenchment in prices in the months ahead.

With an eye on the presidential election next year, Mr. Sarkozy has complained about what he calls the damaging role of speculators in financial and food markets. But few analysts agree on whether speculators do much to move food prices, or even on how to tell when an investment is “speculative.”

International institutions like the World Bank and the Food and Agriculture Organization were happy that the political impetus coincided with their desire to create tools to help alleviate the effects of price swings on the poorest. But the ministers were unable to agree on how to curb speculation in agricultural markets.

France had pushed for establishing rules on position limits in futures markets leading up to the meeting, but failed to gain a consensus. The farm ministers instead said they “strongly encourage” finance ministers to “take the appropriate decisions for a better regulation and supervision of agricultural financial markets” before the closing summit of France’s Group of 20 presidency in Cannes in November.

There was also no accord on whether or how to cut or end subsidies on biofuels. In the declaration, ministers merely said they would “continue to address the challenges and opportunities posed by biofuels.”

“The problem is not biofuels in themselves,” said the Food and Agriculture Organization’s director general, Jacques Diouf. “The problem is the policies adopted by certain governments to encourage the development of biofuels.”

Olivier De Schutter, a professor tasked by the United Nations with reporting on food issues, said: “The final declaration is particularly disappointing on biofuels. There is a consensus among international agencies that this has been a major factor in the price increases of basic food commodities over the past four years.”

In the United States, about 37 percent of the corn crop in 2010 went to ethanol, and the figure will be no lower this year, Mr. De Schutter said. The American agriculture secretary, Tom Vilsack, noted that the issue was alive in Congress and said it was “likely that we will see changes in the way in which the industry is supported.”

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DealBook: HSBC Profit Up 58%

May 9, 2011 by Leave a Comment

HSBC said on Monday that profit rose 58 percent in the first quarter after the quality of its loan portfolio improved.

Net income rose to $4.2 billion from $2.6 billion in the period a year earlier, while charges for bad loans fell to $2.4 billion from $3.8 billion. Profit at its investment banking unit fell.

Stuart Gulliver, the chief executive, is scheduled to present a strategy overhaul to investors on Wednesday, including plans to reduce costs. Mr. Gulliver said on Monday that HSBC expected economic growth to slow this year from 2010.

“There remain a number of risks to the global recovery cycle in the short-term,” Mr. Gulliver said in a statement. “In the developed world, higher oil and food prices may slow the pace of recovery, while in emerging markets, higher inflation is dampening consumer sentiment.”

Earnings in Hong Kong and the rest of the Asia-Pacific region continued to grow in the first quarter even as the bank, which is based in London, spent more on employees and marketing. HSBC does not report more detailed profit figures on a quarterly basis.

HSBC continued to reduce its consumer finance portfolio in the United States and lending at its credit card business fell, the bank said. As a result, charges on bad loans fell by 30 percent. The business in North America remained profitable, but that profit fell 60 percent.

In Britain, HSBC set aside $440 million to cover possible claims by some customers that the bank had wrongly sold them a type of loan insurance. The step came after a British court ruled that several banks, including HSBC, were responsible to compensate customers. Barclays and the Lloyds Banking Group also provisioned for such costs.

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U.S. Consumer Prices Up 0.5%, Pushed Mainly by Food and Gas

April 15, 2011 by Leave a Comment

But while consumers are feeling the pinch at gas stations and grocery stores, economists emphasized that the March results were in line with the Federal Reserve’s view of the economy and should keep the policy-making board from raising its benchmark rate or ending its economic stimulus.

The Labor Department said that the Consumer Price Index rose 0.5 percent in March, matching a 0.5 percent rise in February. Gasoline and food prices accounted for almost three-quarters of the increase, but outside of those two areas, prices remained subdued. In the last 12 months, the index has increased 2.7 percent.

The core index, which excludes food and energy, rose 0.1 percent in March, compared with a 0.2 percent rise in February. The core index rose 1.2 percent in the last 12 months.

With a rise in food prices and gasoline now averaging $3.82 for a gallon of regular unleaded, inflationary pressures were likely to continue to affect household budgets in the short-term, economists said. “So if you don’t eat or drive a car, you are feeling little inflation,” the chief economist for PNC Financial Services, Stuart Hoffman, said.

Analysts had forecast an increase of 0.5 percent in the broader index and a 0.2 percent rise in the core index.

But underlying pressures as reflected in the core index are low.Mr. Hoffman and other economists said that the index was within the “comfort zone” of the Federal Reserve, whose policy-making board meets on April 26. As such, they said they did not expect the Fed to take any action on rates or its quantitative easing program, known as QE2, which is purchasing $600 billion in government securities.

“I think they will say the economy is on firmer footing,” Mr. Hoffman said. “At the end of the day they will reaffirm they are going to finish QE2.”

But he emphasized that the central bank would continue to be concerned about inflation expectations of consumers, who would demand higher wages, and businesses, which could post higher prices and perhaps cut spending.

The relatively slow increase of prices in the services sector, and the decline in apparel prices, were helping to offset price rises elsewhere, Dan Greenhaus, the chief economic strategist for Miller Tabak Company, said in a research note.

Friday’s report showed that prices for all types of gasoline rose 5.6 percent in March, compared with 4.7 percent in February. It was the ninth consecutive increase in the gas index. Food costs increased 0.8 percent in March, after they rose 0.6 percent in February, the biggest jump since September 2008.

Economists have been concerned that higher energy costs will constrain consumer spending, even though oil prices are expected to decline in the second half of the year. Consumers have also been coping with a trend of higher food costs, as bad weather has hit some agricultural commodities, including corn and wheat, while vegetable prices have risen because of cold weather in parts of the south. Cotton prices have also soared.

Paul Ballew, a former Federal Reserve economist and a senior vice president for Nationwide Insurance, said the Fed would be watching commodity prices over the coming months but would likely remain on the sidelines until 2012 as they gauge the sustainability of the recovery.

“You will start to see them talk about their exit strategy going forward,” he said.

Higher prices were also in focus in global economies. Higher consumer prices were reported Friday in India, Europe and China. In China, figures showed consumer prices rose 5.4 percent in March, up from February’s 4.9 percent. Inflation in the 17-nation euro region increased to an annualized rate of 2.7 percent from 2.4 percent in February, the European Union’s statistics office reported Friday.

Japan was highlighted in another economic report in the United States on Friday. A Federal Reserve report said industrial production grew 0.8 percent in March, above analysts forecasts of 0.6 percent and compared with a slight 0.1 percent rise in February. The report included a 0.7 percent rise in manufacturing output, especially for durables, and motor vehicles and parts.

But in the coming months, the sector could start to feel disruptions in supply caused by the March 11 natural and nuclear disasters in Japan, economists from Goldman Sachs wrote in a research report.In the United States, the report on consumer prices followed one on prices for wholesalers on Thursday. In that report, the Labor Department said higher energy costs accounted for almost all of the increase in the Producer Price Index, which was up 0.7 percent in March, when prices for a barrel of crude oil reached levels not seen since September 2008, partly as turmoil in the Middle East heightened perceptions that supplies could be disrupted.

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Rush to Use Crops as Fuel Raises Food Prices and Hunger Fears

April 7, 2011 by Leave a Comment

But last year, 98 percent of cassava chips exported from Thailand, the world’s largest cassava exporter, went to just one place and almost all for one purpose: to China to make biofuel. Driven by new demand, Thai exports of cassava chips have increased nearly fourfold since 2008, and the price of cassava has roughly doubled.

Each year, an ever larger portion of the world’s crops — cassava and corn, sugar and palm oil — is being diverted for biofuels as developed countries pass laws mandating greater use of nonfossil fuels and as emerging powerhouses like China seek new sources of energy to keep their cars and industries running. Cassava is a relatively new entrant in the biofuel stream.

But with food prices rising sharply in recent months, many experts are calling on countries to scale back their headlong rush into green fuel development, arguing that the combination of ambitious biofuel targets and mediocre harvests of some crucial crops is contributing to high prices, hunger and political instability.

This year, the United Nations Food and Agriculture Organization reported that its index of food prices was the highest in its more than 20 years of existence. Prices rose 15 percent from October to January alone, potentially “throwing an additional 44 million people in low- and middle-income countries into poverty,” the World Bank said.

Soaring food prices have caused riots or contributed to political turmoil in a host of poor countries in recent months, including Algeria, Egypt and Bangladesh, where palm oil, a common biofuel ingredient, provides crucial nutrition to a desperately poor populace. During the second half of 2010, the price of corn rose steeply — 73 percent in the United States — an increase that the United Nations World Food Program attributed in part to the greater use of American corn for bioethanol.

“The fact that cassava is being used for biofuel in China, rapeseed is being used in Europe, and sugar cane elsewhere is definitely creating a shift in demand curves,” said Timothy D. Searchinger, a research scholar at Princeton University who studies the topic. “Biofuels are contributing to higher prices and tighter markets.”

In the United States, Congress has mandated that biofuel use must reach 36 billion gallons annually by 2022. The European Union stipulates that 10 percent of transportation fuel must come from renewable sources like biofuel or wind power by 2020. Countries like China, India, Indonesia and Thailand have adopted biofuel targets as well.

To be sure, many factors help drive up the price of food, including bad weather that ruins crop yields and high oil prices that make transportation costly. Last year, for example, unusually severe weather destroyed wheat harvests in Russia, Australia and China, and an infestation of the mealy bug reduced Thailand’s cassava output.

Olivier Dubois, a bioenergy expert at the Food and Agriculture Organization in Rome, said it was hard to quantify the extent to which the diversions for biofuels had driven up food prices.

“The problem is complex, so it is hard to come up with sweeping statements like biofuels are good or bad,” he said. “But what is certain is that biofuels are playing a role. Is it 20 or 30 or 40 percent? That depends on your modeling.”

While no one is suggesting that countries abandon biofuels, Mr. Dubois and other food experts suggest that they should revise their policies so that rigid fuel mandates can be suspended when food stocks get low or prices become too high.

“The policy really has to be food first,” said Hans Timmer, director of the Development Prospects Group of the World Bank. “The problems occur when you set targets for biofuels irrespective of the prices of other commodities.”

Mr. Timmer said that the recent rise in oil prices was likely to increase the demand for biofuels.

It can be tricky predicting how new demand from the biofuel sector will affect the supply and price of food. Sometimes, as with corn or cassava, direct competition between purchasers drives up the prices of biofuel ingredients. In other instances, shortages and price inflation occur because farmers who formerly grew crops like vegetables for consumption plant different crops that can be used for fuel.

China learned this the hard way nearly a decade ago when it set out to make bioethanol from corn, only to discover that the plan caused alarming shortages and a rise in food prices. In 2007 the government banned the use of grains to make biofuel.

Chinese scientists then perfected the process of making fuel from cassava, a root that yielded good energy returns, leading to the opening of the first commercial cassava ethanol plant several years ago.

“They’re moving very aggressively in this new direction; cassava seems to be the go-to crop,” said Greg Harris, an analyst with Commodore Research and Consultancy in New York who has studied the trade.

In addition to expanding cassava cultivation at home, China is buying from Cambodia and Laos as well as Thailand.

Although a mainstay of diets in much of Africa, cassava is not central to Asian diets, even though the Chinese once called it “the underground food store” because it provided crucial backup nutrition in lean harvest years. So the Chinese reasoned that making fuel with cassava would not directly affect food prices or create food shortages, at least at home. The proportion of Chinese cassava going to ethanol leapt to 52 percent last year from 10 percent in 2008.

More distant or indirect impacts are considered to be likely, however. Because cassava chips have been commonly used as animal feed, new demand from the biofuels industry might affect the availability and cost of meat. In Southeast Asian countries where China is paying generously for stockpiles of cassava, farmers may be tempted to grow the crop instead of, for example, other vegetables or rice.

And if China turned to Africa as a source, one of that continent’s staple food crops could be in jeopardy, although experts note that exporting cassava could also become a business opportunity.

“This is becoming a more valuable cash crop,” Mr. Harris said. “The farmland is limited, so the more that is devoted to fuel, the less is devoted to food.”

The Chinese demand for cassava could also dent planned biofuel production in poorer Asian nations: in the Philippines and Cambodia, developers were recently forced to suspend the construction of cassava bioethanol plants because the tuber had become too expensive.

Thailand’s own nascent biofuel industry may have trouble getting the homegrown cassava it needs because it may not be able to match the prices offered by Chinese buyers, according to the Food and Agriculture Organization.

Biofuels development in wealthier nations has already proved to have a powerful effect on the prices and the cultivation of crops. Encouraged by national biofuel subsidies, nearly 40 percent of the corn grown in the United States now goes to make fuel, with prices of corn on the Chicago Mercantile Exchange rising 73 percent from June to December 2010.

Such price rises also have distant ripple effects, food security experts say. “How much does the price of corn in Chicago influence the price of corn in Rwanda? It turns out there is a correlation,” said Marie Brill, senior policy analyst at ActionAid, an international development group. The price of corn in Rwanda rose 19 percent last year.

“For Americans it may mean a few extra cents for a box of cereal,” she said. “But that kind of increase puts corn out of the range of impoverished people.”

Higher prices also mean that groups like the World Food Program can buy less food to feed the world’s hungry.

European biofuels developers are buying large tracts of what they call “marginal land” in Africa with the aim of cultivating biofuel crops, particularly the woody bush known as jatropha. Advocates say that promoting jatropha for biofuels production has little impact on food supplies. But some of that land is used by poor people for subsistence farming or for gathering food like wild nuts.

“We have to move away from the thinking that producing an energy crop doesn’t compete with food,” said Mr. Dubois of the Food and Agriculture Organization. “It almost inevitably does.”

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