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Russia Pushes to Seize Chemical Plant in Severodonetsk as Ukraine Detains Suspected Spies

KYIV, Ukraine—Russia on Tuesday intensified its major offensive to take a chemical plant that has become the last bastion for Ukrainian forces in the strategic eastern city of Severodonetsk, as Ukrainian authorities called for more military aid and detained two of its own officials on suspicion they spied for Russia.

Serhiy Haidai,

the Ukrainian governor of the Luhansk region, said all regional towns that aren’t under Russia’s control are being shelled by its forces as Moscow mounts relentless artillery barrages in an attempt to complete its capture of Donbas.

President

Volodymyr Zelensky

late on Monday again appealed to the international community to help ensure that Ukraine’s fight against Russian forces doesn’t fade from global attention, saying he would do everything possible to achieve that.

A Ukrainian soldier on the front line in Shevchenkove, a village east of Kyiv.



Photo:

Guillaume Binet / MYOP for The Wall Street Journal

The last check point before the village of Pryshyb, Ukraine. Russian forces hold another village nearby.



Photo:

Guillaume Binet / MYOP for The Wall Street Journal

The conflict has morphed into a war of attrition, with Russia deploying heavy artillery to outgun Ukrainian forces. Mr. Zelensky has been pleading with Western leaders to send Kyiv more supplies of howitzers and other heavy weapons to counter the barrage.

“This is an evil that can only be defeated on the battlefield,” he said of Russia’s invasion. “We are defending Lysychansk and Severodonetsk. Throughout this whole region, the toughest, most serious battles are taking place.”

Ukraine has been counting on Central European countries that were subjugated by Moscow during the Cold War to donate Soviet-era equipment that Ukrainians have the training and spare parts to maintain. Slovakia has sent Soviet-type helicopter gunships, grad rockets, howitzers and an S-300 air-defense system.

But most of those countries are only willing to do so if they can buy replacement systems from the North Atlantic Treaty Organization’s allies such as Germany, France or the U.S. Germany’s limited supply of equipment and production bottlenecks have left it unable to provide those countries with all the weaponry they need to keep giving Ukraine more.

On Tuesday, Slovakia said a plan to donate a tank battalion to Ukraine fell through after Germany was unable to supply the tanks Slovakia needed.

Under the plan, Slovakia would have given 30 T-72 Soviet-type tanks to Ukraine, enough for a tank battalion, the Slovak Defense Ministry’s spokeswoman said. For months, the Central European government had been in talks with Berlin to replace those tanks with modern German Leopard tanks. But Germany, Slovakia said, now says it can only offer Slovakia 15 Leopard main battle tanks.

“The Slovak Ministry of Defense is intensely seeking ways to aid Ukraine, however this is being done on the principle of solidarity, ensuring that our solutions are advantageous for all sides,” said Slovak Defense Ministry communications director Martina Kakaščíková.

A spokesman for the German government didn’t immediately respond to a request for comment on the tanks. Ukrainian Defence Minister

Oleksiy Reznikov

thanked the German government for sending the long-range howitzers, which he said would be put to full use in the battlefield. The shipment was made, a German official said, after Ukrainian troops had completed training for the systems in Germany.

In occupied regions of Ukraine, Russia is handing out passports, teaching its version of history, and sending trucks blasting the Kremlin’s propaganda. But convincing people to support the invader can be complicated. WSJ’s Thomas Grove reports. Photo: Sergei Ilnitsky/EPA-EFE/Shutterstock

Ukraine’s domestic intelligence agency, the SBU, has meanwhile moved to clamp down on people it suspects of working on Russia’s behalf in occupied areas and in government structures elsewhere.

The SBU said on Tuesday that it had detained two men suspected of spying for Russia, one working as a deputy in the cabinet of ministers and the other as director of one of the departments in the country’s chamber of commerce and industry.

In a video posted to Telegram, SBU spokesman Artem Dekhtyarenko said the officials had been passing classified information to Russia, ranging from details about Ukraine’s defense capabilities to the personal data of Ukrainian law-enforcement personnel. He said Russian handlers paid sums of up to $15,000 for an assignment to the two men. Russia didn’t immediately comment on the allegations.

The two officials, whose names weren’t given in the video, were shown saying they had been recruited by Russia’s Federal Security Service. It couldn’t be determined if they were speaking under duress or if they had legal representation.

Also on Tuesday, Ukrainian Prosecutor General Iryna Venediktova met with U.S. Attorney General

Merrick Garland

in Ukraine to discuss U.S. and international efforts to help Ukraine identify, apprehend and prosecute individuals involved in war crimes and other atrocities. Ukrainian prosecutors have said they are investigating more than 10,700 potential war crimes involving more than 600 suspects.

Meanwhile, Kremlin spokesman Dmitry Peskov reiterated to reporters on Tuesday that he couldn’t guarantee that two American military veterans feared captured in Ukraine wouldn’t face the death penalty. Alexander Drueke, 39, and Andy Tai Ngoc Huynh, 27, both from Alabama, volunteered to serve alongside Ukrainian forces.

“We can’t rule anything out, because this is a decision for the court,” Mr. Peskov said.

A refugee center in Odessa, Ukraine, which is supporting hundreds of people fleeing the war.



Photo:

Serhii Korovayny for The Wall Street Journal

Ukrainian student sailors near the opera house in Odessa, Ukraine.



Photo:

Serhii Korovayny for The Wall Street Journal

John Kirby, a national security spokesman for the White House, said Tuesday that the government was still trying to learn more about the two men and criticized the Russian threat.

“It’s appalling that a public official in Russia would even suggest the death penalty for the two American citizens,” Mr. Kirby said. “We’ve got more homework here to do. But I do think it’s important for us to make it clear: Truly appalling for even the suggestion” that the men could be put to death.

Authorities in the self-proclaimed Donetsk People’s Republic, which broke away from Ukraine with Russian arms and financing in 2014, recently sentenced to death three foreigners—two from the U.K. and one from Morocco—after they were captured fighting alongside Ukrainian forces against Russian-backed troops near Mariupol.

Russia has accused Ukraine of attacking strategic objects on territory under its control.

Sergei Aksyonov,

the Russian-appointed head of the Crimean Peninsula that was annexed by Russia from Ukraine in 2014, wrote on Telegram on Monday that Ukrainian forces had struck drilling platforms owned by gas company Chernomorneftegaz, injuring three people.

The apparent Ukrainian attack on the gas rigs has prompted a search-and-rescue operation in Crimea and is expected to cost Russian authorities billions of dollars in damage and lost revenue. Just hours after Mr. Aksyonov reported the attack, Russia launched a series of rockets toward Odessa in Ukraine’s south, scrambling the city’s air defenses and causing some residents to flee to bomb shelters in fear of the largest assault on the city in recent weeks.

Russian President

Vladimir Putin

on Tuesday told military-school graduates that Russian forces had started receiving S-500 air and missile defense systems. The Sarmat intercontinental ballistic missile will be ready for combat at the end of the year, said Mr. Putin. He oversaw the first test-launch of the RS-28 Sarmat system in April.

Russia would “continue to develop and strengthen our armed forces, taking into account potential military threats and risks based on the lessons of contemporary armed conflicts,” Mr. Putin said.

Russian journalist Dmitry Muratov on Monday raised $103.5 million for Ukrainian child refugees after auctioning off the Nobel Peace Prize he won last year. “I was hoping that there was going to be an enormous amount of solidarity,” Mr. Muratov said after the sale, which shattered the record haul for a Nobel medal. “But I was not expecting this to be such a huge amount.”

Mr. Muratov is a co-founder and editor in chief of the now-closed independent Russian newspaper Novaya Gazeta, an outlet that had for years published investigations on state corruption and the role of Russia’s military on the world stage.

Meanwhile, the continued blockage of Ukraine’s sea ports is intensifying an export crisis that has left millions of metric tons of grain stranded in the country and unable to reach countries that desperately need it. Kyiv has sought to move out the grain by land, but the amount that can be transported by rail and truck pales in comparison with that shipped each year through southern ports.

Also in his address late Monday, Mr. Zelensky said capacity at the Krakovets-Korczowa checkpoint on the border with Poland had been increased by 50%, a move he expects to facilitate the flow of some grain out of the country.

“Modernization awaits other checkpoints on the borders with the European Union,” Mr. Zelensky said.

A Ukrainian soldier in a roadside bunker near the village of Bashtanka.



Photo:

Guillaume Binet/MYOP for The Wall Street Journal

Write to Matthew Luxmoore at Matthew.Luxmoore@wsj.com, Drew Hinshaw at drew.hinshaw@wsj.com and Mauro Orru at mauro.orru@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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French, German and Italian Leaders to Meet With Zelensky in Kyiv

LVIV, Ukraine—The leaders of France, Germany and Italy plan to meet with Ukrainian President Volodymyr Zelensky in Kyiv this week, officials said, as reports showed Russia making gains in the country’s east and Ukrainian officials urgently sought arms from Western nations to hold Russian forces at bay.

French President

Emmanuel Macron,

German Chancellor

Olaf Scholz

and Italian Prime Minister

Mario Draghi

were planning to visit the Ukrainian capital on Thursday, said two European officials, who cautioned that plans could yet change. The trip would be the first to Ukraine since the beginning of the war for the three Western leaders.

News of the planned meeting came as Ukrainian officials said Russia had made fresh gains in its efforts to encircle and capture the city of Severodonetsk, which would bring Moscow significantly closer to its goal of controlling the Donbas area in the country’s east, its foremost target recently in the war.

Serhiy Haidai,

the Ukrainian governor of the Luhansk region, which includes Severodonetsk, said on Sunday that Russians had destroyed a second bridge connecting Severodonetsk to Lysychansk, a Ukrainian stronghold just across the Siverskyi Donets river. Russian forces also shelled a chemical plant in the city’s industrial section, where civilians had taken shelter in bunkers, Mr. Haidai said.

The battlefield advances were the latest evidence that Russia is outgunning Ukrainian forces, using its superior artillery power to steadily take territory. Its gains have thrown added focus onto Ukraine’s pleas for more powerful and longer-range artillery and other weaponry from the West, as well as on Ukraine’s lack of capacity to manufacture ammunition for the Soviet-era heavy weapons in its arsenal.

A house burns after shelling in Lysychansk, which lies across a river from embattled Severodonetsk.



Photo:

aris messinis/Agence France-Presse/Getty Images

A mass grave on the outskirts of Lysychansk.



Photo:

aris messinis/Agence France-Presse/Getty Images

Ukrainian officials warn that a defeat in the Donbas region would open the path for Russia to move on to additional parts of Ukraine and potentially back to Kyiv. Already, Moscow has moved to solidify its administrative control of occupied territories. It has recognized the independence of separatist regions in Donbas and has begun issuing Russian passports to some parts of the country ahead of expected referendums that would lead to annexing territory to Russia.

On Sunday, Mr. Haidai said that Ukrainian forces remained in control of the part of Severodonetsk that includes the Azot chemical plant, and he denied that residents were trapped inside. Rodion Miroshnik, an official for the pro-Russian breakaway region that calls itself the Luhansk People’s Republic, made that assertion Saturday, saying on the Telegram social-media platform that hundreds of Ukrainian fighters and civilians were stuck in bunkers underneath the plant.

The competing claims came as Russian forces kept up their efforts to take the city, the largest remaining outpost in Luhansk that Moscow hasn’t captured.

“No one is trapped in the plant,” Mr. Haidai said on Ukrainian television Sunday. “There are no battles on the site of the plant, just in the area nearby. The only thing is that they constantly shell this plant.”

For several weeks, Moscow has poured resources into taking Severodonetsk, the administrative capital of the Luhansk region, which together with Donetsk makes up the Donbas area. A majority of the city’s buildings have now been destroyed, and most residents have fled. But Ukraine has managed to hold on to the southern section of the city, according to the British Ministry of Defense.

Last week, a top aide to Mr. Zelensky said that his side was losing up to 200 fighters a day, largely due to the overwhelming Russian advantage in firepower. Over the weekend, Kyiv kept up its pleas for the West to send more advanced weapons—and to send them faster. Severodonetsk Mayor Oleksandr Stryuk said that Ukrainian defenders need long-range artillery and air defense systems to stop Russian troops from further advancing in Luhansk.

This week’s planned meeting among the leaders of France, Germany, Italy and Ukraine comes amid a split within NATO about what kind of military aid to send to Kyiv. France, Germany and Italy haven’t been sending large quantities of heavy weapons, while the U.S. and the U.K. have both pledged in recent weeks to send more advanced rocket-launching systems. Poland has dispatched over 200 main battle tanks and scores of heavy artillery pieces.

Mr. Scholz’s government has come under criticism from Ukraine, Western allies and the opposition at home for failing to provide more military support for Kyiv. Germany has committed to send self-propelled howitzer guns and antiaircraft tanks, among other advanced weaponry. However, none of the shipments have arrived yet, and some aren’t expected before late in the year. In contrast, Berlin provided substantial quantities of lighter, defensive weapons such as antitank and antiaircraft missiles.

Mr. Scholz also courted criticism by stating that he would not travel to Kyiv for a mere photo opportunity. The agenda of this week’s meeting couldn’t be learned.

Other European leaders, including British Prime Minister

Boris Johnson,

have already visited Kyiv in shows of support for Ukraine’s struggle against Russian aggression. U.S. first lady Jill Biden also visited Mr. Zelensky, along with Secretary of State

Antony Blinken

and other senior U.S. officials.

Ukrainians displaced from Russian-occupied territory in the southern region of Zaporizhzhia gather at a reception center.



Photo:

Guillaume Binet/MYOP for The Wall Street Journal

The funeral of a Ukrainian soldier killed fighting in Donbas.



Photo:

Orlando BarrÃA/Zuma Press

The battle to control Severodonetsk and the broader Donbas has been costly for Russia. Its slow progress in gaining territory has forced Moscow to again reassess its military plans in expectation of a longer war, according to Ukrainian intelligence. The Institute for the Study of War, a Washington, D.C., think tank, wrote that Vadym Skibitsky, the deputy head of the Ukrainian Main Intelligence Directorate, had said he had information that Russian forces were now planning for the fighting to extend into October.

The British Defense Ministry said Moscow had been firing heavy, 1960s-era antiship missiles against land targets, likely because its forces were running low on more precise, modern missiles.

“Do you remember how Russia hoped to capture the entire Donbas in early May?” Mr. Zelensky said in a video posted late Saturday. “It is already the 108th day of the war, it is already June. Donbas is holding on. The losses suffered by the occupiers, including in this area, are extremely significant.”

Mr. Zelensky said that Ukrainian forces were also winning back territory that Russians had occupied in the southern Kherson region.

Mr. Zelensky has continued his push for the European Union to add Ukraine as a member.

Ursula von der Leyen,

president of the European Commission, met with Mr. Zelensky in Kyiv on Saturday.

After the meeting, she said the commission would work with Ukraine to rebuild and draw new investment, and that it would have a response by the end of next week about the country’s ambitions to join the EU.

“Ukraine was already on a good track before the horrible and atrocious invasion,” she said.

Mr. Zelensky, in his Saturday night address, stressed that joining the EU was essential for his country.

“What else needs to happen in Europe to make it clear to skeptics that the very fact of keeping Ukraine outside the European Union works against Europe?” he said. “We will continue to work even harder at all levels to get the right decision.”

Ukraine says its forces are sustaining heavy casualties in the east.



Photo:

aris messinis/Agence France-Presse/Getty Images

Write to Ian Lovett at ian.lovett@wsj.com and Bojan Pancevski at bojan.pancevski@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Prepare yourself: ‘The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006’

‘I don’t think that home sales are going to grind to a complete halt. They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.’


— Len Keifer, deputy chief economist at Freddie Mac

The U.S. housing sector is in the midst of the biggest slowdown in over a decade, one economist says. But don’t expect prices to fall back down to earth just yet.

“The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006,’” Len Keifer, deputy chief economist at Freddie Mac
FMCC,
-1.82%,
tweeted.

“It hasn’t shown up in many data series yet, but mortgage applications are pointing to a large decline over summer,” he explained.” He said home-purchase mortgage applications are down 40% from their most recent peak in 2021.

Purchases and refinance applications are in fact down to the lowest level in 22 years.

Mortgage applications as a data point “gives you a sense of where the market might be headed,” Keifer said in an interview with MarketWatch, “because that’s the early stages of when people are looking to buy a home. And if the volume of applications falls, that tends to indicate that in a month, month and a half, mortgage originations of home closings will also decline.”

Keifer expects home sales to henceforth “slow quite a bit over the summer.”

Meanwhile, Freddie Mac data released on Thursday morning revealed that mortgage rates have risen, on the back of rising interest rates and inflation.

To be clear, “I don’t think that home sales are going to grind to a complete halt,” Keifer stressed. “They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”

Would prices fall as a result of a ‘contraction’?

While some may jump to the conclusion that weaker data represents a possible fall in home prices, experts caution otherwise.

“Does this mean that house prices are going to crash? I don’t think so,” Keifer said.

Freddie Mac’s research shows that when interest rates go up, while home sales and mortgage originations go up, house prices won’t necessarily fall or rise. “They tend to be stickier,” Keifer said.

“And while the rate of growth tends to slow, they don’t tend to fall,” he added.

Write to: aarthi@marketwatch.com



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Why is the stock market falling? Dow drops nearly 900 points as investors weigh Fed’s policy path, earnings

U.S. stocks fell sharply Friday, as investors continued to weigh hawkish comments on interest rates by Federal Reserve Chairman Jerome Powell a day earlier, as well as a fresh batch of corporate earnings that largely disappointed.

How are stocks trading?
  • The Dow Jones Industrial Average
    DJIA,
    -2.18%
    was down 879 points, or 2.5%, at 33,914.
  • The S&P 500
    SPX,
    -2.18%
    fell 107 points, or 2.4%, to 4,286, and was on track for a third straight weekly fall.
  • The Nasdaq Composite
    COMP,
    -2.03%
    shed 298 points, or 2.3%, to trade at 12,875.

On Thursday, the Dow shed 368.03 points, or 1.1%, reversing a gain of as much as 331.43 points in intraday trading. The more-than 700-point intraday swing was its biggest since March 8, according to Dow Jones Market Data. The S&P 500 fell 1.5%, while the Nasdaq Composite slumped 2.1%.

What’s driving the market?

Stock-market weakness picked up Friday where Thursday’s selloff left off, when equities tumbled into the afternoon after Powell added his support for moving faster on raising interest rates to cool inflation, measures that would include a possible 50 basis point interest rate hike in May.

“It would seem investors have been too complacent about the upcoming [Fed] meeting, which will need to change,” said Michael Kramer, founder of Mott Capital, in a note.

The Cboe Volatility Index
VIX,
+20.55%,
an options-based measure of expected volatility over the next 30 days, had been too low heading into the May 3-4 Federal Open Market Committee, or FOMC, meeting, Kramer said. It rose Thursday and was up another 19.5% at 27.1- on Friday, moving above its long-term average just below 20.

Powell’s remarks appeared to make a half percentage point rate hike the base case, with the central bank also likely to announce the beginning of the unwinding of its balance sheet, Kramer said.

Meanwhile, traders of fed funds futures have priced in a 94% chance that the Federal Reserve will deliver a 75 basis point rate hike in June, up from 70% on Thursday and 28% a week ago, according to the CME FedWatch Tool. 

The benchmark 10-year Treasury yield 
TMUBMUSD10Y,
2.895%,
meanwhile, pulled back slightly to around 2.89% after climbing about 8.1 basis points to 2.917% on Thursday, the highest since Dec. 4, 2018.

Read: How to invest as inflation, higher interest rates and war roil markets

And some are warning that the Nasdaq is looking particularly vulnerable. The week has delivered some big earnings news for the technology sector, with investors cheering Thursday’s results from Tesla
TSLA,
-0.12%,
on the heels of deeply disappointing Netflix
NFLX,
-0.91%
results.

The Fed’s hawkish shift and the relentless rise in Treasury yields may be sapping the previous appeal of equities, which had previously been seen as the only viable avenue for many return-seeking investors.

“Investors appear to be moving away from the TINA (There is no Alternative) narrative as of late when it comes to equities,” said Brian Price, head of investment management at Commonwealth Financial Network, in a note. “This is the second straight week of significant outflows from equity mutual funds and days like today are unlikely to change the sentiment moving forward. The one positive takeaway may be that sentiment has become too bearish and we could see a countertrend rally at some point in the coming weeks.”

In One Chart: Investors just pulled a massive $17.5 billion out of global equities. They’re just getting started, says Bank of America.

All 11 major S&P 500 sectors fell Friday, with healthcare stocks dropping the most after a downbeat profit forecast from HCA Healthcare Inc.
HCA,
-20.47%
sent its shares tumbling. Other hospital operators, including Tenet Healthcare Corp.
THC,
-13.49%,
Community Health Systems Inc.
CYH,
-17.36%
and Universal Health Services
UHS,
-12.70%
also fell between 10.4% and 13.2%.

However, of the 99 companies in the S&P 500 that have reported earnings for the first quarter, 77.8% of them have beat market expectations. Typically, 66% of companies beat estimates, according to Refinitiv data.

Next week will mark another big week for earnings, with 558 companies reporting, Saxo noted. “It is the big test of companies’ ability to pass on costs to their customers,” they said.

Investors may also be skittish ahead of the final round of France’s presidential election on Sunday. An upset victory by far-right candidate Marine Le Pen over incumbent Francois Macron would likely spark market volatility, analysts said.

See: Here’s how markets are positioned for Sunday’s presidential election in France between Macron and Le Pen

What companies are in focus?
  • HCA shares were down 19.6%, on pace for their largest percentage decrease since March 16, 2020, when they fell 19.02%, according to Dow Jones Market Data.
  • Gap Inc.
    GPS,
    -18.51%
    stock tumbled nearly 19%, following a bigger-than-expected drop in sales and as the retailer announced the depature of Old Navy CEO Nancy Green.
  • Shares of Qualtrics International Inc.
    XM,
    -9.41%
    fell 9.5% after the experience-management software company reported fiscal first-quarter forecast-beating revenue.
  • Snap Inc.
    SNAP,
    -0.27%
    shares lost 0.7% after the social media group reported quarterly revenue that fell short of Wall Street’s expectations.
  • Shares of American Express Co.
    AXP,
    -1.87%
    fell 1.4% after topping earnings expectations Friday amid a continued rebound in travel and strong spending trends among younger consumers.
  • Verizon Communications Inc.
    VZ,
    -5.30%
    fell after its earnings report showed a net loss of postpaid phone subscribers in its latest quarter, calling out “competitive dynamics within the industry,” though it said it had its best quarter of broadband net additions in more than a decade.
How are other assets trading?
  • The ICE U.S. Dollar Index 
    DXY,
    +0.56%
     rose 0.7% to trade at its highest since March 2020.
  • Bitcoin 
    BTCUSD,
    -2.51%
    fell 2.4% to trade near $39,500.
  • The U.S. oil benchmark
    CL.1,
    -1.90%
     fell $1.72, or 1.7%, to settle at $102.07 a barrel on the New York Mercantile Exchange, falling 4.1% for the week.
  • Gold
    GC00,
    -0.60%
    fell $13.90, or 0.7%, to settle at $1,934.30 an ounce, leaving a 2.1% weekly fall.
  • The Stoxx Europe 600
    SXXP,
    -1.79%
    dropped 1.5% while London’s FTSE 100 
    UKX,
    -1.39%
    fell 1.4%.
  • The Shanghai Composite 
    SHCOMP,
    +0.23%
     rose 0.2%, while the Hang Seng Index 
    HSI,
    -0.21%
    slipped 0.2% in Hong Kong and Japan’s Nikkei 225 
    NIK,
    -1.63%
    fell 1%.

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Yale professor monitoring companies still doing business in Russia ups the ante by highlighting those that are now ‘digging in’

The Yale professor who is monitoring companies that are still doing business in Russia following its unprovoked invasion of neighboring Ukraine has upped the ante by reclassifying the list into five categories with the fifth titled “digging in” — or defying public demands for exit.

Some 39 companies, including Koch Industries Inc., packaging company Ball Corp.
BLL,
+1.60%
and cybersecurity company Cloudflare Inc.
NET,
-3.91%,
remain in that category four weeks after the start of the attack.

More than 450 companies have announced plans to pull out or curtail their activities since the list was first published by Jeffrey Sonnenfeld and his research team at the Yale School of Management. The situation remains fluid for now, with the Yale team updating the list on a daily basis.

See: Yale professor is keeping tabs on companies still operating in Russia despite Ukraine invasion — and many have now pulled out

“The idea here is to bring the Russian economy to a standstill,” Sonnenfeld told MarketWatch. “That’s what Gandhi did [in India], it’s how Ceaușescu was removed from power in Romania, [and] it’s what led to the fall of P.W. Botha in South Africa and led to Nelson Mandela’s freedom.

“It was critical in all those cases to have voluntary business blockades work in tandem with economic sanctions, so the people can hear that they are becoming pariahs and things are not what their leaders are telling them. … It’s a much tighter circle when the whole global economy takes part.”

Koch, the Wichita, Kan., company run by billionaire Republican megadonor Charles Koch, was explicit about its intention in a statement last week signed by Chief Operating Officer Dave Robertson. The Robertson statement said Koch would continue to operate its two Russian glass facilities, which are owned by Guardian Industries, a company acquired in 2017.

“While Guardian’s business in Russia is a very small part of Koch, we will not walk away from our employees there or hand over these manufacturing facilities to the Russian government so it can operate and benefit from them (which is what The Wall Street Journal has reported they would do),” Robertson said.

See: Koch Industries breaks silence on Russia operations — and says it will continue to operate its two glass factories there

The executive acknowledged the “horrific and abhorrent aggression against Ukraine,” which he called an “affront to humanity.”

But that was not enough to persuade Koch to pull out of Russia, as Ukrainian President Volodymyr Zelensky urged companies to do when he addressed the U.S. Congress by video link last week.

“All American companies must leave [the Russian] market immediately because it is flooded with our blood,” Zelensky said.

See also: Facebook, Google, Amazon and more marked Black History Month with fanfare — after donating to lawmakers who blocked voting-rights bills

Sonnenfeld described the Koch statement as “pathetic” and said it “reveals that all they care about is the loss of assets.”

Outside of “digging in,” the Yale list’s other four categories are “withdraw,” which is used for those companies taking a clean break from Russia; “suspension,” for companies that are temporarily curtailing activities, while keeping their return options open; “scaling back,” or reducing some activities while continuing others; and “buying time,” for companies that are holding off on new investments, while continuing most business.

For the full list of companies: Visit the Yale School of Management website

Companies that opt to dig in are facing substantial reputational risk at a time when younger people, in particular, expect companies to reflect their values and are willing and able to mobilize against them when corporate behavior disappoints, said Sonnenfeld.

“Gen Z are very careful about where they shop, whom they buy from and where they invest,” he said.

When Yale first published its list in late February, the stock market was down about 5% on the day, but the stocks of the companies on the list were down anywhere from 12% to 32%, he said.

The response from companies was also unusual, in that the first to announce plans to withdraw from Russia were energy companies, “who have not always been on the right side of social-justice issues,” said Sonnenfeld.

That sector was followed by professional services, from the Big 3 accounting firms to Accenture, McKinsey and those engaged in the legal profession, “firms that would often rather jump off a cliff than get involved in political issues,” in Sonnenfeld’s view.

“It’s impressive that these companies have made these decisions independently — it was not mandated or even encouraged by trade associations, who have been disappointingly mute,” said Sonnenfeld.

Some of the international companies that have changed course this week and withdrawn from Russia include French car maker Renault
RNO,
+0.68%,
which announced it would halt operations at its Moscow plant on Wednesday. Renault, which has a partnership with AvtoVAZ, Russia’s biggest car maker, was facing calls for a boycott of its products on social media.

See: Production halted at AvtoVAZ factory making Russia’s iconic Lada cars

The Swiss-based global food company Nestlé
NESN,
-0.88%
bowed to similar pressure and said it would suspend sales of its KitKat and Nesquik brands in Russia. The company had said last week that it was not profiting from its Russian activities.

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Biden Meets NATO Allies Seeking More Support for Ukraine

BRUSSELS—President Biden met with NATO leaders Thursday to agree on new measures to help Ukraine battle Russia’s invasion and address growing concerns Moscow might use chemical, biological or other unconventional weapons in its monthlong war.

The North Atlantic Treaty Organization’s emergency summit is the first in a day-long string of gatherings Mr. Biden has planned with European allies and other world leaders, as they map out their next steps helping Ukraine defend against the attack launched last month by Russian President

Vladimir Putin.

With Russian forces facing unexpectedly strong and lethal opposition from Ukrainian forces, Western leaders say they are increasingly worried Mr. Putin may resort to using weapons of mass destruction. NATO officials are grappling with the question of what actions by Russia would count as red lines that could prompt more direct involvement by the alliance.

The potential for chemical warfare in the conflict was “a real threat,” Mr. Biden said Wednesday as he left Washington.

“Any use of chemical weapons would fundamentally change the nature of the conflict,” NATO Secretary-General

Jens Stoltenberg

said as he arrived to kick off the summit. He warned of widespread and serious consequences of such action, but declined to say it was a red line.

NATO has been walking a tightrope of providing Ukraine with weapons and other support, without being directly drawn into the fighting. Mr. Stoltenberg said direct NATO involvement, such as establishing a no-fly zone over Ukraine, could carry high risks for the war to broaden.

Ukrainian President

Volodymyr Zelensky

addressed the NATO gathering, continuing weeks of outreach with politicians abroad to rally support for his country. Mr. Zelensky repeated his requests for more security assistance for Ukraine, but he did not revive his appeal for NATO membership or for a no-fly zone, according to senior Biden administration officials.

Ukraine targeted a port facility used by Russian forces, hitting a naval ship; Biden meets world leaders in Brussels to discuss next steps with Russia; the Ukrainian president called for global rallies to mark one month of war. Photo: Ukrainian Armed Forces

In his remarks at the NATO gathering, Mr. Biden stressed the need to strengthen NATO’s eastern flank and said he welcomed pledges of increased defense spending from various countries, officials said.

Russia’s potential use of chemical weapons was raised in the discussion among NATO leaders, officials said, adding that there was recognition that the alliance needed to continue to prepare for and respond to different contingencies.

Accidental release of chemical agents is also worrying some members. “We are concerned when Russian aggression forces are shelling chemical plants and similar facilities,” Slovenia’s Prime Minister

Janez Janša

said ahead of the NATO summit. “This could trigger a disaster of large scale.”

Allies also brought up the need to call on China to not support Russia in its war against Ukraine, officials said.

Mr. Stoltenberg on Wednesday said aid to Ukraine could cover a variety of areas.

“I expect allies will agree to provide additional support, including cybersecurity assistance, as well as equipment to help Ukraine protect against chemical, biological and radiological and nuclear threats,” Mr. Stoltenberg said.

Canada’s Prime Minister Justin Trudeau speaking to the media in Brussels.



Photo:

evan vucci/Agence France-Presse/Getty Images

Mr. Biden, who arrived in Brussels Wednesday, will also be meeting with leaders of the European Union and the Group of Seven leading industrial countries. Japanese Prime Minister

Fumio Kishida

and Canadian Prime Minister

Justin Trudeau

have flown to Brussels for the meetings.

The U.S. and EU have imposed the biggest coordinated package of sanctions ever levied against a major economy in the aftermath of Russia’s invasion of Ukraine.

U.S. national security adviser Jake Sullivan said Mr. Biden and G-7 leaders would discuss the economic spillover effects of the conflict and announce an agreement on coordinating sanctions enforcement. The U.S. also plans to impose a new round of sanctions on political figures and oligarchs, he said, without providing more details.

According to U.S. officials and documents viewed by The Wall Street Journal, Mr. Biden is preparing to unveil sanctions on more than 300 members of the Russian State Duma, the lower house of parliament, as soon as Thursday.

During his meeting with the European Council, which groups EU national leaders, Mr. Biden will discuss the humanitarian crisis resulting from the war in Ukraine, the next steps on sanctions and their approach to China, especially as it relates to Russia’s invasion, Mr. Sullivan said.

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Mr. Biden will consult with leaders throughout the day on the possibility of cyberattacks by Russia against the U.S. or its allies and the potential use of chemical or biological weapons in Ukraine, he said.

The U.S. is expected to make an announcement on Friday on enhancing European energy security and reducing the continent’s dependence on Russian natural gas, Mr. Sullivan said.

Ahead of Thursday’s meeting, NATO released estimates indicating Russia may have lost as much as a fifth of its combat forces in about a month of fighting in Ukraine. U.S. military analysts have estimated lower casualty figures.

Up to 40,000 Russian troops have been killed, wounded, taken prisoner or are missing in Ukraine, a senior NATO military official said. Russia may also have lost 10% of its equipment, impairing Moscow’s ability to maintain its pace of operations, another NATO official said. Moscow hasn’t released updated casualty figures since acknowledging on March 2 the deaths of 498 troops in Ukraine.

Write to Tarini Parti at Tarini.Parti@wsj.com and Robert Wall at robert.wall@wsj.com

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Canadian Pacific Railway Threatens Lockout in Labor Dispute

A lockout or possible strike action at Canadian Pacific would strand large volumes of shipments of commodities and manufacturing and consumer goods.



Photo:

James MacDonald/Bloomberg News

Canadian Pacific Railway Ltd.

CP 3.22%

said it would lock out employees on March 20 if the union representing train conductors and engineers fails to negotiate a new contract or agree to binding arbitration.

The railway has been in contract discussions or mediation since September with the Teamsters Canada Rail Conference, the union representing over 3,000 Canadian Pacific employees. The union is seeking a number of wage, pension and benefit improvements.

A lockout or possible strike action by the union would strand large volumes of shipments of commodities and manufacturing and consumer goods. The strike also would delay shipments of fertilizer such as Canadian potash ahead of the spring planting season. Demand for Canada’s potash increased significantly after supplies of the commodity from Russia and Belarus were blocked by sanctions.

Keith Creel,

Canada Pacific’s chief executive, said the lockout was called in an effort to reach an agreement with the union and to end uncertainty for suppliers and consumers.

“The world has never needed Canada’s resources and an efficient transportation system to deliver them more than it does today,” Mr. Creel said.

A Teamsters spokesman couldn’t immediately be reached for comment.

Canadian fertilizer company

Nutrien Ltd.

, the world’s largest producer of potash, said Wednesday night that as a result of uncertainty about potash supplies in Eastern Europe it plans to increase potash production this year by about one million metric tons, to about 15 million metric tons. It said a strike at Canadian Pacific could have a significant impact on global agricultural supply chains.

Write to Jacquie McNish at Jacquie.McNish@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the March 17, 2022, print edition as ‘Canadian Pacific Threatens a Lockout.’

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As Fed signals a 25-basis point hike later this month, here’s what that means for your credit-card bill, savings and mortgage repayments

Federal Reserve Chair Jerome Powell is telegraphing his first punch in the fight against inflation — his intention to support a 25 basis-point increase on a benchmark interest rate, the first in a number of potential rate hikes this year.

Now it’s time for consumers to make their own maneuvers, particularly those who are planning to pay down credit-card debt or build up their savings in 2022.

By itself, a quarter-percentage-point increase will not make a big difference to a credit card’s annual percentage rate (APR) or their savings account’s annual percentage yield (APY), experts say. But stack several rate increases together and consumers will start to feel the pinch, they note.

In Congressional testimony Wednesday and Thursday, Powell previewed what’s he’s considering at a crucial policy meeting scheduled for mid-March. That way, markets do not have to wait in the lurch when there’s already so much uncertainty — due to Russia’s invasion of Ukraine — and they aren’t blindsided when the increase happens to the federal funds rate now near zero.

“I do think it will be appropriate to raise our target range for the federal funds rate at the March meeting in a couple of weeks. And I’m inclined to propose and support a 25-basis-point rate hike,” he told lawmakers Wednesday.

On Thursday, he reiterated plans for a 25-basis-point increase and said he supports a “series” of 2022 hikes. If price inflation rates stay high, the Fed would be ready with rate hikes exceeding a quarter percentage point, Powell said.

Markets liked the certainty, and it’s a helpful heads up for consumers because the federal funds rate strongly influences a credit card’s APR and a savings account’s APY. Here’s more on that relationship:

Added credit-card costs

If a rate hike does comes this month, it could be April or May when credit-card holders see the higher APR reflected on their bill, said Matt Schulz, chief credit analyst at LendingTree. For anyone with credit-card debt, “any rise in rates is unwelcome, but the truth is that the Fed’s move in March isn’t likely to rock most people’s financial world, if it is only a quarter-point increase. The danger comes if the rate increases keep coming — and in bigger chunks.”

Consider this scenario:

A person carries a balance of $5,000 and makes $250 monthly payments, with a 16.44% APR (the average credit card interest rate in 2021’s fourth quarter, according to the Fed). To pay off the balance, the person will pay $884 in interest, Schulz said.

In comes a 25-point basis point increase:

That would bring the APR to a potential 16.69% because the prime rate — which issuers use to make their credit-card rates — historically absorbs the full amount of the federal funds rate increase, Schulz said. Now the same person is paying $900 in interest to pay down the balance, a $16 increase over the life of the loan, he said.

And another 25-basis-point increase:

With an APR of 16.94%, that turns into $917 in interest, an additional $32 during the loan’s duration.

If there are six, quarter-percent rate increases — which isn’t out of the ballpark when some observers say there could be seven hikes — that turns into a 1.5% rise for APR, Schulz said. Now the borrower has to pay $985 in interest, he said. That’s $101 extra during the life of the loan.

In a time of high inflation, an extra $101 being paid to interest instead of groceries or gas will be a tough reality for families living paycheck to paycheck. Average hourly earnings were flat from January to February, but up 5.1% year-over-year according to Friday’s jobs report.

Americans had approximately $860 billion in credit-card debt during 2021’s fourth quarter, according to the Federal Reserve Bank of New York. Borrowers had an average $4,857 in credit-card debt during the third quarter, according to TransUnion
TRU,
+2.13%,
one of the big three credit bureaus.

It’s worth noting that some rates will be higher depending on a cardholder’s credit history. In February, the average rate for all new card offers was 19.53%, according to LendingTree.

Higher savings-account yields

“The good news about interest-rate hikes is that consumers who put their money in high-yield savings accounts will grow their money faster so continuing to shore up savings this year will yield more returns than last year,” said Gannesh Bharadhwaj, general manager of credit cards at Credit Karma
INTU,
-1.64%.

Savings accounts are a place to safely store easy-to-access cash, rather than to reap large returns. Extra interest yields after a rate hike will be modest at first but can pile up depending on how many rate increases occur, said Ken Tumin, founder and editor of DepositAccounts.com.

Right now, an online savings account has an average 0.49% APY, he said. Historically, rate increases haven’t all been passed along to the APY, at least at first, Tumin said.

A 25 basis point hike could mean a potential average APY around 0.55% – 0.6%, he estimated. If a savings account has $10,000, that little step up bears an extra $10, Tumin said.

But the talk is of multiple rate increases. If there are six, quarter-percentage-point increases, that same $10,000 account could produce an extra $100 in a year, he estimated.

Online savings accounts are the places to find the elevated APYs, not the “brick and mortar” banks, Tumin said.

During the previous rate-hike cycle from 2015 to 2018, there were three, quarter-point increases “before the average high-yield savings account APY had any significant gain,” he noted. “The rise may be faster this time due to high-yield savings account rates that have fallen to levels much lower than the bottom levels before 2015.”

‘A marginal impact’ for mortgage rates

“For housing, the Fed’s short-term rate has a marginal impact on mortgage rates,” said George Ratiu, senior economist and manager, economic research at Realtor.com.

There’s a different Fed action connected to those rates, he said. Along with dropping the federal funds rate during the pandemic’s early days, the central bank also bought up Treasury debt and agency mortgage-backed securities. The central bank has decided it’s a good time to end that.

From 2020 to 2021, those Fed purchases injected liquidity and sent mortgage rates to the basement, Ratiu said. “As the Fed announced it planned to finalize its tapering of [mortgage-backed securities] purchases later this month, we have seen rates surge to highs not seen since mid-2019.”

So prospective homeowners are already paying for Fed actions. The average 30-year fixed mortgage rate hit 3.76% this week, Freddie Mac
FMCC,
-1.41%
said. To put that in context, the 30-year fixed mortgage rate was closer to 2.7% a year ago.

One basis point is equal to one-hundredth of a percentage point. It’s major shift from just a few weeks earlier when the average rate for the 30-year loan jumped to the highest level since May 2019, close to 4%.

February’s median listing came to $392,000, according to Realtor.com. Compared to a year ago, a buyer would pay $278 more on their monthly mortgage, Ratiu noted. That’s more than $3,300 added to the buyer’s yearly financial burden.

“Additional increases in mortgage rates will further squeeze buyers’ budgets and may limit first-time buyers’ ability to qualify for a mortgage, especially with prices continuing to advance,” he said.

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Mortgage rates fall amid geopolitical uncertainty. How the Russia-Ukraine crisis could impact home buyers — and interest rates

Home buyers are seeing temporary relief from rising interest rates as markets react to Russia’s invasion of Ukraine. But in the longer term, inflation remains a serious concern.

The 30-year fixed-rate mortgage averaged 3.89% for the week ending Feb. 24, down three basis points from the previous week, Freddie Mac 
FMCC,
+1.59%
reported Thursday. The slight decline marks a retreat from the highest benchmark mortgage rates in years.

And there’s a chance rates will move even higher. As the U.S. and other countries move to impose sanctions on Russia over its invasion of Ukraine, gas prices are likely to surge due to Russia’s position as a major producer of oil and natural gas.

“An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Federal Reserve to tighten monetary policy aggressively, and higher interest rates could become a larger headwind for the U.S. economy,” said PNC chief economist Gus Faucher.

“Even with this week’s decline, mortgage rates have increased more than a full percent over the last six months,” Sam Khater, Freddie Mac’s chief economist, said in the report.

‘An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Federal Reserve to tighten monetary policy aggressively.’


— PNC chief economist Gus Faucher

The 15-year fixed-rate mortgage fell one basis point over the past week to an average of 3.14%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.98%, unchanged from the previous week.

The decline in mortgage rates roughly tracks movements in long-term bond yields. The 10-year Treasury note’s yield
TMUBMUSD10Y,
1.968%
has slid in recent days as tensions in Eastern Europe exploded into armed conflict.

“As the world reacts to developments in Ukraine, the uncertainty will likely mean a pause in the recent pace of increases,” said Danielle Hale, chief economist at Realtor.com.

But even with this momentary pause, mortgage rates remain significantly higher than in recent months. According to Hale, only two previous events compare with this recent surge in rates. Following the 2016 presidential election, mortgage rates soared 85 basis points over 10 weeks, and in 2013 during the “taper tantrum” when the Federal Reserve scaled back its stimulus activities interest rates increased by more than 1% over 11 weeks’ time.

“In both cases, home sales momentum slowed in the following year due to the impact on affordability, since rising rates mean higher homeownership costs even if home prices are unchanged,” Hale said, noting the effects were more pronounced for those who had less money to put toward a down payment.

It remains to be seen whether a similar string of events will occur in 2022, though signs point in that direction. Recent mortgage-application data from the Mortgage Bankers Association suggests that home-buying demand has ebbed in the face of rising rates.

Bruce Kasman, JPMorgan’s chief economist, told CNBC that the Russian invasion of the Ukraine makes the Federal Reserve’s position more complicated. “There is a scenario where the growth hit starts to get more substantial. There’s also scenarios where the price increases are not as damaging to growth and it’s feeding inflation.”

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The Hidden Ways Companies Raise Prices

Lettuce Entertain You Enterprises Inc., a Chicago-based restaurant group, has added a 3% “processing fee” to checks at many of its restaurants.

Harley-Davidson Inc.

added a charge last year to its motorcycles to cover rising material costs.

Peloton Interactive Inc.

in January began charging $250 for delivery and setup of some of its indoor bikes, a service that was previously included free.

Companies are finding all kinds of ways to make consumers pay for rising costs. Often that is not reflected in the posted price.

The Labor Department’s consumer-price index, which measures how much consumers pay for goods and services, rose to 7.5% in January compared with the same month a year earlier—the biggest rise since February 1982.

The index accounts for some changes that raise consumers’ costs, such as smaller package sizes and some fees attached to hotel packages or car purchases. But it can miss other ways in which dollars don’t stretch as far– a hotel that changes sheets only between guests, a theme park that cancels its free airport shuttle, or an auto dealer that requires customers to buy a protective paint coating with a car.

With supply-chain challenges, pent-up demand and a tight labor market leading to inflation, businesses are looking for subtle ways to pass along rising costs. Particularly in the food business, companies have long used what the industry calls weight-outs, or shrinking package contents instead of raising prices, during economic distress periods such as the 2007-2009 recession.

“There is a lot more to come,” said

Doug Baker,

head of industry relations for FMI, a food-industry trade organization. “Everything is on the table in an effort to deal with those cost increases, and at the same time, not make it too difficult for consumers to shop.”

A global computer-chip shortage has reduced vehicle inventories just as Americans were buying cars in record numbers, pushing up prices for new vehicles. In many cases, they are selling for thousands of dollars above manufacturers’ suggested retail prices, said Tom McParland, founder of Automatch Consulting, which helps consumers find vehicles.

“They’re calling it a market adjustment fee,” said Mr. McParland. “That’s the new thing they are doing: hiding markups with substantially overpriced accessories like mud flaps and cargo protectors.”

Ford Motor Co.

and

General Motors Co.

have said they are cracking down on dealerships using that tactic.

Harley fees

Base prices on Harley-Davidson’s motorcycles haven’t gone up much in recent years, the Milwaukee company said. But to cover rising costs, it added a mandatory materials surcharge last year, which dealers are passing on to customers. Dealers said the fee, which varies based on the model, is easier for the company to adjust than base motorcycle prices when costs decrease.

Dealers said the fee is $850 to $1,500 a bike. Harley this week told analysts that the surcharges helped boost revenue during the fourth quarter last year.

Harley-Davidson added a fee to its motorcycles to cover rising material costs; a dealership in Louisville, Ky., this week.



Photo:

Luke Sharrett/Bloomberg News

Some restaurants are adding new fees in response to escalating costs for food and packaging, and for wage increases executives say are needed to keep cooks and servers.

Brinker International Inc.’s

Maggiano’s Little Italy in October 2020 started charging $5 for a second, to-go pasta dish offered as part of a two-entree deal. For about a decade before the pandemic, the chain had offered a second classic pasta dish free.

“We’ve had no push back,” Maggiano’s president Steve Provost told investors last October. A Brinker spokeswoman said the price change allowed the company to invest more in the value of its carry-out offerings.

When Michael Pfeifer, a marketing professional, picked up the check for his meal at

RPM

Seafood in Chicago this week, he was surprised to find a 3% Covid surcharge added to the bill. “What’s next?” he said. “A dishware rental fee?”

The fee, added in the spring of 2020, offsets the cost of pandemic-related government regulations and mandates, said RJ Melman, president of Lettuce Entertain You, which owns RPM. “These fees can be removed and refunded for any guest that requests,” he said, “no questions asked.”

Peloton, according to its website, is adding the new $250 fees on bikes and a $350 delivery-and-setup fee for some of its treadmills. It cut the price of its original stationary bike in August to $1,495 from $1,895. With the added fees, the total price is now back up to about $1,745, as the company dealt with slowing demand and its own rising costs.

Peloton declined to comment on the fees. In an earnings call on Tuesday, Peloton CFO

Jill Woodworth

said that the fees could cut into consumer demand but that they were part of a “critical learning” process as the company restructures and cuts costs for the post-pandemic era.

Walt Disney Co.

’s Disney World in Orlando stopped offering free airport shuttles—known as the Magical Express—this year, leaving Disney guests to pay for their own transportation. The parks added several fees last year while keeping the base ticket price at $109. A fast-pass system that let park guests make reservations for rides, which used to be free, was discontinued and replaced by a new system that costs $15. And some popular rides, like Star Wars: Rise of the Resistance and Space Mountain, now cost between $7 and $15, on top of the park admission ticket.

Disney offers “a wide range of options to match different budgets and interests,” said Disney spokesman Avery Maehrer.

At its theme-park restaurants, Disney is trying to avoid across-the-board price increases, Disney CFO

Christine McCarthy

told analysts in November. “We can substitute products. We can cut portion size, which is probably good for some people’s waistlines,” she said. “But we aren’t going to go just straight across and increase prices.”

Consumer backlash

Consumer pressure has led some companies to back off added fees, including

Frontier Group Holdings Inc.

The airline, which uses a la carte pricing that lets frugal travelers choose to forgo amenities, in May 2021 added a $1.59-per-flight-segment Covid-related fee. After consumer backlash, Frontier in June stopped breaking it out as a component of its base fare but it didn’t stop charging it. Frontier didn’t respond to requests for comment.

In a press release it said: “The charge, which was included in the airline’s total promoted fare versus an add-on fee, was meant to provide transparency and delineate what portion of the fare was going toward COVID-related business recovery.”

Some of

Marriott International Inc.’s

Autograph Collection hotels had been charging a “sustainability fee” of about $5 a night. The company that manages the properties, Innkeeper Hospitality Services LLC, says it covered things like more-efficient HVAC systems.

They stopped charging the fee several weeks ago, “because we understand that while we believe in environmentally responsible stewardship, not everyone cares about our planet’s health,” IHS CEO Amrit Gill said. He said Marriott had asked the company to stop charging the fee. Marriott declined to comment.

The Biden administration has begun to look into some forms of hidden fees, which it calls “junk fees.” The administration says the amount being charged is not always tied to the costs faced by the company providing the goods or services. The Consumer Financial Protection Bureau is seeking public input on financial services, such as bank overdraft fees, while the Transportation Department is planning actions on airline baggage fees.

John Fiorello, a father of four in Torrington, Conn., was dismayed to see prices rising in his local grocery-store aisles but was initially pleased to see that the blocks of cheese he usually buys hadn’t gone up much in price—perhaps 10 cents, he said. Then he noticed that the package had shrunk, to 12 ounces from 16.

“I picked up the block and said, ‘this is definitely smaller,’ ” Mr. Fiorello said. “It just adds an extra layer of stress.”

Shrinkflation, as economists call it, tends to be easier for companies to pass on to consumers. Despite labels that show price by weight, research shows that most customers look at only the overall price.

The food industry has long shrunk package contents instead of raising prices during economic-distress periods; a Salt Lake City grocery store in October.



Photo:

George Frey/Bloomberg News

“There are sizes that people remember, like a half gallon of ice cream,” said John Gourville, a Harvard Business School professor. “Once you break from iconic sizes, it’s pretty easy to move from 13 ounces to 12 ounces.”

Over the years, tuna cans have come to contain less tuna and toilet-paper rolls less tissue, said

Burt Flickinger III,

managing director of Strategic Resource Group, a consulting firm that works with consumer-product companies. “Historically,” he said, “it’s called a ‘cheater pack.’ ”

Companies have become more sophisticated and use multiple tactics to protect their profitability, he said. They can pull back on discounts, stop making low-selling products and create new varieties that sell for higher prices

Downsized Oreos

Oreo-maker Mondelez International Inc. raised prices by an average of 6% to 7% in the U.S. last month, but it wasn’t enough to make up for its higher costs, the company said. So Mondelez has been introducing new sizes and flavors it says are more profitable.

Oreo’s new 110th Birthday chocolate confetti-cake cookies cost about 10 cents more than regular Double Stuf Oreos at several grocery stores, even though the new flavor comes in a slightly smaller package. At a

Target Corp.

store in Chicago, the limited-edition birthday Oreos, which came out January, cost $3.79 for a 24-cookie package and the Double Stuf ones cost $3.69 for a 30-cookie package.

Retailers set the final prices. Mondelez said it charges the same for the two products, and its limited edition flavors are typically different-sized packages than regular ones. A Target spokesperson said: “We’re priced competitively throughout the markets we do business.”

Economists and analysts at the Labor Department’s Bureau of Labor Statistics monitor prices of thousands of goods and services. They can account for shrinkflation, because they track the cost of certain products by weight and quantity—so a cereal box that costs the same amount but now has 30% less volume would be registered as a price increase.

They said their efforts can’t identify every fee or dropped amenity, such as a hotel room rate that remains the same but that no longer includes fresh towels or a hot breakfast. “We do not capture the decrease in service quality associated with cleaning a room every two days rather than one,” said Jonathan Church, a BLS economist.

Disney World in Florida added several fees last year while keeping the base ticket price at $109; the Magic Kingdom last summer.



Photo:

Joe Burbank/Orlando Sentinel/Associated Press

Jeremiah Mayfield and Carlos Larrea stayed at Alohilani Resort in Honolulu in December and opted for a $75 a-night upgrade to “club level” for free food and drinks. But they said they could rarely use it because the resort didn’t have enough staff to replenish the club-level amenities. After complaining, they were offered free dinner.

Alohilani General Manager Matthew Grauso said that quality and efficient guest service are top priorities and that he tries to remedy any shortfalls immediately, adding, “The pandemic has presented a unique set of challenges within the hospitality industry.”

“We gave them hell for it,” Mr. Mayfield said. “We paid $800 a night. We never expected it would be so scarce in terms of service and amenities.”

Many hotel chains are replacing complimentary hot breakfast buffets with a snack bag. Some fitness centers and pools remain closed, and housekeeping doesn’t refresh rooms daily. Some guests feel like they are getting less for their money.

InterContinental Hotels Group

PLC, which owns Holiday Inn, said it has been working with hotels to return amenities and make it right if guests aren’t satisfied. “Hotel teams have been overcoming many challenges including supply chain and labor shortages, changing health guidance and regulatory requirements,” an IHG spokesperson said.

On a recent trip to St. Louis, Meg Hinkley booked a Holiday Inn because it said online that it offered room service. When she arrived, the restaurant was closed, so there was no room service. She said she would have stayed at a lower-priced hotel if she had known. “I was paying for that convenience.”

Write to Annie Gasparro at annie.gasparro@wsj.com and Gabriel T. Rubin at gabriel.rubin@wsj.com

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