31/05/2025

BIZ & FINANCE SATURDAY | MAY 31, 2025

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Global airlines tackle trade, net-zero issues at summit

Tokyo core inflation hits 2-year high, rate hike hopes stay TOKYO: Core inflation in Japan’s capital hit a more than two-year high on persistent rises in food costs, data showed yesterday, keeping the central bank under pressure to hike interest rates further. But factory output slid in April in a sign manufacturers are feeling the pinch from slowing global demand, highlighting the dilemma the Bank of Japan faces in balancing inflationary pressures and the hit to the economy from steep US tariffs. The Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.6% in May from a year earlier, exceeding market forecasts for a 3.5% gain and perking up from a 3.4% rise in April. It was the fastest annual pace of increase since January 2023, when it hit 4.3%. Core inflation in Tokyo, seen as a leading indicator of nationwide price trends, thus exceeded the BOJ’s 2% target for three straight years. A separate index that strips away the effects of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 3.3% in May from a year earlier after a 3.1% rise in March. “The Tokyo CPI showed a further broad based acceleration in inflation, which suggests that the BOJ may hike even earlier than our current forecast of October,“ said Marcel Thieliant, head of Asia-Pacific at Capital Economics. A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end. Sticky food inflation remained the main driver of the rise with non-fresh food prices up 6.9% in May from a year earlier and the cost of rice soaring 93.2%. But services inflation also accelerated to 2.2% in May from 2% in April, suggesting companies were gradually passing on rising labour costs. “The fact services prices rose is positive for the BOJ, which wants to keep alive expectations of further rate hikes,“ said Masato Koike, senior economist at Sompo Institute Plus. “But US policy uncertainty will make it hard to keep the BOJ from hiking too soon. By the time the dust settles, price developments could have changed in a way that makes rate hikes difficult,“ he added. Many analysts expect consumer inflation to slow in coming months as falling crude oil prices and the drop in import costs from the yen’s rebound. The hit to exports from US tariffs and slowing global demand could also hurt Japanese manufacturers’ profits and discourage them from raising wages next year. Separate data released yesterday showed Japan’s factory output fell in April by 0.9% from the previous month. Manufacturers surveyed by the government expect output to increase 9% in May and drop 3.4% in June, the data showed. But food inflation may not allow the BOJ to pause on rate hikes for too long. Japanese firms plan to hike prices for 1,932 food and beverages in June, triple the number from a year ago, a survey by private think tank Teikoku Databank showed yesterday. BOJ Governor Kazuo Ueda told parliament yesterday the central bank was mindful that companies continued to actively hike wages and raise prices to pass on higher costs. “Japan may face a tricky situation where public attention to rising food prices heighten inflation expectations, which have so far been stable,“ said Tsutomu Watanabe, an academic at the University of Tokyo’s graduate school of economics. The BOJ ended a massive stimulus programme last year and in January raised short-term rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target. – Reuters

o Passenger growth at record highs but fare, delivery delays and sustainable aviation fuel cloud outlook NEW DELHI: An unpredictable trade war and daunting environmental targets are on the agenda for global airline bosses at an annual summit in India, as the industry addresses concerns that geopolitical uncertainty will dent strong travel demand and raise costs. More people are flying than ever before after a full post-pandemic passenger market recovery, but airlines globally are facing rising cost pressures, extended plane delivery delays, supply chain bottlenecks and a setback in recently strong fares. On top of this, US President Donald Trump’s evolving trade war has upended the aerospace industry’s decades-old tariff-free status and added a new layer of volatility, analysts say. While carriers in Europe and Asia report strong demand for flying, the US sector has been hit by a recent slump in travel demand, with carriers struggling to forecast passenger behaviour and operational costs. “You can’t say that a fall-off in consumer confidence and higher inflation are not going to mean less money in the wallet for people to spend,” Aengus Kelly, CEO of AerCap, the world’s largest aircraft leasing company, told Reuters. For now, airlines are filling planes but there are questions over the widely watched yield – or average fare per seat sold – they are able to charge as they tweak fares to fill cabins. Many, however, are also being cushioned from the worst effects of demand by a fall in fuel prices and a decline in the US dollar’s value. “Those tailwinds have insulated airlines, to date, from the worst effects” of demand, Kelly said. The Bundesbank, Germany’s central bank, has the world’s second largest stock of gold at 3,352 tonnes. One-third of it is stored at the Federal Reserve Bank of New York for reasons dating back to the Cold War and the monetary system created in the wake of World War Two. Those holdings have occasionally attracted scrutiny in the past, and the right-wing Alternative for Germany (AfD) has embraced calls for a return of the country’s gold back home. US President Donald Trump’s confrontations with longstanding allies over trade and security, and his attacks on the Fed, have revived the issue in recent weeks and more mainstream voices have joined the debate. Germany’s Taxpayers Federation sent letters this week to the Bundesbank and the Finance Ministry calling on them to repatriate the gold stored in the US. “Trump wants to control the Fed, which would also mean controlling the German gold reserves in the US” Michael Jaeger, the Taxpayers Federation’s vice-president, told Reuters. “It’s our money, it should be brought back.” Markus Ferber, an influential member of the European Parliament for Germany’s ruling Christian Democrats, said the US was “no longer

Trump’s trade war disrupts aerospace stability as US carriers struggle to predict demand and costs, while Europe and Asia see steady growth. – UNSPLASH PIX

airlines will struggle to meet their sustainability goals, and that it is not clear how the transition to sustainable aviation fuel (SAF) and new technologies will be financed. The broader aviation sector agreed in 2021 to target net-zero emissions in 2050 based mainly on a gradual switch to SAF, which is made from waste oil and biomass and costs more than conventional jet fuel. IATA director-general Willie Walsh has in recent weeks said the industry will need to re evaluate the commitment, though no change to industry goals is expected at the New Delhi event. Airlines are at odds with energy companies over scarce supplies of SAF, while also pointing the finger at Airbus and Boeing over delays in delivering more fuel-efficient jets. Governments are also likely to get some flak when Walsh delivers an often punchy address to airline bosses on Monday. “SAF demand exceeds supply and costs stay high; regulatory support remains inconsistent,” says Subhas Menon, director-general of the Association of Asia Pacific Airlines. – Reuters

The influential International Air Transport Association (IATA), which represents more than 300 airlines and over 80% of global air traffic, will hold its annual three-day meeting from Sunday in New Delhi. The summit, hosted by India’s largest carrier IndiGo, comes as the world’s third-largest air passenger market rapidly expands its aviation industry, and as air travel growth in Asia is expected to outstrip Europe and North America for the next few decades. India’s tensions with Pakistan are forcing airlines into costly detours, highlighting how conflict zones strain airline operations and profitability. IATA said in February that accidents and incidents related to conflict zones are a top concern for aviation safety requiring urgent global coordination. Aviation safety will also be in focus after a spate of air accidents in Kazakhstan, South Korea and North America over the past six months, and rising concerns about air traffic control systems in the US. IATA has increasingly been warning that Public broadcasters ZDF and ARD have also recently carried reports asking how safe Germany’s gold is in New York. The Bundesbank said the New York Fed remained “an important storage location” for its gold. “We have no doubt that in the New York Fed we have a trustworthy, reliable partner for the storage of our gold holdings,“ the central bank said in response to a Reuters enquiry. The German Finance Ministry referred Reuters queries on the matter to the central bank, while stressing the Bundesbank’s independence. Any hint that Germany might be considering moving gold out of New York would be politically sensitive as it could be interpreted as lack of confidence in the Federal Reserve and its independence. The European Central Bank last week stressed its trust in the Fed as a reliable partner. But Trump’s frequent criticism of Fed chair Jerome Powell, whose term ends in a year, has fuelled some concerns about the Fed’s future independence and its long-standing commitments to its partners. Peter Boehringer, the architect of the original decade-old gold campaign and now an AfD

Trump sparks concern over Germany’s gold in New York FRANKFURT: The safety of Germany’s gold reserves held overseas and in New York in particular, until recently mainly a talking point for the country’s far-right party and gold bugs, is becoming a matter of public debate with Donald Trump back in the White House. the reliable partner it used to be.” “Trump is erratic and one cannot rule out that someday he will come up with creative ideas how to treat foreign gold reserves,“ he told Reuters. “The Bundesbank’s policy for gold reserves has to reflect the new geopolitical realities.” lawmaker, said he felt vindicated that the topic of repatriating gold reserves has now become a matter discussed by mainstream media and other lawmakers. “When I started asking about the gold, I was dismissed as a conspiracy theorist,“ he said. “Today, after Trump, my concerns are shared widely.”

Germany accumulated most of its gold during its 1950s-1960s export boom. A key advantage of storing some of it in New York during the Cold War was to keep it at a safe distance from Russia in case of an invasion. The gold also cemented a military alliance with the US, which still has dozens of military bases around Germany, including Europe’s largest. With the Soviet Union long gone, the Bundesbank brought back 300 tonnes of gold from New York between 2014 and 2017, saying it wanted to “build confidence at home”. But Russia’s invasion of Ukraine, and the implicit threat it represents for the rest of Europe, was likely to complicate Germany’s geopolitical calculus again. For Ferber, this underscored the need for greater diversification across several, and potentially new locations. Today, Germany’s gold reserves are held at the Bundesbank headquarters in Frankfurt, in New York, and at the Bank of England in London. “For gold reserves, diversification is key. Having all eggs in too few baskets is never advisable,“ Ferber said, without specifying where the gold should be brought.