Aurelia Butler

The Bank of England’s efforts to tame inflation are set to hit a bump in the road this month with official figures expected to show prices rising more rapidly again in August. The annual rate of consumer price inflation dipped from 7.9 per cent in June to 6.8 per cent in July, but the rising cost of petrol and diesel is the main factor that would likely increase it to 7.1 per cent in August, according to a BoE forecast. The August data will be published on September 20.The expected jump in headline consumer price inflation will complicate moves by senior BoE officials to give themselves the option of pausing interest rate rises when the central bank’s Monetary Policy Committee meets on September 21. Andrew Bailey, BoE governor, last week cast doubt on the need to tighten monetary policy further to tackle inflation, saying rates were now “much nearer” their peak than before.There are many reasons the August inflation data from the Office for National Statistics is likely to be relatively bad news, according to economists.In August 2022, fuel prices fell more than 6 per cent compared with the previous month, while this July they rose more than 4 per cent month on month, according to the latest data from the RAC motoring organisation. Even though fuel prices in August were about 15 per cent lower than one year earlier, the annual rate of decline was much smaller than in July.So petrol and diesel prices are set to pull the headline inflation rate for August down less compared with July.In total, the changes in petrol prices are expected to contribute almost 0.2 percentage points to inflation in August. The changes in diesel prices are likely to add almost 0.1 percentage points.Meanwhile, new alcohol duties that took effect at the start of August raised the prices of wine, spirits and some beer. The duty on a bottle of average strength wine rose 44p. If added to a £7 bottle of wine, this would raise the price by 6.3 per cent compared with August last year, when there was no duty increase. The prices of food and other goods are rising more slowly than last year and so are likely to partly offset the fuel and alcohol duty effects.But there are other factors driving price rises. The annual rate of services inflation increased from 7.2 per cent in June to 7.4 per cent in July, the highest level since March 1992. The annual rate of core inflation, which excludes volatile food and energy prices, was unchanged at 6.9 per cent in July.

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Bailey told MPs last week he was expecting a difficult set of inflation data for August. “I should say that it is possible that we will get a tick up [in inflation] in the next release [by the ONS], because fuel prices went down in August last year and up a bit in August this year, but I do not see that as essentially changing the path,” he said. Jeremy Hunt, the chancellor, has also been preparing the ground for an increase in inflation, telling the BBC last week: “I do think we may see a blip in inflation in [the] September [publication] but after that, the Bank of England is saying it will fall down to around 5 per cent.”Both the BoE and the Treasury expect the growth in consumer prices to dip below 5.3 per cent by the fourth quarter of the year partly because of falling household energy bills, enabling Prime Minister Rishi Sunak to meet his commitment to halve inflation by the end of the year. Inflation stood at 10.7 per cent in the fourth quarter of 2022.But this achievement will be a difficult message to sell to the public because of a widespread misunderstanding of the phrase “falling inflation”, said Johnny Runge, senior research fellow at King’s College London. Surveys that he has presented to government officials show that between 30 and 40 per cent of the public, when asked, think that lower inflation means that prices have fallen. Runge said the public was likely to treat government delight at achieving the prime minister’s inflation pledge with some irritation. “Many will not believe that inflation has fallen or the government pledge has been achieved, because they will not feel prices have fallen — because they haven’t,” he added.

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Apart from a sceptical public, the other difficulty that Bailey and Hunt are likely to face is that underlying measures of inflation have not definitively turned down yet. In the July data, roughly two-thirds of the categories of prices of goods and services measured by the ONS were rising at an annual rate of more than 5 per cent, a figure hardly different from a year earlier. This demonstrates the broad nature of the UK’s inflation problem. Another way of determining whether inflationary pressures are diminishing, favoured in the US, is to look at more recent seasonally adjusted price changes for goods and services and compare these with the annual rate. With UK gas and electricity prices falling, this data shows that near-term measures of inflation, such as the annualised three-month rate, is back to the BoE’s 2 per cent target. The six-month, three-month and one-month annualised rates of headline inflation are well below the 12-month rate, indicating that price rises are moderating. But the same benign view does not apply to price rises in services and core inflation.Paula Bejarano Carbo, associate economist at the National Institute of Economic and Social Research, a think-tank, said: “We have yet to see a turning point in the underlying rate of inflation.” More

SINGAPORE (Reuters) – The yen strengthened on Monday as comments from Bank of Japan (BOJ) Governor Kazuo Ueda stoked hopes that Japan could soon herald a new era away from negative rates, while the dollar was on the back foot ahead of this week’s U.S. inflation reading.The Japanese currency rose nearly 0.8% at one point to touch a session-high of 146.66 per dollar in early Asia trade, boosted by weekend comments from Ueda that the central bank could end its negative interest rate policy when achievement of its 2% inflation target is in sight.Ueda told the Yomiuri newspaper in an interview that the BOJ could have enough data by year-end to determine whether it can end negative rates.The yen has come under immense pressure against the dollar as a result of growing interest rate differentials with the United States, since the Federal Reserve began its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier.”Ueda is laying the foundations for an exit from negative interest rates, and he is giving plenty of notice,” said Matt Simpson, senior market analyst at City Index.Elsewhere, the greenback edged broadly lower, distancing itself from its three-month highs struck against the euro and the British pound last week.The euro rose 0.13% to $1.0714, after having ended Friday with an eight-week losing streak. Sterling edged 0.16% higher to $1.2486.The dollar index, which capped last week with eight straight weeks of gains, its longest run since 2014, dipped slightly to 104.84.U.S. inflation data for the month of August is due on Wednesday, with traders on the lookout for whether the world’s largest economy is indeed on track for a “soft landing”, and whether the Fed has further to go in raising rates.The dollar, along with U.S. Treasury yields, had surged last week after a run of resilient economic data added to bets that further rate hikes from the Fed may be on the horizon.”The overall global economy is not booming, but neither is it on the verge of recession, and the U.S. appears to be doing the best among the major economies,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.”The macro environment is not amenable to easy characterisation as it’s neither risk-on nor risk-off. Or maybe it fits the divergent economic trajectories of the U.S. versus rest of the world, the so-called ‘U.S. exceptionalism’ mantra.”TURN OF TIDE?In Asia, China’s consumer prices returned to positive territory in August while factory-gate price declines slowed, data over the weekend showed, pointing to easing deflationary pressures amid signs of stabilisation in the economy.The consumer price index (CPI) rose 0.1% in August from a year earlier, slower than the median estimate for a 0.2% increase in a Reuters poll, while the producer price index (PPI) fell 3.0% from a year earlier, in line with expectations.”Historically, we do not see China’s inflation print negative numbers for very long, although I thought we might at least get a few more deflationary figures than the single one served,” said City Index’s Simpson.The offshore yuan gained roughly 0.1% to 7.3587 per dollar, though was still not far off from Friday’s 10-month low of 7.3678 per dollar as sentiment over China’s faltering economic recovery remained fragile.The Australian dollar, often used as a liquid proxy for the yuan, rose 0.29% to $0.6397, while the New Zealand dollar edged 0.28% higher to $0.5900. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian markets are set for a nervous open on Monday as worries mount that last week’s equity selloff could accelerate, financial conditions continue to tighten, and investors brace for a raft of economic data from China throughout the week.There seems to be no obvious market impact from the G20 summit in India, and politically-influenced trading will likely be dominated by U.S.-China tensions. Last week Apple (NASDAQ:AAPL)’s 6% slide wiped $180 billion off its market cap on news that Beijing had banned government employees from using iPhones at work.Broader market sentiment is fragile. The Nasdaq shed 2% last week, and the S&P 500, MSCI World and MSCI Asia ex-Japan Index all fell more than 1%. Tightening financial conditions from high bond yields and a strong dollar, and unease about the looming lag effects of the Fed’s rate hikes are coming together in what has been historically a notoriously volatile month for stocks. According to Goldman Sachs’s real-time indexes, financial conditions in China, emerging markets and globally are now the tightest since last November. The dollar is at a six-month high, Asian currencies are feeling the heat, and traders are on intervention alert – India’s rupee posted a record closing low on Thursday and the Japanese yen, Philippine peso and Thai Baht are at their lowest levels this year. Currencies may also get direction from a sprinkling of key economic indicators across the region this week – Indian trade and inflation, Australian unemployment, Indonesia retail sales, and Japanese industrial production and machinery orders. The economic data spotlight this week will shine on China. Beijing often concentrates the release of key indicators into short bursts – often referred to as the ‘Chinese data dump’ – but this one is particularly heavy. Money supply, loan growth, social financing (a broad measure of credit and liquidity in the economy), retail sales, industrial production, unemployment, house prices and fixed asset investment are all due for release by September 15.That follows producer and consumer price inflation figures on Saturday that suggest disinflationary pressures are sticky. Annual PPI was negative for the 11th month in a row, and annual CPI rose only 0.1%, undershooting forecasts of a 0.2% increase.The state of China’s economy will be much clearer by the end of the week, as will the scale of the task facing authorities to provide the necessary monetary and fiscal stimulus to keep Beijing’s goal of 5% GDP growth this year in sight.But complicating this is the yuan, which is at a 16-year low. Further policy easing will put it under even heavier downward pressure, risking a spiral of FX depreciation, asset market weakness and capital flight. Here are key developments that could provide more direction to markets on Monday:- Malaysia industrial production (July)- Japan money supply (August)- U.S. 3-year note auction (By Jamie McGeever; Editing by Diane Craft) More

Janet Yellen has rejected accusations that the G20 watered down its position on Ukraine over the weekend, as the US treasury secretary touted the summit of world leaders’ accomplishments in boosting funding for developing economies. In an interview with the Financial Times, Yellen defended the joint statement agreed at the end of the summit in New Delhi, saying it was “substantively very strong” in its wording on the conflict in Ukraine.The compromise document has been criticised for dropping some of the most aggressive condemnations of Russia’s war in Ukraine compared with the last G20 summit in Bali. The communiqué did denounce territorial acquisitions by force and attacks on civilians and infrastructure, while calling for international law to be upheld.“The US does not see this language as in any way weakening the G20’s stance on Ukraine,” Yellen said.“Clearly it was hard to find language that would satisfy the US and other countries but we felt we wanted strong language, and substantively strong language, and this was substantively very strong.”Yellen accompanied US president Joe Biden to the G20 summit at a time of heightened geopolitical tensions and economic rivalries, which have pitted western nations against Russia and China, with middle-income and emerging powers caught in the middle. Still, the US achieved one of its top goals at the meeting when the G20 agreed to boost and reform multilateral development banks for the benefit of struggling nations. This was also a priority of Narendra Modi, the Indian prime minister and host. Biden has sought international backing for a US plan to expand the World Bank’s lending capacity by $25bn to combat challenges like climate change and pandemics — a figure which could rise above $100bn if other countries also participate.“We care very deeply about the Global South and its development and the climate agenda and are doing everything we can to rally support”, Yellen said, adding: “President Biden is trying to put our money where our mouths are”.Yellen said that part of the thinking behind the lending boost to the World Bank was that some countries had been feeling that the US was coming up “suddenly with billions of dollars to support Ukraine”, but disregarding “the plight of poor countries” around the world. “That is not the case, it’s never been the case, it’s not as though our attention was diverted by Ukraine”, she said.

It also reflects a gamble by Yellen that the US can reinvigorate the mission of the international financial institutions even as the global economy becomes more fragmented.“I’m very encouraged by what I see happening, these are institutions that have been around for a long time, they are bureaucratic, they are not that easy to move,” Yellen said.“We haven’t really encountered meaningful resistance either from developed or developing countries to what I call the MDB evolution agenda.”The plan is also part of a broader effort by the US to counter China’s Belt and Road Initiative, and Beijing’s economic clout across the world, which also included the announcement on Saturday of a rail, ship energy and communications corridor stretching from India to the United Arab Emirates, Saudi Arabia, Jordan, Israel and on to Europe. Although the details of the plan will start to be worked out over the next two months, Yellen suggested the US would put money into it.“I do believe the US stands ready to contribute to this — there will be a lot of private capital that will be involved and a lot of countries that will be willing to contribute public funds to bring in the private capital.” Yellen is returning to the US as the Biden administration is growing increasingly confident of a “soft landing” for the economy that would avoid a recession. While the labour market has started to soften in response to the interest rate rises and tight monetary policy set by the Federal Reserve, the treasury secretary said that the slowdown was happening gradually.“Lay-offs have not moved up really meaningfully at all — this is a healthy way for the labour market to adjust — what you don’t want to see is a downturn in which a lot of people lose their jobs and are looking for work and can’t find it”, she said. Meanwhile, “the inflation data has been very good, inflation really looks like it’s coming down”, Yellen added.“There is a path by which inflation can come down in the context of a strong labour market”. However, she also noted the divergence in the economic fortunes of the US and the eurozone, where concerns about a slowdown are more acute.“Most of Europe is doing less well than the United States,” she said. More

Small and medium-sized enterprises in the UK, including many exporters, are completely unprepared for an impending “avalanche” of new EU regulations and taxes, according to a new business survey.The survey by the British Chambers of Commerce of 733 SMEs showed more than 80 per cent were unaware of reporting requirements under an EU green tax that takes effect next month, or obligations relating to the bloc’s value added tax regime that kick in from January 2025. The BCC is urging the government to improve communications with British businesses as they grapple with what industry is dubbing “Brexit 2.0” — divergence between EU and UK regulations and taxes that creates additional red tape at the border.William Bain, head of trade policy at the BCC, said UK SMEs were facing an “avalanche” of EU regulations and taxes.He added it was a “serious worry” that 80 per cent of UK manufacturers that were also exporters told the BCC survey they had no knowledge of the EU green tax, called the carbon border adjustment mechanism.From October, EU companies must compile reports on the carbon emissions attached to some imported goods, including steel, aluminium and fertilisers, with businesses having to buy certificates to cover pollution embedded in products from 2026.The paperwork and costs associated with the carbon tax will land on UK companies that supply products to EU businesses covered by the green tax.“It is just the start of a series of changes that will gradually ratchet up over the next three years, to deter the use of cheaper but higher carbon steel, and other goods with highly embedded climate damaging emissions, being imported into the EU,” said Bain. George Riddell, director of trade strategy at accounting firm EY, said the reporting obligations under the EU green tax would introduce “a significant compliance burden” on UK businesses, with many reporting on carbon emissions that are embedded in their products for the first time.“With less than a month to go, businesses need to review their EU import footprint and assess both the compliance and organisational impact on their trade,” he added.Meanwhile, the BCC survey found 87 per cent of UK exporters were unaware that changes to EU VAT rules will require businesses providing services — even electronically — to pay the tax where the customer resides. “If you’re a UK-based cook who provides cooking classes to EU customers — either in person, or online from the UK — then from January 2025 you’ll need to pay VAT in the EU customers’ state,” said Bain.The BCC survey, conducted in July and August, also identified that 43 per cent of British manufacturers were unaware of how the UK had developed an alternative product quality mark to that used in the EU.Trade experts said that without intervention, the process of the EU and UK diverging on regulations and taxes after Brexit will create additional bureaucratic friction for UK exporters. “Unless there is significant UK-EU reintegration, then businesses will have to adjust to the fact that trade across the Channel is going to get increasingly difficult.” said Sam Lowe, partner at consultancy Flint Global.The Department for Business and Trade said it was tailoring regulation to ensure UK businesses could take advantage of new opportunities and freedoms after Brexit. It added the UK’s trade deal with the EU meant “we can now regulate in a way that suits our economy and businesses, allowing us to be more innovative and effective without being bound by EU rules”.“We regularly engage with UK businesses to provide them support ahead of any regulatory changes,” said a spokesperson. More

It took until close to midnight on Friday for a handful of leading developing countries to propose their compromise. Accept this, was the pitch, or bear the consequences of a fractured G20.After five days of gruelling discussions, the western delegates took the deal. When their bosses assembled the next day at the summit in New Delhi, the scale of their concession was made stark. The US, EU and other western allies had agreed to remove condemnation of Russian president Vladimir Putin’s war against Ukraine from the meeting’s communique, in exchange for pledges from all 20 states — including Russia and China — to respect territorial integrity and work towards a “just peace” for Kyiv.“This is a climbdown,” said Sarang Shidore, director of the Quincy Institute’s Global South programme. The degree to which the western allies were willing to compromise, despite Chinese leader Xi Jinping and Putin skipping the summit, highlighted just how keen they were to salvage the credibility of a grouping that had come under severe pressure since Russia invaded Ukraine just over 18 months ago. “If we would be writing the text ourselves, it would be looking very different,” said a senior EU official. “It’s a process of building a global consensus. So if this means formulating compromises, then this is what . . . needs to be done.”US officials echoed that argument. The west needed big developing countries onside to have any chance of them pressurising Russia to keep in check with global rules and achieve peace in Ukraine. “The major economies of the world — including, by the way, Brazil, India, South Africa — are united on the need to uphold international law and for Russia to respect international law,” said Jon Finer, the deputy US national security adviser.Russia’s lead negotiator praised the statement — which also calls for a return to the Black Sea grain deal to export Ukrainian foodstuffs that Moscow has withdrawn from — as “balanced”. Ukraine, however, condemned the shift in rhetoric as “nothing to be proud of”. Having accepted that they cannot force Putin to back down alone, the New Delhi declaration represents the most far-reaching effort by Washington, Brussels and other western capitals to forge a shared position with the world’s most powerful developing economies. India’s leader Narendra Modi, right, with Chinese premier Li Qiang on Saturday. China’s president Xi Jinping stayed away from the summit © Evan Vucci/Pool/APIt is also a largely unexpected win for Narendra Modi, India’s prime minister, who is facing national elections next year. Modi’s decision to parlay his rotating G20 presidency into a year-long platform to promote India’s culture, foreign policy goals, and ambition to serve as a leader of the so-called Global South developing countries has paid off, analysts said. “Washington clearly has gone the extra mile to ensure that its burgeoning and increasingly close partner India was not embarrassed with what would otherwise have been the first G20 without a joint declaration,” Shidore said. Since India’s G20 presidency began in December, working groups of central bankers and ministers for education, health, tourism and other departments leading up to this weekend’s leaders’ summit had all sought to break a deadlock over the “Bali paragraph” — text from the final G20 summit in Indonesia last November that condemned Russian “aggression” in Ukraine. Russia and China vetoed the language, and many developing nations had voiced their discomfort at it remaining in this year’s statement. While India continued to express optimism that it could find a consensus at the summit, many foreign delegations were sceptical.“There were question marks about the future of the G20. And I think India’s strong leadership has preserved the G20,” the senior EU official said.Western diplomats argued that their willingness to compromise on dropping the reference to Russian “aggression” had ensured China and others agreed to wording on stopping attacks on infrastructure, restoring the Black Sea grain deal, and upholding territorial integrity. President Joe Biden shakes hands with Emmanuel Macron on Saturday. The French president told reporters: ‘We are here to mainly talk about economic topics and climate change’ © Ludovic Marin/Pool/AFP/Getty ImagesAmitabh Kant, India’s G20 lead negotiator, said at a news conference on Sunday that the compromise “demonstrates both the prime minister’s and India’s great ability to bring all developing countries, all the emerging markets, all developed countries — China, Russia, everybody — around the same table and bring consensus”. All 83 paragraphs of the leaders’ declaration, Kant said, had “100 per cent acceptance”, including eight paragraphs relating to geopolitical issues. “This is a complete statement with 100 per cent unanimity,” Kant said. India was also able to secure the admission of the African Union into the G20, a commitment on reform of multilateral banks, along with progress on the regulation of cryptocurrencies and the framework for restructuring heavily indebted countries’ debt. There was no such fanfare from China, however, which played down the win for its delegates, who were led by Xi Jinping’s second-in-command, premier Li Qiang. Below a large headline item on Xi discussing development of China’s north-east, the official government news agency Xinhua ran only a brief report on the G20.

France’s president Emmanuel Macron also sought to play down the compromise in the communiqué, saying the G20 was “not the forum for political discussions”. “We are here to mainly talk about economic topics and climate change,” Macron told reporters after the summit. “Of course we disagree on Ukraine given that Russia is a member of the G20. That said, this is not the main place where this will be solved.”However, other western delegates claimed this weekend’s compromise will aid their efforts to persuade developing nations to pressure Moscow into ending the war. Their negotiating partners would now go back to their capitals with pledges on preserving Ukraine’s territory and infrastructure in mind. “It’s not the end of the discussion,” the senior EU official added. “But it’s another stepping stone in the right direction.”Next year’s G20 is in Brazil. Its president Luiz Inácio Lula da Silva courted controversy late on Saturday when he said Putin could travel to Rio de Janeiro without fear of reprisal, despite being the subject of an international arrest warrant. “What I can tell you is that if I am president of Brazil and he goes to Brazil there is no way he will be arrested,” Lula, who has repeatedly accused the US and EU of “encouraging” the war in Ukraine, told local media in India.Additional reporting by Joe Leahy in Beijing and Bryan Harris in São Paulo More