What We're Reading:

Japan, US set plans for talks on resolving tariffs dispute. US Trade Representative Katharine Tai and Japan’s trade and industry minister agreed Wednesday to work to resolve a dispute over American tariffs on steel and aluminum, Japan’s Ministry of Economy, Trade and Industry said. (Business Mirror)

Turkey again cuts interest rates, currency hits new low. Turkey’s Central Bank cut interest rates again Thursday, a day after President Recep Tayyip Erdogan spoke out against high borrowing rates and raising increasing concerns about the impact of soaring consumer prices on families and businesses. (AP News)

Biden and Xi meet virtually as US-China chasm widens. President Joe Biden opened his virtual meeting with China’s Xi Jinping on Monday by saying the goal of the two world leaders should be to ensure that competition between the two superpowers “does not veer into conflict.” (Business Mirror)

Nonfungible tokens: Hype or the future of finance? With its recent auction of a so-called nonfungible token (NFT), DW has ventured into what some believe could be the future world of finance. What has piqued our interest in trying out the much-vaunted technology? (DW)

UK-EU trade agreement has ‘caused £44bn hit to trade.’ The terms of the EU-UK Trade and Cooperation Agreement (TCA) caused UK exports to the EU to fall by 14% and trade in the opposite direction to fall by almost a quarter in the first seven months of its enforcement – or an estimated combined blow to the UK economy of around £44 billion. (Global Trade Review)

Chile is set for its most polarized election in decades. Chile is set to vote for a new president on Sunday, with a far-right conservative battling for pole position against a young former student leader on the left, in the most polarized election since the country's return to democracy in 1990. (Reuters)

Crunch at ports may mean crisis for American farms. Backlogs and cancellations are hitting growers as costs rise, profits slump and overseas customers shop elsewhere. (New York Times)

US will not join regional trade pact CPTPP, but pursue specific tie-ups with allies. The United States will not join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) now for various reasons, but it is pursuing other partnerships with its allies in specific areas such as supply chains, says the U.S. Secretary of Commerce. (HSN)

China already banned crypto mining. Now it’s cracking down on any holdouts. China's ban on cryptocurrency mining in June has not completely expelled miners from the country and China is attempting to close any remaining loopholes to its ban. (Fortune)

Making sense of the NFT marketplace. NFTs, or non-fungible tokens, have become a major industry. But as with most emerging technologies, there are many competing platforms and approaches to growth, and it’s not always obvious which is the best fit for a given business. (Harvard Business Review)

Insurance rate hikes expected to moderate in US as capacity rises. Commercial insurance buyers in North America should see relief from the hard market next year with a few lines seeing flat renewals or even decreases, according to a new report (Commercial Risk)

Joe Biden signs $1 trillion infrastructure bill into law. US President Joe Biden signed a $1 trillion infrastructure bill into law in a ceremony at the White House. The bill is a bipartisan compromise and a streamlined version of the original. (DW)

Total global debt dips, but emerging market debt hits record high. Global debt dipped in the third quarter though it remained near the record high set in June, while debt in emerging markets hit a fresh record high of $92.5 trillion, a report released Wednesday shows. (HSN)

More chief executives join the 'Great Resignation.' CEO turnover spiked in the first half of 2021, as companies tapped new talent to navigate the aftermath of the COVID-19 pandemic and stressed-out chief executives sought a career change, a study from recruiting firm Heidrick & Struggles finds. (Reuters)

The global supply chain is crippling under the weight of record high demand. But if supply shortages weren’t bad enough, the crisis is causing a chain reaction of other problems for international trade. 

Due to the mismatch in supply and demand, the cost of shipping freight has skyrocketed—up 364% globally compared to this time last year, according to FBX Freightos data. The increased cost to move goods is now starting to reflect in the price of some products. 

Soaring freight costs are expected to push global import prices by roughly 11% between now and 2023, according to a report released last week by the United Nations Conference on Trade Development (UNCTAD). “The current surge in freight rates will have a profound impact on trade and undermine socioeconomic recovery, especially in developing countries, until maritime shipping operations return to normal,” said UNCTAD Secretary General Rebeca Grynspan in the report.

However, inflation will not hit every country equally. In small island and developing countries, which highly depend on trade, increased production costs and commodity prices risk slowing economic growth further. UNCTAD predicts a 9.4% increase in rubber and plastic costs, a 7.5% increase for pharmaceutical products and electrical equipment, 6.9% for motor vehicles and 6.4% for machinery and equipment. The organization also predicts prices to rise by 3.7% in Estonia and 3.9% in Lithuania, compared with 1.2% in the United States and 1.4% in China, noting an uneven spread of inflation globally.

UNCTAD called on maritime supply-chain stakeholders to “work together to share information and make maritime transport more efficient. In the face of these cost pressures and lasting market disruption, it is increasingly important to monitor market behavior and ensure transparency when it comes to setting rates, fees and surcharges,” it said.

Both supply-chain snags and inflation depend on each other to improve, said Jay Tenney, managing director of Trade Risk Group (Irving, TX), during an FCIB webinar, The Current Headache of International Supply-Chain Issues. “They are both two results of the same issue,” he said. “It has caused all products and services to go up in price and we all know that increases credit risk.”

Tenney also said to be on the lookout for supplies that become readily available all of a sudden within your industry. “If the pricing of those commodities collapses quickly and substantially, then you have commodity pricing whiplash,” he said. “Price increases and decreases are not themselves bad, but it matters how quickly that happens.”

The pandemic’s disruption to the global economy has highlighted the value of keeping strategically engaged chief financial officers (CFOs) connected with their companies.

For starters, the pandemic accelerated digitization throughout corporate financial operations, speeding up payments and strengthening customer relationships. Digitizing payments is helping many organizations continue to operate smoothly, meeting customer demands despite the disruption while lowering operating costs.

That’s why most CFOs consider accounts receivable (AR) and accounts payable (AP) digitization as crucial to increasing the lifetime value of their customers. In fact, 70% of CFOs said they are digitizing AR/AP for that reason, according to The Strategic Role Of The CFO, a PYMNTS and Versapay collaboration.

Improving Customer Experience

In addition to digitizing AR/AP processes, more than half of the CFOs said they are making AR/AP more transparent (70%) and making AR/AP more efficient (61.5%). Other actions taken to boost the overall lifetime value of customers include securing customers’ financial information, making AR/AP more understandable, offering new payment terms, protecting customers’ financial privacy and educating about the importance of AR/AP.

Given the intense focus on enabling digital payments to ensure continuity during the pandemic, it is understandable that 96% of CFOs said the main reason they are digitizing AR/AP functions is to benefit customers and vendors. This goal outweighs other justifications, such as speeding up processing, saving costs and keeping up with competitors.

As companies heighten their focus on enhancing customer relationships, it makes sense for CFOs to use data to verify their progress in achieving this goal. More than half of the CFOs said they are tracking their company’s success in raising the overall lifetime value of customers using three metrics: AR turnover (82%); AP turnover (69%); and average cost of services (57%). Other metrics include average revenue per customer, inventory turnover, customer retention rate and customer acquisition cost.

Building Deeper Relationships with Key Clients

Having embarked on their AR/AP programs, the CFOs responding to the PYMNTS survey also said they found that digitizing payment functions to improve customer relationships has served as a stepping stone to more efficient customer interactions, accelerated the adoption of digital payments, increased the types of payments sent and received, and improved the efficiency and transparency of their AR/AP processes.

Eighteen months into the pandemic and its economic fallout, CFOs have seen enough to effectively navigate risks and position their organizations for success. Digitizing financial operations and processes has helped many organizations improve their efficiency, lower costs and transform their AR/AP operations.

Along the way, the most forward-thinking businesses have recognized that this digitization also put them in a better position to grow. Many CFOs said they expect that the improved customer experiences that digitized processes enable will help them build deeper long-term relationships with key clients. As this plays out, CFOs said they anticipate that more revenue will be generated throughout the life of these customer relationships.

Reprinted with permission by PYMNTS.

Inflation has surged in the largest economies of Latin America, prompting large central banks in the region to raise interest rates before economic activity has fully recovered.

Our latest Regional Economic Outlook shows how rapidly inflation is rising. In the first year of the pandemic, average inflation in Brazil, Chile, Colombia, Mexico and Peru—the LA5—was below the average for other emerging market economies. It’s now higher, averaging 8% year-on-year in October and in the case of Brazil, surpassing 10.5%.

Soaring food prices are partly driving the surge. They started increasing even before the pandemic and have risen more than 18% on average in LA5 countries since January 2020.

In Latin America, food prices make up about a quarter of the average consumption basket. For households still reeling from the coronavirus crisis, higher food bills leave less to spend on other goods. In a region with the highest levels of income inequality, the burden is highest for low-income households who spend a larger share of their income on food.

Even core inflation, which excludes food and energy prices, has exceeded the pre-pandemic trend this year, reaching an average of 5.9% year-on-year in October.

Inflationary pressures should be temporary and medium-term inflation will likely revert to central bank targets. But there is a lot of uncertainty. The shock from the pandemic is unique and its impact on commodity prices, supply bottlenecks and rising shipping costs is hard to pin down.

The region is also battling a long history of high and unstable inflation—a challenge for central banks that have only recently established their credibility. This history may have led to indexation practices (contracts that adjust their terms automatically with inflation) that could accelerate prices further.

There is also the risk that international financial conditions tighten rapidly and unexpectedly in response to inflation developments in advanced economies, leading to capital outflows. This potential shock could jeopardize financial stability and depreciate currencies in Latin America, adding to inflationary pressures.

Managing expectations, through statements or rate hikes, is a key factor in heading off an inflationary spiral, which is why central banks in the region are moving fast to preserve their hard-won credibility in an uncertain environment. All LA5 countries have already hiked policy rates and their monetary authorities have shifted up forward guidance.

Despite the recent rate hikes, monetary policy stances generally remain accommodative and continue to support the ongoing recovery. The region nevertheless faces difficult trade-offs and needs to balance an uncertain inflation outlook with employment still substantially below pre-pandemic levels and an uneven recovery in Latin America’s jobs market.

Reprinted with permission by IMF Blog. 

 

Week in Review Editorial Team:

Diana Mota, Editor in Chief and David Anderson, Member Relations