Aurelia Butler

Good evening,Finally some better news in the fight against inflation. Germany reported today that CPI fell from 8.7 per cent last month to a better than expected 8.2 per cent in the year to June, helped by government measures such as cuts in fuel taxes and a special discount on public transport.The data was not yet a turning point, “but rather evidence that it is currently governments and not central banks that can bring down inflation”, said Carsten Brzeski, head of macro research at ING.The news contrasted sharply with data from Spain earlier in the day that showed prices rising at their fastest rate for 37 years, hitting 10 per cent in June, driven by surges in energy and food. The underlying rate, excluding these two volatile items, hit 5.5 per cent — the country’s highest level since 1993.Prime Minister Pedro Sánchez has announced proposals to extend and increase Spain’s €16bn package of relief by €9bn, including reductions in electricity tax and public transport costs, help for pensioners and one-off payments for lower earners.The easing of inflation growth in Germany will be given a cautious welcome by European Central Bank policymakers at their forum for central banks in Sintra, Portugal. Yesterday, ECB president Christine Lagarde hardened its message on inflation, saying the central bank would act in “a determined and sustained manner”, especially if price expectations rose sharply among consumers and businesses.Today, she added: “I don’t think we are going to go back to that environment of low inflation . . . there are forces that have been unleashed . . . that we’re facing now that are going to change the picture and the landscape within which we operate.” Inflation data for the combined eurozone are expected to hit a new record of 8.3 per cent when released on Friday.The ECB is planning to start raising interest rates in July for the first time since 2011, beginning with a quarter percentage point increase, followed by a bigger rise in September. However, its new tool to address fragmentation of financial markets across the eurozone could spark a new crisis if it comes up short, argues commentator Megan Greene.US Federal Reserve chair Jay Powell also spoke at a panel discussion at Sintra ahead of tomorrow’s core personal consumption expenditure data, the Fed’s preferred measure of inflation.Powell said the US economy was in “great shape” but warned: “If you look across the broad scope of short, medium and long-term expectations, you’d still say that we have credibility [and] that they are well anchored, but there’s a clock running here.”Examine country by country data with our global inflation trackerLatest newsRevised US GDP data indicate less consumer spending and weaker economyUK imposes sanctions on Russian oligarch and Norilsk chief Vladimir PotaninConsumer group General Mills lifts dividend as higher prices boost salesFor up-to-the-minute news updates, visit our live blogNeed to know: the economyG7 countries have agreed to do more to prevent Russia profiting from soaring energy prices. Here’s our explainer on their plan. The UK said it would cut off gas supplies to mainland Europe if it was hit by severe shortages. However, blocking the two-way interconnector pipelines risks undermining international co-operation on energy.Latest for the UK and EuropeThe UK said it would extend tariffs on steel imports for two years to protect domestic manufacturers in a move that risks a legal challenge from the World Trade Organization.The UK is also having second thoughts about imposing a windfall tax on electricity generators. Electricity distributors, however, have been targeted by the energy regulator, which ordered them to invest more while keeping customer charges stable.Trade body UK finance warned of a fraud “epidemic” after a surge in scams where victims are tricked into parting with their cash. Consumer editor Claer Barrett examines why the country is so susceptible and what can be done about it.Businesses in Northern Ireland say Westminster’s intention to rip up post-Brexit trading arrangements, which have helped the province’s economy outperform much of the rest of the UK, will do real damage.UK public finances have been given a boost by the rise in inflation, writes economics editor Chris Giles, but the temporary advantage will soon be lost under the pressure of rising debt interest payments, falling wages and pressure on service.Our latest Big Read is an investigation into how Russia is exporting food out of Crimea in defiance of international sanctions.© FT/Planet LabsGlobal latestThe G7 was accused of “backsliding” on climate goals as member countries attempt to beef up energy security. Criticism is particularly strong in the UK, where a parliamentary report said there was “scant evidence” of the government implementing climate change targets. The EU, meanwhile, is pushing ahead with measures, including a ban on the sale of combustion engines by 2035.ExxonMobil chief executive Darren Woods told the Financial Times that investment in fossil fuel production would enjoy a resurgence as global efforts to cut production ran ahead of efforts to cut consumption, pointing to an “optimistic view” of the speed of the transition to cleaner energy.Our new newsletter The Climate Graphic: Explained, which launches on Sunday, helps you understand the most important climate data of the week, with insight and analysis from FT specialists. Sign up hereAfter the period of liberalisation from the late 1940s to the 1970s and the “neoliberalism” that began in the 1980s, we are now experiencing a new era of world disorder, says chief economics commentator Martin Wolf. Open trade is now at risk, he argues, unless action is taken to shore up the global commons.China has halved quarantine restrictions for international travellers to one week as it tries to revive an economy badly hit by pandemic curbs. The country’s Covid health apps have been criticised for being used as “digital handcuffs”, or tools of social control.On the other hand, the erosion of wider freedoms in Hong Kong is doing little to deter companies and investors, says Beijing bureau chief Tom Mitchell. Meanwhile, the city’s elite are snapping up bargain properties in Tokyo.Need to know: businessHedge fund manager and renowned short seller Jim Chanos is betting against “legacy” data centres, which he predicts will fall victim to cloud services from the trio of Amazon Web Services, Google Cloud and Microsoft Azure.The latest casualty of turbulent markets is Walgreen’s sale of the UK’s Boots pharmacy chain, which has been pulled because of a lack of suitable offers. Boots accounts for about 5 per cent of Walgreen’s yearly sales of $132bn.More encouraging were results from H&M, the world’s second-largest clothing retailer, which beat quarterly profit expectations by cutting back on discounts. Chief executive Helena Helmersson said supply chains were still strained and that ending activity in Russia, Ukraine and Belarus would account for 5 percentage points of an expected 6 per cent year-on-year decrease in June sales.The shift to electric cars is putting more than 20,000 UK jobs at risk, the industry’s trade association has warned, as jobs in engines, exhaust systems and fuel tanks fall by the wayside while the country gears up for the end of petrol and diesel-powered vehicle sales by 2035. A UK start-up is set to become one of Europe’s first refineries for lithium, one of the key materials used in electric car batteries.London’s Heathrow airport was ordered by the UK regulator to cut its landing charges after a big row with airlines. Business columnist Helen Thomas says the system of allocating take-off and landing slots needs an overhaul.It’s all smiles at the top end of the aviation market though, at least in the US, as company spending on private jets for personal use has hit a 10-year high.The World of WorkPositive employment trends for young women are masking a rise in the proportion of inactive young men, writes employment columnist Sarah O’Connor on the changing demographics of the UK workforce.If you often feel underqualified and plagued by self-doubt at work, you may be suffering from imposter syndrome. In our latest Working It podcast, Isabel Berwick and guests discuss how in some cases it might actually improve your performance.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Ever suffer from jet lag? Here are some tried and tested tips from a source you can trust: a long-haul airline pilot.A pilot’s guide to beating jet lag © Universal Images Group/Getty More

The world’s top central bankers have warned that the era of low interest rates and moderate inflation has come to an end following the “massive geopolitical shock” from Russia’s invasion of Ukraine and from the coronavirus pandemic. Speaking at the European Central Bank’s annual conference, Christine Lagarde, its president, Jay Powell, chair of the Federal Reserve, and Andrew Bailey, Bank of England governor, called for rapid action to curb inflation.They said failing to raise interest rates quickly enough could allow high inflation to become embedded and ultimately require more drastic action by central banks to bring price growth back to more moderate levels.“The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” said Powell.Speaking in Sintra, Portugal, the central bank bosses said the pandemic and the Ukraine war were reversing many of the factors that had spurred more than a decade of ultra-low inflation among most developed economies. They warned that the splintering of the global economy into competing blocs risked fracturing supply chains, reducing productivity, raising costs and reducing growth.“I don’t think that we’re going to go back to that environment of low inflation,” said Lagarde. “There are forces that have been unleashed as a result of the pandemic [and] as a result of this massive geopolitical shock that are going to change the picture and the landscape within which we operate.” “Some would argue that the place where you manufacture [or] the place from which you provide services is going to be decided by different factors than just cost,” the ECB president added. Whether certain locations were politically “friends or foes” was likely to be relevant, she added.Powell said these shifting dynamics would force a rethink over how the world’s central banks operate given that the low-inflation environment “seems to be gone now”. “We’re living with different forces now and have to think about monetary policy in a very different way,” he said. Forecasting inflation in this environment had become a much more challenging task, he added. “We understand better now how little we understand about inflation.”Bailey said there had been “a sea change” in the way economies work, and in the UK Covid was “leaving a structural legacy on labour markets and the way they behave”, with lower employment and higher risks of excessive pay increases. Lagarde said the Ukraine war was hitting Europe harder than most other regions in the form of higher energy and food prices, meaning the continent was “not in the same situation” as the US and other countries. But she warned that “what happens on the energy front [and] what happens on the war front” will affect inflation expectations. This could require the ECB to shift from its current “gradual” approach to raising interest rates — starting with a quarter percentage point rise in July — to a “more determined” policy stance.Powell vowed to prevent a “higher inflation regime” from taking hold in the US, underscoring the central bank’s willingness to rapidly raise rates this year. The Fed has resorted to measures last used more than 30 years ago, raising interest rates by 0.75 percentage points earlier this month to bring the federal funds rate to a new target range of 1.5 to 1.75 per cent.

Top officials have signalled another big rate rise at the next policy meeting in July, with the benchmark policy rate reaching roughly 3.5 per cent by year-end.Lagarde said Europe’s economy was also being buffeted by a shift from higher spending on goods during the pandemic to more spending on services such as tourism and travel, which was propping up eurozone growth but also creating “a series of shocks” that fuel extra price pressures.The ECB president said central banks and governments were no longer working “hand-in-hand” as they had done during the pandemic and instead it was now important for fiscal policy to become more “targeted” and “sustainable”. More

The writer is chief economist at the European Bank for Reconstruction and DevelopmentMyopia is a byproduct of democracy. Politicians facing short electoral cycles have every incentive to focus on what they can deliver to please voters before the next election. But applying a band-aid to a bullet wound can make a problem worse in the long run.Voters are wounded by high energy prices and rising interest rates. Predictably, many governments are responding with band-aid solutions of temporarily suspending fuel taxes and introducing mortgage moratoriums.Assisting insecure households should be a priority for every government, with means-tested transfers for those in greatest need. Instead, governments in Canada, Germany, Italy and the UK are resorting to across-the-board temporary suspensions or cuts to fuel taxes and VAT on energy. Such measures are also popular in central and eastern Europe where rising heating costs have hit households harder. An average household in Romania spends a quarter of its budget on utility bills, compared with 7 per cent in Germany and 12 per cent in Italy.Across-the-board measures are popular with voters and may help incumbent governments in the next election, but they have many downsides. They add to existing pressure on public finances from post-Covid strain. They damp price signals and give wealthier households with larger properties little incentive to save energy. Such price signals, leading to lower energy consumption, are urgently needed if Europe wants to wean itself off energy dependence on Russia and slow down climate change.Once introduced, temporary measures often stick around. Futures markets expect the price of Brent crude to be $97 a barrel in December 2023. That is 18 per cent higher than the spot price in early January. Thus, the pressure to extend tax relief will not go away soon.Similarly, a case can be made that poorer households need assistance with debt servicing in an environment of rapidly increasing interest rates. But here again governments are tempted to help everyone, not just those affected by job losses or temporarily unable to service their debts. This option is politically attractive if many beneficiaries tend to vote for opposition parties. Governments can use debt relief to lure these voters at the next elections.From August 1, an across-the-board mortgage debt moratorium will be launched in Poland. It involves “debt service holidays” of up to four months in the second half of 2022 and an additional four months in 2023. This essentially means extending mortgage loans for free.The help is available to all borrowers, but only one mortgage contract per person is allowed and it must cover “own use” real estate. If all eligible borrowers join the scheme, the cost will exceed 20bn zlotys ($4.5bn), according to the National Bank of Poland. The Polish Banking Association, using somewhat different assumptions, estimates it at 23bn-27bn zlotys. Whatever the cost, the banking sector will in effect finance it.Romania is working on a similar scheme, also to start this summer, but the legislative process is less advanced. It appears, moreover, that Romania’s moratorium will be at least notionally restricted to households severely hit by inflation. Nevertheless, all such measures are distortions that use a different distortion as an excuse. The problem is that excess liquidity in the banking system has kept deposit rates very low. This creates an impression that banks are now unfairly raising interest rates on mortgages and other loans.Moratoriums are expensive for banks and disproportionately benefit large property owners. They may weaken a central bank’s monetary policy transmission mechanism and require even higher rate hikes in the future. They create incentives for reckless borrowers by raising expectations that, when the next shock comes, the government will again rush to help. Finally, they may induce banks to increase loan costs as they, too, expect more debt relief measures in the future. Both Poland’s central bank and the Polish Banking Association have criticised the moratorium.A cheaper, more sensible scheme in Poland is a Borrowers’ Support Fund for people who lose their jobs or whose mortgage payments exceed 50 per cent of monthly household income. This fund, financed from bank contributions, is set to expand to 2bn zlotys. Extending it to cover more households in need would limit the costs expected to arise from the across-the-board moratorium. But perhaps the government would receive less of an election boost.The choices policymakers make today matter. Bad policies will make the already devastating impact of the pandemic and the Ukraine war last for much longer than necessary.  More

MADRID (Reuters) – World Bank chief economist Carmen Reinhart said it could take many more years before the growing number of heavily indebted countries see any substantive reduction in their debts.Reinhart, who returns to Harvard University on July 1 after a two-year public service leave, said the economic woes facing Sri Lanka were just the tip of the iceberg and more countries would likely join its ranks.”Be prepared for the long haul,” Reinhart told Reuters in a remote interview. “My fear – but I think it’s fear founded on the basis of the historical experience – is that to have a comprehensive approach that actually delivers substantive debt reduction will take a long while. Years,” she said, noting that the historical average was around eight years.Reinhart said Sri Lanka’s woes reflected the balled force of a currency crisis, high inflation, a collapse in output, financial strains and a debt crisis, but other countries were also facing major problems.“There are more Sri Lankas on the way. You have countries like Myanmar, Laos. These are not major players in global markets, but they are falling,” she said, noting that others, including Ghana and Egypt, were facing significant shocks as a result of the war in Ukraine and surging food and energy prices.”There are a lot of countries in precarious situations,” she said.Reinhart said the Common Framework for debt treatments agreed to by the Group of 20 major economies and the Paris Club of official creditors in October 2020 had proven to be a disappointment, resulting in not even a single debt restructuring since its launch in October 2020.She said the lack of progress was not surprising.“The historical experience has been like pulling teeth, and slow moving at that,” she said. “Every creditor has for their own reasons engaged in foot dragging. China and private creditors have their own incentives to delay.”Reinhart downplayed the prospects for any significant change in the approach of advanced economies to the mounting issues facing the developing world, including the snowballing impact of the COVID-19 pandemic on learning outcomes and poverty rates. “This ain’t going away quickly. Everyone is preoccupied with their own problems. There’s a tendency to focus on the domestic issues and everything else goes on the back burner,” she said.“I hate to be like a wet rag, but I do think things will get worse before they get better. We’re still trying to sort out what the new normal is,” she said. “My sense is that we will see more difficult times before we turn the corner.” More

MADRID (Reuters) – World Bank chief economist Carmen Reinhart said she is skeptical that the U.S. and global economies can dodge a recession, given spiking inflation, sharp hikes in interest rates and slowing growth in China.Reinhart, who returns to Harvard University on July 1 after a two-year public service leave, said it was historically a tall order to reduce inflation and engineer a soft landing at the same time, and recession risks are clearly a “hot topic” at the moment.“What worries everybody is that all the risks are stacked on the downside,” Reinhart told Reuters in a remote interview, citing a series of adverse shocks and moves by the Federal Reserve to raise interest rates after a decade and a half of ultra-low and negative rates.The global financial crisis of 2008-2009 affected mostly a dozen advanced economies and China at that time was a big engine of growth, but this crisis is far broader and China’s growth is no longer in the double digits, she said.The World Bank this month slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia’s war in Ukraine had added to damage from the COVID-19 pandemic, and many countries now faced recession.It said global growth could fall to 2.1% in 2022 and 1.5% in 2023, driving per capita growth close to zero, if downside risks materialized.Asked if a recession could be avoided in the United States or globally, Reinhart said, “I’m pretty skeptical. In the mid-1990s, under (Fed) Chairman (Alan) Greenspan, we had a soft landing, but the inflation concern at the time was around 3%, not around 8.5%. It’s not like you can point to a lot of episodes of significant Fed tightening that haven’t taken a toll on the economy.”Reinhart said the Biden administration was not alone in misjudging the extent of the inflation risk, noting that the Fed, International Monetary Fund and others had shared that view, although the World Bank early on called it a “real risk.””The Fed should have acted – and I’ve been saying this for a long time – sooner rather than later and more aggressively,” she said. “The longer you wait, the more draconian the measures you have to take.” More