Top of the Pops
The government has decided to commit to temporary limits on the export of fertilizers in a bid to arrest climbing input prices that are bound to reduce the size of harvests next year in Russia and continue to elevate food prices. It'll last a half year and sets quota thresholds at 5.9 million tons for nitrogen fertilizers and 5.35 million tons for complex fertilizers. Few should be surprised by the announcement since these are the preferred policy tool to maintain market pricing mechanisms while trying to drive down prices by creating a relative increase in supply on the domestic market. We can see pretty clearly why they chose to act now:
In dollar and real terms, contracts and spot prices for US Urea and Brazilian output are way higher now than they were a year ago. Every additional export restriction increases the odds that the Central Bank will hike rates because they're lagging indicators – these are improvised attempts to get a handle on inflation without offering income support to pensioners and poorer households despite the fact that it is a) quite affordable with the oil & gas windfall at the moment b) not inflationary for basic commodities like food c) a net good for demand elsewhere that's flagging and likely to undermine capacity investment.
By no means are these problems specific to the Russian economy or policy environment on emerging markets. Policy and market trouble everywhere pose pricing risks. Living in central London, you notice incremental price increases for this or that good and supply chain disruptions leaving shelves emptier than usual. Moderate Republican in Trump's clothing Glenn Youngkin leveraged rising food prices by committing to cutting the Commonwealth of Virginia's 2.5% sales tax on food, something for which his Democratic opponents apparently didn't have an effective rebuttal. What's most important to me analytically is how what began as short-term interventions intended to reconstruct a system of price management designed to alleviate surges of inflation and protect the regime during a crisis has morphed into an all-encompassing mode of governance. It's not just that you can't fix price inflation by curbing exports – effectively Mishustin's team are betting on "exporting" inflation by withholding supply, but that ends up eventually driving up the price of whatever output is exported. Rates of price increase may be slowed, but can't be avoided entirely and so long as incomes keep falling or flatline, lower levels of inflation pose bigger risks. Of course, MinEkonomiki is now conducting a second review of its methodology for calculating incomes this year in a blatant attempt to make the figures look stronger, primarily by doing more to include earnings from investments into stocks that I wager would increase wealth inequality, do little to median incomes, but raise average incomes. Playing with data can only change so much.
The central problem of the current management approach is that it inevitably requires a strengthening of formal controls over the nuts and bolts of the real economy beyond the imposition of duties, tariffs, or quotas for trade if it's intended to be effective. I highly recommend the recent Odd Lots episode with Craig Fuller on the complexities of getting American ports operating 24/7 and the trucking industry. Regulatory management, intra-sector communication and competition, labor relations, all of these factors show up in unexpected ways in making sure a good gets from A to B on time. Logistical bottlenecks create inflation – hence why I'm always pushing for more infrastructure investment in Russia because of its size and relative underinvestment despite improvements in quality – and rapid down and upturns create waves of inflation and deflation within logistical sectors. US trucking got ahead of planned regulatory changes for 2019 and over-expanded capacity on the assumption truckers would quit, only to find there was too much capacity on the market. Many went bust as a result. Multiply these disjunctures, pileups, and bottlenecks across the planet right now. Food price inflation, to some degree, can be ameliorated by reducing shipping costs for bulk goods. Tariff increases from Russian Railways and the surge of containers from China onto the national logistical network are filtering into the decision-making for retailers. My basic contention is that the more sensitive the regime becomes to price instability whether it's a function of global markets or domestic factors, the more pressure it will face to manage short-term crunches when they significantly raise costs. Asking businesses to eat losses is not sustainable, nor are export limits as a strong fix when those exports have to be shipped to domestic consumers instead at a time where physical freight capacity is in high demand, relatively scarce, and undermined by consistent budgetary choices that don't meaningfully increase investment into infrastructure as a % share of GDP.
MinEkonomiki is preparing an amendment to the civil code intended to strengthen protections ensuring the fulfillment of corporate agreements. As of now, non-compliance within agreements is basically confined to cases involving forfeiture – basically a party giving up ownership of an asset or cash flows as compensation to a partnering party. The Ministry wants to empower courts to decide in place of a shareholder vote to extent that they could change the will of parties engaged in a contract, which then requires more transparency of the terms of contracts since individuals unaware of violations of a contract/a contract's terms who hold shares could suffer as a result. Imagine how hairy this gets with secrecy laws around sanctioned individuals. There's more in here and I need to consult the lawyers I know for more specifics as to how these types of cases would be argued, but basically it seems like another administrative fix to a problem that creates more problems, and weirdly enough could empower certain shareholders to do some absolutely mad stuff.
MinTsifry has worked out how to conduct public hearings and sessions for policy fora at the municipal level using the state services portal Gosuslugi. It's a small but important step towards creating a unified platform nationally to conduct basic affairs and interface with the public locally. Plus it makes it easier to keep track of what's going on where logistically.
The government is discussing price management mechanisms to keep diesel and jet fuel prices from rising further as they've already hit historic highs. Former head of the Federal Anti-Monopoly Service (FAS) Igor' Artyomov proposes changing the "damping" mechanism that has been used to alter effective tax takes that pass through to refined product prices in relation to crude oil and refinery gate prices. When export prices are high for crude/products, refiners receive subsidies through negative excise taxes to keep prices lower while still selling domestically. The fear now is that winter and expected future price increases will lead to hoarding of diesel and jet fuel supplies, thus driving up prices further and at a faster than overall inflation.
Belarus' Ministry of Transport wants to unify the regulation of aviation within the Union State to align all relevant laws pertaining to air travel. The proposal is aimed at addressing the potential exclusion of Belarus from the global system of aviation data used to manage and monitor the sector. There's no sign yet Moscow wants any part of it for real.
The Duma has been discussing genomic tracking for migrant laborers as the state ups the ante looking for ways to surveil (and control) the large illegal migrant population the economy relies upon to keep labor costs down in key sectors. Now Anatoly Vyborny is adding the possibility of applying the same system to anyone convicted of a crime before eventually applying the system to all Russians. Vyborny is just one voice on the Committee for Security and Anti-Corruption Activities looking for relevance and to do his job, but it's not a great sign of the times.
COVID Status Report
40,433 new cases and a record 1,195 deaths were reported today. The non-working days aren't bringing cases down it seems, and there have been almost 10,000 violations of mask requirements on public transport recorded for Moscow alone. Business ombudsman Boris Titov is telling authorities to authorize the import and use of all vaccines cleared by the WHO, who are now expressing grave concern about the rising caseloads and death rates seen across Europe (particularly Eastern Europe and Russia). Khabarovsk krai is using a lottery to encourage vaccinations so anyone who gets vaccinated in November could potentially win 3 tons of coal and a microwave. They really know how to motivate. Today's thin on good reporting I've seen (hence all the RBK pieces), but the last bit that caught my eye was that Rospotredbnadzor has extended a ban on mass events at schools but also says it'll continue sanitary requirements for schools imposed to adapt to the pandemic through 2024. Policymakers are now planning for the long haul, which isn't necessarily discouraging but interesting to note.
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