Businesses across the US are broadening pay rises as inflation gallops at the fastest pace in 40 years, with employees struggling to match their wages with consumer prices. Retailers, airlines and resorts are boosting starting pay to attract recruits and offering company-wide bumps to staff’s base pay. Some 92 per cent of businesses plan to increase employee pay this year, up from 85% in 2021. Announcements from corporate America confirm trends reported in official data as US inflation reached 7.9 per cent in February, the highest level since 1982. Federal Reserve chair Jay Powell said wages were “moving up at ways that are not consistent” with its 2% inflation target after the central bank decided to raise interest rates this month. Workers have been slow to return to the labour force since the start of the Covid-19 pandemic and millions of those who are working have been able to leverage recruiters’ desperation to land new, higher-paying jobs. But then housing, transportation and food costs began to rise, forcing employers to offer broad-based pay raises and bonuses to retain staff. Airlines started announcing rises for their employees after staff shortages caused by the Omicron coronavirus wave forced thousands of flight cancellations around the festive season. Workers’ advocates say that even after receiving rises, many salaries still have less buying power than they did before the Covid crisis. Only 44% of organizations are planning to give their employees rises over 4%, even as inflation rises at almost double that rate. We’ve seen wages go up and down over the past two years. Half the people working in big companies were not making a living wage, so this was not starting from a good place. Then in the early days of the pandemic, we saw hazard pay, we saw bonuses, we also saw government intervention. The reality of rent increases and gas increases mean that wages are once again decreasing.

German inflation rose to its highest rate for 40 years as European Central Bank president Christine Lagarde warned that Russia’s war in Ukraine was delivering a “supply shock” to the eurozone economy. A 39.5% jump in energy prices from a year earlier was the main driver behind Germany’s higher than expected increase in harmonized consumer prices to 7.6%, which was announced hours after the government took the first formal step towards rationing gas supplies. Berlin is preparing for a potential halt in gas deliveries from Russia because of a dispute over payments. Presenting her gloomiest assessment yet of how the invasion would hit the bloc’s economy, Lagarde said Europe was “entering a difficult phase” as she outlined how the soaring price of energy, food and manufactured goods would squeeze consumers’ purchasing power. The war was pushing up prices, slashing growth and draining consumer and business confidence, Lagarde said in a speech on Wednesday. “Clearly, the longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios,” she said, specifying that higher energy prices had already cut eurozone income by 1.2% in the fourth quarter of 2021. “That figure would imply a loss of about 150 billion EUR in one year,” she added during a speech in Cyprus. The group of economists who advise Germany’s government warned of a “substantial” risk of recession if Russian energy imports were cut off, which could drive inflation in Europe’s largest economy as high as 9%. The council of economic advisers also slashed its 2022 growth forecast for Germany from 4.6% to 1.8% and raised its inflation prediction from 2.6% to 6.1%.  Meanwhile, annual inflation in Spain soared to 9.8% in March, its highest level since 1985, rising from 7.6% last month and well above expectations, the country’s statistics office said on Wednesday. Confidence fell among companies in industry and retail trade but was steady in services, the commission said. Inflationary pressures intensified as companies’ selling price expectations rose to a record high. The outlook for the labour market also worsened as consumer unemployment expectations rose sharply and employment expectations dipped in most sectors except for services. Investors are betting the ECB will raise rates several times and lift them back up to zero by the end of the year. They increased those bets on Wednesday, sending the benchmark German 10-year bond yield up to 0.7%, a four-year high. The ECB this month responded to soaring inflation by outlining plans to stop net bond purchases by September, setting the stage for it to raise rates this year if inflation stays high. Lagarde said on Wednesday: “The best way that monetary policy can navigate this uncertainty is to emphasize the principles of optionality, gradualism and flexibility.” But the ECB president also signaled that EU governments could do more to support the economy, saying: “Europe needs a plan to ensure that the necessary investment comes online as quickly and smoothly as possible, with public and private finance reinforcing each other.”

Ukraine has retaken the whole of the Kyiv region including several towns near its capital city, according to the country’s deputy defence minister. Ukraine’s national police force published a video filmed in Bucha and Hostomel, which is located near a key airport Russian forces sought to control. The video showed Ukrainian police teams in armored vehicles patrolling bombed-out neighborhoods including devastated buildings and cars. Russia has pulled back its troops from around Kyiv in recent days after failing to breach Ukrainian defences. Ukrainian officials said Russia was refocusing its offensive on the Donbas region — where it supported a separatist uprising in two breakaway “republics” in 2014 — the second city Kharkiv, and other areas in the country’s east. In a video address on Saturday night, President Volodymyr Zelensky accused Russian forces of mining territory behind them as they withdrew. “In the north of our country, the invaders are leaving,” he said. “It is slow but noticeable. In some places they are being kicked out with fighting. Elsewhere they’re abandoning the positions themselves. They are mining all this territory. Houses are mined, equipment is mined, even the bodies of dead people.” Russia confirmed this week that it was reducing military activity near Kyiv and the northern city of Chernihiv to focus its efforts on taking control of the Donbas. Ukrainian and Russian claims about military actions cannot be independently verified. Zelensky said in a Fox News interview that Ukraine would not give up any of its territory to Russia because its people would “not accept any outcome” other than victory. “We do not trade our territory,” the Ukrainian president said. “The question of territorial integrity and sovereignty is out of discussion.” Zelensky also raised the prospect of Ukraine joining Nato, which would go against Moscow’s central condition for a peace agreement. “It’s hard for us to talk about Nato because Nato doesn’t want to admit us,” Zelensky said. “I think it’s a mistake because if we join Nato, we make Nato much stronger,” he said, adding that Ukraine was “not a weak state”. The statements contradict what Vladimir Medinsky, Russia’s negotiator, said following the talks. Medinsky claimed that Ukraine had agreed to Russia’s principal demands of not joining Nato and on refusing to host military bases. Zelensky, who has repeatedly criticised Nato for doing too little to help Ukraine, said he had invited the US to be part of a future peace agreement in his recent conversation with President Joe Biden. Washington, he said, “is considering the proposition”.

Moody’s, S&P and Fitch have announced that as a result of sanctions imposed by the European Union, ratings assigned to Russia and Russian entities will be withdrawn by April 15. This is just one of the many consequences of Russia’s invasion on issuers domiciled there. Russian entities may soon be unrated, unbanked, unaudited and sans legal representation from former partners in a number of countries. The ratings withdrawal announcements came hot on the heels of major index providers disclosing that Russian securities are to be excluded from indices. For at least one provider, the decision to exclude Russian securities only came after a consultation with investors. Thus, it may be assumed that this action was considered best by the majority of the investing public. Sanctions imposed since 2014 mean that participation of some Russian issuers in the international capital markets – most notably the largest state-owned banks – has been in decline for many years. However, other previously unsanctioned issuers have, in part, filled this gap and Russian securities accounted for a significant part of CEEMEA indices. Added to this, it seems unlikely that all investors that wanted to sell Russian risk would have been able to do so given sometimes dire market liquidity conditions. With Russian securities losing ratings and exiting some benchmarks, there are questions about what investors ought to do with any Russian exposure that remains. There has been talk of creating side pockets for Russian assets – the UK FCA has begun discussions with stakeholders about allowing such arrangements for retail funds. As the UK regulator highlights, the creation of side pockets may mean that funds which are currently suspended can resume dealing, new investors can enter funds without exposure to Russia and existing investors can redeem the more liquid portion of their investments. The creation of side pockets may also make fund performance less volatile and more comparable across peer groups. This is important given that there is still very significant uncertainty about how the relationship between Russia and Ukraine will develop. Other solutions, such as the possibility of swapping foreign listings for local ones, may help address valuation challenges – at least for equity investors. In recent weeks, the coupon and principal repayment schedules of all bonds issued by Russian entities or entities with links to Russia has been very closely monitored. Even where sanctions do not currently bar such payments, additional checks involved in ensuring compliance have meant that in some cases, payments have been delayed. Select payments have not reached investors by the end of the relevant grace periods, though the willingness of most Russian issuers to remain current on outstanding obligations means issuers are seeking to remedy this. Complications around coupon and principal payments may worsen as sanctions are ratcheted up and licenses expire. There are other challenges too as not all countries are seeking to isolate Russia, and sanctions regimes vary from one jurisdiction to the next. Over the coming months, it will be important to navigate the complex web of restrictions faced by Russian issuers and others.