However, six months after the war’s start and the sanctions’ application, analysts are speculating whether the US-led Western bloc’s design of punishing Moscow financially has shown its real results. International observers have increased their estimates of the Russian GDP from earlier 2022. Russia’s economy has performed better than the original projections made immediately after the imposition of sanctions, partly due to factors like nimble technocratic Russian policymaking and competitive global energy markets.

However, the Russian economy is still experiencing a slower development rate than it did during the 2008 financial crisis, and it is unlikely that a post-crash recovery will follow this slowdown. Moreover, living standards are sustained by social spending, which will be challenging to maintain and require difficult budgetary decisions for the government in the upcoming years. As time goes on, the war’s price and the sanctions’ impact on regular Russians will only increase.

Russia Tightens Belt

Start by looking at some macroeconomic data to assess the state of the Russian economy. Since the start of the war, the fall rate has been rising, and Russia’s GDP has decreased by about 5% from 2021. Although the manufacturing sector has decreased by 4.5%, industrial production, including Russia’s energy industries, has reduced by just approximately 2% compared to 2021 (a reflection of the high energy costs). The inflation rate is just over 15%, a little decline from the peak of about 18% following the March collapse and subsequent recovery of the ruble. In addition, inflation-adjusted monthly salaries are down by around 6% from 2021.

Russia’s inflation statistics may not accurately reflect that purchasing some goods is now ranging from occasionally challenging to almost impossible. Similar problems in estimating the effects of a lower quality are seen with inflation statistics. The Russian government is modifying laws to permit the sale of cars without airbags or antilock brakes, which are now challenging to manufacture due to supply chain issues. Although economists won’t reflect this decline in quality in inflation statistics, Russians will soon notice it, particularly the urban, affluent section of the population who consume more of the imported goods that are now more difficult to obtain.

Even after accounting for the inflation recorded by official data, salaries drastically declined, falling by almost 6% from 2021. Inflation has been eroding social welfare payments like pensions since the Ukraine war started. To make up for this, the government raised pension payments by more than 8% in June 2022. However, if no substantial increases in social spending are made in the ensuing months, the average Russian’s income will decrease in the year’s second half. In addition, retail sales are down over 10%, which shows that consumers have already begun saving in preparation for future budget cuts.

Oil Continues To Flow

Some businesses have already been severely impacted by decreasing living standards, even if households are only now starting to experience their effects. Therefore, it is more enlightening to examine each sector independently rather than using aggregate industrial output numbers. The natural resources industry has not been significantly impacted, which is not surprising given the high prices and Western sanctions that have been put in place to maintain the free flow of primary commodities, including oil, up to this point.

The trade-in of natural resources is primarily responsible for the durability of the Russian economy. The United Kingdom and the EU have been softening sanctions set to go into effect against Russian oil exports with the covert assistance of the United States. The West has backed down from attempts to prevent Russia from diverting oil shipments to other clients, such as China and India, to prevent a spike in energy prices. As a result of recent changes to the restrictions, European businesses will now be permitted to ship Russian oil to third parties.

The volume of Russian oil exports has remained mostly steady since sanctions were put in place because the West has only recently enforced severe penalties for Russia’s energy exports and since the EU’s oil import ban won’t go into effect until December 2022. Russia is being forced by sanctions to sell oil at a discount of roughly USD 20 per barrel compared to market benchmark pricing. However, the most recent data on monthly oil tax receipts published by the Russian government indicates that the country is earning around the same amount from exports as it did in January 2022. Since the Kremlin prohibited its sale to Europe, natural gas export revenues have plummeted, far less significant to Russia than oil exports.

Troubled Industry

The output of vehicles, trucks, locomotives, and fibre optic cables has decreased by more than 50%, making them among the worst-affected industries. Businesses with less exposure to foreign ownership or complex supply networks, like textiles or food processing, have been on the flatter side or occasionally rising production compared to 2021.

The evacuation of Japanese, American, and European companies with plants in Russia is one reason for this industrial disruption. While some of these factories will reopen under new Russian management, running them could be challenging. Obtaining sufficient supplies is a challenge for manufacturers as well. It is now much more difficult to get components from outside because it is more difficult to obtain, ship, and pay for even goods that are not officially restricted. Regarding the challenges, his company faces in shipping and paying for imported components, the CEO of Moscow-based railroad equipment company Transmashholding told Russian media, “I cannot say we’re facing a total blockade. But there is more friction now.”

The crucial question is whether these industrial disruptions change for the better or worse in the coming months. On the one hand, Russia has had over six months to set up alternate payment and logistics systems, which should enable some essential unrestricted imports to enter the nation. However, Russian businesses, when polled, claimed that they were still using their existing inventories, suggesting that they were still having trouble finding the required components. Moreover, according to monthly data, Russian imports of industrial products and parts are still significantly below levels before the war.

Russia’s industrial sector must need to have a secure future, due to multiple reasons. First, the industry is a crucial source of employment, particularly in what the Russians call “monogamous towns,” dependent on a single factory or sector and frequently located in the Urals or Siberia. Layoffs in these cities have historically sparked large-scale riots and social unrest that have proven politically unstable. According to recent research by a Russian think group, sanctions will directly affect 50% of all monogamous towns. Given the government’s constrained budget, Russia’s government will have difficulty raising money to support hampered industries.

Since the Kremlin ceased disclosing spending information, perhaps to conceal the costs of the conflict, it has become more challenging to understand how Russia’s government finances operate. The last month for which Russia provided comprehensive data was April, and during that month, defence spending had grown by 40% annually. As a result, the Kremlin will need to set aside significant future resources to restore the massive stock of equipment lost or destroyed on Ukrainian battlefields, in addition to more substantial salaries and operating costs to pay for the attack on Ukraine. Moreover, as regional governments are requested to organise volunteer battalions, the costs of the war are mounting, not only for the central government but also for them.

Over 2023, inflationary pressure will increase due to this spending binge. As a result, the amount of money the government receives has decreased. Due to the minor dip in global oil prices since June and the vast discounts at which Russia must now sell its oil, Russia’s oil tax revenues have fallen to more typical levels than the bumper revenues it was generating in the first few months after the invasion. However, non-oil tax revenue has sharply decreased. After accounting for inflation, non-oil revenue fell by about 15% over the first seven months of 2022; this percentage is likely to rise throughout the rest of the year.

As a result, if current trends continue, Russia’s budget will be heading toward a significant deficit. Of course, this situation might significantly alter in the upcoming months if oil prices rise and tax revenue increases. But if the war rages on and living conditions drop, spending needs will not disappear.

The Kremlin will be in a difficult situation if the budget deficit increases. Although Iran had almost no debt when the war began, Western sanctions have prevented it from issuing new bonds to most foreign investors. It might allow the ruble to weaken versus the dollar, which would balance the budget since Russia’s government expenditure is in rubles. A decline in the currency, however, would increase inflation, worsen living standards as a result, and jeopardise the Kremlin’s claim that the Russian economy is solid and that the sanctions are ineffective.

A Toll Too High

The Kremlin is, in some ways, correct to claim that the Russian economy has stabilised. Most of its industries are working, as usual, its banks remain solvent, and its vital energy sector is still producing oil. Even though there aren’t many luxury cars available, there is still plenty of food on store shelves. Nevertheless, customers will put off making large purchases if they can because the production of vehicles and washing machines will be much lower than anticipated. The Kremlin’s best-case scenario is that Russians tighten their belts and manage.

Even though the first effect was less devastating than the West or Russia predicted, the consequences of the war and sanctions are still mounting. The Russian government is currently content with having lasted through six months of Western sanctions. However, the Russian industry will still have difficulty transitioning to a world without imported Western components during the course of 2023. If oil prices do not rise, the Russian government will have to make more challenging decisions on whether to maintain social expenditure while accepting budget deficits and high inflation. The Russian economy will not fall apart to the point where the Kremlin’s military efforts are put on hold. However, the country is currently experiencing a severe recession, a period of decreased living standards, and scant prospects for a speedy recovery.

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 Food
The most essential aspect of human life – food, is one of the top picks for many. In the UK, many have cut down on food as they feel that it has been a major reason for burning a hole in their pockets. Paul and Amanda shared their concerns about having to spend on food and how restricting the purchase of food has become the need of the hour. They claim that despite the fact that once in a while they do opt for takeaways and go out for meals, it’s not a regular affair like how it was in the past.

“We’re just more mindful now, of expenditure,” Amanda said.

They have also restricted themselves from purchasing branded products and are looking out for good deals and own-brand items. Paul said, “We can’t just go in there and buy what we like now, we have to think, Well, hold on a minute.”

“We have to look at: What do we really want? What do we really need? Do we really need that luxury? Do we really need those sweets?”

Paul, who has been shopping around and buying products in bulk, claims that he has a reason for doing so.

“Just to make sure that if we buy this now, that will last a month or two,” Paul said.

And it has not only been just Paul and Amanda, but about two-thirds of people have been consuming less food than before, while many have cut down on their takeaway meals. More than half the people who took part in the survey claimed that they had skipped meals on multiple occasions in the past six months to save money. Meanwhile, grocery analysts have predicted that food prices will rise this summer due to soaring costs.

Institute of Grocery Distribution (IGD) said that the prices are expected to increase by 15% as households usually spend money on staple food like bread, meat, dairy, fruits and vegetables. IGD also warned that the more vulnerable people will skip meals. Prices would rise faster for longer than the Bank of England estimates, it predicted. The IGD, which provides analysis to major grocers, said due to the Ukraine war the United Kingdom was facing the highest cost of living pressures since the 1970s. Both Ukraine and Russia contribute to nearly a third of global wheat exports. Russia’s invasion of Ukraine has resulted in increasing grain prices.

The cost of products such as bread, which is derived from grains, and chicken, which is fed on grains is expected to increase, according to IGD. As chickens hardly take a few weeks for their growth, the price rise will be felt by the consumers sooner. The driving fuel costs also will push the food prices higher. In addition, the price of fertilizers has nearly tripled since last year. As a result of the invasion, the roads, ports, and warehouses in Ukraine have been heavily damaged in the war. Due to this, the volume of exports will be reduced for years to come, IGD said, piling up pressure on supplies of wheat and sunflower oil.

At least two-thirds of the people on the Seasonal Agricultural Workers scheme last year were from Ukraine, but this year, Ukrainian men have been told to stay and fight against Russia. The new workers need training and as a result of which those costs will feed into price rises, IGD said. Since the UK gets around 40% of its food from other countries, it is well exposed to global food price rises.
Adding more worries, since Brexit, European Union producers are less likely to prioritize their customers in UK. IGD stated that higher inflation could last longer than expected if there are more bans on food export or trade disruption because of Brexit border arrangements in 2023.

Clothes
After food, the next thing most people spend their money is on clothing. Thanks to the recent price rise in her food, electricity, and gas bills, Rebecca says that her family’s shopping habits need to take a cut.

“We know the further rise in gas and electricity is coming in October, so we’re just trying to get into good habits now,” said Rebecca.

Despite Rebecca never being a “big spender” on her fashion needs, her daughter Jess is exactly the opposite.

“We have to rein back the amount of money that we’re spending on clothes. We have to make sure we’re making the most of what we’ve got, as opposed to going out and buying new,” she said.

Much to Rebecca’s relief, her daughter’s school will be providing free school uniforms. BBC cost of the living survey suggests that in the last six months, three-quarters of people have cut down on their clothing shopping expenses and nearly half of them have shelled out less money for their children’s clothing.

Travel
Georgia feels that she can save money by spending a day out at Birmingham’s Cannon Hill Park rather than shelling out extra bucks by taking her daughter Harper-Faye to a visitor attraction.

“I haven’t got the money to go to Sea Life Centres and stuff. That’s like, GBP 25 a ticket,” Georgia said.

As far as travel goes, she claimed that she is not taking her car out as much as did in the past.

“The diesel [price] is absolutely crippling me. I can’t go out as much as I used to, not a chance. I can’t afford it. I need to make sure I can get to work and back, and that’s my priority at the moment,” she added.

Echoing similar views, Lisa, a disabled power chair user who lives near Ashford in Kent, also claimed that she’s cutting back on her car use due to the rise in fuel rates.

Lisa said, “I am having to choose whether I can afford to go out. I have a wheelchair-accessible vehicle, but obviously, fuel is really expensive, so I’m having to make choices on how often I can afford to go shopping – just to get to the shops, let alone affording the price rises once you get there as well.”

The BBC survey revealed that nearly two-thirds of people have restricted their travel and trips. With all the three aspects coming into play one could say that it’s going to be a rough ride ahead for everyone.

UK interest rates increased to 1.25% by the Bank of England. Due to the pace of soaring prices, the Bank of England has further increased the interest rates. The interest rates, which are the fifth consecutive rise, have increased from 1% to 1.25%, which has pushed them to the highest level in 13 years.

This has come at a time when the cost of living is increasing with every passing day. Inflation is currently at a 40-year high of 9%, with the Bank warning that it could surpass 11% later this year.

Where inflation is the highest and lowest?
The average annual inflation rate in the first quarter of this year was at least twice what it was in the first quarter of 2020, as COVID-19 was beginning its deadly spread. In 16 countries, first-quarter inflation was more than four times the level of two years prior. (For this analysis, Pwe Research used data from the Organization for Economic Cooperation and Development, a group of mostly highly developed, democratic countries. The data covers 37 of the 38 OECD member nations, plus seven other economically significant countries.)

Among the countries studied, Turkey had by far the highest inflation rate in the first quarter of 2022: an eye-opening 54.8%. Turkey has experienced high inflation for years, but it shot up in late 2021 as the government pursued unorthodox economic policies, such as cutting interest rates rather than raising them.

The country where inflation has grown fastest over the past two years is Israel. The annual inflation rate in Israel had been below 2.0% (and not infrequently negative) every quarter from the start of 2012 through mid-2021; in the first quarter of 2020, the rate was 0.13%. But after a relatively mild recession, Israel’s consumer price index began rising quickly: It averaged 3.36% in the first quarter of this year, more than 25 times the inflation rate in the same period in 2020.

Besides Israel, other countries with very large increases in inflation between 2020 and 2022 include Italy, which saw a nearly twentyfold increase in the first quarter of 2022 compared with two years earlier (from 0.29% to 5.67%); Switzerland, which went from ‑0.13% in the first quarter of 2020 to 2.06% in the same period of this year; and Greece, a country that knows something about economic turbulence. Following the Greek economy’s near-meltdown in the mid-2010s, the country experienced several years of low inflation – including more than one bout of deflation, the last starting during the first spring and summer of the pandemic. Since then, however, prices have rocketed upward: The annual inflation rate in Greece reached 7.44% in this year’s first quarter – nearly 21 times what it was two years earlier (0.36%).

Annual U.S. inflation in the first quarter of this year averaged just below 8.0% – the 13th-highest rate among the 44 countries examined. The first-quarter inflation rate in the U.S. was almost four times its level in 2020’s first quarter.

Regardless of the absolute level of inflation in each country, most show variations on the same basic pattern: relatively low levels before the COVID-19 pandemic struck in the first quarter of 2020; flat or falling rates for the rest of that year and into 2021, as many governments sharply curtailed most economic activity; and rising rates starting in mid- to late 2021, as the world struggled to get back to something approaching normal.

But there are exceptions to that general dip-and-surge pattern. In Russia, for instance, inflation rates rose steadily throughout the pandemic period before surging in the wake of its invasion of Ukraine. In Indonesia, inflation fell early in the pandemic and has remained at low levels. Japan has continued its years-long struggle with inflation rates that are too low. And in Saudi Arabia, the pattern was reversed: The inflation rate surged during the pandemic but then fell sharply in late 2021; it’s risen a bit since, but still is just 1.6%.

Inflation doesn’t appear to be done with the developed world just yet. An interim report from the OECD found that April’s inflation rate ran ahead of March’s figure in 32 of the group’s 38 member countries.

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“Any actions to impose a price cap will lead to a deficit on (initiating countries’) own markets and will increase price volatility,” Nikolai Shulginov said.

In reaction to Moscow’s invasion of Ukraine, the finance ministers of the United States, Germany, Italy, Japan, Great Britain, France, and Canada approved last week the concept of regulating the price of Russian petroleum. This would reduce Moscow’s income.

According to the International Energy Agency, before sending tens of thousands of troops into Ukraine in February, about half of Russia’s oil and petroleum product exports went to Europe.

Meanwhile, the G7 proposal to set a cap on the price of Russian oil prompted the Kremlin to threaten the West with retaliation.

During an interaction with reporters, Kremlin spokesman Dmitry Peskov said, “There can only be retaliatory measures.”

The cap was approved by the Group of Seven finance ministers recently in an effort to put pressure on Russia over its activities in Ukraine, but Moscow has pledged to stop selling to nations who are implementing it.

Dmitry Peskov stated last week that Russia was researching the economic effects of capping the price of its oil exports and that such a move would cause instability in the world oil market.

The cap was necessary, according to a senior economic advisor to Ukrainian President Volodymyr Zelensky, who applauded the development.

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Until recently, the world’s largest and fifth-largest exporters of wheat, as well as the two greatest exporters of sunflower oil, were Russia and Ukraine. Both countries are agricultural powerhouses. Therefore, it was not surprising that food prices rose in February and March as a result of worries that the war would hamper exports. In fact, the concern was that shortages would endure, decimating grain reserves and leading to widespread hunger.

Now, it seems as though that awful result was avoided. Wheat futures in Chicago for December delivery fell this week to USD 7.70 per bushel, down significantly from the USD 12.79 high they had reached three months earlier and back to where they had been in February.

The cost of corn has returned to its pre-war level. In the meantime, the price of palm oil, which is used in countless recipes from ice cream to instant noodles, has plunged below.

Only a small portion of the shift can be attributed to the recent United Nations-mediated agreement that permits Ukrainian grain exports to leave the port of Odessa because it was reached in late July.

According to the American Department of Agriculture, Russian farmers won’t be interrupted and will export a record 38 million tonnes in 2022–23—about 2 million tonnes more than they did the year before. Due in part to favorable weather earlier in the year, a big harvest is currently under progress, and typical importers in North Africa, the Middle East, and Asia are in high demand.

It’s possible that initial shortage fears were exaggerated. At the time, Charles Robertson of Renaissance Capital, an investment firm, suggested that grain traders were overexcited and had mixed up less likely lengthy disruptions to the food supply with long-term disruptions to the oil and gas supply.

The volatility may also be explained by the enormous amount of speculation taking place in futures markets. According to Michael Greenberger of the University of Maryland, who was once a division director at the regulator Commodity Futures Trading Commission, American banks often break the law by assigning swaps to their foreign companies.

Consumers won’t instantly benefit from the price reduction. When priced in dollars, the cost of wheat and other cereals has returned to its pre-invasion levels, but not in many other currencies. Due to the surge in the dollar this year and the Federal Reserve’s anticipated faster rate increases, certain developing market economies are struggling. This year, the Egyptian pound has declined by 18% and the Turkish lira has fallen by 27% against the dollar. Two of the top three wheat importers in the world are these two nations.

Even before the conflict, prices were high by historical standards, and there is no assurance they won’t do so again. Crop output will be impacted by the widespread droughts around the world. Meanwhile, fertilizers are still costly.

The cost of urea, a substance required to produce nitrogen-based ones, is currently USD 680 a tonne, down from USD 955 in mid-April but still significantly more than the USD 400 it was then. That is a reflection of the rising price of natural gas, which is a component of fertilizers. Many more such surprises are yet to come in the future.

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1) High demand

There was a lot of pent-up demand after the pandemic. People were itching to travel, to go to restaurants and bars, and shop in stores again. They were also eager to see friends and family members after a long time. The demand led to a lot of spending once the lockdown ended.

Prices rise when there are scarcity and/or high demand for products or services. A corporation will boost its pricing if material, labor, or shipping costs increase due to shortages. Companies will also charge more if they discover that customers are willing to pay more due to scarcity.

2) Supply chain disruption & China’s zero covid policy

We are currently witnessing a perfect storm of factors, which began with a scarcity of all varieties of commodities during the coronavirus epidemic, owing to industrial closures and logistical jams in some of the world’s largest export hubs, such as China. It increased the costs of raw materials, manufactured goods, and transportation, which customers had to bear.

3) Excessive money printing

The Federal Reserve’s money printing policies are inflationary and are a long-term threat to the economy. The Fed has been printing money at an unprecedented pace in recent years, which has led to higher prices for goods and services. This policy is not sustainable in the long run and will eventually decrease the dollar’s purchasing power. Countries around the world pushed money into their economies to assist buyers and businesses tormented by income loss during the pandemic.

4) Overconsumption

People went on spending sprees with their government assistance money and savings when they began to emerge from the lockdown. It, along with a shortage of goods, reduced the availability of everything from refrigerators to shoes. Companies responded by raising their prices.

5) Ukrainian war

By impeding commerce in natural gas, oil, and grains, Russia’s aggression in Ukraine in February exacerbated the issue. Wheat, a mainstay in much of the world, has risen in price, as have the prices of heating and cooling homes and businesses, fueling automobiles and jets, and hauling products. It also increased the cost of fertilizer, making food production more expensive. It means that if wages do not keep pace, many people will be unable to commute to work, eat enough, or put up the thermostat in the autumn and winter.

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Volcker became famous four decades ago, when the cost of living in the US was higher than the current 8.6%, as the central banker who was prepared to drive the world’s biggest economy into deep recession to squeeze inflation out of the system.

Now, Jerome Powell, the current chairman of the Federal Reserve, has unearthed his inner Volcker. Powell was adamant last year that the rising US inflation was a temporary phenomenon. He said just last month that a 0.75 point increase in official borrowing costs was not on the table.

Now it appears that a rattled Fed is attempting to catch up. The data indicated in a report on June 12 showed an unexpected 8.6% rise in annual inflation, which surprised Powell and his colleagues.

According to the latest Fed thinking, inflation is at risk of becoming embedded because demand is too high for a supply-side that has been damaged by the COVID pandemic and the Russia-Ukraine war.

According to the Fed, the move which raises the US rate to between 1.50% and 1.75%, is expected to be followed by more rises. Wall Street now expects a 0.75-point increase in borrowing costs next month, followed by a 0.5-point increase in September.

The Fed’s shift in strategy has ramifications for both the United States and the rest of the world. Higher inflation is already having an impact on spending in the United States, as evidenced by a decline in retail sales.

The Fed’s action also puts pressure on other central banks to follow suit, many of which have been taken off guard by the strength and durability of inflation. Higher interest rates will strengthen the dollar, making debt repayment more expensive for countries that have borrowed substantially in US currency. A developing country’s debt crisis has moved a step closer.

Powell is attempting to orchestrate a gentle landing for the US economy by lowering annual inflation rates without causing a recession. However, this may be more difficult than he believes.

A recent report co-authored by former US Treasury Secretary Larry Summers suggested that Powell will need to take steps similar to that taken four decades ago.

“In order to return to 2% core consumer price inflation today, we need nearly the same five percentage points of disinflation that Volcker achieved,” the paper concludes.

The shock treatment administered by Volcker in the early 1980s resulted in official interest rates nudging 20% and the unemployment rate hitting a postwar high of 11%. The impact was particularly brutal on small towns in America’s industrial heartlands, which have never recovered.

Food, gas and shelter costs rise
According to the latest consumer price index (CPI) numbers, the cost of living grew by one percentage point in April. The increase was broad-based, with the indexes for shelter, gasoline, and food contributing the most.

Gas prices have been rising across the United States, with rates approaching USD 5 per gallon, up to USD 1.90 from a year earlier. The energy index increased 4%, while the gasoline index rose 5%, according to the CPI report. Other important component indexes increased as well. In May, the food index jumped by 2%, while the food at home index increased by 1%.

The May month rise was driven by sharp increases in energy costs, which rose 35% from a year earlier, and groceries, which jumped 12% on the year.

Food and energy prices are more volatile than other categories included in the CPI, and the labor department publishes a core prices index that excludes them. It rose 0.6% from April. The news sent stock markets into a tailspin. The S&P 500 and Dow indices fell over 2% and the tech-heavy Nasdaq was down over 4%.

Inflation fears have hurt US President Joe Biden’s poll scores, and his administration has tried to blame rising prices on Russia’s invasion of Ukraine. Food and energy prices have risen as a result of the war in Ukraine and the ongoing disruption to global trade caused by the coronavirus outbreak.

However, there were alarming signals that inflation was spreading. In comparison to a year ago, the cost of housing increased by 6%. Prices for used automobiles and trucks jumped 2% in May from April, bringing the year-to-date increase to 17%.

The annual increase in inflation was more than what the economists had predicted, rising from 8.3% in April. Inflation is now running at a rate last seen in December 1981. The Federal Reserve raised interest rates by 0.5 percentage points last month, the highest increase since 2000, and economists believe the Fed will continue to raise rates at a faster pace.

“What an ugly CPI print. Not only was it higher than expected on almost all fronts, pressures were clearly evident in the stickier parts of the market. The decline in inflation – whenever that finally happens – will be painfully slow. The Fed’s price stability resolve is going to be really tested now. Policy rate hikes will need to be relentlessly aggressive until inflation finally starts to fade, even if the economy is struggling,” Seema Shah, Chief Strategist at Principal Global Investors said.

US unemployment rate steady at 4%
US employment increased more than expected in May, while the unemployment rate held steady at 4%, which is a sign of a tight labor market that could keep the Federal Reserve’s foot on the brake pedal to cool demand.

Nonfarm payrolls increased by 390,000 jobs in May, the Labor Department said in its closely watched employment report. Data for April was revised higher to show payrolls rising by 436,000 jobs instead of 428,000 as previously estimated.

Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs last month. Estimates ranged from as low as 250,000 jobs added to as high as 477,000.

The report also showed solid wage gains last month, sketching a picture of an economy that continues to expand, although at a moderate pace. The Fed is trying to dampen labor demand to tame inflation, without driving the unemployment rate too high. The US central bank’s hawkish monetary posture and the accompanying tightening of financial conditions have left investors fearful of a recession next year.

Economists are split on whether the moderation in the pace of job growth is because of cooling labor demand or worker shortages. They urge investors to focus on the unemployment rate and wage growth to gauge the tightness of the jobs market. There were 11.4 million job openings at the end of April, with nearly two positions for every unemployed person.

Though the cries of a recession are growing louder, most economists believe the economic expansion will persist through next year. They acknowledged that high inflation was eroding consumers’ purchasing power and business investment, but argued that the economy’s fundamentals were strong and that any downturn would likely be mild.

US stock market rallies after increase in interest rate
After the Fed increased the interest rate the US stocks soared on June 16. The S&P 500 rose 54.51 points, or 2%, to 3789.99, snapping a five-day losing streak. The Dow Jones Industrial Average added 303.70 points, or 1%, to 30668.53, and the Nasdaq Composite rose 270.81 points, or 3%, to 11099.15.

The Fed’s move is its latest effort to quell inflation through tighter monetary policy. Investors had largely expected the Fed to raise its short-term benchmark rate by 0.75 percentage point.

Dorian Carrell, a fund manager at Schroders said that ultimately the guidance the Fed gives about the direction of interest rates is more important for markets than the size of the rate increase. Uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 on Monday into bear-market territory, or a drop of at least 20% from a previous high.

Art Hogan, chief market strategist at National Securities said markets are pricing in a Fed that’s trying to get in front of the curve rather than behind the curve on inflation.

That helped lift stocks heading into Wednesday’s rate decision, he added.

Stocks rose broadly, with 10 of the S&P 500’s 11 sectors ending higher.

Charlie Ripley, Allianz Investment Management said that the Fed’s commitment to fighting the inflation battle more aggressively despite the potential aftermath of raising rates at such a rapid pace.

“Overall, Fed policy rates have been out of sync with the inflation story for some time and the aggressive hikes from the Fed should appease markets for the time being,” he added.

Technology stocks, which have been among the hardest-hit areas of the market this year, were among the biggest gainers. Microsoft, Nvidia, Amazon.com and Netflix each added about 3% or more.

Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed with the KBW Nasdaq Bank Index up 2%.

Energy stocks slid, marking a relatively rare retreat for the year’s best-performing S&P 500 sector. The S&P 500 energy sector fell about 3%.

Meanwhile, US government bonds rallied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade. The yield on 10-year Treasurys slipped to 4% from 5%. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and prices on peripheral government bonds in the eurozone jumped after the ECB held an ad hoc meeting Wednesday to discuss turbulence in the region’s bond markets.

The ECB outlined a plan to buy more bonds of weaker eurozone governments under an existing bond-purchase program. It tasked ECB staff with accelerating the design of a new instrument that would narrow differences in borrowing costs across the region, addressing financial imbalances that have long posed a problem to the currency union.

Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management said that they wanted to make sure financing conditions don’t deteriorate too much. He said the meeting signaled that the ECB was ready to cushion markets earlier than investors had expected.

The Stoxx Europe 600 rose 1.4%, led by shares of banks and insurers. Shares of Italian banks, which own a substantial chunk of government bonds, had suffered as the debt fell in price. Intesa Sanpaolo and UniCredit were among the best performers in the European market.

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Notably, 16,000 Syrians have reportedly volunteered to join the war against Ukraine. Not to forget, the Russian intervention is essential for the Syrian establishment, and over the last decade or so they have shielded the Syrian regime led by Bashar al-Assad in the UN Security Council in addition to providing military hardware.

Earlier, the UAE which has been a steady ally of the US over the years abstained from voting against Russia in the United Nation condemning Russia’s military adventurism. The Saudis too, like the UAE, another strong US ally, have not made a clear stand with the US’s reluctance to help them in light of the Houthi insurgence. Twenty-eight African countries voted against Russia, 17 abstained in line with their non-alignment principles and eight abstained.

The majority of the support comes from countries under their respective liberation party rules which found Soviet Russia as an ally during their freedom struggle against the western imperialist forces.

Other than this, much of the support comes from countries where a private military contractor Wagner Group is essential for the stability of those countries. Wagner is owned by a Russian oligarch, who enjoys close ties with Putin. This includes countries like Mozambique, the Central African Republic, and Mali.

Iran and Turkey have been Russia’s closest allies in the region with Iran subjected to a similar form of ostracisation for its nuclear ambitions.

Even big oil is a factor. The OPEC countries where Russia is a strong player in the cartel want to stay united and dictate control over the global oil price.

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Like many other firms in the US and the wider world, both Visa and Mastercard had said that they would also stop their business in Russia. This follows multiple sanctions slapped against Moscow over its unprompted aggression against neighbour Ukraine. The ban will also be applicable to cards issued by local subsidiaries of foreign banks.

Following the decision by these two major companies, American Express and Paypal too have decided to suspend their operations in Russia.

This decision will not only impact cross-border transactions but also have an impact on Russians who are stranded outside their country. All EU nations have closed their airspace for Russian flights. In a retaliatory measure, Russia too has stopped incoming flights from many nations. There are many Russian nationals who are stuck in far-off places like the Caribbean islands and Cuba among others. Closer to home, travellers in Bulgaria have to make their way to Russia via Turkey or Serbia.

As part of the wide economic sanctions, major Russian banks were also de-platformed from the SWIFT– Worldwide Interbank Financial Telecommunications (SWIFT) system. This meant that they would have major hurdles in completing transactions with other financial institutions across the globe.

As a counter to the SWIFT, Russia has developed an alternative SPFS which is being used again mostly for domestic transactions. There is also speculation that the SPFS will be integrated with China’s Cross-Border Inter-Bank Payments System.

Similarly, to counter this ban by Visa and Mastercard, Russian banks are considering cards issued by China’s UnionPay. Already major banks like Sberbank and Alfa-Bank have started working towards implementing this change, according to reports. Other banks that are considering introducing UnionPay credit cards are Rosbank, Tinkoff Bank, and the Credit Bank of Moscow (MKB).

Currently, UnionPay is accepted in more than 180 countries. There are proposals by some banks to issue cards with joint UnionPay and Mir payment systems.

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