Aurelia Butler

Good evening,US government bonds and Wall Street stocks sustained renewed selling today after fresh data showed US inflation defied expectations of a bigger drop. Meanwhile, European shares went up after a turbulent week.US consumer prices rose at an annual pace of 8.3 per cent in April, staying at a 40-year high and underscoring the urgency of the Federal Reserve’s push to tackle inflation.Although the consumer price index moderated for the first time in eight months — it was a step down from the 8.5 per cent increase recorded in March — it was slightly above economists’ expectations of an 8.1 per cent rise. The core CPI, which excludes food and energy prices, increased at a faster pace than the previous month at 0.6 per cent compared with 0.3 per cent. (Take a look at how your country compares on rising prices using our global inflation tracker.)Increases in the cost of new vehicles, food, airline fares and housing were the biggest drivers of the rise, according to the report by the Bureau of Labor Statistics. The data may represent the beginning of a peak in the pandemic-era inflation surge. Will the US be able to curb rising prices without leading to an economic downturn? “It is, alas, quite likely that a recession will now be needed to keep inflationary expectations under control,” writes chief economics commentator Martin Wolf.Food protectionism is also adding to the global inflation crisis. Indonesia’s decision to ban overseas sales of palm oil has been a further blow to consumers struggling with a rise in cooking prices. Meanwhile, Malaysia is boosting its palm oil exports. The second-largest producer of the commodity, which is under pressure to support its finances during a simmering political crisis, has set itself apart from other exporters as it seeks to capitalise on rising prices.Latest newsModerna’s new CFO Jorge Gomez departs after one dayUK provides security assurances to Sweden and FinlandMoscow says it is open to annexing Kherson region from UkraineFor up-to-the-minute news updates, visit our live blog.Need to know: the economyEuropean Central Bank president Christine Lagarde has signalled she would support raising the ECB’s main interest rate in July, leading economists to declare that the first increase for more than a decade is almost certain to go ahead.The head of automaker Stellantis has warned that carmakers will struggle to get hold of enough batteries in the next three to four years as they race to roll out electric vehicles. Carlos Tavares said the battery supply challenges would feed into the bigger problem of keeping cars affordable in the switch to electric models.US households added $266bn to their debt balances in the first quarter, led by mortgage loans, in the largest single-quarter increase since 2006, according to the Federal Reserve Bank of New York.Latest for the UK and EuropeIn yesterday’s Queen’s Speech, the UK government included 38 headline bills to be introduced over the next year, pledging to regenerate the economy and drive strong growth in the face of rising global economic headwinds.France, the EU’s biggest wheat exporter, is facing challenges because of low rainfall this year. It has brought the threat of drought, triggering warnings of a hit to output and exports as well as adding to fears of a further squeeze to global supplies.Global latestWe are likely to experience global warming of 1.5C within the next five years because of record greenhouse gas levels, according to a new report. Global banks are facing increasing regulatory pressure over their climate change vulnerabilities, ranging from the risks posed to the future value of assets to the difficulty dealing with heavily polluting clients. Read more in of our special report on Risk Management: Financial Institutions.The head of the World Health Organization warned that China’s zero-Covid strategy was unsustainable, as new modelling showed the country risked unleashing a “tsunami” of coronavirus infections. China dismissed the criticism from the WHO, saying the agency was “irresponsible” to question the sustainability of the country’s reliance on lockdowns.The US Pharma and Biotech Summit returns to New York on May 11 2022. Join us in-person or online to hear views from industry leaders and FT journalists on regional and global trends in areas such as drug discovery, clinical development and market access.Need to know: businessToyota has warned of a 20 per cent drop in annual operating profit, blaming a doubling in raw material prices linked to the pandemic, as well as higher energy costs.Pfizer has agreed to buy US biotech Biohaven Pharmaceuticals for $11.6bn, striking its biggest deal in more than five years as the pharma company bolsters its pipeline of drugs. With the record revenues linked to the success of its Covid-19 vaccine and antiviral pill forecast to fade, Pfizer had been hunting for acquisitions to sustain its growth.Peloton shares hit new lows yesterday after reporting far higher quarterly losses than expected. As more people return to gyms and fitness studios, the company has struggled to maintain its equipment sales.The Australian government has moved to re-establish a commercial shipping fleet in the country to ensure the flow of critical goods during times of geopolitical tension.Elon Musk has said he would reverse Donald Trump’s ban from Twitter, accusing the social media company of having a leftwing bias that had aggravated political divisions in the US. Watch Musk’s interview with the FT’s Peter Campbell here.The World of WorkMillions of people started a “side hustle” to make some extra cash during the pandemic, but how can you scale yours into a full-time business? On this week’s Money Clinic podcast, a fledgling fashion designer with more than 40,000 Instagram followers who wants to turn her passion for knitting into a main source of income gets advice from FT journalists and a chartered accountant.With the lifting of Covid-19 restrictions, business travel is making a comeback. But with climate concerns growing and the ability to work remotely, can we justify flying abroad for a business conference in a windowless room? This week’s Working It podcast looks at business travel trends, away days in theme parks and why your employer may book your vacation.People from a working-class background who attempt upward mobility can suffer in their careers because they are not familiar with the invisible rules of middle and upper-class professionals — and can feel alienated as a result. The book What’s Your Zip Code Story? offers tips for businesses on incorporating social class into their diversity, equity and inclusion initiatives. Plus, take a look at other titles in this month’s business books.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Malaysian actress Michelle Yeoh broke the glass ceiling of Hong Kong action cinema to become one of its biggest stars. She has been at the vanguard of female action heroes for nearly 40 years. Yeoh talks to Sam Moore about her new role in surreal comedy and indie hit Everything Everywhere All at Once, which is in UK cinemas from May 13 and in US cinemas now.Michelle Yeoh with Harry Shum Jr in the film ‘Everything Everywhere All at Once’ © Allyson Riggs More

Three former members of the Bank of England’s Monetary Policy Committee have warned of the increasing risk that the UK economy will fall into recession as a result of the institution’s efforts to contain inflation.BoE governor Andrew Bailey has recently spoken of being on a “narrow path” towards achieving price stability by raising rates without generating negative growth.But Adam Posen, president of the Peterson Institute for International Economics and a former MPC member, told the House of Commons Treasury select committee that this goal would be difficult to achieve.“I will be very happy if there is a narrow path,” said Posen, “but the reality is that there is going to have to be an economic slowdown beyond what is already on the cards in order to get inflation back to target.”Kristin Forbes, another former MPC member and professor at MIT’s Sloan School of Management, said it was still possible that inflation would return to target without a recession, but only if the central bank moved “more aggressively now”.“Much of the reason that inflation is so high is because of temporary factors: high energy factors, high traded goods prices, shifts in spending patterns due to Covid. Many of these will fade,” said Forbes. But getting inflation back to 2 per cent will require a better match of supply and demand in the labour market, she added. Forbes was in favour of the BoE considering “50 basis point” increases to its benchmark rate if the labour market remains tight, arguing that the MPC could revert to a more accommodative stance if necessary.Posen agreed, stating that the UK’s inflationary outlook warranted a “higher terminal rate” and a “faster move to that point” than is currently expected by markets and current BoE forecasts. Forbes acknowledged that any easing of the labour market might give the BoE room to move slower on rates, especially if the “large pool of workers” that has recently dropped out of the workforce were to re-enter.Charles Goodhart, another former MPC member and now emeritus professor at the London School of Economics, thought that the uncertain economic outlook justified the BoE moving cautiously with a series of 25 basis point increases.“I think that the prospects of a soft landing are not zero, but they’re certainly less than 50-50,” he said. “The likelihood is that we’re at the very least going to have a minor recession and unemployment rising.”While accepting that “the optimal path for monetary policy is going to keep changing”, Forbes pointed out that the UK faced a greater combination of inflationary pressures than other advanced economies.All countries are experiencing inflation because of the energy prices shock. But Forbes noted that “medium to long term” inflation expectations in Britain were higher than in the eurozone and US. Paired with the weakness in sterling, this meant that inflation was a “particularly difficult challenge” for the UK. More

Should you kick someone when they’re down? In life, the right answer must be “no”, but when it comes to monetary policy the correct response should be, “yes, when it is necessary”. Imagine you are a policymaker and you have been given the task of controlling inflation. If you think price rises are increasingly persistent, the labour market is too hot and companies are too gung-ho about passing on cost increases to customers, you need to damp things down. The tool you have is interest rates, which you raise to increase borrowing costs and encourage more saving than spending. This is painful medicine, which you administer.This describes the Bank of England’s position exactly. Last week it raised interest rates a quarter point to 1 per cent, the highest in 13 years, even though it knew households face the largest cost of living squeeze in decades. It also forecast that the UK economy would be 0.8 per cent smaller next summer than this summer. When it took the decision, the central bank’s Monetary Policy Committee added that most members believed “some degree of further tightening in monetary policy may still be appropriate in the coming months”. There can be no doubt: the BoE is giving us all a good kicking when we’re down because it thinks that is the right thing to do. It want us to feel poorer, spend less and be more fearful about demanding pay increases. It wants companies to think twice about raising prices. The alternative would result in prices and nominal wages going up further, without companies or households becoming better off. And that would require even more unpleasant action later on. Although the BoE’s policy position was obvious from its forecasts and interest rate decision, bank officials were exceptionally coy about spelling out the implications. When asked what the bank had to say to the people it was kicking, governor Andrew Bailey and two of his deputies danced around the subject. In four minutes of obfuscation, the answer seemed to be that monetary policy had been carefully calibrated, a phrase the governors used five times. No one doubts the MPC was diligent in examining the evidence. The nine members clearly voted for the monetary policy path they thought was most likely to hit the 2 per cent inflation target while also minimising volatility in the economy. But to have the best hope of ensuring high inflation is transitory, they needed to give the public and companies the clear message that they were adding to the pain and this was necessary for the BoE to restore price stability. The only reason these governors sit in the privileged position of unelected officials taking important decisions is because society requires them to take expert decisions and tell the public the whole truth. The BoE was given operational independence to set interest rates 25 years ago because history told us politicians could not be trusted to take tough and necessary action on interest rates, leading to an inflationary bias and a more volatile economic cycle. Since independence in 1997, the BoE has not really been challenged with a severe inflation rise at a time of extremely low unemployment and excess demand. Now the test has arrived, officials are sounding more like politicians than central bankers, who should tell it as it is, however unpopular that makes them. This can only amplify inflation expectations, ensuring the BoE ends up having to raise interest rates more than otherwise necessary to quell persistent price rises. Let me put this bluntly. If BoE officials are unwilling to tell us about the pain required to bring down inflation, there is little point in having them set policy. At least with politicians, we can kick them out. [email protected] More

With ECB policymakers clamouring for a rate hike for weeks, President Christine Lagarde has finally thrown her weight behind such a move, saying the central bank was likely to end its stimulus programme early in the third quarter, followed by a rate hike that could come just “a few weeks” later.Most other major central banks have already raised borrowing costs but the ECB, which had fought too low inflation for a decade, is still pumping cash into the financial system via bond purchases.”My expectation is that they should be concluded early in the third quarter,” Lagarde said at a conference in the Slovenian capital.”The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases…(and) this could mean a period of only a few weeks.”Inflation hit 7.5% in the euro zone last month and even measures that strip out food and energy prices rose above the ECB’s 2% target.”What started as a one-off shock has now become a more broad-based phenomenon,” ECB policymaker Bostjan Vasle said at the same event. “When the circumstances change, the policy response must follow,” the Slovenian governor added.ECB board member Isabel Schnabel said the ECB needed to act now to protect its credibility and stop inflation expectations, which have risen to 2% or slightly above, from spiralling out of control. GROWING CALLSThe number of ECB policymakers calling for a July hike has been growing almost every day and on Wednesday alone included board member Frank Elderson, French central bank governor Francois Villeroy de Galhau and Bundesbank president Joachim Nagel.”I think that from this summer onwards, the ECB will gradually raise its interest rates,” Villeroy de Galhau told France Inter radio.Estonian governor Madis Mueller also hinted at a series of hikes that could lift the ECB rate on bank deposits, which is currently -0.5%, above zero by the end of the year for what would be the first time since 2014.”Even if we go by 25 basis point increments, we may get to a positive rate by the end of the year,” he told Reuters in an interview. More