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Inflation speculation

I’m working madly to finish The Fiscal Theory of the Price Level. This is a draft of Chapter 21, on how to think about today’s emerging inflation and what lies ahead, through the lens of fiscal theory. (Also available as pdf). I post it here as it may…

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I'm working madly to finish The Fiscal Theory of the Price Level. This is a draft of Chapter 21, on how to think about today's emerging inflation and what lies ahead, through the lens of fiscal theory. (Also available as pdf). I post it here as it may be interesting, but also to solicit input on a very speculative chapter. Help me not to say silly things, in a book that hopefully will last longer than a blog post! Feel free to send comments by email too. 

Chapter 21. The Covid inflation 

As I finish this book's manuscript in Fall 2021, inflation has suddenly revived. You will know more about this event by the time you read this book, in particular whether inflation turned out to be ``transitory,'' as the Fed and Administration currently insist, or longer lasting. This section must be speculative, and I hope rigorous analysis will follow once the facts are known. Still, fiscal theory is supposed to be a framework for thinking about monetary policy, so I would be remiss not to try. 

Figure 1. CPI through the Covid-19 recession.

Figure 1 presents the CPI through the covid recession. Everything looks normal until February 2021. From that point to October 2021 the CPI rose  5.15% (263.161 to 276.724), a 7.8% annual rate.

What happened, at least through the lens of the simple fiscal theory models in this book? Well, from March 2020 through early 2021, the U.S. government -- Treasury and Fed acting together -- created about $3 trillion new money and sent people checks. The Treasury borrowed an additional $2 trillion, and sent people more checks. M2, including checking and savings accounts, went up $5.5 trillion dollars. $5 trillion is a nearly 30% increase in the $17 trillion of debt outstanding at the beginning of the Covid recession. Table 21.1 and Figure 2 summarize. ($3 trillion is the amount of Treasury debt purchased by the Fed, and also the sum of larger reserves and currency.  Federal debt held by the public includes debt held by the Federal Reserve.)

M2, debt, and monetary base (currency + reserves) through the Covid-19 recession.

Some examples: In March 2020, December 2020, and again in March 2021, in response to the deep recession induced by the Covid-19 pandemic, the government sent ``stimulus'' checks, totaling $3,200 to each adult and $2,500 per child. The government added a refundable child tax credit, now up to $3,600per child, and started sending checks immediately. Unemployment compensation, rental assistance, food stamps and so forth sent checks to people. The ``paycheck protection program'' authorized $659 billion to small businesses. And more. The payments were partly designed as economic insurance, transfers from people doing well during covid to those who had lost jobs or businesses, and efforts to keep businesses from failing. But they were also in large part, intentionally, designed as fiscal-monetary stimulus to boost aggregate demand and keep the economy going. The  massive ``infrastructure'' and ``reconciliation'' spending plans occupied the Congress through 2021, adding expectations of more deficits to come.  

From a fiscal-theory perspective, the episode looks like a classic fiscal helicopter drop. There is a large increase in government debt, transferred to people, who do not expect that debt to be repaid. It is a``fiscal shock,'' a decline in surpluses s_t, with no expectation of larger subsequent surpluses. Of course it led to inflation! 

We might try to think of the episode as a rise in debt B_t without future surpluses that raises expected inflation. But this does not look like expected inflation. The Fed, Administration, survey expectations, low interest rates, and private forecasts were completely surprised by inflation. As of the end of 2021 the Fed and Administration continue to proclaim it ``transitory,'' i.e. not expected to continue, and interest rates remain low. Survey expectations have risen. The divergence between  survey expectations and bond markets is intriguing, and the expectations hypothesis is known for its failures at short-run forecasting. But even this rise only came in the middle of the event, not with the bond sales as a rise in expected inflation would do. 

But the frictionless model is too simplistic to track an episode. We must think of the event with at least some sticky prices and long-term debt in mind. As a start, one might think of the fiscal shock with no interest-rate response and sticky prices of Figure 5.6. That model quickly resolves a first discrepancy: In the frictionless model, a fiscal shock does not raise the value of debt, and an AR(1) fiscal shock results in a lower value of debt. In the event, the value of debt rose. But the value of debt also rises in the sticky-price model of Figure 5.6. Higher inflation with constant nominal interest rates lowers the real rate, so the discount-rate effect accounts for the higher value of debt despite lower surpluses. In this view, the higher debt-to-GDP ratio is transitory and will be slowly inflated away. (The figure posits that 40% of a fiscal shock is inflated away, and 60% is eventually repaid. This event looks like a larger fraction will not be repaid. But the Figure still gives a first sense of dynamics.) 

In the model, Figure 5.6,  inflation starts immediately, while there was a year delay in the data. One might want a different model of price stickiness, or model the anecdotal evidence that people waited a year to start spending their newfound money. Most likely, the first stimulus checks did not fully reveal to people how large the final fiscal expansion would be. My expectations suffered several shocks in the same direction; I did not expect $5 trillion when it started. Or, perhaps the expectation that the debt would not be repaid took some time to settle in. Perhaps the debate over the large ``build back better'' bill cemented expectations on that score. 

A monetarist might object that this event was (finally) proof of MV=PY. Helicopter yes, but helicopter money, not helicopter bonds. M2 rose $5.5 trillion, the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.  

Why did this stimulus cause inflation, and that of 2008, or the deficits  from 2008 to 2020, did not do so? Federal debt held by the public doubled from 2008 to 2012, as inflation went nowhere. (Figure 5.6.) From the fiscal theory point of view, the key feature is that people do not believe this debt will be paid back. (In principle discount rates or real interest rates could be different, but in this case they are nearly the same.) So why, this time, did people see the increase in debt and not infer higher future surpluses, while previously they did? Several speculations suggest themselves.

First, we can just look at what politicians said. In 2008 and following years, the Administration continually offered stimulus today, but promised deficit reduction to follow. One may take those promises with a grain of salt. But at least they bothered to try. This time there was no talk at all about deficit reduction to follow, no policies, no plans, no promises about how to repay this additional debt. Indeed, long-run fiscal policy discussion became focused on how low interest costs, r<g, and modern monetary theory allow painless fiscal expansion.  The discussion of tax hikes in the spring and summer of 2021 focused entirely on paying for some of the ambitious additional spending plans, not repaying the Covid helicopters. 

Second, much of the expansion was immediately and directly monetized and sent to people as checks. The previous stimulus was borrowed, and funded government spending programs that have to gently work their way into people's incomes. Following 2008, M2 did not rise as much as debt. The QE operations were mostly confined to a switch of bank assets from Treasury debt to reserves, as we see from the contrast between the monetary base (currency + reserves) and M2 in Figure 2. (Note the base is on a different scale.) 

Money and bonds may be perfect substitutes, but who gets the money or debt and how can still matter. Traditional buyers of Treasury debt have savings and investment motives. (Think of an insurance company.) If the Fed instantly buys the debt, and Treasury sends reserves (checks) to people, the larger debt  goes quickly to people who are likely to spend gifts quickly. Debt sold to traditional bond purchasers, who show up at Treasury auctions or buy from broker-dealers, sends a different signal than money simply created and sent to people. This statement implies some slow-moving capital frictions and heterogeneity, but most of all it echoes the idea that the institutional context of debt expansion matters to expectations of its repayment. We distinguished Treasury actions as a share issue and reserve creation as a split, differing only in the expectations of repayment that each engenders.  We distinguished ``regular budget'' and ``emergency budget'' deficits, likewise signaling backed vs. unbacked expansions. Since the desire was stimulus, and stimulus requires the government to find a way to communicate that the debt will not  be repaid, one can regard the effort as a success at its goal, finally overcoming the expectations of repayment that made previous stimulus efforts fail, guilty only of having overdone it. 

Third, the Covid-19 economic environment was clearly different. The pandemic and lockdown shock is fundamentally different from a banking crisis and recession shock of 2008. GDP and employment fell faster and further than ever before, and then rebounded most of the way, also faster than ever before. From a macroeconomic point of view,  the Covid-19 recession resembles an extended snow day rather than a traditional recession. One might call that a ``supply shock,'' as the productive capacity of the economy is temporarily reduced, but demand falls as well, for the same reasons that people don't rush out to buy in a snow day either. (I write ``from a macroeconomic point of view.'' A million people died in the U.S., an ongoing public-health disaster. Many people suffered lost jobs and businesses.) Roughly speaking the economy was operating at its reduced ``supply'' capacity all along, not needing extra ``demand.''  Providing that ``demand'' could reasonably spill more quickly to inflation. 

Will inflation continue? You'll know the answer, and I don't. But it's worth writing how one might think about the question. The $5 trillion total fiscal expansion is an approximately 20% expansion in debt. If the expansion came with no change at all in expected future surpluses, that will result in a cumulative 20% price-level rise, once we work through all the dynamics. Several commentators view this outcome positively: An unexpected crisis is met with a Lucas-Stokey state-contingent default, a wealth tax, via inflation. Whether that optimal tax argument extends to stimulus payments rather than insurance or war-fighting is a bit more tenuous. But the effect will be to have financed the stimulus payments by a wealth tax on government bonds. 

But that's it. Whether inflation continues depends on future fiscal and monetary policy, and whether people have changed their expectations of future repayment and the underlying monetary-fiscal regime. If people regard the stimulus payments as ``emergency budget'' expenditures that will not be repaid, but the existing 100% of GDP debt still to be repaid, and the additional borrowing of the years ahead  back to the ``regular budget,'' that will be repaid, fiscal inflation need not continue. If, however, having changed their expectation that greater debts, especially those that finance cash transfers, are now not to be repaid, additional deficits will lead to additional inflation, and additional debt issues will just raise nominal interest rates. 

The models remind us though that bad fiscal news can only affect unexpected inflation, though sticky prices, long-term debt, and endogenous policy responses can smear out that basic logic over many years. Once Covid passes, the U.S. will likely be back on the previous track of trillion dollar deficits in good times and $5 trillion in each crisis. Not sustainable, but not news. Thus, if the 2020s are the decade of fiscal inflation, that will likely come from changing expectations of repayment, or a changing (higher) discount rate, not particularly important news about short-term deficits. Such expectations can shift slowly, hope triumphing over experience several times in a row, which along with the smoothed dynamics can lead to a decade of inflation, not a one-time price-level jump. 

What of monetary policy? The episode and the decade will likely offer different interpretations, which may help to sort out the fiscal theory plus rational expectations view, and the traditional adaptive expectations view, in which higher interest rates reliably lower inflation, interest rates rather than fiscal affairs are the main cause of inflation, and swift more than one-for-one response is necessary to keep inflation from spiraling out of control. 

From the traditional perspective, the Fed's monetary policy in 2020 and 2021 is a significant institutional failure. The Fed was caught completely by surprise. The Fed claims that supply disruptions caused inflation. But the Fed’s main job in the conventional reading is to calibrate how much ``supply'' the economy can offer, and then adjust demand to that level and no more. A central bank offering supply as an excuse for inflation is like the Army offering that the enemy chose to invade as excuse for losing a war. If the Fed is surprised that containers can't get through ports, why does it not have any of its thousands of economists calculating how many containers can get through ports? The answer is that the Fed's ``supply'' modeling is pretty simplistic, relying mainly on the non-inflationary unemployment rate (NAIRU) concept. More deeply, the Fed worked with Treasury on the stimulus in the first place, misdiagnosing the economy's fall as simple lack of ``demand,'' not disruption due to a virus and lockdowns. 

More broadly, the general policy discussion involving Fed, Administration, politicians and pundits relating inflation to specific markets and supply shocks, like containers stuck in ports, confuses relative prices for inflation. Supply shocks cause relative price changes. Strawberries are more expensive in winter. That's not inflation. Aggregate supply is the relationship between the rise of all prices and wages together, and the total amount produced in the economy.  That is a question about the nature of shocks to the Phillips curve, which may or may not have anything to do with supply restrictions of individual markets. Inflation is a decline in the value of the dollar. In that sense all inflation comes from ``demand.'' Blaming inflation on microeconomic shocks, corporate greed,  producer collusion, speculators, hoarders, middlemen, price-gougers, and other hunted witches goes back centuries.  Trying in vain to talk or threaten down prices goes back centuries. The Roosevelt Administration tried to cure deflation by creating monopolies to raise prices. Kennedy, Johnson, Nixon and Ford all pressured companies to lower prices and unions to lower wages. None of it worked. The Biden Administration's effort to attack oil companies for collusion will fail just as predictably.  

Going forward, in this conventional reading of monetary policy, the Fed seems primed to repeat the mistakes of the 1970s. The Fed of the early 1970s also blamed inflation on price shocks, and declared inflation to be transitory. The Fed's 2020  strategy review practically announces a return to 1970s policy. The Fed will deliberately let inflation  run hot for a while, running down a static Phillips curve, in an effort to boost employment. The Fed will wait until inflation persistently exceeds its target before doing anything about it.  The Fed will return to filling ``shortfalls'' rather than stabilization, a return to the belief that even at the peaks the economy can never run too hot.  The Fed understand “expectations” now, unlike in 1971, but views them as a third force,  amenable to management by speeches, rather than formed by a hardy and skeptical experience with the Fed’s actions, a durable ``rule'' or ``regime.''  And the ``strategy'' is so flexible that pretty much any discretionary action can be justified. To be a bit charitable, this strategy was developed before 2020 and is designed to ward against zero-bound deflationary spirals with ample inflationary forward guidance.  But if inflation continues, that will now be an exquisite Maginot lineThe absence of contingency planning for inflation will be laid bare. In the conventional reading,``anchored'' expectations come from one place only: belief that the Fed will, if needed, replay 1980: Sharp persistent interest rate increases that may cause a painful recession, but the Fed will stick with them as long as it takes. But though our current Fed says  it has “the tools” to contain inflation, it's remarkably reticent to state just what those tools are. Do people believe our Fed will do it? 

But the simple fiscal theory models in this book are kinder to the Fed. The Fed could tamp down inflation by swiftly raising rates, and exploiting whatever mechanism lies behind a negative short-run effect. And we have seen that rate rises are useful to smooth fiscal shocks, producing slow steady inflation rather than sharp price-level jumps. But the emphasis on a greater than one-for-one response, and the view that failing to promptly follow that policy will lead to instability is gone. 

Indeed, if the rational expectations versions of the models in this book are right, inflation is stable under an interest rate target. If the Fed left the interest rate alone, inflation would eventually return, though transitory may take a long time and involve a lot of short-run dynamics on the way. All the hedgeing of Section 5.3 still applies. The Fed would have to say this is its strategy, which it certainly does not do, and stick with it while short-run dynamics and fiscal shocks run their course. If people think that after a certain amount of inflation the Fed will give in and raise rates, then inflation will start up in advance and the strategy would fall apart. Still, history may be kind to the Fed and suggest that it worked its way to such a strategy by ``as-if'' experience-based action, even though the Fed's models and theories say otherwise. 

Suppose inflation does surge in the 2020s. What will it take to stop it? The traditional view demands a sustained period of high real interest rates. If expectations are adaptive or mechanistic, that period of real interest rates must cause a fairly deep recession. 

The fiscal theory plus rational expectations view offers more possibilities. A period of high real interest rates will likely be the policy choice, using whatever the short-run negative response is to quickly push inflation down, and then nominal rates can quickly fall to the new lower expected inflation. Whether it works, and how much recession is involved depends on that mechanism. The long-term debt mechanism we have explored requires that the higher rates are unexpected and credibly long-lasting. But financial friction or other mechanisms may have other preconditions, and we will learn what those mechanisms are. 

The model, and Sargent's timeless analysis of the ends of inflations, opens another possibility: A credible joint fiscal, monetary, and microeconomic reform, can allow a relatively painless disinflation, and one in which nominal interest rates fall immediately in Fisherian fashion. 

Which of these will happen? A repeat of 1980 will be harder this time. Most obviously, the willingness of our government to sustain a deliberate, bruising and persistent recession, with monetary stringency rather than the monetary largesse of 2008 and 2020, seems much weaker. However, a decade of inflation may change that, as it did in the 1970s. 

But no matter which theory applies, fiscal policy will place a greater constraint on monetary policy based on high real interest rates. In 1980, the debt-to-GDP ratio was 25%. In 2021 it is 100%, and rising swiftly. If our government wishes to repeat 1980, it will first of all have to pay four times larger real interest costs on the debt. 5% real interest rates mean 5% of GDP additional deficit, $1 trillion 2021 dollars, for each year that the real interest rates continue. That amount must be paid by higher primary surpluses, immediately or credibly in the future.  Will our government do it? The last time debt-to-GDP was 100%, in the aftermath of WWII, the government explicitly told the Federal Reserve to hold interest rates down to help finance the debt. 

Second, the government will have to raise surpluses further, to pay a windfall to long-term bondholders, as it did in the 1980s. People who bought 10-year Treasury bonds in September of 1981 got a 15.84% yield, as markets expected inflation to continue. From September 1981 to September 1991, the CPI grew at a 3.9% average rate. By this back-of-the-envelope calculation, those bondholders got a 12% annual real return. That return came courtesy of U.S. taxpayers, though largely through growth and a larger tax base rather than higher tax rates. This effect is  now four times larger as well. 

Finally, but largest of all, this time the underlying problem will likely be more clearly fiscal. The U.S. government will have to solve the long-run fiscal problem and convince bondholders once again that the U.S. repays its debt. 

Without the fiscal backing, the monetary stabilization will fail, and that applies to all our theories.  In a fiscally-driven inflation, it can happen that the central bank raises rates to fight the inflation, that raises the deficit via interest costs, and only makes inflation worse. This has, for example, been an analysis of several episodes in Brazil. The simulations of Section17.4.2 make this point explicitly. 

But the chance of any such large fiscal contraction, a thoroughgoing fiscal reform, seems remote in current U.S. politics. Anchoring of expectations from the belief that this will all happen smoothly seems doubtful. 

A successful inflation stabilization always combines fiscal, monetary, and microeconomic reform, in a durable new regime that commits to pay its debts. 1980 was such an event, not just a period of high interest rates. High interest rates can drive down inflation temporarily in all these models, giving time for the fiscal (1986 tax reform) and microeconomic reforms to take effect. In their absence, inflation takes off again. A new inflation stabilization would have to be such an event as well, but in the face of at least four times larger debts, larger structural deficits, and a more deeply entrenched regulatory regime. 

Or, inflation may fade away and all this speculation will apply to 2040 or 2050. 

 

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Commodities

Saudi Arabia Signals Backing For Russia In OPEC+

Saudi Arabia Signals Backing For Russia In OPEC+

Authored by Tom Ozimek via The Epoch Times,

Saudi Arabia has signaled its support for Russia as…

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Saudi Arabia Signals Backing For Russia In OPEC+

Authored by Tom Ozimek via The Epoch Times,

Saudi Arabia has signaled its support for Russia as a continued member of the OPEC+ oil cartel, which comes amid ongoing Western pressure to sanction and isolate Moscow over the Ukraine invasion.

Saudi energy minister Prince Abdulaziz bin Salman told the Financial Times in an interview published on May 22 that he sees Russia as an integral part of the OPEC+ group of oil producers, adding that politics should be kept out of the alliance.

He said Saudi Arabia hopes “to work an agreement with OPEC+ … which includes Russia,” referring to a new crude production deal. Oil pumping quotas under the current OPEC+ agreement struck in 2020 are set to expire in several months.

While the United States banned oil imports from Russia in March, member states of the European Union remain divided on phasing out Russian crude imports.

OPEC and its allies are unwinding record output cuts put in place during the worst of the pandemic in 2020, although they have rebuffed Western pressure to raise output at a faster pace as energy consumers grapple with the highest oil prices in years.

Oil prices surged above $130 per barrel in March over concerns of disrupted supplies from Russia, although they have since eased.

Brent crude futures rose by 22 cents to $112.77 a barrel by midafternoon on May 23, while the U.S. benchmark West Texas Intermediate crude fell 49 cents to $109.79.

High crude prices have translated into pain at the pump for drivers. The average price of regular-grade gasoline in the United States spiked 33 cents over the past two weeks to $4.71 per gallon, according to the Lundberg Survey, while JPMorgan analysts expect prices to climb above $6 a gallon by the end of the summer.

In his interview with the Financial Times, Prince Abdulaziz blamed soaring gasoline prices on taxes and a lack of global refining capacity.

The U.S. Energy Information Administration (EIA) said that the Russia–Ukraine conflict has injected greater volatility into oil markets.

“Sanctions on Russia and other independent corporate actions contributed to falling oil production in Russia and continue to create significant market uncertainties about the potential for further oil supply disruptions,” EIA said in the outlook, noting that Russia sanctions came against a backdrop of persistent upward oil price pressures and low oil inventories.

Global oil inventory levels in April in developed countries stood at 2.63 billion barrels, up marginally from February, when they fell to their lowest level since April 2014, EIA said.

“Because oil inventories are currently low, we expect downward oil price pressures will be limited and market conditions will exist for significant price volatility,” EIA noted.

The agency predicts Brent will average $103 per barrel in the second half of 2022, before falling to $97 per barrel in 2023.

In its most recent monthly report, OPEC cut its forecast for growth in world oil demand in 2022, citing the impact of the Ukraine war, surging inflation, and pandemic curbs in China.

Tyler Durden Tue, 05/24/2022 - 05:00

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International

Pandas wants to give Latin American businesses buying power in Asia

Pandas connects Latin America’s small businesses directly with Asian manufacturers to reduce logistical problems and high fees often imposed by importers…

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Access to global supply chains can be difficult for small businesses in Latin America, but companies like Meru, which raised funding in March to source and import goods between Mexico and China, and now more recently Pandas, are tapping into overseas relationships and technology to make this easier.

In Pandas’ case, the company is doing something similar to Meru, but starting in Colombia, connecting small businesses directly with Asian manufacturers, so that they can reduce the high fees often imposed by half a dozen importers and intermediaries as well as logistical problems that all businesses are facing right now where inventory is now taking many more months to arrive than during pre-pandemic times.

Co-founders Rio Xin and Marcos Esterli started Pandas just three months ago to provide Asian-origin inventory to micro-businesses in Latin America. Their collective background includes careers at McKinsey and Treinta for Esterli, and McKinsey, with more than seven years spent in China, for Xin, where he told TechCrunch he developed a strong network in the region.

“The main issue that we’ve seen is people who don’t understand the Chinese language or how Chinese manufacturers work and then you add in the logistical problems,” Xin added. “We are able to bridge the breach, while at the same time having our team in China to overcome all these logistics problems.”

Pandas B2B marketplace. Image Credits: Pandas

Here’s how it works: Businesses order products via the Pandas marketplace, touting lower pricing, in which the business can make purchases in a few clicks. Pandas takes it from there, offering one-day-delivery and customer support.

Esterli explained that people in Latin America have been using smartphones for their personal finances and other tasks, but that has not translated as quickly to the business side.

“A lot of customers told us Alibaba was something they wanted to use, but that it was very complicated to figure out,” he added. “We wanted to build an easy solution that was super intuitive because business owners don’t have that time to spend.”

Initially providing basic electronics products — think headphones, accessories and cables — and with a new round of funding, $5.8 million pre-seed, Pandas will move into categories like textiles and home accessories. The company touts the pre-seed investment as “the largest pre-seed financial in Spanish-speaking LatAm to date.”

Third Kind Venture Capital led the round and was joined by Acequia Capital, Picus Capital, Tekton Ventures, Partech, Liquid2 Ventures, Clocktower Technology Ventures, Gaingels and a host of individual investors, including Tul’s Juan Carlos Narvaez, Jose Jair Bonilla from Chiper, Treinta’s Man Hei and Lluís Cañadell, Pablo Viguera from Belvo, Nowports’ Alfonso de los Rios, Sujay Tyle from Merama and Ironhack’s Gonzalo Manrique.

So far in its young journey, the company is growing 100% month over month and has amassed a supplier network of about 300 out of 5,000 in China, Xin said.

In addition to moving into those new inventory categories, the new capital will enable Pandas to scale its operations, technology and product development and make new hires.

Xin expects to be in most of the main markets across Latin America in the next three years. In the meantime, new features coming down the pipeline in the next 12 months include a suite of fintech and analytics tools like financing.

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Government

Monkeypox cases are rising. Should we be worried?

The World Health Organization has said the current outbreak of monkeypox is the largest ever recorded outside sub-Saharan
The post Monkeypox cases are…

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The World Health Organization has said the current outbreak of monkeypox is the largest ever recorded outside sub-Saharan Africa, with cases rising above the 100-mark a few days ago and the UK top of the table with 56 as of yesterday.

Top of the list of concerns is how the virus – which does not spread easily between humans and requires skin-to-skin contact – is spreading so quickly in so many countries in Europe, the Americas and Australia where the disease is not endemic.

There is speculation that monkeypox may be being spread between sexual partners, even though it is not normally considered a sexually-transmitted infection. Thankfully, there have been no deaths reported so far, although the WHO notes monkeypox has a fatality rate of between 3% and 6%.

While health authorities are on alert, the WHO said it thinks the outbreak can be contained and that the overall risk to the population remains low. It also stressed there is no evidence that a viral mutation is responsible for the unusual pattern of infections.

Monkeypox is considered less likely to mutate quickly because it is a DNA virus rather than an RNA virus like influenza or COVID-19.

Several countries including Belgium and the UK are already advising a three-week quarantine period for anyone who contracts the virus and their close contacts.

The increasing case numbers in the current monkeypox outbreak are certainly concerning,” commented Dr Charlotte Hammer, an expert in emerging infectious diseases based at the University of Cambridge in the UK.

“It is very unusual to see community transmission in Europe – previous monkeypox cases have been in returning travellers with limited ongoing spread. However, based on the number of cases that were already discovered across Europe and the UK in the previous days, it is not unexpected that additional cases are now being and will be found, especially with the contact tracing that is now happening.”

Vaccines and drugs are available

Meanwhile, attention is now being turned to other measures to control the outbreak, including the use of vaccines against smallpox – a related virus – in a ‘ring vaccination’ approach designed to control the spread among contacts.

Vaccines used during the smallpox eradication programme can provide around 85% protection against monkeypox, according to the WHO, which notes that one newer vaccine – Bavarian Nordic’s Jyneos – has been approved by the FDA for prevention against both viruses.

There’s also a licensed antiviral drug for monkeypox. SIGA Technologies’ oral drug Tpoxx (tecovirimat) is approved for smallpox, monkeypox and cowpox in Europe, and in the US and Canada for smallpox, although it can be used off-label for the other disease. The US FDA also approved a new intravenous form of the drug last week.

The WHO says there is no need for widespread vaccination, as other control measures like isolation of patients should be enough to curb the spread and in any case supplies of vaccines are limited.

Monkeypox causes symptoms similar to but milder than smallpox, typically beginning with fever, headache, muscle aches and exhaustion. It is transmitted to people from various wild animals, such as rodents and primates, and is usually a self-limited disease with symptoms lasting from two to four weeks.

In 2003, the US experienced an outbreak of monkeypox, which was the first time human monkeypox was reported outside of Africa. The Centers for Disease Control and Prevention (CDC) is making some Jyneos vaccine reserves available for close contact inoculations, including healthcare workers tending to patients.

The UK Health Security Agency (UKHSA) said yesterday it had identified 36 additional cases of monkeypox in England, and that vaccination of high-risk contacts of cases is already underway.

“A notable proportion of recent cases in the UK and Europe have been found in gay and bisexual men so we are particularly encouraging these men to be alert to the symptoms,” said the agency’s chief medical advisor Dr Susan Hopkins.

“Because the virus spreads through close contact, we are urging everyone to be aware of any unusual rashes or lesions and to contact a sexual health service if they have any symptoms.”

The post Monkeypox cases are rising. Should we be worried? appeared first on .

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