Aurelia Butler

Good morning. The Chinese government has vowed to make consumption the “main driving force” of the economy as hopes grow that Beijing’s abandonment of zero Covid policies will unleash a flood of spending by Chinese consumers, fuelling a global rebound. “The greatest potential of the Chinese economy lies in the consumption by the 1.4 billion people,” Li Keqiang, China’s premier said during a meeting of China’s cabinet, the state council, according to a statement released late on Saturday. While China has long sought to boost consumer spending, the comments from its outgoing premier come at a crucial moment as Beijing seeks to rebuild the economy after years of punishing lockdowns. The Chinese economy grew by just 3 per cent in 2022, underscoring the impact of the government’s zero-Covid strategy before it was abandoned last month. Last year’s collapse of the property market, which has contributed around one quarter of GDP over the past decade, has also added to economic stress. Economists hope that China’s pent-up consumer activity will buoy global demand. Multinationals including Unilever have said in recent weeks they were expecting a rebound in demand in the country and banks including Morgan Stanley have increased their Chinese growth forecasts. Still doubts remain over the willingness of Chinese consumers to start spending again. Experts have long warned that China’s desire to move away from property-driven growth towards greater consumer spending will be challenging. Household spending accounted for 38 per cent of Chinese gross domestic product in 2021. By comparison, it accounted for nearly 70 per cent of US GDP in 2022. The last few years of Covid has also bred economic caution as incomes and house prices came under pressure in the real estate crash.Thank you for reading FirstFT Asia. Here is the rest of today’s news. — AmandaFive more stories in the news1. Adani Group says short seller’s report was ‘calculated attack on India’ India’s Adani Group has published an angry rebuttal of allegations of wrongdoing by short seller Hindenberg Research that wiped about 20 per cent, or more than $50bn, from its value last week. The 54-page rebuttal called the allegations of stock manipulation and accounting fraud a “calculated attack on India.”2. Israel to strengthen West Bank settlements and loosen civilian gun laws Israel says it will make it easier for civilians to carry guns and strengthen settlements in the occupied West Bank, after Jerusalem was hit by two shootings in less than 24 hours. The surge in violence has exacerbated fears that long-simmering Israeli-Palestinian tensions could erupt into a broader conflict. 3. Drones target Iranian military site in Isfahan Iran acknowledged a drone strike had targeted one of its military sites in Isfahan late Saturday night, but stopped short of accusing any foreign or opposition groups of engineering the attack. The strike caused no casualties and comes at a time when international and domestic pressure is mounting on the Islamic republic on several fronts. 4. Commodity trade costs surge as industry seeks up to $500bn in extra finance High interest rates, volatile prices, and the war in Ukraine have made it more expensive to move goods around the world. The commodity trading sector needs an extra $300bn to $500bn in financing to transport cargoes, according to a new study by McKinsey. 5. Russia’s internal struggle over classified financial data For months, Russia has withheld economic data as a defence against western sanctions. Now, its central bank governor is leading the push to declassify more data in order for markets to grow. The debate highlights the extent to which economic data has become part of Russia’s information war accompanying Vladimir Putin’s offensive in Ukraine and the west’s efforts to slow it down. The day ahead Nato visits South Korea and Japan Nato secretary-general Jens Stoltenberg will travel to Tokyo today after delivering remarks at the CHEY Institute in Seoul. In Tokyo, Stoltenberg will meet Prime Minister Fumio Kishida and other senior officials. The visit follows South Korea and Japan’s involvement for the first time in European Nato summits and demonstrates Nato’s support in the face of security challenges posed by China and North Korea. China’s stock markets reopen Stock markets in China will resume trade after being closed for the lunar new year holiday. India’s Martyr’s Day India will observe Martyr’s Day, which this year will mark the 75th anniversary of the murder of Mahatma Gandhi. Go deeper: While Gandhi remains officially the “father of the nation”, he is becoming increasingly unpopular in his homeland as Hindu nationalism surges. What else we’re readingChina’s film industry shoots for post-Covid recovery China’s box office receipts tumbled more than a third in 2022 from the previous year. As the country sheds Covid restrictions, film producers and analysts worry declining financing, censorship, and changing tastes could scupper the industry’s hopes of a strong recovery. Japanese firms step up intelligence gathering A growing number of Japanese businesses are strengthening their intelligence gathering as the country finds itself increasingly exposed to the mounting tensions between the US and China. Nearly a third of Japanese-listed companies with sales of more than ¥500bn cited “geopolitics” in their annual reports, compared to 11 per cent a year earlier, according to PwC Advisory.Inside the ‘Qatargate’ graft scandal rocking the EU Eva Kaili lived life more like a movie star than a member of European parliament. The Greek politician is currently in prison after allegations from Brussels of accepting cash and gifts from Qatar and Morocco in exchange for votes. The scandal has rocked the EU and forced it to confront uncomfortable truths about how it manages lobbying by foreign powers. Hungary’s soaring inflation puts squeeze on Viktor Orbán Public discontent is mounting in Hungary as prices for food and power continue to soar. Food and power prices are up 50 per cent in December year-over-year, according to government data. The economic troubles will limit Orbán’s scope to pacify the public with costly populist measures, just as his party prepares for municipal and European elections in 2024. The problem with Kishida’s ‘new capitalism’ philosophy Japanese companies have largely stuck to their line that employees should carry equal weight with shareholders among the priorities of CEOs. Now, mass tech lay-offs in the US are forcing Japanese executives to rethink their corporate culture, writes Leo Lewis. Take a break from the newsFrom hip-hop in Manhattan to Vermeer in Amsterdam, here are four cultural spots to hit this spring.

Wyclef Jean (left) and Lauryn Hill in New York, 1993 © Lisa Leone More

Hello and welcome to the working week.Can we afford to be more optimistic about the future? The next seven days are beginning more positively for global geopolitics with a visit by Nato secretary-general Jens Stoltenberg to South Korea and Japan. He will travel from Seoul to Tokyo on Monday to reinforce the transatlantic security alliance’s ties with its key partners in Asia. The meetings, which follow Japan and South Korea’s involvement for the first time in European Nato summits, demonstrate the alliance’s support for these countries in the face of security challenges posed by China and North Korea.The war in Ukraine will be high on the agenda, with Tokyo and Seoul likely to confirm the release of additional non-lethal equipment for Kyiv.On the flip side, this week will also provide reminders of the continued and very real challenge posed by populism and nationalists. India commemorates Martyrs’ Day on Monday on the 75th anniversary of the murder of Mahatma Gandhi. As writer Ramachandra Guha notes in his FT Weekend essay, veneration of the anti-colonial revolutionary has waned as Hindu nationalism has surged. In the US, the figure of former president Donald Trump will loom large again as his adviser Peter Navarro is set to go on trial on Monday for his failure to comply with a subpoena from the House committee that investigated the January 6 2021 attack on the Capitol.In the UK it is yet another week of strikes, beginning on Monday with driving instructors at the Driver and Vehicle Standards Agency. The biggest day of action will come on Wednesday when schoolteachers, train drivers and university lecturers down tools while the TUC trades union body stages a Protect the Right to Strike Day in opposition to a contentious government bill to curb industrial action on essential services.Thank you to those who send messages of support and advice about the contents of this newsletter. Email me at [email protected] or if you’ve received this in your inbox, hit reply.Economic dataThe rate-setting schedules have aligned again for the monetary policy committees of the Federal Reserve, the European Central Bank and the Bank of England. The ECB is expected to stick with extra-large rate rises while the Fed downshifts, having signalled it would end its pace of 0.75 percentage point increases in December.The Bank of England is expected to push through a 0.5 percentage point increase, owing to the stubborn persistence of high inflation, strong wage growth and the unexpected resilience of the UK economy.CompaniesWe are in the thick of earnings season and this week is peak Big Tech with quarterly figures from Alphabet, Amazon.com, Apple, Meta and Spotify. It has been a sobering time for the sector, not least the admission that they massively over hired during the Zoom years of the pandemic. Apple will be notable given that it is expected to break a 14-quarter growth streak in the lucrative December period owing to a shortage of high-end iPhones. A November outbreak of Covid-19 in the Zhengzhou factory (known locally as iPhone city) is to blame, creating a handset shortage of somewhere between 5mn and 10mn units. At about $1,000 a pop, this works out at a $10bn hiccup, and is not good news for Apple given its handset war with Google. Revenue in this quarter in 2021 was a nudge under $124bn; forecasts are slightly lower for 2022 but the hit to net profit could be greater.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayChina, stock markets reopen after being closed for the lunar new year holidayGermany, monthly retail sales figuresSpain, flash January consumer price index (CPI) inflation rate dataSweden, flash Q4 GDP figuresResults: NEC Q3, Philips Q4, Ryanair Q3TuesdayIMF publishes an update to its World Economic Outlook growth projectionsCanada, November GDP figuresEU, flash Q4 GDP figuresFrance, flash Q4 GDP figures plus January Harmonised Index of Consumer Prices (HICP) inflation rate dataGermany, flash Q4 GDP figures plus January labour market statistics and January HICP inflation rate dataIndia, Economic Survey of how the economy fared in the last year and how it is projected to grow during the next fiscal yearJapan, December labour force survey (AM local time)UK, Q3 estimate of government debt and the deficit, plus Q4 insolvency dataResults: AMD Q4, Canadian Pacific Railway Q4, Caterpillar Q4, Corning Q4, ExxonMobil Q4, Fujitsu Q3, General Motors Q4, McDonald’s Q4, Mondelez Q4, Origin Energy Q2 revenue and production report, Pets at Home Q3, Pfizer Q4, Samsung Electronics Q4, Snap Q4, Spotify Q4, UBS Q4, UniCredit Q4, UPS Q4, Whirlpool Q4WednesdayBrazil, monetary policy committee inflation rate decisionCanada, Brazil, China, eurozone, India, France, Germany, Italy, Japan, Spain, UK, US: S&P Global/SIPS manufacturing purchasing managers’ index (PMI) dataEU, December unemployment figures plus HICP inflation rate dataUK, Nationwide House Price IndexUS, Federal Open Market Commission announces latest rate decisionResults: Entain Q4 trading update, Glencore FY production report, GSK Q4, Hitachi Q3, Meta Q4, Netgear Q4, Nomura Q3, Novartis Q4, Novo Nordisk Q4, Orsted Q4, Peloton Q2, SK Hynix Q4, Virgin Money Q1 trading update, Vodafone Q3 trading updateThursdayEU, European Central Bank monetary policy committee interest rate decisionGermany, trade balance dataSouth Korea, December CPI inflation rate dataSpain, monthly unemployment figuresUK, Bank of England monetary policy committee interest rate decisionUS, Q4 unit labour costs and non-farm productivity dataResults: ABB Q4, Alphabet Q4, Amazon.com Q4, Anglo American Q4 production report, Apple Q1, Banco Santander Q4, Bristol Myers Squibb Q4, BT Group Q3 trading update, Canada Goose Q3, Chubb Q4, ConocoPhillips Q4, Danske Bank Q4, Dassault Systemes Q4, Deutsche Bank FY, Electrolux FY, Eli Lilly & Co Q4, Estee Lauder Q2, Fast Retailing January sales data, Ferrari Q4, Ford Motor Company Q4, Geox FY, Honeywell Q4, ING Q4, Japan Airlines Q3, Merck & Co Q4 MetLife Q4, NCC H1, OMV Q4, Publicis Groupe FY, Qualcomm Q1, Shell Q4, Sony Q3, Starbucks Q1, World Wrestling Entertainment Q4FridayEurozone, France, Germany, Italy, Japan, Spain, UK, US: S&P Global/Cips services PMI dataEU, December producer price index (PPI) inflation rate dataTurkey, January CPI and PPI inflation rate dataUS, quarterly employment figuresResults: Aon Q4, Cigna Q4, Mitsubishi Q3, Skanska FYWorld eventsFinally, here is a rundown of other events and milestones this week. MondayIndia, Martyrs’ Day this year takes place on the 75th anniversary of the murder of Mahatma GandhiJapan, Nato secretary-general Jens Stoltenberg travels from South Korea, where he has been meeting foreign minister Park Jin and minister of national defence Lee Jong-Sup, to Tokyo to meet Japan’s prime minister Fumio Kishida and other senior officials in his government.South Africa, trial set to resume of former president Jacob Zuma on corruption charges related to a 1990s arms dealUK, workers at the Driver and Vehicle Standards Agency, including driving examiners, staff in the call centre, driving instructor examiners and local driving test managers, stage latest industrial action over pay. Separately, a strike ballot issued by the Fire Brigades Union closes in its members’ pay dispute.US, former president Donald Trump’s adviser Peter Navarro to go on trial for his failure to comply with a subpoena from the House committee that investigated the January 6 2021 attack on the CapitolTuesdayDemocratic Republic of Congo, Pope Francis begins the first papal visit to Congo in 37 years, accompanied by the Archbishop of Canterbury, Justin Welby, and the moderator of the Presbyterian Church of Scotland, Iain Greenshields. The pontiff will meet the country’s authorities, victims of the conflict in the eastern part of the country and representatives of charities operating in the African nation. He will then visit South Sudan.UK, Manchester mayor Andy Burnham speaks at the Cities Outlook report launch, an annual health-check of British cities by Centre for CitiesWednesdayIndia, Narendra Modi’s government presents its last full budget before the country’s next general electionsUK, widespread strikes. More than 100,000 civil service members of the PCS union are to walk out for a day, the largest civil service strike for years and a significant escalation of industrial action over pay, pensions, redundancy terms and job security. Train drivers at operating companies will strike in a dispute over pay and working practices involving the RMT and Aslef unions. There will also be classroom disruption with the first of several national strikes by teachers across England and Wales, ongoing action by teachers in Scotland and over 70,000 staff at 150 universities will strike in a dispute over pay, pensions and working conditions. Also, the TUC is co-ordinating a Protect the right to strike day of action in opposition to the Westminster government’s plan to impose new minimum service levels on most of the public sector.ThursdayRussia, 80th anniversary of the Soviet government announcing the final defeat of the German 6th Army at StalingradUK, secondary school performance tables published for EnglandUS, Groundhog Day celebrated in Punxsutawney, Pennsylvania. According to legend, there will be six more weeks of winter weather if the groundhog sees his shadow and an early spring if he does not.FridayUkraine, representatives from the EU and Ukraine hold a summit in KyivUK, further industrial action on national railways as train drivers in the RMT and Aslef unions strike over pay and working practices. Also, four days of strike action among legal advisers and court associates that are members of the PCS union will begin in more than 80 courts across England and Wales.SaturdayUK, Six Nations Rugby tournament begins with matches between Wales and Ireland and England and ScotlandWorld Cancer Day, raising awareness and campaigning for government actionSundayCyprus, first round of presidential elections. A run-off will be held on February 12 if needed.EU bans imports of all Russian seaborne refined oil and petroleum products from today, part of measures against Russia following its invasion of UkraineUS, 65th Grammy Awards for the music industry to be held in Los Angeles More

Will the Fed’s rate decision bring it closer to a ‘soft landing’ for the US economy?The Federal Reserve is widely expected to slow its pace of interest rate increases at its meeting on Tuesday and Wednesday this week, delivering a 0.25 percentage-point increase amid mounting evidence that inflation in the US has begun to cool. Federal Open Market Committee voters — including the hawkish Christopher Waller — have come out ahead of this week’s meeting in favour of a 0.25 percentage point increase. This raise would mark a return to a more normal tempo of policymaking after the Fed last year delivered four consecutive 0.75 percentage point increases before decelerating to 0.5 percentage points in December. The shift in the Fed’s approach can be attributed in part to the recent chill in inflation. Consumer price growth in December slowed for the sixth straight month, with inflation clocking in at 6.5 per cent. Though inflation remains far from the Fed’s 2 per cent target, December’s level was the lowest since October 2021. The meeting will also come on the heels of news that the US economy grew more than expected in the fourth quarter — with gross domestic product increasing at an annual rate of 2.9 per cent, compared with the 2.6 per cent forecast by economists. Slower inflation and a better economic outlook mean that the Fed’s hope of engineering a “soft landing” — raising rates enough to stamp out inflation but not enough to push the US into recession — can live on. Kate DuguidWhat will the ECB’s rate decision indicate about the future pace of monetary tightening?Economists largely consider it a “done deal” that the European Central Bank will raise rates by 0.5 percentage points on Thursday at its next monetary policy meeting.Christine Lagarde, president of the ECB, signalled this month that the bank will “stay the course” of large interest rate increases, suggesting the same half percentage-point increase as at the last meeting which would take the deposit rate to 2.5 per cent up from minus 0.5 in June last year.With little uncertainty on the rate change, the main point of interest of the ECB meeting will be any messaging about further rates decisions said Andrew Kenningham, chief Europe economist at Capital Economics. “We now think that the resilience of the economy and persistence of core inflation means the Bank will raise the deposit rate by a further [0.5 percentage points] in March and [0.25 percentage points] at the next two meetings, bringing it to a peak of 3.5 per cent,” he added.But the pace of monetary tightening will depend on the resilience of the eurozone economy and the persistence of high price pressures, with most of the key data being released this week. Economists polled by Reuters expect GDP data released on Monday to show that the German economy stalled in the fourth quarter of 2022. The same figure for the eurozone — out on Tuesday — is also forecast to show no growth over the same period, confirming a much smaller hit from the surge in energy costs and rising borrowing costs than what was forecast a few months ago.Analysts also expect eurozone inflation to have eased to 9.1 per cent in January down from 9.2 per cent in the previous month and further below the all time peak of 10.6 per cent recorded in October. Valentina RomeiBy how much will the Bank of England lift interest rates?Markets are pricing in that the Bank of England will raise interest rates by 0.5 percentage points at its meeting on Thursday.That would take the bank rate to 4 per cent, up from the historical low of 0.1 per cent in late 2021 and the highest since 2008. “We believe the Monetary Policy Committee will raise the bank rate by [0.5 percentage points] in February in response to stubbornly high services inflation and wage growth,” said Andrew Goodwin, chief UK Economist at Oxford Economics.Supported by a tight labour market, whereby unemployment levels are relatively low and job vacancies high, UK nominal wages rose at a near record pace in November with private sector pay reaching an annual rate of 7.2 per cent. Headline inflation ticked down in December, but services inflation, a better measure of underlying price pressure, accelerated.Goodwin added that February’s rise might be followed by a smaller rise in March, “but that should bring the current cycle of rising borrowing costs to a close”.He also noted that the MPC has avoided tightening less than market expectations in recent meetings and may still be reluctant to take what they perceive as the risk of appearing more dovish than expected.However, Elizabeth Martins, economist at HSBC, thinks the MPC will go for a quarter of a percentage point rate increase on Thursday. She conceded that there are “significant risks” of a larger rise but noted that “the combination of lower near-term inflation, receding inflation expectations, the rapid slowdown in the housing market and the BoE’s own sub-target, medium-term inflation forecast, mean that the MPC will opt for a slower pace of tightening”. Valentina Romei More

To IRA or not to IRA? That is the question for EU leaders as they try to agree on how to respond to the Inflation Reduction Act, Washington’s belated but punchy commitment to subsidise the green transition. Europeans are at loggerheads. French and German ministers want a new green industrial policy and European Commission president Ursula von der Leyen has called for “our European IRA”. Frugal free-traders such as Sweden and the Netherlands resist further subsidies. The commission itself is divided on how interventionist to be. It has challenged the US’s most egregious protectionism and promised to loosen subsidy rules somewhat. A “sovereignty fund” for EU-level subsidies is endorsed by European Council president Charles Michel but is hotly contested among member states.The disagreements all revolve around one big difference of judgment as to which of two dangers is the greatest: the competitive threat to EU industry or a subsidy race to the bottom? The problem for cogent decision-making is that both “dangers” are misconceived. To see US spending on greening its energy, industry and transport as a threat reveals a European inferiority complex. The real threat is that the US fails to make good on its belated intention to address climate change. With debt ceiling politics kneecapping Washington’s ability to spend even what it has already budgeted, it is misplaced to fear it is doing too much.European leaders already worry that internet services are dominated by US giants. If European business leads America’s green tech transformation, why not celebrate that the tables are turned? Or would they prefer it the other way round? Surely not, seeing how they fret at China’s ambitious construction of battery factories in the EU. Nobody in their right mind would think that those threaten Chinese competitiveness.The tacit presupposition is that European companies can only invest in one place, and if that place is America then European economies will fall behind (though European shareholders would not). But the idea that there is only so much investment to go around in the world is a lump of investment fallacy. Even where true for any particular capital-constrained company, it is not true in aggregate. If too little capital flows to the European economy, it’s the flipside of domestic policies that have for too long resulted in export surpluses rather than higher domestic investment.The task is not to stop a European company from building a wind farm, battery factory or electric vehicle plant in the US, but to ensure they get built in Europe regardless. Europe has the wherewithal to do so: a firm commitment to phasing out carbon-intensive activities, a carbon pricing system, soon a carbon border tax and — yes — subsidies that range from the post-Covid recovery fund to EU-financed “important projects of common European interest” in such sectors as batteries and hydrogen. What the EU needs is to make these types of tools more efficient, faster to access and better funded. Further raising the cost of emissions while subsidising that of decarbonising more will accelerate the necessary investments, IRA or not. That means expanding the carbon pricing and tariff policies. But it also means boosting public money for research, capacity and production.Sceptics of new funds are right that the priority is to get money already granted out the door faster. But they should not oppose more subsidies too. Unlike some other sectors keen on subsidies, such as commoditised semiconductors, the world is nowhere near saturated with green technology and infrastructure. Climate change is the biggest market failure the world has ever known and a subsidy race in green tech and carbon-free energy would be a race to the top not the bottom. Europe’s embrace of carbon pricing means such subsidies can have a greater effect than on the other side of the Atlantic.The most valid complaint by business is that Europe’s financial support is too cumbersome, whereas US-style tax credits are virtually automatic. Tax credits are no silver bullet: they only help companies in a position to pay tax, which favours established players over newcomers. But they are quick and easy. The EU is hamstrung, as tax remains a national prerogative. Still, all members can treat green investment much more generously in their tax codes. Swift EU effort to co-ordinate and encourage such action, through better state aid and fiscal rules, would be a good idea.The job of EU leaders is to make business confident of a big and growing market for green solutions. There is no reason why the IRA should make that [email protected] More

The writer is chair of Rockefeller InternationalOver the past half century, as governments and central banks teamed up ever more closely to manage economic growth, recessions became fewer and farther between. Often they were shorter and shallower than they might have been. After so much mildness, most people cannot imagine a painfully lasting business cycle. But the global economy is heading into a period unlike any we have seen in decades. Faith in government as a saviour in recessions has been worming its way into people’s minds for most of their lifetimes. Since 1980, the US economy has spent only 10 per cent of the time in a recession, compared with nearly 20 per cent between the end of the second world war in 1945 and 1980, and more than 40 per cent between 1870 and 1945. One increasingly important reason is government rescues. Combined stimulus in the US, the EU, Japan and the UK, including government spending and central bank asset purchases, rose from 1 per cent of gross domestic product in the recessions of 1980 and 1990 to 3 per cent in 2001, 12 per cent in 2008 and a staggering 35 per cent in 2020.Though the 2020 recession was sharp, it was the shortest since records begin, lasting just two months. Government bailouts in the pandemic came so fast and large that it felt to many people, particularly white-collar employees working from home, as if the recession never happened. Their incomes and credit scores went up. Their wealth exploded with rising stock and bond markets. Now this experience of recession as a non-event seems baked into the professional psyche.Some commentators are beginning to say the world economy could be in for a “soft landing”, not an outright recession. In the latest consensus surveys, economists aren’t quite that optimistic. But they continue to expect the mildest recession since the second world war, starting soon and lasting less than six months, as the Federal Reserve again comes to the rescue. This consensus view may be wrong in key respects, whether on how soon the next recession arrives, how long it lasts or how generous the rescue effort can be. In 2020, governments injected so much money into the economy that consumers are still sitting on much of it two years on — $1.5tn in the US alone. Investment by US and European business barely broke stride. Governments continue to spend. Because of this, the next downturn may come later than expected, a view bolstered by the latest US GDP data, which showed a resilient economy. When the pandemic stimulus finally runs out by year end, the next downturn, once it comes, may not pass so quickly. The key sticking point is inflation. This is now retreating almost as quickly as it surged last year — as supply chains normalise and “revenge spending”, unleashed by the end of lockdowns and boosted by stimulus, calms down. But it is not likely to return to its pre-pandemic level of under 2 per cent. The most lasting legacy of Covid may be its impact on work and wage inflation. One in eight people say they plan “no return” to pre-pandemic activities, including work. The number of hours people of all ages want to work plunged, and their attitude has changed as well. Social media celebrates “quiet quitting” and “acting your wage” — meaning do what you are paid for, and no more.In conversations I hear chief executives saying that they have “pricing power” for the first time in decades. Inflation for goods such as cars is slowing fast, but that for services is stickier. The Fed tracks a special index for “sticky services” like real estate and recreation — in which prices move slowly — and it is rising. Meanwhile, the world is changing in fundamentally inflationary ways: birth rates have been falling for years but are now rapidly shrinking working-age populations. Countries are retreating inward, offshoring to the nearest and most friendly nations rather than to the least costly. The pressure from demographics and deglobalisation will push the new normal for inflation higher, closer to 4 than to 2 per cent. This will make it harder for central banks to cut rates to counter the next recession. Higher rates mean governments can borrow and spend heavily to stimulate sluggish economies only at risk of inviting punishment in the global bond markets, which are already much less tolerant of free spending.While the next downturn may take longer to hit, it is likely to take an unfamiliar shape, possibly not much deeper but more enduring, as stickier inflation forces central banks and government rescue teams to the sidelines. The world is not ready for the long grind ahead. More

LONDON (Reuters) -British Prime Minister Rishi Sunak sacked Conservative Party chair Nadhim Zahawi on Sunday after an investigation found he committed a serious breach by not being open about a tax probe, the latest scandal to hit one of Sunak’s top ministers.Sunak had initially stood by Zahawi before ordering an independent adviser to investigate questions over his tax affairs after it emerged Zahawi had settled a probe by Britain’s tax authority HMRC last year.Zahawi has said the tax body ruled he had been “careless” with his declarations but hadn’t deliberately made an error to pay less tax, confirming he paid a penalty to HMRC. Sunak’s independent adviser Laurie Magnus said that Zahawi didn’t declare that his tax affairs were being investigated when he was briefly made finance minister last year, and failed to disclose details when Sunak appointed him to his current role.”Following the completion of the Independent Adviser’s investigation … it is clear that there has been a serious breach of the Ministerial Code,” Sunak said in a letter to Zahawi. “As a result, I have informed you of my decision to remove you from your position in His Majesty’s Government.”Zahawi’s response to Sunak did not mention either the HMRC or independent adviser’s investigation. He expressed concern at the conduct of some in the media in recent weeks and said he would support Sunak’s agenda as a backbench lawmaker.”I am sorry to my family for the toll this has taken on them,” he said.It is a setback to Sunak’s attempt at a government reset after a chaotic year that saw three different British prime ministers. An investigation into alleged bullying by Deputy Prime Minister Dominic Raab is ongoing and could cause further headaches.One Conservative lawmaker said sacking Zahawi was “clearly the right decision,” adding Zahawi “should have resigned to avoid the embarrassment.” “Raab is rather different,” the lawmaker, who declined to be named, said. “One man’s bullying is another’s firm direction.” Raab has denied bullying allegations.The opposition Labour Party said that Sunak had shown weakness in how he had handled the Zahawi and Raab cases. “It’s vital that we now get answers to what Rishi Sunak knew and when did he know it,” Labour’s education spokesperson Bridget Phillipson said on Sunday.Zahawi’s sacking comes as Sunak’s government, facing decades-high inflation and a wave of public sector strikes, trails badly in opinion polls ahead of an expected 2024 election. UNTRUE PUBLIC STATEMENTMagnus said that the details of HMRC’s own investigation – relating to Zahawi’s co-founding in 2000 of opinion polling firm YouGov, and how many shares his father had taken to support its launch – was outside the scope of his own inquiry.But he found that Zahawi had failed to declare HMRC’s probing of affairs, or acknowledge that they were a serious matter. Zahawi had characterised reports last July over his tax affairs as “clearly smears”. Zahawi did not correct the record until last week, when he said he had reached a settlement with the authorities.”I consider that this delay in correcting an untrue public statement is inconsistent with the requirement for openness,” Magnus said in a letter to Sunak.He added that Zahawi had shown “insufficient regard” for the requirement “to be honest, open and an exemplary leader through his own behaviour.”Zahawi became finance minister following Sunak’s own resignation from the role in July last year, which helped end Boris Johnson’s scandal-hit premiership. When he replaced Liz Truss as prime minister after her brief but tumultuous time in power, Sunak promised that “this government will have integrity, professionalism and accountability at every level.”But the reboot has got off to a tricky start. Along with the investigations into Zahawi and Raab, Sunak reappointed interior minister Suella Braverman just five days after Truss sacked her for breaching the ministerial code around security rules, while in November minister Gavin Williamson resigned over bullying allegations.Asked if Conservative politicians consistently follow their own set of rules, senior minister Michael Gove said there were “always people who will fall short.””Because someone commits a lapse or a sin, that shouldn’t be automatically taken as an opportunity to damn an entire organisation,” he told the BBC. More