Aurelia Butler

The US consumer price index is expected to have risen in January at its fastest annual pace since 1982, as inflationary pressures continue to afflict the rapid economic recovery. According to the consensus forecast of economists polled by Reuters, CPI increased 7.3 per cent last month compared with January 2021, a more rapid rate than the 7 per cent annual rise recorded in December.On a monthly basis, CPI is expected to have climbed 0.5 per cent, similar to its pace in December. The data are scheduled to be released at 8:30am Eastern time on Thursday. The persistence of high inflation has already prompted the Federal Reserve to speed up its timetable for tightening monetary policy, with the first interest rate increase since the onset of the pandemic expected to be approved next month. “While the Omicron variant may weigh on activity in the near term, the high levels of inflation and the tightness in labour markets make a compelling case to begin recalibrating the stance of monetary policy,” Loretta Mester, president of the Cleveland Fed and a voting member of the Federal Open Market Committee, said on Wednesday, adding that she supported raising the central bank’s main interest rate in March. The Fed has not committed to any particular pace for its tightening cycle, saying the tempo and scale of the rate increases would depend on the data, making the inflation figures particularly pivotal. If the CPI increases continue to exceed expectations, it could warrant more aggressive tightening by the Fed, whereas an easing of inflationary pressures could lead to a slower pace of rate rises.

“The task before us is to remove accommodation at the pace necessary to bring inflation under control,” Mester added. “As this process continues, our monetary policy decisions will need to be data-driven and forward-looking.”High inflation has not only challenged the Fed, but also proved to be politically problematic for President Joe Biden and members of the Democratic party heading into the midterm elections. Although the recovery has benefited from strong job growth — including in January — and rising wages, those positive factors have been undermined by the increase in the cost of living and supply chain disruptions, exposing the Biden administration to a barrage of attacks from Republican lawmakers. More

Andrea Enria was presenting the results of the ECB’s annual review of banks, which he said showed the industry had coped well with the coronavirus pandemic and capital relief measures could be allowed to expire at the end of this year.But the euro zone’s top banking supervisor warned of rising risk from cyber attacks, with a surge in hacks since 2020. “We are asking (banks) to strengthen their cyber regime measures and look at a potential increase in attacks and the danger of these attacks going forward,” Enria told a news conference.Specifically, the ECB was telling banks to train staff so they could tackle this threat and look for weak spots in services they outsource. The central bank has also been running simulated hacks for years.Reuters was first to report on Wednesday that ECB was preparing banks for a possible Russian-sponsored cyber attack.Asked about such risk, Enria said the ECB would draw “the attention of banks in relation to the potential worsening of global tensions that could indeed trigger more attacks.” CAPITALEnria said six euro zone banks out of the 115 it supervises had fallen short of ECB’s capital demands at the end of September 2021, down from nine a year earlier, but this was due to structural issues such as low profits, rather than the pandemic. He did not name the six banks, but said two had already filled the shortfall and expressed satisfaction at how banks performed during the pandemic, with most exceeding the minimum requirements despite piles of bad loans in some industries. “We are broadly satisfied with the way that banks have operated so far during the pandemic,” he said. “Banks need to remain aware of the possible consequences for their balance sheets and strengthen their risk control and governance frameworks in particular.”Enria added a waiver allowing banks to use some of their capital buffers, introduced at the onset of the pandemic in 2020, would be scrapped at the end of this year, as widely expected. More

The writer is portfolio manager at Sampension and a visiting fellow at the London School of Economics.Despite a recovery in the global economy from the pandemic, many developing countries are approaching a default on their debts. The lessons from history is that they should not delay a decision to default for too long.The reasons why countries postpone a decision are understandable. Finance ministers fear for their jobs, bankers and lawyers talk about lost credibility, and surely markets will not forget the next time a country wants to borrow money. At least that seems to be conventional wisdom.The cost of a sovereign default can be significant, but depends crucially on how and why it occurs. In a “hard” (or unilateral) debt default, where the country is unwilling or unable to pay, economic growth can, and often does, deteriorate. The risk of knock-on effects from the currency or banking system in these situations is high. But many sovereign defaults are negotiated (so-called soft defaults), where the economic costs are often far smaller. Recently, Ecuador and Belize undertook successful sovereign debt restructurings, where market access was restored after a debt restructuring. The political consequence of a default can be significant, but it does no good to delay the inevitable. In fact, continued repayment of unsustainable debts has far bigger political risks.If countries pretend that they will pay back their debt, a much more likely outcome is that they burn precious cash reserves which make an eventual restructuring harder. Such repayment favours certain creditors over others and makes it more difficult to reach an equitable agreement later. Fewer cash reserves inevitably mean creditors must accept a higher haircut on their claims, which leads to higher interest rates in subsequent years.A serial defaulter, such as Argentina, has a harder time issuing new debt, but that is to a large extent because of its structural economic problems, failed bailouts and unwillingness to write down debt. The main problem is an inability to generate exports — a failing Argentina shares with many other countries, and something that is not addressed in the outline of its pending deal to restructure $44.5bn of IMF debts arising from a 2018 bailout.Recent IMF programmes in Kenya, Sri Lanka, Pakistan and Ecuador all assume export growth that is way above historical trends. These optimistic assumptions have not materialised. If countries do not possess enough income from exports, it is difficult to service increasingly large debt burdens — burdens that are large enough to cause structural problems in many parts of the developing world.The G20 Common Framework for debt treatments offered a way to pause payments and bring together official creditors and debtors, but lacked an enforcement mechanism to get private creditors on board. It was only a small step in the right direction.The desire to keep up with interest payments in the hope of an economic miracle is powerful, but enforcing debt contracts is not without risk because money that goes to debt service cannot be used for productive domestic investments.We see this in periods after wars. Victors have often imposed large war reparations on the losing country, which were repaid at high economic and political costs. Many countries’ bonds trade at levels which indicate a high likelihood of a sovereign debt restructuring — Sri Lanka, Pakistan, Lebanon, Ethiopia, Zambia, El Salvador and Argentina are cases in point. All of these have had some form of contact with bondholders, bilateral creditors, or the IMF. Each country has its own economic problems, but they share a lack of hard currency exports that is commensurate to their debt burden. More countries are likely to join the list if the US Federal Reserve tightens monetary policy as expected, China slows down, or global trade contracts.Much of the world needs capital to finance green investments. But the debt should be sustainable and not leave countries scrambling from one coupon payment to the next. The restructuring of Belize’s sovereign debt showed that there is room for creativity and win-win deals. It boosted the debt sustainability of the country while creditors walked away with an acceptable deal with parts of the proceeds going to sustainable projects. It does no good for anyone to assume that everyone can export their way out of trouble. The current structural economic problems need to be addressed, but not by forcing repayment of clearly unsustainable debt burdens. More

Policymakers should raise interest rates gradually rather than taking an “aggressive” activist approach, the Bank of England’s chief economist argued on Wednesday, adding that there would be no avoiding a painful income squeeze in the year ahead.Huw Pill stood by the tough message delivered last week by the BoE’s governor Andrew Bailey, who earned sharp rebukes from the government, business groups and unions when he warned that wages would need to fall in real terms this year in order to keep inflation under control.Wage growth approaching 5 per cent this year, as shown in the BoE’s latest forecasts, would be “stronger than that consistent with the inflation target over the medium term”, Pill told an online conference. If it eased from 2023, inflation could subside without the UK falling into recession.But he said the path of monetary policy would depend on how “pragmatic and realistic” companies and households were about higher imported energy and goods prices, adding: “The longer that firms try to maintain real profit margins and employees try to maintain real wages, the more likely it is that domestically generated inflation will achieve its own self-sustaining momentum.”Pill hinted that markets were overestimating the scale of monetary tightening the BoE was likely to deliver over the next year, however.Keeping interest rates at 0.5 per cent indefinitely would leave inflation above target in the medium term on the latest forecasts, but raising them as sharply as market pricing implied — to 1.2 per cent by the end of 2022 — would take inflation below target.“I leave it to you to draw any implications for where the MPC sees the path of bank rate headed,” he said.

He underlined the uncertainty around these forecasts, however. If energy prices fell in line with market expectations, the BoE might be able to keep interest rates lower — but if companies and workers held out for higher prices and wages, it would need to clamp down harder.Surveys published on Thursday added to evidence that price and wage pressures are intensifying. A monthly report from the Recruitment & Employment Confederation and KPMG pointed to a near-record pace of increase in starting salaries for permanent hires, while the British Chambers of Commerce said three-quarters of firms planned to increase prices in response to rising costs. Pill voted with a narrow majority of the BoE’s Monetary Policy Committee to raise interest rates from 0.25 per cent to 0.5 per cent last week. Four of its nine members wanted to signal their resolve to choke off inflation with a bigger half-point increase.He said his preference was for a more “measured” and “steady-handed” approach, rather than a more activist one, partly because he was worried that unusually large policy steps could “validate a market narrative” that central bank policy swung between two extremes — “either foot-to-the-floor accelerator or foot-to-the-floor with the brake”.Those perceptions had been fuelled by central banks’ response to the global financial crisis and the pandemic, he said, adding that more nuance would be needed as the economy normalised and decisions became more finely balanced. More

Japan is to divert some of its supplies of liquefied natural gas to Europe in an effort to soothe fears that a Russian invasion of Ukraine will disrupt gas supplies to the continent. The deal, announced by industry minister Koichi Hagiuda yesterday in response to a request from the US, is intended as a symbol of solidarity with western allies over the conflict in Ukraine.Rahm Emanuel, the US ambassador to Japan, said the country’s “assistance to Europe” showed how closely Washington and Tokyo were working “with like-minded partners to deter Russian aggression against Ukraine, and uphold our shared values”. Several carriers, each carrying at least 70,000 tonnes of LNG, are already on their way to Europe and due to arrive this month according to officials at Japan’s ministry of trade, economy and industry. Sign up for our Energy Source newsletter to get the latest on how the Russia-Ukraine conflict is impacting the sector. Further reading: News: The UK has said it will project a tougher stance than Emmanuel Macron when its foreign minister meets her Russian counterpart in Moscow.Explainer: How could sanctions against Russia hit European economies? Opinion: Beware comparing Ukraine with Finland, writes our editorial board. Do you agree with Japan’s decision to send LNG supplies to Europe? Email me your thoughts to [email protected]. Thanks for reading FirstFT Asia. — EmilyFive more stories in the news1. SEC seeks to bolster disclosure rules for PE and hedge funds The Securities and Exchange Commission is seeking to compel hedge funds and private equity groups to disclose quarterly performance and fees charged to investors, as the agency pushes back against activities it warned were “contrary to the public interest”. 2. Microsoft appeals to regulators on Activision deal Microsoft has pledged to ensure open distribution of its games as its senior management travelled to Washington to address regulators’ potential antitrust concerns over its $75bn takeover of Activision Blizzard. 3. Turkey to target ‘under the mattress’ gold Turkey will expand its drive to lure savers back to the lira next week with a scheme aimed at bringing billions of dollars worth of “under the mattress” gold into the banking system, the country’s finance minister told investors during a visit to London. 4. PR guru plots comeback after sexual harassment claims Declan Kelly, once a prominent adviser to Fortune 500 chief executives, has made a discreet comeback — just months after he was forced to quit Teneo, the public relations firm he co-founded, following allegations of sexual harassment. Kelly has launched a new company called Consello, which makes no mention of his involvement on its bare bones website. 5. Credit Suisse shareholders take aim at vice-chair Credit Suisse investors have warned that they will try to block any move to extend the tenure of the bank’s longtime vice-chair Severin Schwan, as the scandal-hit lender faces growing pressure to rebuild its reputation. Coronavirus digestAP Moller-Maersk said it expected global supply chain woes to ease in the second half of this year.The US is heading out of the “full blown” pandemic phase of Covid-19, Joe Biden’s chief medical adviser said. Anthony Fauci predicted vaccinations, treatments and prior infection would soon make the virus more manageable.Boris Johnson has announced plans to end the legal requirement to self-isolate after a positive Covid-19 test as he moves to scrap the last remaining coronavirus restrictions in England. The UK Metropolitan Police said it would question more than 50 people in its investigation into Downing Street parties during Covid restrictions, shortly after disclosing it was considering a criminal inquiry into a further gathering.

The quiz gathering took place as London was under ‘tier two’ restrictions with official guidance urging the public not to take part in office lunches or parties during the festive period © Mirrorpix/Daily Mirror

The day aheadIndian state elections Hundreds of millions of voters in five states will cast their ballots over several weeks starting today. India’s economic distress threatens Narendra Modi’s Bharatiya Janata party in Uttar Pradesh, the country’s most populous state.Opec monthly oil market report The report comes a week after Opec+ agreed to boost the group’s production quota for the eighth consecutive month.US January CPI data Figures are expected to show that inflation increased 0.5 per cent last month, according to a Reuters poll. If the figure is stronger than forecast, it could boost expectations of a more aggressive rate hike from the Federal Reserve.Correction: In yesterday’s earnings round-up we mistakenly included AstraZeneca, Coca-Cola Company, Credit Suisse, Mazda, PepsiCo, Twitter and Unilever. These companies report Thursday. Apologies for the error. What else we’re reading Can China’s Starbucks win back investors? In less than five years of existence, Luckin Coffee has been a symbol of the dynamism of Chinese capitalism, the subject of a massive fraud scandal, and now — its senior executives insist — a comeback story that could test US-China relations.

© FT illustration

Chinese queue overnight to snap up Olympics souvenirs Strict Covid-19 protocols and China’s limited prospects of topping the medals table have muted local enthusiasm for the Beijing Winter Olympics, but the Games have sparked at least one public frenzy: buying and flipping official souvenirs for quick gains. Thanks to readers who took our poll yesterday. Eighty per cent of respondents disagreed with China’s decision to make Chinese soldier Qi Fabao an Olympic torchbearer. His inclusion in the Beijing Winter Games was taken as an affront by India.Women MBAs still lag behind men in salary and career progression Since 2007, the percentage of women on MBA courses has increased from 17 to 31 per cent. The percentage of female faculty members and female students has also gone up dramatically. But analysis of 15 years of data from the FT global MBA rankings shows slow progress towards equality.Hong Kong’s young journalists decry the ‘death of free press’ Hong Kong’s media scene was once hailed as one of the most freewheeling in Asia. But after a series of high-profile media company closures, fearful reporters are looking for jobs elsewhere, writes Chan Ho-him.Australia offers timely lesson on resisting Chinese trade coercion The China-Australia dispute is a leading example of trade policy being weaponised for political ends. But Canberra’s policy response has been to roll with the punches rather than hit back — a wise tactic, FT’s Alan Beattie explains. To receive Alan’s Trade Secrets newsletter sign up here.StyleIt is an uncontroversial, but nonetheless interesting fact, writes Robert Armstrong, that Jeff Bezos is a terrible dresser. He shuns the simple uniform of the super-rich but his goofy, slightly crass style clashes with the massive role his choices play in so many lives.

Jeff Bezos, complete with ‘beat up’ cowboy hat and boots, dressed for his space flight in July last year © Joe Raedle/Getty More

WASHINGTON (Reuters) -The congressional committee investigating the Jan. 6, 2021, attack on the U.S. Capitol announced on Wednesday it had subpoenaed former White House trade adviser Peter Navarro, a key player in then-President Donald Trump’s effort to overturn his election defeat.The House of Representatives committee said it is seeking records and deposition testimony from Navarro who, according to public reporting, interviews and his own book, was involved in efforts to delay Congress’ certification of the 2020 election.”Mr. Navarro appears to have information directly relevant to the Select Committee’s investigation into the causes of the Jan. 6 attack on the capitol,” Representative Bennie Thompson, the committee’s Democratic chairman, said in a statement.”He hasn’t been shy about his role in efforts to overturn the results of the 2020 election and has even discussed the former President’s support for those plans,” Thompson said.In response to a request for comment, Navarro said Trump had claimed his communications while in the White House are protected by executive privilege. “President Trump has invoked Executive Privilege; and it is not my privilege to waive,” he said in a statement.Navarro served as White House trade policy adviser under Trump. Navarro has said in media interviews and his book that he helped coordinate an effort – “the Green Bay Sweep” to halt certification of Democrat Joe Biden’s victory in the Nov. 3, 2020 election and keep Trump, a Republican, in power. “We spent a lot of time lining up over 100 congressmen, including some senators,” Navarro told the Daily Beast in December. “It was a perfect plan,” he added.The committee has so far interviewed more than 500 witnesses, issued more than 60 subpoenas and obtained more than 50,000 pages of records as it probes the causes of the assault by a pro-Trump mob on the Capitol, and the role played by Trump, who continues to push false claims that his election defeat to Biden was the result of fraud. Five people, including a Capitol Police officer, died in the violence.The committee is aiming to release an interim report in the summer and a final report in the fall, a source familiar with the investigation said in December. It asked Navarro to produce documents by Feb. 23 and appear for a deposition on March 2. More