Aurelia Butler

BEIJING (Reuters) – Jenny Bai was among 10 high-performing computer science students from different Chinese universities selected by a Beijing-based internet firm for a job upon graduation, following four rounds of arduous interviews.But last month, the company told the students their contract offers were cancelled due to COVID-19 headwinds and the bad state of the economy in general – obstacles facing a record 10.8 million Chinese university graduates this summer.”I’m worried,” said Bai, who graduated this month and did not want to name the firm to stay on good terms. “If I can’t find a job, I’m not sure what I’ll do.”China’s COVID restrictions have battered an economy already slowing due to a property market downturn, geopolitical worries and regulatory crackdowns on tech, education, and other sectors.A cohort of graduates larger than the entire population of Portugal is about to enter one of China’s worst job markets in decades at a time when youth unemployment is already more than three times China’s overall joblessness rate, at a record 18.4%.There is no script for how such high youth unemployment will affect Chinese society.Struggling to find jobs goes against what educated young people have come to expect after decades of breakneck growth, and is awkward for China’s stability-obsessed Communist Party, especially in a year when President Xi Jinping is expected to secure a precedent-breaking third leadership term.”The social contract between the government and the people was you stay out of politics and we will guarantee that every year you’ll do better than last year,” said Michael Pettis, Professor of Finance at Peking University.”So the concern is that once that guarantee breaks apart, what else has to change?” GRAPHIC: Number of graduates in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/xmpjowneevr/chart.png) TOP PRIORITYPremier Li Keqiang has said stabilising the job market for graduates is a top government priority. Companies granting internship posts to new graduates will receive subsidies, on top of other perks aimed at boosting employment in general.Some regional governments have offered cheap loans to graduates looking to launch their own businesses. State-backed firms are expected to pick up some of the slack in private sector entry-level jobs.Rockee Zhang, Managing Director for Greater China at recruitment firm Randstad, says China’s entry-level jobs market was worse even than during the 2008-09 global financial crisis, estimating new jobs falling 20-30% from last year. “This year is a low point, the lowest I’ve seen,” said Zhang, who has been a recruiter for two decades.Expected salaries are also 6.2% lower, according to Zhilian Zhaopin, another recruitment firm.China’s Ministry of Human Resources and Social Security and the Ministry of Education did not respond to requests for comment. GRAPHIC: Expected salary for graduates in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/znvnegxnapl/chart.png) The tech sector has been a significant employer of many Chinese graduates, but this year the industry is trimming its workforce, recruiters say.A regulatory crackdown prompted many of China’s tech giants including Tencent and Alibaba (NYSE:BABA) to make massive job cuts. A combined total of tens of thousands have lost their jobs in the sector this year, five tech industry sources told Reuters. Job cuts varied between China’s roughly 10 biggest tech companies varied but averaged at about 10%, according to a report published in April by Shanghai-based Talent Assessment and Management Consulting group NormStar. The companies did not respond to requests for comment. In April, a nine-month freeze on online gaming licenses over violent content and other issues was lifted, during which time 14,000 firms in the industry shut.Private education, another sector which drew regulatory scrutiny, parted with tens of thousands of workers as well. The largest firm in the industry, New Oriental, has announced 60,000 layoffs. New hiring is slow. A human resources manager at a Tencent business unit, who asked not to be named as they were not allowed to speak to the media, said they were looking to hire “a few dozen” new graduates, compared with about 200 a year previously.“Internet companies have cut tonnes of jobs,” said Julia Zhu of recruitment firm Robert Walters. “If they have the financial resources to bring people in they are now opting for more experienced candidates rather than fresh graduates.” GRAPHIC: Increase in unemployment among urban youth in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/lbvgnxlzgpq/chart.png) Jason Wang, a Beijing-based headhunter who has worked mostly with tech companies in recent years, is now recruiting mainly for state-backed telecommunication firms.”The golden age of internet companies’ hiring sprees has ended,” Wang said.In China, being jobless for some time after graduation is typically frowned upon by employers. Many families see it as a humiliation rather than bad luck with the economy.Taking blue-collar jobs after getting a university degree also often draws disapproval, so to avoid long gaps in their CVs, record numbers are applying for post-graduate studies, official data show. GRAPHIC: Postgraduate enrollments in China (https://graphics.reuters.com/CHINA-ECONOMY/UNEMPLOYMENT/byvrjamkyve/chart.png) Vicente Yu graduated in 2021 but has been unemployed since losing his job at a media company late last year. His savings will cover another month or two of rent and basic expenses in the southern city of Guangzhou.”My dad said you should never come home again, he said he should have raised a dog instead of me,” said the 21-year-old, who has been struggling with anxiety and sleep problems.He spends his nights on social media platforms, where he finds other young people in similar situations.”I look at all those people who are like me, who couldn’t find a job, and get some solace from it.”^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Number of graduates in China https://tmsnrt.rs/3N5ZYlTExpected salary for graduates in China https://tmsnrt.rs/3OeMmGiIncrease in unemployment among urban youth in China https://tmsnrt.rs/3n7IJpFPostgraduate enrollments in China https://tmsnrt.rs/3ybIHmPPostgraduate enrolments in China (interactive) https://tmsnrt.rs/3tSO9ISNumber of graduates in China (interactive) https://tmsnrt.rs/3QGpgdiIncrease in unemployment among urban youth in China (interactive) https://tmsnrt.rs/3xCGKhWExpected salary for graduates in China (interactive) https://tmsnrt.rs/3Nq7TL3^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ > More

Hi everyone, this is Lauly writing from the heat of Taipei. I’m sending this week’s #techAsia from a traditional breakfast restaurant without air conditioning. It’s across the street from one of iPhone assembler Foxconn’s plants in New Taipei City, where I just attended an Apple component supplier’s annual general meeting.The AGM season has been a great chance to take the rising temperature of Taiwan’s hundreds of tech suppliers as they grapple with world economic turmoil. My colleague Cheng Ting-Fang and I have attended dozens of such gatherings over the past month and we kept hearing one big fear: global economic slowdown stoked by inflation, Chinese Covid lockdowns and their aftermath, and war in Ukraine.The economic woes have weakened consumer demand, leaving the PC industry with mounting piles of unsold stock. Chinese smartphone-makers Xiaomi, Oppo, and Vivo have likewise slashed their production forecasts. Samsung, the world’s largest smartphone and TV maker, has asked suppliers to halt shipments while it reviews its swelling inventories, as Nikkei Asia reported exclusively last week.We highlight below how companies across the tech industry are facing soaring production costs due to surging prices of materials, metals, chemicals, and labour costs.We will work through the sweltering Taipei summer to give you the answers to the question on everyone’s minds: which will be the next tech businesses to take a big hit?Yangtze shoots the rapidsChina’s Yangtze Memory is closing the technology gap on international rivals as it leads Beijing’s push to build a homegrown semiconductor industry and end its reliance on foreign chips, writes Nikkei Asia’s Cheng Ting-Fang.The Wuhan based-company has already reached full capacity at a first plant that now churns out 100,000 wafers a month. About two-fifth of these are on 128-layer 3D NAND flash memories — only about one generation behind global leaders Samsung and Micron.NAND flash memories are key storage components in electronic devices including smartphones, PCs, servers and connected cars.The ramp-up has put Yangtze Memory on the chip production world map dominated until now by Samsung, Micron, SK Hynix, Kioxia and Western Digital.The Chinese company now plans to bring production online at a second plant as early as the end of 2022 to further increase its global market share. That has already more than tripled from 1.3 per cent in 2019 to nearly five per cent in 2021, Counterpoint Research data shows.Yangtze Memory could even become an Apple supplier soon, in what would be a big diversification of a client base still dominated by local storage makers. Apple has tested Yangtze’s flash memories and could place its first order in “small quantities” as soon as this year, sources told Nikkei Asia.“Believe me, Yangtze Memory is doing better than most outsiders think,” a veteran chip industry executive who has worked with Samsung, Intel and Micron told Nikkei Asia. “It’s the best example that China can really build a viable player from scratch after many years even under the threat of geopolitical tension. It is still small . . . but it could become somebody in years to come.”The Chinese chipmaker was founded in 2016 and has enjoyed strong support from Beijing. It has also strived to keep a low international profile to avoid becoming a target of the kind of US sanctions that have hit Chinese peers including Semiconductor Manufacturing International Co. and Huawei.Chipmakers battered

Prices are surging for key chipmaking materialsCategoryMaterialUsed inPrice increase since mid-2020 (as of early June 2022)ChemicalsSlurryChemical-mechanical polishingOn average 5-6 per cent, up to 40 per cent in some casesPhotoresistLithographyOn average 20 per cent, up to 100 per cent in some cases Phosphoric acidEtching About 100 per centElectric-grade IPAWafer cleaningSynchronising with crude oil price GasNeon gasLithographyMore than 100 per cent, up to 200-300 per cent in some casesMetalNickelSemiconductor-grade stainless steelUp about 130 per centAluminiumSputtering and deposition (part of chipmaking process)More than 75 per centCopperChip, electronics manufacturingMore than 70 per centPalladiumChip, chip substrate manufacturingAbout 3 per cent (increased more than 50 per cent in March 2022)PlatinumSputtering and deposition (part of chipmaking process)About 25 per centOthersWafersSubstrate that chips are fabricated onOn average 10-20 per centAjinomoto build-up filmHigh-end chip packaging materialUp about 100 per centSources: Nikkei Asia analysis; London Metal Exchange; SunSirs; Nomura Securities

Every material you can think of in the semiconductor industry has become much more expensive these days.Costs of wafers, chemicals, metals and gases have soared because of supply shortages and logistical problems driven by the Covid-19 pandemic and war in Ukraine. Booming demand for chips for applications such as 5G connectivity and electric vehicles has further stoked the trend.Some essential materials have more than doubled in price over the past two years, according to a detailed analysis by Nikkei Asia’s Cheng Ting-Fang and Lauly Li.Vincent Liu, an industry veteran and president of Taiwan’s LCY Chemical, a supplier to global chipmakers, issued a warning about the consequences of the input cost rises: “Those could eventually be passed on to consumers.”Musk’s China reversalAmerican tech titans have always had a love-hate relationship with the Chinese Communist party, the Financial Times’ Edward White and Eleanor Olcott write.From Bill Gates to Larry Page and Steve Jobs to Mark Zuckerberg, each has faced uncomfortable compromises, unpopular concessions or moments of uncontainable crisis as they sought to carve out chunks of the world’s factory floor and biggest consumer market.Now Elon Musk, the richest man on earth and boss of Tesla and SpaceX, has landed in the crosshairs of Beijing’s national security and data hawks.Since Russia’s invasion of Ukraine in late February, Musk’s commercial rocket and satellite business SpaceX has been sending Starlink satellites to support the besieged country.But Chinese military and security experts have attacked the Starlink programme over its alleged links to the American military. Chinese officials fear a scenario where thousands of Musk’s satellites are deployed to surveil China — or, even more sensitively, support Taiwan. SpaceX hasn’t commented on the concerns.Data collection is also a key problem for Musk. Tesla has been successful in China. But Beijing is cracking down on cross-border data flows and data collection from individuals and locations near military or politically sensitive sites.Tesla has already promised to store information collected in China in local data centres — a significant blow to the global data gathering efforts that are critical to the company’s research and development.The challenges mark a stunning shift in favour in China for the 50-year-old Musk, where he has inspired a cult following as the “Silicon Valley Iron Man”.Shanghai’s lockdown nightmareThe Chinese government finally lifted its draconian two-month Covid lockdown in Shanghai a few weeks ago, but the scars on both citizens and businesses will last much longer, write Nikkei Asia’s Cissy Zhou, Lauly Li, Cheng Ting-Fang and CK Tan.The Greater Shanghai area, which includes the nearby cities of Kunshan and Suzhou in Jiangsu Province, is one of the world’s biggest electronics manufacturing hubs. Half of Apple’s top 200 suppliers have manufacturing facilities in the region, where hundreds of thousands of workers keep the industry running.But China’s status as a supply chain hub is being severely tested by Beijing’s “zero-Covid” policy. The management and wellbeing of tens of thousands of workers suffering the psychological trauma of isolation became a huge challenge for many companies.An executive at an Apple supplier, who asked to be known by the pseudonym Tony Tseng, told Nikkei Asia: “The most terrifying thing about this Omicron [variant] wave isn’t the virus but the fearful atmosphere spreading among our employees and workers.”He said more than 40 of the company’s 25,000 workers showed signs of mental disorder during the lockdown. One of them even started to claim he was President Xi Jinping, breaking equipment in the factory and becoming aggressive toward nurses, he added.Tseng said his top priority was not restarting production — but the psychological health of the employees. “We have to take care of them, and the bottom line is that we can’t have anyone die because of this pressure.”It is a stark reminder that the costs of “zero-Covid” go much deeper than the disruption during the Shanghai lockdown itself.Suggested readsTSMC says it will make ultra-advanced 2nm chips by 2025 (Nikkei Asia)Alibaba seeks to crack South Asia on path to global expansion (FT)‘Let it rot’: China’s tech workers struggle to find jobs (FT)Robot boats gobble plastic waste from Vietnam to Malaysia (Nikkei Asia)NetEase shares fall after nationalist backlash in China over Winnie the Pooh post (FT)Tencent to open third data center in Japan on gaming demand (Nikkei Asia)Workers at embattled crypto operator Terraform Labs put on South Korea’s no-fly list (FT)Influencers abandon TikTok Shop in latest blow to UK ecommerce venture (FT)Sony steps up image sensor tech, targeting 60% market share (Nikkei Asia)ByteDance to shut Shanghai game development studio (Nikkei Asia)#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at [email protected] More

Good morning. Jay Powell told Congress yesterday that a recession is “certainly a possibility”, while Bill Dudley, never one to mince words, wrote that one is “inevitable” in the next year or so. Yields and oil fell hard, which feels very recession-y. Stocks, a day after rallying for no reason, held steady, also for no apparent reason. If you can make sense of it, write to us: [email protected] and [email protected]. Also, listen to Rob talk about the Federal Reserve breaking things.The supply side isn’t coming to the rescueThe Fed doesn’t want to tighten the economy into a recession, but unless inflation starts cooling down fast, it’s prepared to do so. The Fed, alas, cannot create new sources of supply or unclog supply chains. It only controls monetary policy, which slows inflation by reducing demand, and therefore growth.Having looked dumb relying on supply before, it doesn’t want to wait for problems that it can’t control to get fixed. A wise policy. But might the Fed get lucky? The data on supply tells a mixed story.The trend in energy costs, which seep into all sorts of prices, doesn’t look promising. Forecasts are for a summer cost surge in America, with wholesale energy prices trebling from last summer in some parts of New England. Russia is cutting off gas to Europe just as a big US gas export terminal caught fire, knocking more supply offline for a few months.For supply chains, it’s less dire, if still not great. The New York Fed’s index of global supply chain pressure gives a good sense of the big picture. It pulls together data on freight costs, backlogs and shipping delays — stripping out demand to find how much inflation pressure is coming from supply constraints. Things are better than late last year, but we’re far from normal:You see this basic trend — better but still bad — popping up all along the supply chain. Here, for instance, is how much it costs to send a shipping container from China to the US west coast:Or read what executives at big corporations are saying. In general, larger companies will see better supply-chain conditions first, because they can pay top dollar to secure whatever shipping is available, including more expensive air freight. Some charter their own ships. So we read through several recent earnings calls to get a sense of sentiment. Here, to give one indicative example, is DuPont’s chief executive, Edward Breen, earlier this month:Yes, so a little better, but it’s tough. Like the teams are working seven days a week and getting containers booked ahead of time. It’s crazy. Going into different ports on the east coast of the US, instead of the west coast — but we’re doing fine. We’re working our way through it. But it’s not normal times, I don’t want to [leave] you with that impression, but it’s just getting a little bit better and mainly because of the Chinese — China, it was so bad, and that’s easing up now.Less globalised companies than DuPont are saying similar things. The co-chief executive of Lennar, a US homebuilder, called the peak on supply-chain pressures during Tuesday’s earnings call:There were still intermittent disruptions and an increase in construction costs. But for the first time since the disruptions began, we saw a flattening in cycle time [ie, total time to build a house]. Over the past four months, cycle time has expanded by only five days, which we believe signals [a] peak.That is good news, but it will take months or years to show up in inflation data. The Fed is not keen to wait. Early signs that inflation expectations are unmooring have thoroughly spooked the central bank. Nice, growth-friendly disinflation from the supply side, it seems, isn’t coming to save us.Instead, what we might soon get are supply-side gluts that will lower inflation — but also hurt growth. Recall the bullwhip effect, where companies buy too much during times of scarcity, ending up with excess inventory that later becomes a problem. Last time we wrote about this in May, we noted that inventory-to-sales ratios didn’t look bloated by historical standards. But they have grown exceptionally fast. The latest data, published last week, showed all industries but cars and furniture expanding inventories merrily:

Too much in stock eventually means selling at a discount, as in Target’s huge clearance sale this month. Or it means putting in fewer orders, as in Samsung freezing procurement thanks to bulging inventories. Both are drags on growth.What is happening in inventories is linked to what has happened in supply chains, explains Eytan Buchman of Freightos, a freight booking platform. He told Unhedged:One of the most important lessons businesses have learnt over the past couple years is when you can import something, import it. You don’t know whether they’ll be blockages in the port in Shenzhen, or lines of ships waiting to dock in Long Beach. You don’t know what the cost will be.Such uncertainty incentivised companies to build supply buffers, even in the face of lower projected demand. But now, between swelling stocks and easing demand from monetary tightening and the pivot to services, it’s adding up to a “classic bullwhip period”. Buchman added:So they’ve been building up an inventory. And suddenly there’s this decline in demand from customers. A very large chunk of our [clients] are attributing it to inflation. So now they have more inventory than they’ve ever had, they’ve paid more to import it than they ever have, but the demand they were expecting to make up for that is suddenly starting to evaporate.If inflation is your top priority, perhaps these gluts are welcome. But it is another reason to suspect a recession is around the corner. (Ethan Wu)Some Unhedged loose endsReaders pointed out a couple of mistakes, or at least failures of transparency, in this week’s letters that we should clarify.In Tuesday’s discussion of the bond market, Rob compared the yield on the two-year Treasury bond with the yield on the HYG ETF, and quoted the yield on the latter as 5.2 per cent. Readers objected that the yield on HYG is actually over 8 per cent. Well, sort of. The higher number is the yield on the fund’s underlying bond portfolio. It is not the yield on the ETF, which is in fact 5.2 per cent (taking the last monthly distribution and multiplying it by 12). Why the difference? The HYG managers will have bought many of the bonds in the portfolio when rates were lower, and as rates have risen, the prices of those bonds have fallen, increasing the yield on the portfolio (but not the ETF).Eventually, as the HYG portfolio turns over, its distributions should rise to meet the portfolio yield. But for now, if you want the most liquid available exposure to the high-yield market you will have to live with 5.2 per cent, as against 3 per cent on the shorter duration, credit-risk-free two-year Treasury. We know which we would take, but we are paranoid.In Wednesday’s letter on the European debt mess, loads of readers thought Rob was a dunce to characterise the mathematics of the situation this way:Italy’s debt is 150 per cent of gross domestic product. Its 10-year bonds, for example, yield 3.7 per cent. Of course it will have sold debt at lower yields than that, but as old debt rolls over, the cost will rise. GDP, on the other hand, is not going to grow at anywhere near 5.5 per cent (3.7 per cent x 150 per cent). So the Italian debt burden is set to grow steadily bigger relative to GDP.There are two things left out here that are, as readers insisted, important. The first is inflation and the second is the budget deficit. Inflation increases nominal growth, which is what matters to the debt/GDP ratio. And inflation is high now. The second is that if Italy can run a primary (that is, pre-interest) surplus, then it has more breathing room to service debt — since it doesn’t need to tap capital markets to pay for basic spending.There is a maths mistake implied in the above: debt can grow at 3 per cent, not of GDP but of itself, and the debt/GDP ratio remains unchanged. That is, at a 150 per cent debt/GDP ratio, with nominal economic growth of (say) 3 per cent, debt can grow by 4.5 per cent of GDP and the ratio remains stable.My point, however, remains. High inflation will make debt more bearable — but this will of course be a tax on Italians’ real incomes; not an attractive solution. Italy ran a primary deficit of 3.7 per cent next year. And its debt payments are headed up, as a percentage of GDP, unless spreads narrow or it is able to fund itself with cheap short-term debt (which would create another risk). Bring on fiscal union.One good readA study shows rightwing Germans tend to be hotter, or maybe hot Germans tend to be rightwing (hat tip to Tyler Cowen for flagging this). More

Good morning and welcome to Europe Express.EU leaders are gathering in Brussels today for the first day of their regular summer council, in what could mark at least a partial revival of the bloc’s dormant enlargement policy. We’ll explore what this decision will mean not just for Ukraine and Moldova, which are set to become EU candidate countries, but potentially also for the Balkan countries whose leaders are meeting with their EU counterparts later this morning.Lithuania is enforcing sanctions on the transfer of goods from Russia to the Baltic exclave of Kaliningrad, so we’ll explore why both Vilnius and the European Commission are standing their ground despite retaliatory threats from Moscow.In climate policy news, the European parliament yesterday finalised its negotiating position ahead of talks with member states and the commission on measures including carbon allowance trading and the adoption of a carbon border tax on certain imports from heavy polluting countries.Not everyone’s a winnerIt is being billed as a “geopolitical summit”, in the words of one senior EU diplomat. As EU leaders gather in Brussels today, the central outcome from their meetings is charged with political symbolism given the war raging to the east, write Valentina Pop and Sam Fleming in Brussels. Both Ukraine and Moldova are expected to win EU candidate status — a landmark moment, even if both will have to meet tough conditions before moving to the next stages. This is no small feat, given that just a few years ago, Ukraine was specifically told it had no EU membership perspective and Moldova was barely registering on anyone’s radar in Brussels.Georgia, which also applied for membership within days of the Russian invasion of Ukraine, will still have to pass more reforms before being given candidate status. But leaders will at least give Tbilisi the consolation prize of having its European aspirations acknowledged. Leaders are also making the effort to revive the European perspective for western Balkan nations, though that is difficult to agree upon. The day will kick off with an informal, and potentially “quite heated” session between EU leaders and their six western Balkan counterparts, according to a second EU diplomat. The prospects for Albania and North Macedonia to advance to the next stage on their EU path (the formal start of EU membership talks) briefly lit up yesterday, when one of the opposition leaders in Bulgaria signalled support for that step.But hopes were squashed later in the evening after the Bulgarian prime minister, Kiril Petkov, lost a vote of confidence in the national parliament.Petkov had been in favour of dropping his country’s veto on starting accession talks with North Macedonia, but that decision was fiercely fought over in the Bulgarian parliament, which has now put the country on the path for early elections — the fourth in little over a year.Diplomats and EU officials are not giving up, and will continue to press Sofia to finally unblock Albania and North Macedonia’s forward movement. While some are advocating for decoupling the two, given that Albania is basically held hostage by Bulgaria’s history and education-related issues with North Macedonia, most EU capitals would not favour such a move. “The negative impact of being seen as abandoning North Macedonia would be greater than the positive news of opening talks with Albania,” said the second senior EU diplomat. Leaders in the evening will also discuss the ideas put forward by France’s Emmanuel Macron and European Council president Charles Michel about a new structure, called the “European political community” that in addition to aspiring EU members could include other non-EU countries that do not want to join, such as the UK or Switzerland.“It’s a first discussion: it’s not very concrete. One thing that is clear to everyone is that this structure is not replacing the enlargement process,” the diplomat said. Kaliningrad guidanceEU capitals are becoming increasingly worried about the escalating feud with Russia over its shipments of goods to the Baltic exclave of Kaliningrad, write Sam Fleming and Henry Foy in Brussels.This week Lithuania began implementing sanctions that ban the transit of certain goods through EU states. The checks have triggered a furious response from Moscow, which has accused the EU of starting a “blockade” of the Russian territory of Kaliningrad and has threatened Lithuania with serious consequences. Some EU officials and diplomats questioned the breadth and intensity of Lithuania’s efforts to check Russian trains, people briefed on the discussions told Europe Express. Others questioned the wisdom of clamping down on movements of goods between two parts of Russia — even if the products move through an EU territory. The European Commission has made it clear it believes that Lithuania is correctly executing the sanctions that were unanimously agreed by the 27 member states. But the commission, which drafted the measures, is planning to issue guidance on the topic as soon as today, giving it the opportunity to clarify how tight the checks need to be in practice. Vilnius has additionally asked for the issue to be formally discussed in the summit, but some capitals have pushed back against that initiative, for fear of further inflaming tensions over the topic. Lithuania denies it has imposed any kind of “blockade” on Russian goods, saying “the transit of passengers and non-sanctioned goods to and from the Kaliningrad region through Lithuania continues uninterrupted”.“Lithuania is complying with the sanctions imposed by the EU on Russia for its aggression and war against Ukraine,” Prime Minister Ingrida Šimonytė said yesterday. The EU sanctions regime “means that Lithuania has to apply additional checks on road and rail transit”, agreed EU commission spokesman Eric Mamer. “Of course, these checks are focused, proportionate and effective. They will be based on smart risk management, to avoid sanctions evasion while allowing free transit.” Mamer added that the commission was in touch with the Lithuanian authorities and that it would provide “additional guidance as we go along”.The railway line across Lithuania and Belarus is Russia’s primary supply link to Kaliningrad. Trade in key products such as iron and steel has already been hit by the EU measures. A wider range of Russian goods such as cement will be affected as the grace periods for later rounds of sanctions lapse.While there may be scope to narrow the focus of border checks being done by Lithuania, some diplomats insisted they were not expecting the overall scope of the sanctions to be changed. “The assumption is that the commission and its legal service have studied the matter before actually coming out with it,” said one EU diplomat. “Those goods that are sanctioned should not transit through EU territory.”Chart du jour: Small free traders

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Read more here about a paradox in trade policy: the countries that matter most in trade are the ones to which trade matters least. Smaller countries are more dependent on trade than the US or big EU countries, which set the tone on global trade rules.Back on trackIt has taken somewhat longer than expected, but the EU parliament yesterday approved its negotiating position on the bloc’s flagship climate policy, writes Alice Hancock in London.Earlier this month, an unlikely coalition of socialists, greens and far right lawmakers rejected revisions to the EU’s emissions trading system, which allows polluters to trade permits for carbon output. They also rejected the introduction of a carbon border tax known as CBAM, designed to charge importers for their carbon emissions.The dramatic rebellion by MEPs at parliament’s plenary pushed the proposals back to the committee stage where lawmakers worked (almost) through the night last week to agree a compromise deal, which was retabled yesterday.One element of the compromise — and a key sticking point — means that the carbon border tax will not start to be phased in until 2027 — later than 2025 as originally proposed by parliament’s environment committee, but one year earlier than the commission had suggested. Esther de Lange, vice-president of the European People’s party, said that the group was “happy with the current compromise” and that it was “a reasonable deal that keeps the same level of climate ambition and provides breathing space for EU industry”.Bas Eickhout, a member of the European Green party, said: “It’s good to see that our hard ‘no’ two weeks ago, together with other progressive parties, on the watered down climate plans resulted in a lot of pressure on other parties to come up with an improved proposal”.He voiced concerns, however, that parts of the deal on CBAM still needed to be improved to be compliant with World Trade Organization rules.What to watch today EU leaders meet Western Balkan leaders in Brussels before reconvening for the European CouncilPresident of Zambia, Hakainde Hichilema, speaks in European parliamentNotable, Quotable

Split stars: Italy’s Five Star Movement, the largest party in Mario Draghi’s national unity government, is splitting after its leaders fell out over Russia’s invasion of Ukraine and Rome’s provision of military aid to Kyiv. Drone attack: A fire broke out at an oil refinery in southern Russia’s Rostov region after a drone attack, state media said, in what military experts suggest could be part of apparent Ukraine-backed strikes behind enemy lines. More

The FT’s Money Clinic podcast will be making a series of episodes tracking how the cost of living crisis is affecting people aged 20-40. You could be . . . Worried about the rising cost of rent and energy billsGrappling with the high cost of childcareTrying to achieve a financial milestone, such as buying a houseThinking about moving jobs to increase your paySelf-employed and worried about the future for you and your business.Presenter Claer Barrett is especially keen to talk to people living and working in the UK who regularly send money to family based overseas.Guests on the podcast are only ever identified by their first names. We can record you online, or you can travel into the FT’s London studio.The time commitment required would be approximately one hour a month over a 5-6 month period.If that sounds like something you’d like to do, send a few lines about yourself and your situation to [email protected] marking your email “podcast” and please make sure you include a contact telephone number. More

Ezra Ngala, an informal construction worker, is struggling to make ends meet in a slum in Kenya’s capital, Nairobi. “I am trying to survive,” he says while explaining that he cannot feed his wife and four-year-old son. “For the past few months there has been a surge of people like myself going hungry. The government says that the war in Ukraine is the cause of all this.”Steep rises in international food and fuel prices since the Russian invasion of Ukraine have left millions more Africans facing hunger and food insecurity this year, the UN, local politicians and charities have warned. The price rises have compounded economic problems caused by the coronavirus pandemic, sparking concerns of unrest in the hardest-hit countries. Swaths of Africa face an “unprecedented food emergency” this year, in part because of the war in Ukraine, the World Food Programme has said. “The conflict in Ukraine [sparked a] global price hike of fuel, fertilisers and also edible oil and sugar and wheat particularly. This is bringing significant shocks to the system,” Ahmed Shide, Ethiopia’s finance minister told the Financial Times. In an area stretching from northern Kenya to Somalia and large parts of Ethiopia, up to 20mn people could go hungry in 2022, the UN’s Food & Agriculture Organization has said, due to the worst drought in four decades, exacerbated by the fallout from the war in Ukraine. More than 40mn people in the Sahel and west Africa this year face acute food insecurity, according to the FAO, up from 10.8mn people three years ago. Before the war, Russia and Ukraine accounted for a double-digit share of wheat imports in more than 20 sub-Saharan African countries, including Madagascar, Cameroon, Uganda and Nigeria, according to the FAO. Eritrea relies on those two countries for all of its wheat imports. Even those countries not reliant on imports from Russia and Ukraine have been hit by rising prices. Responding to the trend, the World Bank on Wednesday said it had approved a $2.3bn programme to help countries in eastern and southern Africa tackle food insecurity. The IMF forecasts that consumer price rises in sub-Saharan Africa will rise by 12.2 per cent this year — the highest rate in almost two decades. In Ethiopia, food prices rose 42.9 per cent in April on the same month a year earlier. There are concerns that higher food prices could fuel unrest in poorer countries, where food counts for a higher part of daily spending than in developed countries. During the 2007-08 food crisis, which was caused by a spike in energy prices and droughts in crop-producing regions, about 40 countries faced social unrest. More than a third of those countries were on the African continent. Even before the Russian invasion in late February, the pandemic had already hit economic growth on the continent. “Africa was already struggling with food insecurity,” said Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa. “These African countries had diminished ability to cushion their population from food price fluctuations.”There have already been some signs of unrest. Landlocked Chad declared a food “emergency” earlier this month. In Uganda, six activists were arrested for protesting against higher food prices at the end of May, according to Amnesty International. The rising cost of food has since May spurred street protests in Nairobi under the hashtags #LowerFoodPrices and #Njaa-Revolution — meaning “hunger” revolution in Swahili. “People are hungry, the reality is that people cannot afford to keep up with these rising prices. You wake up every day, and prices are rising,” said Lewis Maghanga, a local campaigner on the cost of living.Jackline Mueni, who bakes cakes for weddings and birthdays in Nairobi, is feeling the pinch. “Things are just getting bad,” she said, adding that in the three years she had been in business this was by far the worst time. “In the last three months, food prices have really rocketed.”In May, the price of edible oils jumped more than 45 per cent from a year ago in Kenya, while flour increased 28 per cent, according to the World Bank. “This is the worst time ever. I was very comfortably making money, recovering expenses and making a profit. I was selling an average of five cakes a day. Now, one or two, if I am lucky,” said Mueni.Even Nigeria, an oil producer and a member of Opec, has been hit by international food and fuel prices. Africa’s most populous country exports crude oil but relies on fuel imports. It is also a large food importer, especially of grains. The price of bread in Lagos has risen from 300 naira ($0.72) before the pandemic to 700 naira this year, according to Chibundu Emeka Onyenacho, analyst at emerging markets bank Renaissance Capital.

“If you’ve suddenly moved to 700 [naira for a loaf of sliced bread], that’s putting pressure on anyone that is being paid the [monthly] minimum wage of 30,000 naira,” said Onyenacho. He added that the price of wheat flour meant that in rural areas, people blended it with flour made from cassava, a cheap root vegetable, because they were “willing to compromise” on quality to cut the cost of products eaten daily, such as bread. Back in Kenya, rising fuel prices mean construction worker Ngala spends roughly half his salary on fuel prices. As a result, some dishes have become unaffordable. “We cannot afford basic things like cooking oil and maize flour,” he said, the latter to make local staple ugali, a cooked maize-flour dough. “There are people who can’t afford even one meal a day.”

Video: Can we avoid climate-related food shocks? | FT Food Revolution More

A year ago, inflation appeared under control. Published annual consumer price rises stood at 2 per cent in the eurozone and 2.1 per cent for the UK in May 2021. The 5 per cent figure for the US was higher than normal, but the Federal Reserve dismissed concerns, saying price rises reflected “transitory factors” with chair Jay Powell highlighting lumber and used car prices that were temporarily high and airline and hotel costs that were just climbing back to normal. What has happened since has surprised all the main advanced economy central banks. The latest published inflation rates stand at 8.6 per cent in the US, 8.1 per cent in the eurozone and 9.1 per cent in the UK. Instead of always blaming something out of their control, central bankers are now taking action. We should therefore use this moment to take stock. What were the mistakes made in thinking over the past year? And what does this mean for policy and the economic outlook?Fundamentally, we have rediscovered that resource constraints are real and they matter. With unemployment at multi-decade lows in North America and Europe, there was less scope than after the global financial crisis for households, government or companies to increase spending without generating significant inflationary pressure. Sometimes, of course, resource constraints have also been caused by supply chain bottlenecks, but both represent demand exceeding supply and both are inflationary.Instead of focusing closely on the constraints, politicians and central bankers placed too much emphasis on the data from after the 2008-09 global financial crisis showing unemployment changes had little impact on wages or prices. Inflation had been low and steady both when joblessness was high and when it came down. Policymakers misdiagnosed this “flat Phillips curve” as a regularity, and that led to complacency. The thinking was that inflation was dead and there were few risks in running a high-pressure economy. We now know this was dangerously wrong.Central bankers bear particular responsibility in this messy tale. For the past two decades, they convinced themselves the public believed them to be such wonderful price controllers that they could sit back and relax. No company would seek to push prices higher and no worker would seek inflation-busting pay rises because they knew it would be defeated by the central bank. They believed their credibility was rock solid, so low and stable inflation was a self-fulfilling prophesy. That theory has failed and they are now in a fight to regain public trust. It is not surprising, for example, that net satisfaction with the Bank of England’s inflation management has fallen to its lowest level on record.The result of these analytical failings and complacency has been the recent rapid rises in interest rates, designed to show central banks are serious about defeating inflation. But this merely brings us to the next problem. All the main models used for managing inflation have been calibrated during a period of price stability and tell us very little about how far to tighten monetary policy when you’ve lost control. Some of the rise in inflation is still temporary, but much will need to be squeezed from economies without anyone knowing exactly how much pressure to apply. This means the dangers of excessive tightening are as great as continuing to do too little, too late.In such a difficult world, no one should rule out recessions in the year ahead. The Fed is probably correct to raise interest rates hard, but the truth is that we really don’t know. Further mistakes in monetary policy are highly likely and we should expect reversals in policy as central banks try to find the right response to a problem they did not think could happen. [email protected] More

Your browser does not support playing this file but you can still download the MP3 file to play locally.US stocks stay fairly flat after Fed Chair Jerome Powell testifies in Congress, a Ukrainian-made drone hits an oil refinery in Russia, and the International Energy Agency says investing $25 billion annually could lead to universal electricity access in Africa by the end of the decade. Mentioned in this podcast:Jay Powell warns US recession is ‘certainly a possibility’‘Kamikaze’ drone strike hits oil refinery in southern RussiaAfrica needs $25bn a year of investment to boost energy provision, says IEA chiefThe FT News Briefing is produced by Fiona Symon, Sonja Hutson and Marc Filippino. The show’s editor is Jess Smith. Additional help by Peter Barber, Michael Lello, David da Silva and Gavin Kallmann. The show’s theme song is by Metaphor Music. Topher Forhecz is the FT’s executive producer. The FT’s global head of audio is Cheryl Brumley.Read a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More