By Byron Kaye and Renju Jose

SYDNEY (Reuters) -Australia said it would regulate buy-now-pay-later services as a consumer credit product under new laws, forcing BNPL providers to carry out background checks before lending in what would be one of the world's toughest regimes for the startup sector.

The move would put companies like Afterpay, owned by Jack Dorsey's Block Inc, and Zip Co under the watch of the Australian Securities and Investments Commission (ASIC), and Australia behind only Britain among countries that have sought to regulate BNPL as a standard credit product.

BNPL companies typically offer on-the-spot interest-free short-term loans with minimal credit checks that spread payments over weeks or months and are largely used by cash-strapped people taking debt, sometimes more than they can afford.

The absence of interest charges has so far exempted BNPL providers from consumer credit regulation and the sector has seen its business surge amid an online shopping frenzy spurred by COVID-19 stimulus payments and ultra-low interest rates.

But concerns about repayment have been rising as Australia battles high inflation, which now sits at near 30-year highs, with Australia's centre-left Labor government saying BNPL must be considered credit since it has the same impact on borrowers.

"BNPL looks like credit, it acts like credit, it carries the risks of credit," Financial Services Minister Stephen Jones said in a speech in Sydney on Monday.

"Our plan prevents lending to those who cannot afford it, without stopping safe, prudent BNPL use."

Home to about a dozen listed BNPL providers, Australia had about 7 million active BNPL accounts that resulted in A$16 billion ($11 billion) of transactions in 2021-22, up 37%, data showed.

Australians spent A$63.8 billion shopping online in 2022, with 26% of Australians saying they used BNPL to pay for purchases, retail industry figures show.

BNPL firms make most of their money charging a percentage of sales revenue to merchants, in exchange for directing shoppers to them. They charge borrowers late fees, but say they encourage on-time repayment with the promise of higher credit limits.

BNPL firms say they closely monitor borrower activity but the new Australian law would require them to follow "responsible lending" obligations that include running credit checks before lending, notifying customers when credit limits increase and following dispute resolution processes that are bound in law.

The government will unveil the draft legislation for consultation later this year and the bill will be introduced into parliament by the end of this year.

'STRONG FIRST STEP'

An Afterpay spokesperson said the change was a "strong first step in the development of a fit-for-purpose buy-now-pay-later regulatory framework".

Zip Chief Operating Officer Peter Gray said the change would mean "business as usual" since the company already complied with Australian credit law for some products.

A spokesperson for ASIC, the regulator which had advocated for the toughest possible regulation of BNPL, was not immediately available for comment.

The Australian Finance Industry Association, which had hoped its BNPL code of conduct would form the basis of self-regulation, said it would "continue to work collaboratively with the government on the details of future regulation".

Shares of Australian-listed BNPL providers were mixed by mid-session as investors digested the regulatory development that was largely expected. Local-listed shares of Afterpay owner Block were down 1.5% while shares of the biggest standalone BNPL provider, Zip, fell 5%.

"The buy now, pay later business model is still a structural growth model," said Shaun Ler, a Morningstar analyst.

"You end up in a situation where everyone is suffering but your competitors are suffering even more and the demand is still there," Ler added.

Andrew Grant, a finance lecturer at University of Sydney Business School, said the regulations "should help to create transparency for credit providers in the industry, without harming the majority of users who have a great experience with BNPL products".

($1 = 1.4743 Australian dollars)

By Lucy Craymer

WELLINGTON (Reuters) - New Zealand’s central bank is expected to deliver a 25-basis point hike on Wednesday, but the focus will be on whether the policy rate will peak at a higher level than previously thought in the wake of a more stimulatory budget last week.

After surprising financial markets with a 50-basis-point (bps) hike to 5.25% in April, the Reserve Bank of New Zealand is now under pressure to moderate its tightening pace as the economy teeters on the verge of a recession.

Yet, while back in February the RBNZ forecast the cash rate would peak at 5.5%, a growing minority of economists expect a further tightening is possible in July.

That view has gained currency after last week's government budget showed increased spending, while signs the house market is turning, surging migration and slipping mortgage rates have also raised the risk of another rate hike beyond Wednesday's policy review.

“The (relatively) happy place to sit and “watch, worry and wait” keeps inching just out of reach,” said ANZ economists in a note. ANZ now expects a 25-basis point hike this week and another increase in July.

Four economists in a Reuters poll of 21 economists now expect the cash rate to reach 5.75 or higher. Fourteen expect rates to hold at 5.50% next quarter.

A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ has remained singularly focused on curbing inflation, lifting rates by 500 basis points since October 2021 - the most aggressive tightening streak since the cash rate was introduced in 1999.

Inflation has eased back from three-decade highs to 6.7% but remains well above the central bank’s 1% to 3% target band.

Kiwibank economists said in a note that while the data has turned in the RBNZ’s favour, a few inflationary forces are working against policymakers.

"The surge in net migration, in particular, is seen as a net-positive for demand and therefore inflation,” they added.

After the April surprise, markets remain wary of another outsized 50-basis-point rate hike this week. The money market is now pricing 39 basis points of hikes, up from 20 basis points last week.

Westpac economists said they see a strong case for an upgrade in the RBNZ’s own assessment of the OCR peak.

"The key questions are the extent of the reassessment they do now and the balance of risks they portray around that OCR (official cash rate) profile looking forward," they said

By David Morgan, Jeff Mason and Trevor Hunnicutt

WASHINGTON (Reuters) -U.S. President Joe Biden and House Republican Speaker Kevin McCarthy will meet to discuss the debt ceiling on Monday, after a "productive" phone call as the president headed back to Washington, the two sides said on Sunday.

McCarthy, speaking to reporters at the U.S. Capitol following the call, said there were positive discussions on solving the crisis and that staff-level talks were set to resume later on Sunday.

Asked if he was more hopeful after talking to the president, McCarthy said: "Our teams are talking today and we're setting (sic) to have a meeting tomorrow. That's better than it was earlier. So, yes."

A White House official confirmed Monday's meeting but offered no specific time.

Staff members from both sides reconvened at McCarthy's office in the Capitol on Sunday evening for talks that lasted about two-and-a-half hours.

Senior White House advisor Steve Ricchetti told reporters as he left the meeting, "We'll keep working tonight."

Biden, before leaving Japan following the G7 summit earlier on Sunday, said he would be willing to cut spending together with tax adjustments to reach a deal but the latest offer from Republicans ceiling was "unacceptable."

Less than two weeks remain until June 1, when the Treasury Department has warned that the federal government could be unable to pay all its debts, a deadline U.S. Treasury Secretary Janet Yellen reaffirmed on Sunday. A failure to lift the debt ceiling would trigger a default that would cause chaos in financial markets and spike interest rates.

McCarthy's comments on Sunday appeared more positive than the increasingly heated rhetoric in recent days, as both sides reverted to calling the other's position extremist and talks stalled.

"Much of what they've already proposed is simply, quite frankly, unacceptable," Biden told a news conference in Hiroshima. "It's time for Republicans to accept that there is no bipartisan deal to be made solely, solely on their partisan terms. They have to move as well."

The president later tweeted that he would not agree to a deal that protected "Big Oil" subsidies and "wealthy tax cheats" while putting healthcare and food assistance at risk for millions of Americans.

He also suggested some Republican lawmakers were willing to see the U.S. default on its debt so that the disastrous results would prevent Biden, a Democrat, from winning re-election in 2024.

After Sunday's call, McCarthy said while there was still no final deal, there was an understanding to get negotiators on both sides back together before the two leaders met: "There's no agreement. We're still apart."

"What I'm looking at are where our differences are and how could we solve those, and I felt that part was productive," he told reporters.

Meanwhile, concerns about default are weighing on markets as an increase in the government's self-imposed borrowing limit is needed regularly to cover costs of spending and tax cuts previously approved by lawmakers.

On Friday, the United States was forced to pay record-high interest rates in a recent debt offer.

SPENDING CUTS

McCarthy said Republicans backed an increase in the defense budget while cutting overall spending, and that debt ceiling talks have not included discussions about tax cuts passed under former President Donald Trump.

A source familiar with the negotiations said the Biden administration had proposed keeping non-defense discretionary spending flat for the next year.

Biden ahead of the call stressed that he was open to making spending cuts and said he was not concerned they would lead to a recession, but he could not agree to Republicans' current demands.

The Republican-led House last month passed legislation that would cut a wide swath of government spending by 8% next year. Democrats say that would force average cuts of at least 22% on programs like education and law enforcement, a figure top Republicans have not disputed.

Republicans hold a slim majority in the House and Biden's fellow Democrats have narrow control of the Senate, so no deal can pass without bipartisan support. But time is running short as Monday's meeting will take place with just 10 days left to hammer out a deal before hitting Treasury's deadline.

McCarthy has said he will give House lawmakers 72 hours to review an agreement before bringing it up for a vote.

The last time the nation has come this close to default was in 2011, also with a Democratic president and Senate with a Republican-led House.

Congress eventually averted default, but the economy endured heavy shocks, including the first-ever downgrade of the United States' top-tier credit rating and a major stock sell-off.

BEIJING (Reuters) -China's exports to North Korea soared in April from a year earlier, with wigs and fertiliser among major shipments, Chinese customs data showed on Saturday.

Chinese outbound shipments to the isolated country surged 69% year-on-year to $166 million in April, data released by China's General Administration of Customs showed.

The top export items in terms of value were processed hair and wool used in wigs, worth about $11.6 million, and diammonium hydrogen phosphate, a widely used fertiliser, worth $8.84 million.

Pyongyang purchased $5.07 million of rice from China in April.

In January-April, Chinese exports to North Korea leapt to $603 million from $270.59 million a year earlier, according to the customs data.

North Korea has long suffered from food insecurity and South Korea's DongA Ilbo newspaper reported in mid-February that Pyongyang's food crisis may have deteriorated.

The country has been under U.N. sanctions for its missile and nuclear programmes since 2006.

By James Pomfret and Engen Tham

HONG KONG/SHANGHAI (Reuters) - Some Hong Kong-based staff with U.S. consultancy Mintz Group have left the city after the firm's Beijing office was raided by Chinese police in March, according to two sources with direct knowledge of the matter.

Investigations by Chinese authorities into Mintz, as well as U.S. management consultancy Bain & Co and mainland consultancy Capvision Partners, have sent a chill through companies that deal with China, with many unclear where red lines stand as Beijing prepares to introduce stricter anti-espionage laws in July.

Moving people swiftly out of Hong Kong underscores how the crackdown in China has unnerved some companies in the global financial hub, many of which are still navigating a national security law Beijing imposed on the city in 2020.

The relocations over the last couple of months are meant to be a temporary measure to ensure staff safety, given the uncertainty of the Chinese police probe, the sources said, and involved around half a dozen employees including investigators and the head of the Hong Kong office.

One source with direct knowledge of the matter, and four other sources briefed by Mintz employees, said the firm had engaged in corporate due diligence work examining the possible use of forced labour in supply chains linked to China's Xinjiang region up until this year.

Reuters could not ascertain whether the Chinese police probe was triggered by Mintz's work on Xinjiang. But at least two other senior executives at international due diligence firms operating in China told Reuters authorities had explicitly warned them off such work in recent months.

One of the sources who has dealt with Mintz in a business capacity said several of the Hong Kong-based Mintz employees are now in Singapore, and there is no plan for them to return to Hong Kong until the probe by Chinese authorities is over.

No one was present when Reuters visited the Hong Kong office of Mintz during business hours, with the doors locked and lights off. A building management office employee said Mintz was still paying rent on its office but two employees at neighbouring offices said no one had been seen in the Mintz premises in the past few months.

Several Mintz staff profiles have been removed from Mintz's website, according to a Reuters review of archived versions of the site. It was not clear the roles of all those that had left.

Mintz declined to comment.

Confirming the raid at its Beijing office in late March, Mintz at that time said it had closed its operations there and that it was ready to work with the Chinese authorities to "resolve any misunderstanding that may have led to these events".

XINJIANG 'OFF LIMITS'

While Chinese authorities have not detailed the scope of the investigation against Mintz, the office raid and detentions of five mainland Chinese staffers, including the head of Mintz's Beijing office, have rattled the professional advisory service industry within China, with ripples now being felt in Hong Kong.

As a global financial centre, Hong Kong has a deep pool of professional services talent, including in corporate investigations, with international firms including Kroll, Control Risks, McKinsey and FTI based there.

In recent years, following the enactment of a China-imposed national security law in 2020, the United States has revised its risk assessment for U.S. citizens in Hong Kong, highlighting the heightened risks of arrest, detention, expulsion or prosecution.

Chinese and Hong Kong authorities reject Western criticism of the national security law, saying human rights are respected and all countries, including the United States, need such laws.

China's Public Security Bureau gave no response to Reuters requests for comment. The Ministry of State Security could not be reached for comment.

China's State Council Information Office, the Ministry of Foreign Affairs and the Hong Kong and Macau Affairs Office did not respond to Reuters requests for comment.

The Hong Kong government said it did not comment on individual business decisions.

A spate of laws and regulations enacted during President Xi Jinping's rule - including laws on cybersecurity, personal information protection, data security, as well as the upcoming anti-espionage law that will ban the transfer of any information related to national security - have complicated the landscape for compliance.

Two due diligence executives with international firms and extensive dealings in China said Chinese security officials periodically arranged meetings in recent years to issue explicit warnings on areas to avoid in corporate investigations.

"They would tell us exactly what areas are off-limits," said one executive. "Xinjiang was one of these."

Rights groups accuse Beijing of abuses against mainly Muslim Uyghurs in the western region of Xinjiang, including the mass use of forced labour.

The U.S. has compiled a list of companies it is sanctioning for using forced labour in Xinjiang and has passed a law that puts the onus on companies to prove that goods sourced there are free from forced labour.

China denies abuses in Xinjiang, a major cotton producer and supplier of materials for solar panels.

Mintz's Asia head, Randal Phillips, a former senior CIA official, co-authored an article carried on the firm's website last year on "sanctions due diligence" under the U.S. Uyghur Forced Labour Prevention Act, specific to Xinjiang, which has since been removed.

Phillips wrote "for some suppliers, public records and questionnaires may be sufficient; for others, independent verification, on-the-ground investigation and interviews with industry sources may be called for."

Phillips declined to comment.

By Joice Alves

LONDON (Reuters) - Big European companies have delivered significantly stronger than expected first-quarter results, defying a challenging economic backdrop that includes surging inflation and rising interest rates.

But European stocks are down from a 14-month high in April, as investors worry about the health of the global economy, falling customer demand and pressures building on profit margins.

About half of the STOXX 600 companies have reported first-quarter results and two thirds of them exceeded estimates, a stronger performance than in most quarters when about half of companies typically beat earnings estimates.

"It's still the case, that a resilient consumer, supported by excess savings and a strong labour market continues to absorb higher prices and support corporate profitability," wrote Bernstein strategists Mark Diver and Sarah McCarthy.

While banks had to be rescued in the United States and in Switzerland, first-quarter results from the euro zone's biggest bank BNP Paribas (OTC:BNPQY), British lender Barclays (LON:BARC) and Germany's biggest bank Deutsche Bank (ETR:DBKGn) all beat forecasts.

Consumer group Nestle and the maker of Dove soap and Ben & Jerry's ice cream Unilever (NYSE:UL) reported stronger than expected results as price increases offset lower volumes.

Europe's largest listed company LVMH produced stellar sales as China rebounded sharply after COVID restrictions ended.

Earnings at STOXX 600 companies are currently expected to grow 7.3% in the first quarter, a big turnaround from a 2.5% decline expected only four weeks ago, based on Refinitiv I/B/E/S data.

But the pan-European stock index is around 7% below a record peak hit in January 2022, before the Ukraine invasion.

It is trading about 1% lower since the start of the earnings season when it hit its highest since February 2022 following a spurt supported by China's post-COVID reopening and declining energy prices. The current declines are broadly in line with global markets.

BofA said European equities have seen nine straight weeks of outflows.

'CLOUDS ON THE HORIZON'

Last week, JP Morgan downgraded euro zone stocks to "underweight" highlighting that they had already gained 30% against the U.S. since their lows touched in September.

"(Strong earnings season) was not enough to bring global markets to make new highs probably due to the clouds that are still present on the horizon," said Luca Finà, head of equity at Generali (BIT:GASI) Insurance Asset Management, mentioning rising cost of capital and default risks of the U.S. debt ceiling.

The robust corporate margins on show in the first quarter are seen coming under pressure later in the year.

Based on Refinitiv I/B/E/S estimates, STOXX 600 companies are expected to report net profit margins of 11.4% in the first quarter, up from 10.2% in the last quarter of 2022.

But margins are seen declining to 10.5% in the third quarter, according to Refinitiv estimates.

"(If) Q1 sets an example for 2023, sales growth could remain resilient, but margins will have a hard time improving in this context of higher (interest) rates," said Florian Ielpo, head of macro at multi asset group Lombard Odier Asset Management.

"Higher rates mean higher funding costs and lower CAPEX at the moment, and eventually it will mean a lower demand, declining sales and a lower pricing power as the consumer end will come under pressure," he said.

New data from China shows inflation has flatlined and imports have declined, clouding the outlook for the global economy.

Analysts also flagged that consumers across Europe, who have so far coped with the cost-of-living squeeze better than many expected, could eventually run out of savings.

Cyclicals delivered the bulk of the EPS beats, led by industrials and consumer discretionary, Barclays said.

The European Commission said on Monday it expects euro-zone inflation, currently at 7%, to remain stubbornly high this year, with economic growth forecast at 1.1% this year and 1.6% in 2024.

Europe's largest technology company ASML Holding (NASDAQ:ASML) NV beat earnings forecasts but noted some signs of caution among customers.

Telecoms group Vodafone (NASDAQ:VOD) plans to cut 11,000 jobs over three years after it warned that a poor performance in its biggest market Germany would hit cash flow.

But there has not been a wave of companies revising earnings forecasts down, providing a cushion for European equities.

"Guidance has been less positive in Q1 but there has been no material rise in percentage of firms guiding lower," Barclays said.

By Timothy Aeppel

CHICAGO (Reuters) -For Matthew Prange, it's easy to see why the inflation surge of the last two years has proven so difficult for the Federal Reserve to tame.

"When prices go up, it tends to stick," said Prange, who oversees $3 billion worth of purchases of electronic parts, plastics, and metal as the top supply chain manager at Milwaukee Tool, a venerable Wisconsin toolmaker owned by Hong Kong-based Techtronic Industries (OTC:TTNDY) Co.

The view among economists during the COVID-19 pandemic was that the burst of inflation was an inevitable result of the sudden increase in demand for goods by people stuck at home with plenty to spend. Global supply chains grew overwhelmed as they struggled to deliver.

But Prange said most of his supply chain had stabilized - meaning he was able to get most of what he needed - by the end of 2021. And yet the outsized price increases kept coming and, in some cases, he said, continue today.

Milwaukee Tool is among the companies, including Cummins Inc (NYSE:CMI) and Schneider Electric (EPA:SCHN), gathered in Chicago this week at a Reuters Events supply chain conference. They described what they view as the slow and uneven decline of inflation, with some of them seeing the pace of price increases ease in one part of their business but continue to surge in others.

"One of the headwinds is inflation," said Kevin Austin, the supply chain chief for Toyota Motor (NYSE:TM) North America. He attributed the price pressures in part to pent-up demand, which remains strong in the auto industry even as the economy has slowed.

Inflation has fallen as the Fed has raised its benchmark overnight interest rate by 5 percentage points over the last 14 months - the fastest pace of rate hikes in four decades. The annual increase in U.S. consumer prices slowed to below 5% in April for the first time in two years.

Still, that and other measures of inflation tracked by the Fed remain well above the U.S. central bank's 2% target. Data from the Philadelphia Fed on Thursday showed the path to lower inflation remains uneven: its monthly index of prices paid by manufacturers in its region rose for the second time in the past four months.

Meanwhile, the global supply chain snarls of the pandemic have diminished. The New York Fed's Global Supply Chain Pressure Index ticked down to a reading of -1.32 in April, compared to a revised -1.15 in March. Negative readings point to pressures that are below the historical average.

"There’s still dislocation in global supply chains," said George Koutsaftes, president and CEO of Honeywell (NASDAQ:HON) Safety and Productivity Solutions.

But inflation pressures have moderated, he said. "And as we look 12 to 18 months out, we see it moderating even further."

The challenge now is that factors that emerged in the pandemic have become endemic, Koutsaftes said. Labor shortages continue, for instance, and the rush to regionalize supply chains has increased demand for commodities in many parts of the world.

NOT A UNIFORM PICTURE

Economists attribute the persistence of relatively high inflation to factors beyond strained supply chains. The risks of long global pipelines for goods, which were highlighted by the pandemic, and growing geopolitical tensions - the war in Ukraine and a souring U.S.-China relationship - have sparked a rush to move production closer to end markets. Those new factories, however, are costly to build and the goods they produce come at a higher price.

Ken Engel, who manages the North American supply chain for Schneider Electric, a French electrical equipment maker, said he noticed a shift in attitude among customers over the last six months. He no longer hears from people desperate to find goods. Instead, they are asking when they will see lower prices.

But the picture is not uniform. "It differs by business," Engel said. For instance, Schneider makes small circuit breakers widely used in residential construction, which has slowed under the weight of higher interest rates. By contrast, demand for the company's "engineered-to-order" electrical parts to build data centers continues to boom.

"For the cloud providers" building those massive data centers, he said, "there's been no slowdown."

Much like Milwaukee Tool, Engel said Schneider's North American factories have largely recovered from the shortages of the last few years. But supplies can still be spotty, which often means paying more for those scarce items.

"Our problem is our upstream suppliers," such as firms that mold plastic parts, Engel said. In many cases, those suppliers have all the materials and machinery they need but lack the labor to produce enough to meet orders, he said.

Mario Guerendo, who oversees the global supply chain for Cummins, said one bright spot for the Columbus, Indiana-based engine maker has been rapidly falling shipping and logistics costs.

"It was crazy during COVID," he said.

And yet, the same thing is not happening with many of the raw materials that the company buys. Steel prices, for instance, have eased but remain well above pre-pandemic levels.

"We're also seeing it vary depending on geography," he said.

By Rae Wee

SINGAPORE (Reuters) - The dollar firmed near a six-month peak against the yen on Friday on the back of rising U.S. Treasury yields, as optimism over debt ceiling talks in Washington raised expectations of higher-for-longer interest rates.

President Joe Biden and top U.S. congressional Republican Kevin McCarthy earlier this week underscored their determination to strike a deal soon to raise the government's $31.4 trillion debt ceiling, with hopes of finalising a deal after Biden returns from the Group of Seven meeting in Japan on Sunday.

The news helped calm fears of an unprecedented and economically catastrophic American debt default, leading markets to revise their expectations of where U.S. interest rates could go.

At the same time, data pointing to a still-tight labour market, with the number of Americans filing new claims for unemployment benefits falling more than expected last week, also reinforced expectations that the Federal Reserve could deliver another rate hike next month in a bid to tame inflation.

Two Fed policymakers also said on Thursday that U.S. inflation does not look like it is cooling fast enough to allow the Fed to pause its interest-rate hike campaign.

The dollar stayed elevated in early Asia trade on Friday and last bought 138.40 yen, having risen to a near six-month high of 138.75 yen in the previous session.

The greenback was eyeing a weekly gain of nearly 2% against the Japanese currency, its largest since February.

Similarly, the U.S. dollar index was last at 103.46, flirting with Thursday's two-month high of 103.63, and was headed for a second straight weekly gain of more than 0.7%.

"Optimism about the debt ceiling (talks) has contributed to a repricing for the Fed ... the fact that (a deal) would remove a big weight on the economy, effectively," said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY) (NAB).

"It does remove one obstacle to the Fed continuing to raise rates."

Money markets are now pricing in a 39% chance that the Fed could raise rates by another 25 basis points next month, compared with just about a 10% chance a week ago, according to the CME FedWatch tool.

Traders have also pared expectations on the scale of rate cuts expected later this year, with rates seen just above 4.6% by December.

U.S. Treasury yields have climbed on the back of the hawkish Fed repricing and amid a pick up in risk sentiment. Yields rise when bond prices fall.

The two-year Treasury yield, which typically moves in step with interest rate expectations, last stood at 4.2581%, edging away from a low of 3.964% at the start of the week.

The benchmark 10-year yield was last at 3.6476%, having risen nearly 20 bps this week.

In other currencies, the euro rose 0.06% to $1.0777, but languished near the previous session's close to two-month low of $1.07625.

Sterling gained 0.05% to $1.2415, having fallen about 0.6% on Thursday.

The Aussie edged 0.17% higher to $0.6633, having slid on Thursday against a stronger dollar and on data showing that Australia's employment unexpectedly dipped in April.

In Asia, Japan's core consumer prices rose 3.4% in April from a year earlier as price hikes broadened, data showed on Friday, casting doubt on the central bank's view inflation will slow back below its 2% target later this year as cost pressures dissipate.

"I do think that the numbers do mean that the June and July meetings are live for a possible YCC tweak," said NAB's Attrill, referring to the Bank of Japan's controversial yield curve control policy.

By Aishwarya Venugopal

(Reuters) - Lower input costs and inventories, as well as extended price hikes are pushing a quicker-than-expected recovery in margins at U.S. consumer-facing firms including PepsiCo (NASDAQ:PEP), Kraft Heinz (NASDAQ:KHC), and Target , their recent earnings reports indicated.

Investors have zeroed in on gross margins, that faltered in the past several quarters, as high inflation and interest rates persist. Margins now seem brighter for these retailers and consumer-goods makers, who in the past few weeks sounded more optimistic about the metric than they did last quarter.

This is true especially for companies that make or sell essentials such as groceries and household staples, and even for restaurants and cafes, as strong wage gains in a tight labor market underpin consumer spending.

Still, people are being cautious about big-ticket, discretionary spending, and a bump from the lifting of COVID curbs in China has been slower than expected. Some analysts said a full recovery in margins is a few quarters away.

According to Refinitiv data as of May 12, quarterly margins for consumer discretionary components of the S&P 500 index is expected to increase year-over-year for every quarter this year.

"In this environment of uncertainty ... (consumer staples) margins are going to be solid because most of the input costs going into staples are falling precipitously and that's the positive," said Art Hogan, chief market strategist at B Riley Wealth.

"They have (raised prices enough) ... and they have held that price, so they are only going to see improvement in margins."

Full-year sales and earnings outlook for Target Corp (NYSE:TGT), which saw margins improve in the first quarter, implies a margin range of 4.7% to 5.0%, up from 3.5% in 2022, according to D.A. Davidson analyst Michael Baker.

Kraft Heinz Chief Financial Officer Andre Maciel said earlier this month that commodity costs were falling slightly faster than expected.

The maker of Philadelphia Cream Cheese and Jell-O said its gross margins in the quarter ended March improved by about 130 basis points. The company joined a list of consumer staples firms including Kellogg (NYSE:K) Co and PepsiCo Inc in raising its annual forecast for 2023.

PepsiCo reported March-quarter margins, or the ratio of gross profit to revenue for the company, that were higher than a year earlier and said its average selling price increased 16% in the quarter.

Prices at rival Coca-Cola (NYSE:KO) Co rose by 11%, and though quarterly margins fell from the same period a year earlier, they improved from the prior quarter.

Margins at McDonald's Corp (NYSE:MCD) and Starbucks Corp (NASDAQ:SBUX) improved as well.

'STUBBORN INFLATION'

But retail giant Walmart (NYSE:WMT) Inc, which gets about half of its revenue from low-margin groceries, took a more cautious stance on margin recovery on Thursday even as it raised its annual sales and profit targets.

"Stubborn inflation in dry grocery and consumables is one of the key factors creating uncertainty for us in the back half of the year," Walmart CEO Doug McMillon said.

While its U.S. margins fell 41 basis points in the first quarter, it was an improvement on the 112-basis point decline in the fourth quarter.

Walmart said total inventory in the quarter ended April fell 7% versus flat in the fourth quarter. This is in line with other retailers who are stocking more of what consumers are buying in a weak economy.

Target said on Wednesday that inventory in the first quarter was 16% lower and it had doled out fewer clearance discounts.

"Even today against a very challenging backdrop we're starting to assemble the building blocks for a recovery in our operating margin rate back towards its longer-term potential," Target CFO said.

By Rachel Savage

JOHANNESBURG (Reuters) - Ghana's debt restructuring is targeting $10.5 billion of external debt service relief from 2023 to 2026, the International Monetary Fund said late on Wednesday in its Debt Sustainability Analysis.

Ghana's debt is currently unsustainable, but the country aims to restore it to a "moderate" risk of debt distress by 2028, the fund added.

The IMF's executive board approved a $3 billion, three-year rescue loan on Wednesday, paving a potential path out of the worst economic crisis in a generation for the embattled West African country.

Ghana is overhauling its debt after its already strained finances buckled under the economic fallout from COVID-19 and Russia's invasion of Ukraine. It is seeking external debt relief under the Group of 20's Common Framework platform and completed a domestic debt exchange earlier this year.

Ghana has a $15 billion financing gap in its balance of payments from 2023 to 2026, the IMF said, with the World Bank set to provide $1.6 billion in budget and balance-of-payments support.

The country has a medium "debt carrying capacity", which means the IMF requires Ghana to target bringing its public debt-to-GDP ratio from 88.1% at the end of 2022 to 55% by 2028.

"Domestic policy slippages represent a significant downside risk to the projections, further compounded by risks associated to the end-2024 general elections," the IMF report said.

Other risks for Ghana include social unrest if economic conditions do not improve for the population, not regaining market access to issue debt and the domestic debt exchange posing dangers to domestic financial sector stability, the fund said.