(Reuters) – Consumer inflation in Russia in 2022 is expected to accelerate to its highest since 1999, while the economy will stage its deepest contraction since 2009 as a result of sweeping Western sanctions, a Reuters poll showed on Thursday.

Economic expectations have deteriorated drastically in the past few weeks as Russia took a hit from unprecedented Western sanctions designed to punish Moscow for what it calls “a special military operation” in Ukraine, which started on Feb. 24.

The average of 15 analysts polled in late March suggested the Bank of Russia will keep its key interest rate unchanged at 20% at the April 29 board meeting after an emergency rate hike in late February.

The central bank is expected to lower the key rate to 16% by year-end, keeping rates high to help tame soaring consumer inflation, which dents living standards.

In 2022, inflation is expected to accelerate to 23.7%, the poll showed, far above Russia’s 4% target. A similar poll in late January predicted 2022 inflation at 5.5%.

Reuters suspended its February poll on Russia’s main economic indicators due to uncertainty about the economic outlook.

The economy is on track to shrink by 7.3% this year, the poll showed, marking a shift in market expectations for 2.5% growth in the January poll.

“Russia plunged into economic and financial turmoil this month,” Capital Economics said, predicting a deeper 12% economic contraction this year.

Rouble volatility also adds to inflation risks and financial turmoil. The Russian currency hit an all-time low of 120 to the U.S. dollar in Moscow trade on March 10 before recovering to around 83.50 on Thursday.

“We expect the rouble to anchor within a range of 80-85 to the dollar in April… The geopolitical situation will remain the factor of uncertainty for the rouble exchange rate,” said Mikhail Vasilyev, chief analyst at Sovcombank.

The poll suggested the rouble will trade at 97.50 to the dollar 12 months from now.

(Reporting by Reuters; editing by Jonathan Oatis)

By Lucia Mutikani

WASHINGTON – U.S. consumer spending barely rose in February as an increase in spending on services was offset by declining purchases of motor vehicles and other goods, while price pressures mounted, with annual inflation surging by the most since the early 1980s.

But the report from the Commerce Department on Thursday showed spending in January was much stronger than initially estimated. That put consumer spending on track for solid growth this quarter, which would keep the economy expanding, despite the rising headwinds from inflation that is driven by shortages.

“Despite sagging confidence due to the war (in Ukraine) and inflation, American consumers are hanging tough, undergirded by strong employment growth and built-up savings,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month. Data for January was revised higher to show outlays rebounding 2.7% instead of 2.1% as previously reported. Economists polled by Reuters had forecast consumer spending increasing 0.5%.

A significant decline in COVID-19 infections boosted demand for services like dining out, hotel stays, recreation, air travel and healthcare. Services increased 0.9%, the most in seven months, after rising 0.7% in January. But spending on goods dropped 1.0% after surging 6.5% in the prior month.

The decline in goods purchases, which likely signals the rotation of spending back to services, was led by a tumble in motor vehicles. Consumers also cut back spending on food, household furnishings, recreational goods as well as clothing. Spending on gasoline increased at a $27.1 billion rate.

Gasoline prices soared in February and broke above $4 per gallon this month following Russia’s invasion of Ukraine on Feb. 24. Prices have dramatically increased across the board.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% after climbing 0.5% in January. The so-called core PCE price index jumped 5.4% year-on-year in February, the biggest gain since April 1983. The core PCE price index increased 5.2% in the 12 months through January.

The Federal Reserve this month raised its policy interest rate by 25 basis points, the first hike in more than three years, and adopted a hawkish posture as it battles inflation.

Though inflation is eating into households’ budgets, consumers are getting some cushioning from massive savings accumulated during the pandemic as well as rising wages amid a shortage of workers. Economists estimate consumers are sitting on about $2.3 trillion in excess savings.

“We expect a decent chunk of it is at the disposable of households should they wish to rely on it,” said Shannon Seery, an economist at Wells Fargo in New York.

Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

STRONG WAGE GAINS

Personal income rose 0.5% in February, with wages shooting up 0.8%. The saving rate climbed to 6.3% from 6.1% in January.

When adjusted for inflation, consumer spending fell 0.4%. Data for January was revised higher to show the so-called real consumer spending surging 2.1% instead of 1.5% as previously reported. Real consumer spending is what matters in the calculation of gross domestic product.

“A combination of downward revisions to last year’s data and an upward revision to January’s gain means that real consumption is on track for a solid 4.0% annualized gain in the first quarter,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York.

Growth estimates for the first quarter range from as low as a 0.4% annualized rate to as high as a 2.8% pace. The economy grew at a 6.9% pace in the fourth quarter.

The scarcity of workers is keeping layoffs very low. In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 202,000 for the week ended March 26. Still, claims remained well below their pre-pandemic average.

They have declined from an all-time high of 6.149 million in early April 2020. There were a near record 11.3 million job openings on the last day of February, government data showed on Tuesday, which left the jobs-workers gap at 3.0% of the labor force and close to the post-war high of 3.2% in December.

More workers likely returned to the labor force in March. The claims report showed the number of people receiving benefits after an initial week of aid decreased 35,000 to 1.307 million during the week ended March 19, the lowest since December 1969.

“The labor market remains in excellent shape in the first quarter,” said Stuart Hoffman, senior economic advisor at PNC Financial in Pittsburgh, Pennsylvania.

A third report from global outplacement firm Challenger, Gray & Christmas, showed U.S.-based employers announced 21,387 job cuts in March, which was up 40.3% from February but down 30% compared to last year. Employers also announced plans to hire

105,224 workers this month.

The government’s closely watched employment report on Friday is likely to show that nonfarm payrolls increased by 490,000 jobs in March, according to a Reuters survey of economists. The economy created 678,000 jobs in February.

The unemployment rate is forecast falling a to a fresh two-year low of 3.7% from 3.8% in February.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

By Andrea Shalal

WASHINGTON – The International Monetary Fund and Argentine government have been “clear-eyed” about the exceptionally high risks facing the Argentine economy and a new $44 billion IMF program approved Friday, IMF spokesperson Gerry Rice said on Thursday.

Rice told reporters Argentina’s economy was recovering more strongly than expected after three years of recession and persistent high inflation, but it was also subject to the global shock caused by the war in Ukraine, and its economic and social situation was fragile.

“So, it’s no surprise that the risks to the Argentine economy, and therefore to the program, are high,” he said, adding that the IMF would work closely with Argentine authorities to ensure successful implementation of the program.

The executive board of the IMF last week approved a new $44 billion financing program, but said that it comes with “exceptionally high” risks.

It marks the 22nd IMF program for Argentina and comes after more than a year of negotiations. It replaces a failed $57 billion program from 2018, for which Argentina still owes over $40 billion.

Rice said the IMF’s board approved the new program because it set realistic and pragmatic objectives, along with credible policies, that would strengthen Argentina’s macroeconomic stability and begin tackling its deep-seated challenges.

Implementation would now be key, he said.

“Paraphrasing Winston Churchill, we’re at the end of the beginning of this process,” Rice said. “Now it’s all about implementation so that those objectives … can be achieved.”

While it saw the high risks involved, the IMF was committed to working closely with Argentine authorities to ensure successful implementation of the program, Rice said.

“It’s in our shared interest to have a program that can be owned and … successfully implemented by the Argentine authorities,” he said.

(Reporting by Andrea Shalal and David Lawder; Editing by Chizu Nomiyama and Nick Macfie)

By Makiko Yamazaki and Junko Fujita

TOKYO – Toshiba Corp’s top shareholder said it had agreed to sell its stake to Bain Capital if the U.S. private equity firm launched a tender offer, potentially forcing the embattled conglomerate to revive talks for a private equity buyout.

The agreement between Bain and Singapore-based Effissimo Capital Management, which owns about 9.9% of Toshiba, comes as shareholders last week voted down the Japanese industrial conglomerate’s plan to split its devices unit.

Effissimo said in a regulatory filing on Thursday it had signed a confirmation letter dated March 24 that it would tender to a bid that allows Bain to own at least two-thirds of Toshiba and that clears regulatory approval.

It also said the agreement would be invalidated if a potential bid by Bain was set to fall through, leaving open the possibility for Effissimo to tender its stocks to someone else who makes a superior offer.

“This basically means it’s going to kick off a competitive auction process,” a Toshiba shareholder told Reuters on condition of anonymity.

The Nikkei business daily reported that Bain is planning to team up with Japanese investment funds in making a buyout offer.

Bain said in a statement nothing had been decided about a takeover bid for Toshiba, adding there were many issues that needed to be resolved to launch a bid to take Toshiba private.

“We believe we need to have careful and sincere dialogues with Toshiba management, the Japanese government, financial institutions and other stakeholders,” it said.

INTEREST FROM OTHER PRIVATE EQUITY FIRMS

Three sources with knowledge of the matter have told Reuters that other global private equity firms are also interested in taking Toshiba private.

One of them sounded out Toshiba management about a potential buyout in January, saying that it could make a proposal if the company is interested, said the sources, who declined to be identified as the talks were private.

Toshiba said in a statement it was not involved in the confirmation letter between Effissimo and Bain, as well as in its contents.

It also said the company accepts the opinion of the shareholders expressed at last week’s meeting and will aim to build trust with shareholders and reconsider its strategic options to enhance value.

A spokesperson for Effissimo, when asked about the filing, said the fund planned to announce its stance at the appropriate time.

During a five-month strategic review through November, Toshiba held discussions with private equity firms but decided not to entertain potential offers.

Sources said the private equity firms Toshiba held talks with included Bain, KKR & Co Inc and Blackstone. At least one private equity firm told Toshiba that a deal to take it private could be done at 6,000 yen a share or more.

Bain owns Kioxia Holdings Corp, the world’s second-largest maker of NAND flash memory chips. Toshiba has a 40% stake in the chipmaker.

(Reporting by Makiko Yamazaki and Junko Fujita; editing by Mark Potter, Jason Neely and David Evans)