<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081-820x461.jpeg" alt="" class="wp-image-416072" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081-820x461.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081-1536x864.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107035723-1648098747562-gettyimages-1387214727-vcg111374466081.jpeg 1920w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>People line up for nucleic acid testing at a temporary Covid-19 testing site on March 22, 2022 in Shenzhen, Guangdong Province of China. Vcg | Visual China Group | Getty Images</figcaption></figure>



BEIJING — As mainland China battles its worst Covid-19 outbreak since early 2020, local governments increasingly say the new omicron BA.2 variant is to blame.



That’s the new Covid subvariant, which preliminary research indicates is even more transmissible than the original omicron variant — but doesn’t necessarily cause more severe illness.



Mainland China has reported well over 1,000 new confirmed Covid cases a day since March 12, with the number holding above 2,000 for the last three days. That’s not including the asymptomatic case count, which can be just as many, or far more, than the number of daily confirmed cases.



From the northern province of Jilin — which accounts for more than half of the new daily cases — to industrial centers like Tangshan and Shenzhen, local authorities have blamed omicron BA.2 for the latest wave of Covid.



“Omicron BA.2 caused this outbreak, and spreads faster and more easily than previous viruses,” the export-heavy province of Fujian said in an online statement Tuesday, according to a CNBC translation of the Chinese text.



The subvariant is also “stealthier” and harder to find, but infections are primarily mild or asymptomatic cases, the Fujian government said.



<h3 class="wp-block-heading">Read more: <a href="https://www.cnbcafrica.com/2022/pfizer-ceo-says-two-covid-vaccine-doses-arent-enough-for-omicron/">Pfizer CEO says two Covid vaccine doses aren’t ‘enough for omicron’</a></h3>



Scientists have also described BA.2 as a “stealth” variant because it contains mutations that could make it harder to distinguish from the older delta variant using PCR tests.



Despite apparent changes in the virus’ severity, China has maintained its stringent zero-Covid policy of using swift, regional lockdowns to control outbreaks. The strategy had helped the economy quickly return to growth after the initial shock of the pandemic in early 2020.



Different provinces or cities can impose quarantines or travel restrictions on people coming from other regions, or at least require valid virus tests, adding hurdles to commercial travel.



For example, a company had to change its truck driver to a local one before the vehicle entered a city in the Guangxi region, said Klaus Zenkel, chair of the south China chapter of the EU Chamber of Commerce in China. “Otherwise he cannot enter the area where he needs to deliver the goods to.”



Zenkel is based in the southern city of Shenzhen, which ended a week-long lockdown Sunday night.



“If you compare this lockdown for the seven days last week, 14 to 21 of March, it was almost tougher than two years ago when the pandemic started,” he said, referring to the tighter government restrictions on international travel and stay-home policies.



<h2 class="wp-block-heading" id="h-smaller-businesses-hurt-more"><a></a>Smaller businesses hurt more</h2>



More than half of mainland China shut down in February 2020 for an extended Lunar New Year holiday in an effort to control the initial outbreak of Covid-19 in the country. The economy contracted that quarter, but quickly rebounded.



This time around, multinational corporations could maintain production by keeping workers in the same area as factories, but smaller businesses lost a week of output, Zenkel said Wednesday. He said district governments are asking businesses to share what their losses were, for potential compensation plans.



Shenzhen is pretty much returning to normal, but many people were still getting tested every day so they could present valid negative results as needed for in-person business meetings, he said. “Let’s hope [with] all these experiences and all the China data, the Chinese government can find a way to go from zero-Covid to ‘live with Covid.’”



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Across the country, Covid tests remain a primary way for authorities to confirm whether people are allowed into a city or whether a neighborhood can end its lockdown. These tests — which can’t yet be self-administered at home — now only cost about 8 yuan ($1.25) in Beijing, or free if arranged by community leaders.



At a Shanghai city press briefing Wednesday, Wu Fan, deputy dean of Shanghai Medical College at Fudan University, emphasized the need for the public to maintain social distancing, comply with testing and health code checks, and monitor themselves carefully.



“This time, the omicron BA.2 variant seems to be running very quickly,” Wu said, according to CNBC translation of the Chinese remarks. “Just chasing it isn’t enough. [We] also need to cut off the path ahead of it.”

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<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107021838-1646031589017-gettyimages-1233496076-SKOREA_SK_TELECOM.jpeg" alt="" class="wp-image-416034" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107021838-1646031589017-gettyimages-1233496076-SKOREA_SK_TELECOM.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107021838-1646031589017-gettyimages-1233496076-SKOREA_SK_TELECOM-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107021838-1646031589017-gettyimages-1233496076-SKOREA_SK_TELECOM-160x90.jpeg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>An employee wearing HTC’s Vive virtual reality headset plays a video game at the T.UM showroom in the SK Telecom Co. headquarters in Seoul, South Korea, on June 11, 2021. SeongJoon Cho | Bloomberg | Getty Images</figcaption></figure>



Imagine discussing a confidential multimillion-dollar deal with your boss. The conversation ends, and you both leave.



A while later, you both meet again and you bring up your earlier conversation — but your boss has absolutely no recollection of the deal.



What just happened?



In the metaverse, this might mean you were the victim of a hacked avatar or deepfake,&nbsp;said Prabhu Ram, head of the industry intelligence group at CyberMedia Research, a research and consulting firm. Deepfakes refer to manipulated digital figures that look or sound like someone else.



The metaverse has drawn hype in recent months, with companies like Meta, formerly known as Facebook, and Ralph Lauren, rushing to get their foot in the door. But unless cybersecurity risks in the metaverse are addressed, these companies may not see the success they’re hoping for.



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Cybercrime in the real world is already becoming more rampant.



Cybersecurity firm Check Point reported a 50% increase in overall attacks per week on corporate networks in 2021 compared to a year earlier. As businesses rush to plant their flag in the metaverse, not all may realize the full dangers of this new world, said Ram.



“Since the contours and potential of metaverse are yet to be fully realized, the overt concerns around privacy and security issues in the metaverse remain confined to only a few ‘tech-aware’ companies,” Ram said.



“As new attack vectors emerge, they will require a fundamental realignment of today’s security paradigms to identify, verify and secure the metaverse,” he added.



<h2 class="wp-block-heading" id="h-identity-security"><a></a>Identity security</h2>



JPMorgan released a white paper in February which recognized user identification and privacy safeguards as important elements for interacting and transacting in the metaverse.



“Verifiable credentials [should be] easily structured to enable easier identification of fellow community or team members, or to enable configurable access to varying virtual world locations and experiences,” according to the white paper.



Gary Gardiner, who is head of security engineering for Asia-Pacific and Japan at Check Point Software Technologies, agreed.



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The same mindset for internet security needs to be applied to the metaverse, he said, adding that security protocols should be as user-interactive as possible.



People are looking at blockchain to identify users, or “using tokens that could be assigned by an organization, or biometrics in a headset you’re wearing so there’s that level of trust so you actually know who you’re talking to,” he said.



Gardiner also suggested having “little exclamation marks” above avatars’ heads to signal that a person is untrustworthy.



<h2 class="wp-block-heading"><a></a>Data breaches</h2>



As users leave trails of data around the metaverse, one major problem in the real world may also cross into the virtual reality world — the invasion of user privacy by tech companies.



The 2018 Facebook and Cambridge Analytica scandal, for example, saw millions of users’ data harvested and used without consent. In the metaverse, there may be even more data available for these companies to feed on if strict regulations are not put in place to protect users.



When users are wearing devices like virtual reality headsets, organizations can collect data such as their head and eye movement or their voice, said Philip Rosedale, founder of Second Life, an online world that allows people to hang out, eat and shop virtually.



“Meaning within a few seconds, we can identify it is you exactly wearing the device. This is a very serious potential privacy problem for the virtual world,” he said.



<h2 class="wp-block-heading"><a></a>What can be done</h2>



Microsoft co-founder Bill Gates predicted in a blog post in December that within the next two to three years, most virtual meetings will move to the metaverse.



For businesses to safely operate in the metaverse, Gardiner said, it’s important to train staff well.



“The weakest point in any organization from a cybersecurity perspective is the user,” he explained.



If an attack hits the metaverse, users will be in a stronger position if they have that level of training and understanding of what is suspicious, he said.



While companies should implement risk mitigation strategies, both Rosedale and Gardiner said that maintaining privacy ultimately depends on the type of security platforms and safety models the metaverse puts in place for organizations.



Citing LinkedIn, a professional networking site, as an example, Rosedale said users will need to be able to use a “web of trust” to exchange information with others to establish trust more easily.



Identifying people you trust and sharing that information with other trusted people will allow you to assess whether you have friends in common with someone new, he added.



Meanwhile, Gardiner said companies involved in designing the metaverse will have to work together to establish a common standard that will enable security protocols to be deployed effectively.



“The foundation [of the metaverse] has to be done well because if the foundation is weak and it’s not done well, people will lose confidence in the platform and we’ll stop using it,” Gardiner said.

107021838-1646031589017-gettyimages-1233496076-SKOREA_SK_TELECOM

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<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/104521132-RTX38ZSF-mexico-sugar.jpg" alt="" class="wp-image-416018" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/104521132-RTX38ZSF-mexico-sugar.jpg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/104521132-RTX38ZSF-mexico-sugar-300x169.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/104521132-RTX38ZSF-mexico-sugar-160x90.jpg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>Workers spray fertilizer in a sugar cane field in Zacatepec de Hidalgo, in Morelos state, Mexico, May 31, 2017. Picture taken May 31, 2017. Edgard Garrido | Reuters</figcaption></figure>



LONDON — Supply shortages fueled by the Ukraine-Russia conflict, along with a host of pre-existing factors, have driven fertilizer prices to record highs.



Prices for raw materials that constitute the fertilizer market — ammonia, nitrogen, nitrates, phosphates, potash and sulphates — are up 30% since the turn of the year and now exceed those seen during the food and energy crisis in 2008, according to British commodity consultancy CRU.



Russia and Ukraine are among the most important producers of agricultural commodities in the world, with exportable supplies in global foodstuff and fertilizer markets concentrated in a small number of countries.



In 2021, Russia was the world’s top exporter of nitrogen fertilizers and the second-largest supplier of both potassic and phosphorous fertilizers, according to the U.N. Food and Agriculture Organization.



Trade between Russia and the rest of the world has not stopped, but has been severely disrupted as importers and vessel charterers steer clear of the country in light of the invasion of Ukraine, CRU Head of Fertilizers Chris Lawson said on Tuesday.



Russia, which accounts for around 14% of global fertilizer exports, has temporarily suspended outgoing trade, which is expected to have a strong ripple effect across global food markets.



“Furthermore, gas is a key input for fertilizer production. High gas prices have resulted in a curtailing of production in regions such as Europe, further constricting an already tight market,” Lawson said.



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Meanwhile, sanctions on Russian-ally Belarus have substantial implications for the potash market, with Russia and Belarus contributing a combined 40% of annual traded volumes.



“Since the beginning of 2020, nitrogen fertilizer prices have increased fourfold, while phosphate and potash prices over threefold,” Lawson explained.



“While farmers in developed markets have benefitted from high agricultural commodity prices, helping to partly offset high input prices, demand destruction is increasingly likely due to high prices and supply shortfalls.”



Economies around the world are already dealing with historically high inflation driven largely by soaring food and energy prices. The U.N. Food and Agriculture Index shows food prices are at an all-time high, and Lawson suggested that a prolonged period of fertilizer shortage will affect longer-term farming yields.



“Given the already tight grains and oilseeds market, and the importance of both Russia and Ukraine in those markets, food price inflation is an increasingly prominent risk,” he added.



Prior to the threat of reduced supplies from Russia and Belarus, fertilizer prices had already been facing upward pressure from global supply chain disruptions, a Chinese export ban and a Canadian rail strike.



<h3 class="wp-block-heading" id="h-more-severe-consequences">‘More severe consequences’</h3>



While much of the focus of discussions around price spikes in the wake of Russia’s invasion of Ukraine has been dominated by energy, the supply shock to fertilizer, wheat and other grains is expected to compound the problem.



In a research note earlier this month, Barclays Chief U.K. and Senior European Economist Fabrice Montagné and Head of Economics Research Christian Keller suggested that “the breadth and intensity of this supply shock could have more severe consequences than previous commodity price spikes, by broadening inflationary pressure.”



“Food and fertiliser production have a high energy content owing to mechanisation, industrialisation and transport, but they also compete with other industries for raw inputs: the production of biofuel, for example, diverts crops away from agri-food while the production of lithium-ion batteries requires chemicals used in the production of P-fertiliser,” they said.



“Finally, renewed shipping and transportation difficulties and, more importantly, the impact of Russian sanctions on global supply are set to stretch global markets even further, akin to the 2008 global food crisis.”



Global food prices increased sharply in 2007 and into the first quarter of 2008, triggering economic and political instability and social unrest across nations, both in developed and emerging economies.



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The impact, Barclays suggested, will be “extremely asymmetrical” with most emerging market economies disproportionately affected by food and fertilizer supply risks.



However, that is not to say that developed economies and investors will not be affected, with punitive Russian and Western economic sanctions inevitably reducing supplies of energy, grain and fertilizer.



In a note Friday, Wells Fargo Head of Global Real Assets John LaForge and Global Strategist Gary Schlossberg said given the weight of Russian supply, other countries will only be able to “partially” fill global supply gaps.



Wells Fargo expects the food impact to be felt globally, becoming particularly troublesome for select emerging countries.



“Overall, the current commodity wars, we believe, will lead to higher and more persistent inflation around the world, including in the U.S.,” they said.



“However, we think a U.S. recession is unlikely because low trade volumes with Russia should leave the U.S. in a comparatively stronger economic position.”

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<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/105806925-1553186112904gettyimages-956518640.jpeg" alt="" class="wp-image-415995" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/105806925-1553186112904gettyimages-956518640.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/105806925-1553186112904gettyimages-956518640-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/105806925-1553186112904gettyimages-956518640-160x90.jpeg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>A MiG-31K fighter jet with a Kinzhal hypersonic missile flies over Moscow’s Red Square during the Victory Day military parade in 2018. Sefa Karacan | Anadolu Agency | Getty Images</figcaption></figure>



Russia’s purported use of hypersonic missiles in Ukraine in recent days is not only a sign that the military could be resorting to using more destructive weaponry, but also an opportunity for Russia to flaunt weapons it says it’s been developing for several years.



Russia’s Defense Ministry said on Friday that it had deployed “Kinzhal” (meaning “Dagger” in Russian) hypersonic aeroballistic missiles to destroy a large underground warehouse of Ukrainian missiles and aviation ammunition in Delyatin, in the Ivano-Frankivsk region of western Ukraine.



Then on Saturday, the ministry said it had used Kinzhal hypersonic aeroballistic missiles again to destroy a large Ukrainian storage base for fuels and lubricants in the Mykolaiv region; Russia’s Defense Ministry said in a statement it was the main fuel supply base for Ukrainian armored vehicles in combat areas in southern Ukraine.



Russian news agencies said the reported use of hypersonic missiles was the first time Russia’s military had used them in its invasion of Ukraine, which began on Feb.24.



CNBC was unable to immediately verify the claims of hypersonic weapon use. The Pentagon said it wasn’t able to either, but Russia has been flaunting the development of several types of hypersonic weapons for several years.



CNBC has a brief guide to hypersonic missiles and what Russia claims to have used:



<h2 class="wp-block-heading" id="h-what-is-a-hypersonic-missile"><a></a>What is a hypersonic missile?</h2>



A hypersonic weapon is classed as any missile that travels at least five times faster than the speed of sound, or Mach 5 (around 3836 miles per hour) or faster, meaning they can travel about one mile per second. They can also change direction mid-flight, making them a formidable strategic weapon and almost impossible to intercept, unlike conventional missiles.



Russia and China have been seen to be leading the way in the development of hypersonic missiles, much to the dismay of the U.S., a country arguably been behind the curve on this front.



In 2018, during his State of the Nation address, President Vladimir Putin bragged about Russia’s development of hypersonic missiles as he unveiled the Kinzhal and several other next-generation strategic weapons. Putin said at the time Russia had developed a new prototype missile that “can reach any point in the world” and a supersonic weapon that cannot be tracked by anti-missile systems.



The Center for Strategic and International Studies think tank noted in a February report that “hypersonic weapons combine the speed and range of ballistic missiles with the low-altitude and maneuverable flight profile of a cruise missile.”



<h2 class="wp-block-heading"><a></a>What is the Kinzhal hypersonic missile?</h2>



The&nbsp;Kh-47M2 Kinzhal hypersonic missile is an aeroballistic&nbsp;air-to-surface missile that Russia claims has a range of more than 2,000 kilometers, or 1,200 miles, and a speed of Mach 10 — that is, that they can travel ten times faster than the speed of sound.



The Kinzhal hypersonic missile is designed to be carried by MiG fighter jets, as seen in the image below, which shows MiG-31K supersonic interceptor aircraft designed to carry Kh-47M2 Kinzhal missiles.



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107033407-1647783875802-gettyimages-956355786-AFP_14O7DL.jpeg" alt="" class="wp-image-415996" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107033407-1647783875802-gettyimages-956355786-AFP_14O7DL.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107033407-1647783875802-gettyimages-956355786-AFP_14O7DL-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107033407-1647783875802-gettyimages-956355786-AFP_14O7DL-160x90.jpeg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>Russia’s MiG-31 supersonic interceptor jets carrying hypersonic Kinzhal missiles fly over Red Square during the Victory Day military parade in Moscow on May 9, 2018. Yuri Kadobnov | AFP | Getty Images</figcaption></figure>



Russian news agency Interfax cited the Russian military as suggesting that such missiles could be guaranteed to overcome all existing and developed air and missile defense systems.



Putin has made such remarks himself, saying in 2018 that these kinds of&nbsp;weapons provide “substantial advantages in&nbsp;an&nbsp;armed conflict.” He added that “its speed makes it invulnerable to&nbsp;current missile and&nbsp;air defence systems, since interceptor missiles are, simply put, not fast enough.”



“In&nbsp;this regard, it is quite understandable why the&nbsp;leading armies of&nbsp;the&nbsp;world seek to&nbsp;possess such an&nbsp;ideal weapon,” Putin said.



Russia has heavily invested in developing hypersonic weapons in recent years, with Putin also announcing in 2018 the development of the “impossible to intercept” Avangard hypersonic glide vehicle which has a range of over 6,000 km, and the Zircon hypersonic missile, as well as the Dagger.



<h2 class="wp-block-heading"><a></a>Should we be worried?</h2>



Russia’s Defense Ministry on Saturday released a video via Twitter that it claimed showed the missile strike on the arms depot. NBC News was unable to verify the claim, or when or where the explosion in the footage occurred, however.



The Pentagon said it could not refute or independently confirm their use in the strike.



A senior U.S. Defense official, who spoke on the condition of anonymity in order to share new details from the Pentagon’s ongoing assessment of the war, said it would be odd for the Kremlin to fire a hypersonic weapon.



“It’s a bit of a head-scratcher &#8230; Why you would need a hypersonic missile fired from not that far away to hit a building?” the official said. Since Russia’s Feb. 24 invasion of its ex-Soviet neighbor, the Pentagon has observed more than 1,100 Russian missile launches into Ukraine.



James Bosbotinis, a U.K.-based specialist in defense and international affairs, said on Twitter that “Russia’s reported use of a hypersonic air-launched Kinzhal against Ukraine is unsurprising,” adding it would act as both “a signal to Ukraine that Russia has options to escalate, and a message to NATO.”



The Kinzhal is Russia’s first operational conventionally-armed hypersonic weapon, Bosbotinis added but U.S. Defense Secretary Lloyd Austin said on Sunday he didn’t see the use of hypersonic missiles in Ukraine “as a game changer.”



“I think the reason he is resorting to using these types of weapons is because he is trying to re-establish some momentum,” Austin told&nbsp;CBS&nbsp;talk show “Face the Nation.”



Nonetheless, hypersonic missiles pose new dilemmas for national defense bodies and complex air defense around the world.



The Center for Strategic and International Studies said in its February report that “defending against hypersonic missiles is strategically necessary, technologically possible, and fiscally affordable, but it will not be easy.”



“While traditional defenses can handle these challenges individually, their combination will require new capabilities, operational concepts, and defense design. The same characteristics that make hypersonic missiles attractive may also hold the key to defeating them. Instead of thinking about hypersonic defense as an adjunct to the legacy ballistic missile defense problem, it might be better understood as a form of complex air defense.”



— CNBC’s Amanda Macias contributed reporting to this story.

105806925-1553186112904gettyimages-956518640

Russia says it fired hypersonic missiles in Ukraine. What are they and why would Moscow use them?

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/106982305-1647881593675-GettyImages-1356399616r.jpg" alt="" class="wp-image-415991" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/106982305-1647881593675-GettyImages-1356399616r.jpg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/106982305-1647881593675-GettyImages-1356399616r-300x169.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/106982305-1647881593675-GettyImages-1356399616r-160x90.jpg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>Federal Reserve Board Chairman Jerome Powell testifies during a hearing before Senate Banking, Housing and Urban Affairs Committee on Capitol Hill November 30, 2021 in Washington, DC. Alex Wong | Getty Images News | Getty Images</figcaption></figure>



Federal Reserve Chairman Jerome Powell on Monday vowed tough action on inflation, which he said jeopardizes an otherwise strong economic recovery.



“The labor market is very strong, and inflation is much too high,” the central bank leader said in prepared remarks for the National Association for Business Economics.



The speech comes less than a week after the Fed raised interest rates for the first time in more than three years in an attempt to battle inflation that is running at its highest level in 40 years.



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Reiterating a position the Federal Open Market Committee made Wednesday in its post-meeting statement, Powell said interest rate hikes would continue until inflation is under control. He said the increases could be even higher if necessary than the quarter-percentage point move approved at the meeting.



“We will take the necessary steps to ensure a return to price stability,” he said. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”



A basis point is equal to 0.01%. FOMC officials indicated that 25 basis point increases are likely at each of their remaining six meetings this year. However, markets are pricing in about a 50-50 chance the next hike, at the May meeting, could be 50 basis points.



Stocks slipped to their lows of the session after Powell’s remarks while Treasury yields rose.



<h2 class="wp-block-heading" id="h-widely-underestimated-inflation"><a></a>‘Widely underestimated’ inflation</h2>



The sudden policy tightening comes with inflation as measured by the consumer price index running at 7.9% on a 12-month basis. A gauge that the Fed prefers still has prices up 5.2%, well above the central bank’s 2% target.



As he has before, Powell ascribed much of the pressures coming from Covid pandemic-specific factors, in particular escalated demand for goods over services that supply could not meet. He conceded that Fed officials and many economists “widely underestimated” how long those pressures would last.



While those aggravating factors have persisted, the Fed and Congress provided more than $10 trillion in fiscal and monetary stimulus since the pandemic’s start. Powell said he continues to believe that inflation will drift back to the Fed’s target, but it’s time for the historically easy policies to end.



<h3 class="wp-block-heading">Read more: <a href="e: Federal Reserve approves first interest rate hike in more than three years, sees six more ahead">Federal Reserve approves first interest rate hike in more than three years, sees six more ahead</a></h3>



“It continues to seem likely that hoped-for supply-side healing will come over time as the world ultimately settles into some new normal, but the timing and scope of that relief are highly uncertain,” said Powell, whose official title now is chairman pro tempore as he awaits Senate confirmation for a second term. “In the meantime, as we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief.”



Powell also addressed the Russian invasion of Ukraine, saying it is adding to supply chain and inflation pressures. Under normal circumstances, the Fed generally would look through those types of events and not alter policy. However, with the outcome unclear, he said policymakers have to be wary of the situation.



“In normal times, when employment and inflation are close to our objectives, monetary policy would look through a brief burst of inflation associated with commodity price shocks,” he said. “However, the risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher, which underscores the need for the Committee to move expeditiously as I have described.”



Powell had indicated last week that the FOMC also is prepared to begin running off some of the nearly $9 trillion in assets on its balance sheet. He noted the process could begin as soon as May, but no firm decision has been made.

106982305-1647881593675-GettyImages-1356399616r

Powell says ‘inflation is much too high’ and the Fed will take ‘necessary steps’ to address

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107007031-16432366092022-01-26t221901z_1399694438_rc277s9asz9g_rtrmadp_0_usa-stocks.jpeg" alt="" class="wp-image-415986" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107007031-16432366092022-01-26t221901z_1399694438_rc277s9asz9g_rtrmadp_0_usa-stocks.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107007031-16432366092022-01-26t221901z_1399694438_rc277s9asz9g_rtrmadp_0_usa-stocks-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107007031-16432366092022-01-26t221901z_1399694438_rc277s9asz9g_rtrmadp_0_usa-stocks-160x90.jpeg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>A trader works, as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen, on the floor of the New York Stock Exchange (NYSE), January 26, 2022. Brendan McDermid | Reuters</figcaption></figure>



LONDON – Just as many central banks had set their sights on normalizing monetary policy as economies emerged from the coronavirus pandemic, Russia’s invasion of Ukraine threw them another curveball.



The&nbsp;U.S. Federal Reserve&nbsp;last week approved its&nbsp;first interest rate hike in more than three years&nbsp;and penciled in further increases at each of its six remaining policy meetings this year, as it looks to rein in soaring inflation.



The&nbsp;Bank of England&nbsp;imposed its&nbsp;third consecutive rate hike but struck a relatively dovish tone, with the Russia-Ukraine conflict and its upward pressure on energy prices expected to keep inflation higher for longer.



<h3 class="wp-block-heading">Read more: <a href="https://www.cnbcafrica.com/2022/the-stock-market-slide-is-unlikely-to-budge-the-fed-from-tightening/">The stock market slide is unlikely to budge the Fed from tightening</a></h3>



European Central Bank&nbsp;President Christine Lagarde said last week that&nbsp;policymakers have “extra space”&nbsp;between the planned end of the ECB’s quantitative easing program this summer and a first hike to the cost of borrowing in more than a decade. The ECB earlier this month&nbsp;surprised markets&nbsp;by announcing it would end its asset purchase program in the third quarter of 2022.



So, while the Bank of England offered a slightly dovish surprise after its more hawkish start out of the blocks, the Fed and the ECB both surprised on the hawkish side, evidencing the balancing act facing policymakers.



Central banks the world over have been caught cold by a surge in inflation in the aftermath of the pandemic, which has sent annual consumer price increases to multi-decade – and in some cases, record – highs.



<h2 class="wp-block-heading" id="h-yet-to-walk-the-walk"><a></a>Yet to ‘walk the walk’</h2>



The risk, economists have suggested, is that by tightening policy aggressively even as growth is threatened by the conflict and financial conditions and the labor market tighten, central banks could inadvertently trigger “stagflation” — a period of high inflation, low growth and high unemployment.



However, most seem to have prioritized reining in inflation over concerns about economic growth and have remained undeterred so far by the potential impacts of the war.



Hugh Gimber, global market strategist at JPMorgan Asset Management, said Thursday that the latest round of central bank meetings showed policymakers are feeling “uncomfortably behind the curve” and are eager to normalize policy.



“Yet while policymakers have been talking tough, in reality monetary policy still remains very supportive of growth despite the latest rate increases. They may be talking the talk on tightening, but they’re yet to really walk the walk,” Gimber said.



This time last year, Gimber noted, patience was a central theme in policymakers’ messaging, meaning any policy error was likely to be the result of their moving too slowly rather than too quickly.



“Yet a year on, inflation is now running at multi-decade highs and labor markets have staged a remarkable recovery. ‘Patience’ has been abandoned – ‘optionality’ is the new buzzword,” he said.



“Further policy tightening lies ahead, and the central banks want the option to move more quickly if inflationary pressures don’t show signs of easing.”



<h2 class="wp-block-heading"><a></a>‘Division of labor’</h2>



Mario Centeno, Portuguese central bank governor and member of the ECB Governing Council, told CNBC last week that the conditions for a rate lift-off had not yet been met, with the normalization process remaining “neutral” and “data-dependent.”



Centeno said the euro area outlook depends on the duration of the conflict and the effects of Western sanctions against Russia.



“Unemployment is probably the best indicator for the European economy these days. We have a very strong labor market coming out of the recession — it was usually supported by fiscal policy measures, that’s why I think that’s why coordination is a very important issue in Europe,” Centeno said, suggesting that governments and central banks need to remain in lockstep.



<h3 class="wp-block-heading">Read more: <a href="https://www.cnbcafrica.com/2022/russia-central-bank-more-than-doubles-interest-rate-to-20-to-boost-sinking-ruble/">Russia central bank more than doubles interest rate to 20% to boost sinking ruble</a></h3>



“Even if it’s not probably the most likely scenario today, a scenario with low growth and high inflation is not out of the possibilities in the near future, and we must be very careful,” he added.



In the tug of war between supporting growth and containing inflation, policymakers appear to be favoring the latter. Brunello Rosa, CEO &amp; head of research at Rosa &amp; Roubini, agreed with this approach and the “division of labor” required between monetary and fiscal policy, telling CNBC that inflation is a more immediate threat.



“If you shave off some tenths of a percentage point or even a full percentage point of growth, due to the sanctions and potential effects of the war, you will still have a growth rate that is optically acceptable, I would say,” he told CNBC last week.



“Instead what is not optically acceptable is inflation reaching 8% in the U.S., 6% in Europe, 7% in the U.K., and what’s the danger of that? That higher inflation gets entrenched and then you enter into that wage price spiral that nobody wants to. Are we closer to that? Yes, we are.”



<h2 class="wp-block-heading"><a></a>Lessons from history are ‘troubling’</h2>



Neil Shearing, chief economist at Capital Economics, echoed this view in a research note on Monday, but said the more aggressive hikes in interest rates now being projected by Fed officials have raised concerns that the economy could be tipped into recession.



“This in turn raises the more general question as to whether, given the headwinds posed by the war in Ukraine and the spread of the Omicron variant in China, recoveries in major advanced economies are strong enough to withstand monetary tightening,” Shearing said.



He added that the lessons from history – notably the eight tightening cycles since the late 1970s in the U.S., five in the U.K. and three in the euro area – are “troubling.”



“This makes 16 tightening cycles in total – 13 of which have ended in recession. Soft landings are hard to achieve,” he added.

107007031-16432366092022-01-26t221901z_1399694438_rc277s9asz9g_rtrmadp_0_usa-stocks

Central banks face tough decisions after Russia’s invasion. Not everyone’s sure they’ll get it right

<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="740" height="416" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107028015-16468620192022-03-09t213112z_1256402390_rc27zs99uxg4_rtrmadp_0_ukraine-crisis-usa-gasoline.jpeg" alt="" class="wp-image-415979" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107028015-16468620192022-03-09t213112z_1256402390_rc27zs99uxg4_rtrmadp_0_ukraine-crisis-usa-gasoline.jpeg 740w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107028015-16468620192022-03-09t213112z_1256402390_rc27zs99uxg4_rtrmadp_0_ukraine-crisis-usa-gasoline-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/03/107028015-16468620192022-03-09t213112z_1256402390_rc27zs99uxg4_rtrmadp_0_ukraine-crisis-usa-gasoline-160x90.jpeg 160w" sizes="(max-width: 740px) 100vw, 740px" /><figcaption>A general view shows Marathon Petroleum’s oil refinery, following Russia’s invasion of Ukraine, in Anacortes, Washington, March 9, 2022. David Ryder | Reuters</figcaption></figure>



Oil prices are racing higher again and are expected to see more sharp spikes and sudden dips as the world deals with potential supply shortages.



For consumers, that means a longer period of expensive gasoline — with prices at the pump staying above $4 per gallon. For the economy, that means more inflation. Besides the strain on consumers, there will be higher costs across the board for any business relying on petroleum — &nbsp;from airlines and truckers to chemical companies and plastics producers.



Russia’s invasion of Ukraine came at a time when oil prices were already moving higher on tight supplies and growing demand from reopening economies. Now, the loss of a big chunk of Russia’s 5 million barrels a day of exports has put additional pressure on prices.



“I remain constructive on oil because I do not see any immediate off ramp to the war in Ukraine. Market participants have been consistently giving Putin the benefit of the doubt on his professed willingness to negotiate, but we think we should pay attention to his actions not his words,” said Helima Croft, head of global commodities strategy at RBC.



Oil jumped more than 7% Monday, as the European Union considers joining the U.S. in an oil embargo and after Saudi Aramco facilities were attacked over the weekend by Iranian-aligned Houthi rebels in Yemen.



Analysts also acknowledge that there could be sudden collapses in the price, particularly if there were some resolution of Russia’s attack on Ukraine.



“The range of outcomes in any given two-week period is wide. We went from $90 to $130 per barrel in a month. We went from $125 to $95 in a week, and that is going to be the normal type of volatility. $10 a week is nothing, 10% moves nothing,” said Daniel Pickering, &nbsp;chief investment officer of Pickering Energy Partners.



Pickering said the market was back to trading fear Monday.



<h3 class="wp-block-heading">Read more: <a href="https://www.cnbcafrica.com/2022/oil-prices-surge-as-russia-ukraine-crisis-escalates/">Oil prices surge as Russia-Ukraine crisis escalates</a></h3>



“You don’t want to be taking higher price points off the tables in terms of possibility, but I think what we saw is there’s the fear of something and right now it’s the fear of actions around Russian barrels and that’s going to create a lot of volatility,” he said. “If it turns into reality, I think you’re biased higher from these levels. You put $130 back in play if we actually start canceling Russian barrels.”



Pickering estimates that 2 million to 3 million barrels a day of waterborne Russian oil has been frozen out of the market, without immediate buyers. He said China and India are continuing to buy Russian crude. “I’m sure on the margins there will be others willing to take more over time,” he said.



Pickering said he’s not forecasting a return to $130 per barrel oil, but adds it could happen. West Texas Intermediate crude futures for April settled up 7% at $112.12 per barrel Monday.



Francisco Blanch, Bank of America head of commodities and derivatives, said the U.S. market is set up for periodic price spikes.



He said in a note, that limited production growth and strong refining and export demand are making for tight inventories at the U.S. Cushing storage facility in Oklahoma. That is a central oil facility for crude traded in U.S. futures contracts. The lack of storage there could make for more volatility in the futures market, since the holder of a futures contract must take physical delivery when the contract expires.



In April 2020, that convergence led to a negative price for WTI oil as investors were forced to liquidate their positions at negative prices during a period of very low demand. Now, the opposite could cause price spikes during expiration, as investors try to buy, Blanch noted.



The April contract expires Tuesday. “Given the market is desperately short barrels in the near term, we see increased risk of a short squeeze as WTI moves towards expiry each month,” said Blanch.



<h3 class="wp-block-heading" id="h-european-ban">European ban?</h3>



The European Union is expected to discuss banning Russian crude, but there is disagreement among members. There are talks this week between EU governments and President Joe Biden in a series of summits aimed at hardening the response to Russia’s invasion.



“I think the prospect of either sanctions or an embargo on Russian oil in Europe is really increasing, and the pressure is going to grow over the week,” said Dan Yergin, vice chair of IHS Markit.



“But it needs to be done carefully and in careful consultation with the industry to minimize this disruption,” said Yergin.



Croft said she is skeptical Europe will go along with a ban. Europe is Russia’s biggest export market for both oil and natural gas.



“I still think Germany will block any EU effort to impose energy sanctions, so the economic lifeline provided to Putin by oil and gas sales will persist,” said Croft.



Russia’s financial system has been sanctioned by the U.S. and allies, and the U.S. has banned Russian oil. Croft said more sanctions could be forthcoming.



“The brutality of his military campaign will likely mean that the sanctions are here to stay for the foreseeable future and that Russia will remain a toxic asset,” she said. “I think we should pay closer attention to Congress because it could move to impose secondary sanctions which would essentially force Germany’s hand on the issue.”



<h3 class="wp-block-heading" id="h-supply-shortages">Supply shortages</h3>



Saudi Arabia oil facilities were attacked over the weekend by Iranian-aligned Houthis. The missiles and drone attacks were fired at a water-desalination plant, a liquified natural gas plant, a power station and a gas facility. Aramco said there was no impact on supplies.



“The Saudis are using this Houthi attack as a cover to say they absolve themselves from any oil market supply responsibility because of the attack,” said John Kilduff, partner with Again Capital. He noted Saudi’s relations with the U.S. have been strained during the Biden administration.



“The Saudi refusal to add supply is exacerbating the pricing issue for consumers around they’re exacerbating the pricing issue for consumers around the world,” said Kilduff.



Saudi Arabia is a leading member of OPEC+, which includes other OPEC producers and Russia. The group agreed to return 400,000 barrels a day to the market each month until June. At its last meeting, OPEC+ did not signal whether it would consider adding any more barrels.



<h3 class="wp-block-heading">Read more: <a href="https://www.cnbcafrica.com/2022/opec-meets-quickly-sticks-to-script-dodges-debate-on-geopolitics/">OPEC+ meets quickly, sticks to script, dodges debate on geopolitics</a></h3>



Saudi Arabia has been silent on the invasion and has not promised to add any more oil to the market beyond its previous plans. U.K. Prime Minister Boris Johnson visited the kingdom last week, and U.S. Secretary of State Antony Blinken is also expected to visit.



“Saudi Arabia remains resolute on sticking with OPEC+ easing formula. Boris Johnson returned to London empty handed and now with the stepped up Houthi attacks on energy infrastructure, the kingdom is warning that it may not be able to maintain current production levels,” said Croft.



Yergin said it would be difficult for Saudi Arabia to break from the OPEC+ partnership. “The OPEC+ partnership was really a Saudi/Russian arrangement and before all this started it was a source of stability for the market,” said Yergin. “Ever since the price collapse of 2014, their goal had always been to bring Russia into an agreement rather than have Russia stand outside as a competitor. Their relationship has deepened and they’ve become strategic partners.”



Yergin said the relationship was brought together at the highest levels — between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.



&nbsp;“If OPEC doesn’t turn more barrels back on, the market’s going to tighten up,” said Pickering. “I don’t think they feel hugely compelled in the near term. I think there’s a lot of gamesmanship going on &#8230; I think there’s a dynamic that says production from OPEC is going to continue to move higher, but not necessarily with the speed Europe and the U.S. would like.”



<h3 class="wp-block-heading" id="h-other-supply-sources">Other supply sources</h3>



The U.S. has been looking for other sources of supply including possible barrels from Venezuela, which has been under sanctions.



The market had been expecting a deal with Iran that would allow it to return more than 1 million barrels a day to the market in exchange for its agreement that it would end its nuclear program. But those talks have bogged down in recent weeks.



U.S. producers could also bring back more oil, but their contributions are not expected to be much greater than the 900,000 to 1 million additional barrels a day already expected for this year.



Some oil executives were meeting at the White House Monday.



“I don’t think the industry feels hugely compelled to jump into action. There’s price volatility. There’s a windfall profit tax discussion,” said Pickering. “We need to see if the government is going to provide any carrots. They’ve certainly provided sticks, but I don’t think sticks will work.”



Correction:&nbsp;Antony Blinken is the U.S. Secretary of State. An earlier version misspelled his name.

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