High wage growth causes headache for policymakers

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The European Central Bank could be forgiven for breathing a sigh of relief today as new data showed wage growth in the eurozone stabilising. But the issue remains a big concern for central banks around the world.

Hourly labour costs were 4.5 per cent higher in the April to June period compared with last year, though rising at a slower pace than in previous quarters. Ahead of the data, several ECB policymakers had told the FT that rates could rise again in December if inflation and wage growth remained hot, even after they lifted them to an all-time high of 4 per cent yesterday.

ECB president Christine Lagarde said after the decision that labour costs were an increasing part of the inflation equation. The problem is particularly acute in Germany, the bloc’s biggest economy, but is also an issue in the UK and the US.

The UK this week recorded wage growth at record levels while new data this morning showed it was the main cause of inflation in the country’s dominant services sector.

Separate survey data ahead of next week’s Bank of England rate decision showed public satisfaction with its inflation strategy at a record low, reinforcing expectations of another quarter-point rise, taking the cost of borrowing to 5.5 per cent, the highest since 2008. August inflation data, published on Wednesday, the day before the BoE decision, could change the narrative.

In the US, new data this week showed higher than expected inflation in producer prices as well as consumer prices ahead of next week’s Federal Reserve rates decision, although in this case it was driven mainly by a jump in petrol prices. (Here’s our explainer on why oil is back to $90 a barrel). Still, consumers are turning more positive: new survey data today showed year-ahead inflation expectations falling to an 18-month low.

One of the big questions facing global policymakers is whether higher interest rates will leave economic scars. In her column today, Soumaya Keynes discusses two studies that argue they could hurt innovation and growth, even if they manage to get headline inflation down.

“Monetary policy is a blunt tool, and the more things it is asked to do, the worse it will perform at each,” she writes. “For now, if hoiking up interest rates derails investment and innovation, the mess will be left to others to tidy up.”

Need to know: UK and Europe economy

The northern section of the UK’s long-awaited High Speed 2 rail line, which would connect Manchester to Birmingham, could be in doubt after a meeting between PM Rishi Sunak and chancellor Jeremy Hunt to identify savings.

Another sign of the times? Cash payments increased in the UK for the first time in a decade last year. “It’s something we do tend to see in times of falling consumer confidence and economic uncertainty,” said Adrian Buckle of trade body UK Finance. “We saw this in 2008.”

UK estate agents, usually a chipper bunch, are in their gloomiest mood for 14 years, according to a new survey, thanks to falling house sales and prices and a property market clobbered by high mortgage rates.

The UK’s opposition Labour party needs to be bold and deepen ties with the EU to ease trade friction if it gets elected, says public policy editor Peter Foster (for Premium readers). Foster also talks to the Rachman Review podcast about his new book, What Went Wrong With Brexit: And What We Can Do About It.

Gloom is deepening in German manufacturing as the sector succumbs to short-term problems such as energy costs and longer-term structural issues including labour shortages and a lack of investment.

Need to know: Global economy

There was a rare economic boost for China in this morning’s data showing retail sales and industrial production grew faster than expected in August, after policymakers stepped up stimulus measures.

Uranium prices are up, too, hitting their highest levels since 2011 as governments warm to nuclear power. Nuclear has been gradually re-emerging as a critical carbon-free source that could help tackle climate change, a role that had been badly dented by Japan’s Fukushima disaster.

Britain, Germany and France said they would retain sanctions on Iran that had been due to expire, in response to concerns over Tehran’s expansion of its nuclear programme.

“Patronising, factually inaccurate, a contradiction in terms and a catalyst for political polarisation all within two words.” The “Global South” is a pernicious term that needs to be retired, writes Alan Beattie in his Trade Secrets newsletter (for Premium subscribers).

Need to know: business

US car workers launched the first strike action against Detroit’s big three of Ford, General Motors and Stellantis in almost a century. The dispute, over pay and a two-tier wage system, was described as “our generation’s defining moment” by the United Auto Workers union.

TikTok was hit with a €345mn EU fine over how it processes the personal data of children and teenagers, the first handed out to the Chinese-owned social media platform.

Shares in Arm, the SoftBank-owned chip designer, jumped 25 per cent on their first day of trading, valuing the company at more than $65bn. Its next challenge is jump-starting growth and specifically finding new sales as its core smartphone business matures.

Arm’s listing has also spurred hopes among Wall Street bankers of a revival in IPO fees. Instacart’s raising of the price range for its IPO is another sign of a warming market for new listings.

Apple will issue a software update for the iPhone 12 after several European countries indicated they could follow France in taking action over allegations of elevated radiation emissions.

TSMC, the world’s biggest contract chipmaker, is betting big on silicon photonics, an emerging field that combines silicon chips with optic technology, to spur growth and make artificial intelligence applications such as ChatGPT even more powerful.

Miami investment firm 777 Partners became the latest US investor to buy into the English Premier League, purchasing Everton for an undisclosed sum. The move ends the reign of British-Iranian businessman Farhad Moshiri after a series of setbacks on and off the pitch.

Science round-up

The Bill & Melinda Gates Foundation said a series of low-cost measures to make childbirth safer could save the lives of 2mn mothers and babies around the world by 2030.

Climate change is helping infectious diseases spread, fungal infections are highlighting the risks of antimicrobial resistance, and the wait continues for Long Covid treatments: Read our new special report: Communicable Diseases.

Commentator Anjana Ahuja says at least three descendants of Covid-19’s Omicron variant have scientists on alert. US regulators have approved new boosters from Pfizer and Moderna. Moderna’s mRNA flu vaccine is also showing some promising results.

Dozens of UK scientists urged Prime Minister Rishi Sunak to back a “moratorium” on deep-sea mining over concerns about its environmental impact.

Generative AI exists because of a scientific development called the transformer model, made by Google researchers in 2017. Here’s our visual representation of how it works.

The truth is out there: Nasa unveiled a new report on unclassified UFO sightings, calling on companies, citizen scientists, pilots and air traffic managers to track activity as part of the US space agency’s efforts to gather more robust data.

Some good news

Results from the UK’s Big Butterfly Count 2023 have been released today, revealing a better picture than had been feared. Although longer-term trends show worrying declines for some species, this year’s mixed weather has meant plenty of green food plants for caterpillars and nectar-rich flowers for adult butterflies.

Something for the weekend

Try your hand at the range of FT Weekend and daily cryptic crosswords.

Source: Economy - ft.com