US President Joe Biden tweeted at oil retailers asking them to lower pump prices that are giving consumers heartache, as they have crossed $5 a gallon (Rs 395 for 3.78 litres) in some parts of the country. He added: “Do it now”, for good measure. Even before the oil retailers could respond, Amazon’s founder Jeff Bezos questioned the White House’s understanding of inflation, wondering if Biden’s message was misdirection or misunderstanding.
Last week, we had written about how the US midterm elections are a key monitorable, and Biden’s Twitter missive is a signal to his constituents that he has their back. Winning elections is equally about winning the war of perception. It does not help that news reports say that inflation has led to people scaling down their July 4 independence day celebrations. A recent WSJ report said several McDonald’s franchises have stopped selling the $1 beverage consumers had got accustomed to and were increasing prices. These could be political hot potatoes.
Biden has a task on his hands, convincing people he’s done all he could to tamp down inflation. His Press secretary replied to Bezos, saying: "But I guess it's not surprising that you think oil and gas companies using market power to reap record profits at the expense of the American people is the way our economy is supposed to work."
They may look wistfully across continents at India, where the government chose to levy a windfall tax on exports of fuel products and on crude oil. While they offered out hope to these companies by saying these levies will be reviewed periodically, the revenue secretary said it will be withdrawn only when oil prices fall by $40 a barrel or 36 percent from their current levels. That should dim any hopes of the tax being withdrawn any time soon although a fall in crude from current levels could see the quantum get lowered. Read Shishir Asthana’s take on why the tax takes the wind out of the oil and gas sector.
That the government has decided to impose this levy, following up on the earlier export levy on steel and higher levy on iron ore, and increase GST rates on several items indicates a desire to raise revenue. This may seem a puzzle to some as GST collections have risen to higher levels and are holding up at around Rs 1.4 lakh crore a month. It’s a different matter that even with this revenue collection level, not all’s well with the GST system, read here for more on what needs to be done.
Perhaps, the government anticipates providing subsidies to the poor for a longer time to alleviate rural distress. The ET reported that FMCG value sales in June slipped by 1 percent over a year ago. That this happened despite price hikes indicates a volume slump hitting consumption and likely among the lower-income consumers. The government may have to provide relief to the masses to get through this interim phase till inflation turns lower and growth improves, which is a difficult mix to achieve.
Then there is the matter of the outgo on subsidies provided to the farm sector as well and of the revenue loss due to lowering of excise duty on fuels. Does this raise the risk of higher taxes on the relatively well off — companies or individuals? A decisive answer will come when the Budget for 2023 is announced.
Meanwhile, the opening day of this week saw markets go nowhere really. In today’s edition, we charted the close correlation between central bank assets and the markets in Chart of the Day. Now central bank assets are set to shrink and inflation is making it worse. There are those who hope that the US Fed will also have a third eye on the risk of a deep recession, even as it does whatever it takes to hammer the life out of runaway inflation. Anubhav Sahu writes about the dilemma this poses for the Fed and what that could mean for domestic equity investors. Do read. And, if bonds are your thing, then you may be interested in a fund manager’s take on why much of the increase in the RBI’s policy rate is already priced in.
Investing insights from our research team
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Ruchir Sharma writes: Emerging markets are in better shape than you think (republished from the FT)Technical Picks: United Spirits, Guar seed, USD-INR, ICICI Bank, DLF and Aditya Birla Fashion (These are published every trading day before markets open and can be read on the app)