Good evening
Another day, another “worse than expected” piece of data.
Today’s instalment was news that eurozone inflation had risen from 8.9 per cent to a new record of 9.1 per cent in August, heaping pressure on the European Central Bank to announce a more aggressive tightening of monetary policy next week.
The data fuelled a further sell-off in European bond markets as investors braced for bigger interest rate rises. Economists now predict inflation will top 10 per cent this year and remain higher for longer than originally forecast.
The spiralling cost of energy was the main driver of today’s increase, but the core reading, which strips out this and other volatile items such as food, still rose a higher than expected 4.3 per cent, up from 4 per cent in July. On the plus side, wholesale energy prices have come down from record highs after news of an EU plan to moderate electricity prices by separating them from the spiralling cost of gas.
Inflation in Germany, the eurozone’s most important economy, hit a 40-year high of 8.8 per cent, despite government measures such as lowering duty on fuel and energy bills and subsidising train fares. Bundesbank chief Joachim Nagel recently suggested double-digit levels were likely this year, for the first time since 1951.
Meanwhile in the UK, inflation could hit 13 per cent next month after a ruling from the Office for National Statistics that a £400 rebate on household energy bills would not affect its calculation. Goldman Sachs yesterday trumped Citigroup’s forecast of 18.6 per cent inflation in January, when energy prices are likely to ratchet up again, with a prediction of more than 20 per cent.
Chief economics commentator Martin Wolf lays out the challenge facing central bankers, unable to address the core problem of the energy shock: how to ward off the “calamity” of 1970s-style high and unstable inflation without causing an unnecessarily deep slowdown.
Today’s data follow hawkish rhetoric on fighting inflation from central bankers gathered at Jackson Hole in Wyoming last week.
Hanging over the meeting, reports US economics editor Colby Smith, was the feeling that the world and the economic relationships that underpin it had fundamentally changed. Some believe that the forces that previously kept prices in check, such as globalisation and a plentiful supply of labour, have reversed.
Or as ECB board member Isabel Schnabel puts it, we are at risk of transitioning from the past two decades of the “Great Moderation” to a new era: the Great Volatility.
Compare international trends with our global inflation tracker.
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For up-to-the-minute news updates, visit our live blog
Need to know: the economy
European fears over gas supplies intensified as Russia halted flows through the Nord Stream 1 pipeline for three days of maintenance, while in Germany some companies have halted production as prices soar. Shell said Europe may have to get used to several years of rationing, but some relief is on the way from China, which is reselling its surplus liquefied natural gas.
Latest for the UK and Europe
Only five more sleeps till the UK gets its new prime minister! Candidate Rishi Sunak continued his attacks on rival (and favourite) Liz Truss’s economic plans, while Truss faced a backlash over her plans to cut VAT. But looking at this nightmarish in-tray it’s a wonder why anyone would want the job . . .
Signs of the economic squeeze are coming thick and fast. UK credit card borrowing rose at the fastest rate in 17 years last month as consumers battened down the hatches, while other data showed shoppers were increasingly trading down to own-label groceries.
Finding solace at your local boozer could also be problematic: leading pub chains say many face closure unless the government helps them with crippling energy bills. Corner shops face the same problem. Most depressing news of all: English councils are preparing “warmth banks” for those who can’t afford to heat their home.
Global latest
Chinese manufacturing activity shrank for the second straight month in August after drought caused power shortages.
The IMF approved a $1.1bn payment to Pakistan as part of a $7bn bailout package to help stave off default. The country, already suffering severe economic difficulties, has had to contend with devastating floods that have killed more than 1,000 people and wrecked 1mn homes.
A bank customer’s staged “robbery” to get access to his savings has highlighted the agonies facing those in Lebanon, where a financial collapse is now in its third year. Three quarters of the population have been thrown into poverty, while the country’s currency has lost more than 90 per cent of its value.
Need to know: business
The problems facing the buy now, pay later sector were highlighted by a quadrupling of losses at Sweden’s Klarna.
Another pandemic darling has fallen back to earth. Social media group Snap announced a 20 per cent cut in staff as advertising demand wanes.
The head of CRH, the world’s biggest building materials company, told the FT the industry faced a “second wave” of inflation as cost increases spread beyond energy to wages and raw materials.
The darkening economic outlook is likely to wreck the appetite for travel this winter, leaving airlines facing a grim winter on top of the disruption of recent months. Italy is in talks to sell a controlling stake in ITA Airways, the successor company to bankrupt Alitalia, to Delta Air Lines, Air France-KLM and a US private equity firm.
Cruise ship demand is edging towards pre-pandemic levels, as our Big Read explains, but the industry faces resistance from environmental campaigners and some port cities which say travellers do little on disembarking other than take pictures.
The World of Work
Come into the office regularly and make sure people see you, do your job well for the agreed hours (rather than slacking off constantly), and, most important of all, do it discreetly. Columnist John Gapper has some tips for those considering “quiet quitting”.
Hybrid workers, meanwhile, face greater scrutiny from UK tax authorities, including whether those working abroad become liable to income tax and social security outside the country.
The resurgence of trade union activity is recasting the relationship between bosses and workers, explains US labour and equality correspondent Taylor Nicole Rodgers who guests on the latest Working It podcast.
Get the latest worldwide picture with our vaccine tracker
Some good news
The once-extinct large blue butterfly, reintroduced to the UK in 1983, flew in its greatest numbers ever recorded this summer, following a successful long-term conservation project led by the Royal Entomological Society.
Source: Economy - ft.com
