Aurelia Butler

Russia and Ukraine have made “very substantive progress” on a plan to avert a global food crisis by securing the safe passage of millions of tonnes of grain through the Black Sea, the head of the United Nations said.After a first round of talks in Istanbul, UN secretary-general António Guterres pointed to “substantive agreement on many aspects” of a mechanism to enable cargo ships to transport an estimated 20mn tonnes of grain trapped in Ukraine as a result of a Russian blockade of the country’s ports in the wake of its invasion.Guterres suggested a final deal could be reached as soon as next week when a second round of UN-backed negotiations is due to take place.“Hopefully we will be able to have a final agreement,” he said, while warning that it would require “a lot of goodwill and commitment” by the parties. “They’ve shown it, I’m encouraged, I’m optimistic,” he said. “But it’s not yet fully done.”Hulusi Akar, Turkey’s defence minister, said the talks — which were attended by UN representatives as well as Turkish, Russian and Ukrainian military delegations — had resulted in a commitment from all four parties to set up a joint co-ordination centre in Istanbul. Turkey’s largest city straddles the Bosphorus strait, a key shipping route that connects the Black Sea to the Mediterranean.

Delegations from the UN, Turkey, Ukraine and Russia during their four-party meeting on grain supplies in Istanbul © Turkish Defence Ministry/AFP/Getty Images

Akar said they had also agreed on “fundamental technical details” including joint checks on ships entering and exiting Ukrainian ports and the need to secure transit routes.He did not provide details of how those mechanisms would work and be monitored, or whether the talks had fully assuaged concerns previously voiced by both Kyiv and Moscow.The UN-backed talks come after months of efforts to bring the two sides together in order to find a way to secure the safe passage of wheat, corn and barley trapped in silos at Ukrainian ports blockaded by the Russian navy.The problem has gained growing urgency as Ukraine’s summer harvest has begun, with warnings that millions of tonnes of grain could go to waste if storage facilities are not emptied so newly-harvested crops can be stockpiled.Turkey’s head of state Recep Tayyip Erdoğan, who has close relations with both Russia’s president Vladimir Putin and Ukraine’s Volodymyr Zelenskyy, spoke on Monday with both leaders in an apparent bid to persuade them to send delegations. Guterres thanked Turkish officials for their “outstanding efforts” to convene the talks.

Before Wednesday’s negotiations, diplomats had been cautious about the prospects of a breakthrough, with one western official warning that it was difficult to understand the “game plan” of the “very mercurial and unpredictable” Putin.Kyiv had opposed many of Moscow’s previously stated conditions for a deal, which included a demand to inspect vessels entering and exiting Ukrainian ports — a suggestion Ukrainian officials described as an attempt by Russia to dominate the Black Sea.Guterres said it was important to remember that the grain negotiations were taking place “in the midst of a bloody conflict”, adding: “People are still dying, fighting is still raging, but hopeful news from Istanbul shows the importance of dialogue.”While previous attempts to reach a deal to end the war in Ukraine collapsed after news emerged of atrocities committed by Russian armed forces, the UN chief said he hoped all sides could take inspiration from the progress of the grain talks “to help light a way to desperately needed negotiated solution for peace”.He warned, however, that while progress in Istanbul “demonstrated that the parties are able to have a constructive dialogue . . . for peace we still have a long way to go”. More

The Bank of Canada has raised its key interest rate by 100 basis points to 2.5 per cent in a bid to curb inflation that policymakers say is at risk of becoming entrenched. The rise on Wednesday was the biggest in Canada in more than two decades and caught off guard markets that had been expecting a 75bp rise. It puts the benchmark overnight rate at its highest level since 2008. Inflation, at 7.7 per cent in the year to May, is now almost four times the central bank’s 2 per cent target and at its highest level since 1983. The move followed news that US inflation hit 9.1 per cent in the year to June, raising the prospect of a rate increase of at least 75bp by the US Federal Reserve later this month. Canada’s central bank said it wanted to “front load” rate rises as inflation had proven “higher and more persistent” than it had flagged in its April monetary policy report and “will probably remain” at about 8 per cent in the next few months. “Front-loaded tightening cycles tend to be followed by softer landings,” Bank of Canada governor Tiff Macklem said at a press conference on Wednesday. “We are acutely aware that higher interest rates will affect Canadians who are already feeling the pain of high inflation . . . but by increasing the cost of borrowing, we will moderate spending and return inflation to its target.”Macklem said the central bank is aiming for a so-called soft landing where it stamps out scorching inflation without causing a recession. But he noted the path was narrowing because price growth has proved more persistent than hoped.“Consumers and businesses are expecting inflation to be higher for longer, raising the risk that elevated inflation becomes entrenched in price and wage-setting,” the bank said. “If that occurs, the economic cost of restoring price stability will be higher.”The move comes amid mounting concerns of a recession in Europe and North America, with central bank rate rises and higher energy costs expected to dent growth. Last week, RBC was the first Canadian bank to predict a recession in the country in 2023. The central bank has not forecast one in its base case, but expects gross domestic product growth to slow to 1.8 per cent next year.Inflation could spark a recession if a wage-price spiral occurred, with high prices pushing up pay, the Bank of Canada said in its monetary policy report published on Wednesday.“To break the vicious circle, monetary policy works to re-anchor long-term inflation expectations to the 2 per cent target,” it said. The bank forecast that it would reach the inflation target by the end of 2024. Macklem also expressed optimism that Canada’s resource-heavy economy would serve as a buffer to a global slowdown in growth because many of the commodities it exports remain at elevated price levels. Responding to questions about the bank’s miscalculation in autumn that inflation was “transitory”, he pointed to global factors outside of its control, including “substantially higher oil prices” and snarled global supply chains. A rapid domestic recovery from the coronavirus pandemic was another reason for the error, Macklem added. As Canada kept rates near zero, people saw their savings balloon, wages rise and housing prices continued to surge, reaching a peak in February.

Wednesday’s rate rise follows 50bp increases in April and June, and a 25bp increase in March. Those have cooled Canada’s hot housing market by pushing up mortgage rates, but the labour market remains tight. The unemployment rate fell to a record low of 4.9 per cent in June. Employers have reported a challenging hiring environment, where workers are demanding higher wages.More action is expected in the months ahead. “We are currently forecasting 50bp hikes in September and October with a 25bp move in December,” said James Knightley, economist at ING Bank. “But the odds are certainly moving towards a more aggressive move in September at the very least, especially if inflation shows little sign of abating.” More

British manufacturers have warned that a proposal to lift anti-dumping measures on a type of Chinese steel risks a flood of cheap imports and threatens hundreds of jobs in the sector. The Trade Remedies Authority, an arms-length body set up last year to make recommendations to ministers, has advised revoking existing duties on Chinese high-fatigue performance reinforcement bars, known as “rebar”, used in the UK and Ireland to strengthen concrete. The TRA said it was no longer in the UK’s economic interests to keep the measures which have been in place since 2016. High demand and an anticipated shortfall of supply given an expected drop in imports from Russia, Ukraine and Belarus were likely to increase domestic prices for rebar. The impact of keeping the duties, therefore, would be “severe”, particularly for the construction sector, the TRA warned. “The impact on the British economy of higher prices would significantly outweigh the impact on the sole UK producer of rebar of removing tariffs on Chinese imports,” said Oliver Griffiths, TRA chief executive. The proposal, which is subject to a 30-day consultation period before the authority issues its formal recommendation to the government, triggered outrage from the steel industry. UK Steel, the industry lobby group, claimed it was “not only illogical but in fact a recommendation that actively acts against the UK steel industry”.Scrapping the measures would “put “hundreds of jobs at risk in areas of the country the government is supposed to be levelling-up”, it added.Gareth Stace, UK Steel director-general, said the TRA’s advice “beggars belief” and called on international trade secretary Anne-Marie Trevelyan to use her powers to “call in” the proposal.Demand for rebar has surged during the economic recovery as the pandemic has waned. Britain’s largest producer of rebar steel is Spanish-owned Celsa which employs about 800 people at its main site in Cardiff. “It’s a rather perverse decision,” said Chris Hagg, head of sustainability and strategy at Celsa Steel UK. “It says the likelihood of dumping occurring again would be very high and injury to the UK manufacturing industry would be very high, yet it’s in the economic interest to do so. They seem to be supporting Chinese steelmakers with carbon footprints that are five times higher than those of UK producers.” The TRA’s recommendation comes shortly after the government last month set out more extensive quotas and tariffs on certain categories of steel to prevent surges in imports, including from China. The anti-dumping measures are separate to these safeguards and were introduced in 2016 when the UK was still part of the EU. The EU allowed its own anti-dumping measure to expire last July but the UK was the largest EU buyer of rebar before Brexit. Before the duties were imposed, Chinese imports accounted for as much as 50 per cent of the whole UK market, according to Argus Media. A spokesperson for the government said it remained “absolutely determined to secure a competitive future for our energy-intensive industries, including the steel sector, and we have added to the £2bn we have already provided to help with the costs of energy and to protect jobs”.They added: “The Trade Remedies Authority has set out its initial findings and the international trade secretary will consider its final recommendation once submitted.”   More

Good eveningA bigger-than-expected jump in US inflation to 9.1 per cent, a fresh 40-year high, has fuelled expectations that the Federal Reserve will act decisively to raise interest rates this month.The annual rise in the consumer price index beat economists’ forecasts of an 8.8 per cent increase and triggered a sell-off in US stocks and Treasury bonds. Prices jumped another 1.3 per cent between May and June, following a 1 per cent rise in May. Once volatile items like food and energy are stripped out, “core” inflation edged up from 0.6 to 0.7 per cent, leaving an annual increase of 5.9 per cent, slightly down on the 6 per cent recorded the month before.The Biden administration, which has been feeling the heat from the surge in inflation, tried to play down the rise, arguing it covered the period before prices for energy and other commodities dropped sharply.The threat was highlighted by the IMF yesterday as it cut its forecast for US growth this year to 2.3 per cent, a drop of 0.6 per cent from its estimate last month. “Wage and price pressures are broad based [and] . . . have spread quickly across the economy. Longer-run measures of inflation expectations have started to drift higher and shorter horizon measures of inflation expectations have increased significantly,” the IMF said.In an unusual prelude to today’s figures, the Bureau of Labor Statistics was yesterday forced to discredit a fake report that claimed inflation had hit 10.2 per cent, triggering a sell-off in US stocks from jittery investors, already nervous about a potential recession as consumer and business sentiment deteriorates. “We have seen the consumer getting squeezed by the higher cost of living and by monetary policy, which could lead to a consumer-led recession,” said Erin Browne, portfolio manager at Pimco.Although last week’s jobs report was more positive than expected, some economists are convinced that a labour market slowdown is under way, as job openings and resignations decline and jobless claims rise. Google told employees yesterday it would be “slowing the pace of hiring for the rest of the year” as the threat of recession rises, following similar moves from Microsoft and Facebook’s owner Meta.As the US president is experiencing, inflation is a political challenge as much as an economic one, a point taken up by Martin Wolf in his latest column. “Quite simply, people care about it,” he reminds us. “Not least, unexpected inflation also means unexpected cuts in real incomes.” Latest newsCourt ruling expands Brussels’ powers to scrutinise tech mergersCanada surprises markets with 100 basis-point interest rate riseUK railway workers to hold 24-hour strike on July 27For up-to-the-minute news updates, visit our live blogNeed to know: the economyThe UK reported better than expected growth in May of 0.5 per cent after the economy had shrunk the previous month, raising expectations of a significant interest rate rise by the Bank of England at its August meeting. The return to growth was driven by health and social services activity but all key sectors showed an increase. Business leaders warned Tory candidates to replace Boris Johnson as prime minister not to get into the realms of “fantasy economics” by focusing on cuts to corporation tax instead of a long-term plan for growth and investment. New reports from the Resolution Foundation, the Treasury select committee and the National Audit Office all warned that the UK economy needed a better long-term strategy.FT subscribers can sign up here for our special online event on Friday at 1pm London time: Britain after Boris Johnson: what’s next for the UK and business?IMF chief Kristalina Georgieva said the fund would lower its growth forecasts for the global economy this year and next in its upcoming World Economic Outlook. She also warned of the “growing risk of a debt crisis”, with 30 per cent of developing and emerging markets and 60 per cent of low-income countries at or near distressed debt levels. Without debt relief, a “cascade of defaults” is on the horizon, warned the Lex column.Latest for the UK and EuropeUK retail sales fell in June for the third month in a row as inflation dented household finances, according to data from KPMG and the British Retail Consortium. Bank of England chief Andrew Bailey pledged to bring inflation down to its 2 per cent target, “no ifs or buts”, and that the BoE would raise rates more sharply than previous responses to surging price rises.The euro fell to parity against the US dollar for the first time in 20 years as fears grow about the health of the global economy and investors switch into safer assets.EU finance ministers agreed a fresh €1bn emergency loan for Ukraine but the country’s international partners are increasingly concerned about its public finances. The US Treasury warned that emergency measures such as money-printing risked damaging its ability to provide critical services over time, highlighting the need from allies for grants and cheap loans as quickly as possible.Spain said it would put a windfall tax on excess profits of energy companies and a special levy on banks to raise €7bn and help offset soaring energy prices and rising inflation.Global latestThe International Energy Agency said record fuel prices were hitting oil demand in developed countries harder than anticipated, although Opec yesterday said booming oil demand next year could test its production capacity. In its first forecast for 2023, oil producers’ group said demand would rise by 2.7mn barrels a day to 103mn b/d, fuelled by increased activity, particularly in India and China. The US is consulting with India, China and others to introduce a price cap on Russian oil.Daily coronavirus infections in South Korea rose above 40,000 for the first time in two months. The Bank of Korea raised its benchmark interest rate to 2.25 per cent as it fights to contain inflation running at a 24-year high of 6 per cent.New Argentine finance minister Silvina Batakis has pledged to restore “order and balance” and keep the country’s $44bn deal with the IMF on track, but has failed to calm investors jittery about the possibility of another sovereign debt default.New Zealand’s central bank lifted rates by 50 basis points to 2.5 per cent and warned the economy was deteriorating, blaming global inflationary pressures from pandemic-related supply chain problems — particularly from China — and energy and food price rises resulting from the war in Ukraine.The global population grew by less than 1 per cent a year for the first time since the aftermath of the second world war in 2020 and 2021, according to new UN data, with Europe’s population actually falling during the pandemic.

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Need to know: businessEuropean, and especially British, companies have been the target of a record number of campaigns from activist investors in the first half of 2022. Unilever, Shell and HSBC have all been in the cross hairs of restive shareholders.Delta Air Lines chief Ed Bastian said he had seen no signs of demand for flights waning as the third-biggest US carrier reported a profitable second quarter with net income of $1.4bn on revenue of $12bn. London’s Heathrow airport said it would limit passenger numbers to 100,000 a day until September 11, which it warned would lead to more disruption and flight cancellations.PepsciCo increased its earnings forecast for the second quarter in a row but warned of further price rises after experiencing little pushback from consumers on recent increases.UK pub chain Wetherspoons said it expected a $30mn full-year loss as staff costs rise and draught beer sales drop from pre-pandemic norms.The World of WorkThe concept of remote working in the US is turning into a culture clash, writes US editor at large Gillian Tett, as middle-aged executives say they want employees back in the office while younger workers are equally vehement they want to work from home. Many of us see our work colleagues just as much, if not more, than our friends and family — or at least we did before the pandemic. Isabel Berwick and guests discuss the importance of workplace friendships in the new Working It podcast. UK law firm Baker McKenzie has bumped up pay for newly qualified lawyers to £110,000, in contrast to some of its London rivals which have decided to freeze salaries as demand slows.Get the latest worldwide picture with our vaccine trackerAnd finally…Started choosing books or films for your holiday yet? Check out the FT Weekend podcast for our recommendations on what to read and watch this summer.© Cat O’Neil More

It is hard to imagine a peacetime crisis more severe than that now facing Sri Lanka. Its president has fled without facing the Sri Lankan people or officially resigning. Decades of corruption and mismanagement have been exposed by the economic shocks of coronavirus and Russia’s war in Ukraine. Sri Lanka has run out of cash. It can no longer pay for imports of food, medicines and fuel. Months of protest have boiled over as demonstrators seized the presidential palace and torched the prime minister’s home. A national emergency has been announced.The descent into political chaos has been mirrored in the public finances. Hubristic tax cuts and other hapless decisions hollowed out government revenues just as the pandemic struck. The government has run an average annual budget deficit of more than 10 per cent of GDP since 2019.Debts have mounted. Sri Lanka owes more than $50bn to multilateral agencies, foreign governments and commercial creditors. In May, it stopped making repayments, becoming the first Asian sovereign borrower to default since 1999. It now faces what is likely to be the most complex sovereign debt restructuring in recent memory. The process will be watched closely by other emerging economies that have gorged on debt during the pandemic. The IMF says 38 developing countries are in debt distress or at high risk of it. Observers have raised concerns about Pakistan, Ghana and others. Sri Lanka owes much of its debt to geopolitical rivals. At least $5bn — twice that amount by some estimates — is owed to China, including emergency finance extended during the pandemic. New Delhi claims to have extended $3.8bn. Japan is owed at least $3.5bn, according to the IMF, with another $1bn owed to other rich countries.Just getting those lenders to agree would be progress. There may be cause for optimism in that, last month, China joined France as co-chair of the official creditor committee for Zambia, Africa’s first Covid-era sovereign defaulter. But it took China six months to agree and there is no guarantee that its acceptance of a collegiate approach in this instance will be extended to Sri Lanka or any other of its many sovereign debtors now risking default.This is of enormous significance. China is the world’s biggest bilateral lender. For the 74 countries classed as low-income by the World Bank, it is bigger than all other bilateral lenders combined. But its lending is opaque, and it has traditionally taken an ad hoc approach to debt workouts, dealing with debtors behind closed doors. While often willing to give borrowers more time, it has been reluctant to accept any reduction of what they owe.The IMF says Sri Lanka’s debts are unsustainable. IMF support will be conditional on creditors first agreeing to provide assurances to restore them to sustainability. Reconciling the competing interests of China and India will be daunting enough. Securing other creditors’ agreement, including that of Sri Lanka’s commercial lenders, often with differing motivations, will be a further giant leap. It will take months, at least.Initiatives for debt relief introduced in the pandemic by the G20 group of large economies were designed to address unsustainable debts before they turned into crises. Zambia and now Sri Lanka are the latest proof that those initiatives have fallen short.The IMF, the World Bank and others have urged national governments to join in finding a better solution. Yet the chances of such global co-operation seem more distant today than at the start of the pandemic. The people of Sri Lanka, and of other likely defaulters, will bear the cost. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyJune’s awful US inflation numbers are a reminder of tough days ahead for many in America and around the world, and especially the most vulnerable segments of the population and the most fragile developing countries. This is not because inflation will record yet another four-decade high over the next three months. It won’t. Rather, it is because of the damage already unleashed and that which is to come.At 9.1 per cent for June, the headline number for US CPI inflation came in well above the median forecast of 8.8 per cent, registering its highest level since 1981. The core measure was also higher than expected and the compositional details added to concerns.This level of inflation will come as a shock to many, especially those who have been falsely comforted by a US Federal Reserve narrative that, from day one of this inflation episode, has failed to understand the dynamics in play, grasp the seriousness of what’s ahead, and act promptly and decisively to avoid undue harm to so many.The stunning number, which will be splashed across the front pages of newspapers and dominate news shows and websites, will further erode the already-damaged policy credibility of the Fed and undermine the effectiveness of its all-important forward guidance tool. And this is a Fed that, unlike the European Central Bank, is yet to explain why it has forecast inflation so wrong for so long; and unlike the Bank of England, is yet to play the technocratic role of an honest adviser on what is going on in the economy and why.The Fed now has no choice but to respond aggressively. It is sure to increase interest rates by 0.75 percentage points later this month and could well consider a 1 percentage point rise.Such a belated policy reaction will increase the risk of a recession, especially given that economic activity is slowing. This adds the curse of income insecurity to the serious erosion in purchasing power caused by inflation — phenomena that hits the low income earners particularly hard.Fortunately, inflation will come down over the next three months. That’s the good news. Less good is the continued broadening of price pressures that was evident in today’s detailed data. That adds to the considerable uncertainty that surrounds the stickiness of an inflation process that the Fed has allowed to get more entrenched into the economy.As such, and especially if the Fed fails to get its act together quickly, it would be foolish to dismiss the chance of a third wave of inflationary pressures that would interrupt and reverse the downward movement of the next three months.The implications of all this go well beyond the US. This high inflation, and the monetary policy reaction it will entail, will add fuel to the phenomenon of “little fires everywhere” and is particularly worrisome for developing countries already dealing with food and energy insecurity.They now face a further tightening of global financial conditions, as well as increased dollar appreciation that aggravates their imported inflation and risks destabilising their debt sustainability and the domestic financial markets.Have no doubt: the latest inflation numbers are indicative of rough seas ahead, particularly for the most vulnerable segments of society in the US and around the globe. And to think that much of this could have been avoided had the world’s most powerful central bank been more responsive with its policy tools — and not stuck so doggedly to its stance that inflation rises last year were just “transitory”. More

There’s no denying it: the US inflation print for June was ugly. The year-over-year headline figure rose 9.1 per cent and the monthly increase was 1.3 per cent, both exceeding estimates.Energy prices were the biggest driver, of course, but rents rose quickly too, with all shelter costs up 5.6 per cent from a year ago. Jan Hatzius at Goldman Sachs points out that rents inflation climbed to a 36 year high. His colleague Frank Flight takes a more dire tone: The opportunity for a soft-ish landing has passed and the Fed’s best hope now is inducing a recession as soon as possible to prevent a de-anchoring of inflation expectations and a wage/price spiral.Excluding hotels and the like, inflation in rent and home prices is approaching double digits. And Jim Cramer is saying inflation has peaked, which leads us to worry that it hasn’t. It is starting to look like aggressive monetary-policy tightening in the Americas is inevitable. Canada led the way Wednesday with a 100 basis-point rate increase, which calls to mind the country’s larger than normal share of variable-rate mortgages. The Federal Reserve’s next statement is due on July 27, before the next US consumer-inflation data point is released. Fed funds futures were pricing in an increase of around 85 basis points at its July meeting as of mid-morning Wednesday in the US. That means another 75 basis-point rate hike is seen as a given, with a chance of the Fed going bigger. A couple of hours after the report, CME’s (flawed) FedWatch tool was interpreting that as a 51 per cent likelihood of a full-percentage-point rate increase in July. The question of when the Fed last raised rates by 1 percentage point is an entertaining one to answer, in part because it came before 1990, when the Fed was still only secretly targeting the fed funds rate to implement its policy. Before that it was targeting a measure of the quantity of money. So to figure out when the fed funds rate rose by a full percentage point in the span of a month, we turn to our old pal FRED:

It’s been a while. © FRED

That’s February 1982, firmly in the Volcker era. The fed funds rate rose to 14.78 per cent from 13.22 per cent in the span of a single month. The US has been experiencing the highest inflation since the Volcker era as well, though we must point out that energy contributed a significant amount to June’s inflation print, and that Wednesday’s figures don’t capture the recent slide in West Texas Intermediate crude. As Morgan Stanley writes: While core inflation pressures remain uncomfortably high, the outlook points to some inflation deceleration from here. In particular, energy price inflation is likely to reverse sharply in July on the back of falling commodity and retail gas prices, which points to a substantial drop-off in sequential headline inflation next month.Still, the rent and food inflation figures weren’t encouraging either. And bond markets are following the standard Fed-panic formula, with short-dated Treasury yields jumping, long-dated Treasury yields declining and recession signals getting louder: 2-year yields were more than 15bp higher than 10-year yields by the US’s mid-morning hours. That is the much-feared yield curve inversion. This inversion has been more persistent — and therefore more worrying — than the shortlived inversion that caused a bit of a stir on the internet earlier this year. Stonks aren’t panicked, however, with the S&P 500 only down 0.3 per cent. More