Aurelia Butler

Speaking on Bloomberg TV the day after the BOE increased interest rates to 0.5% in its second successive hike, Pill said the bank as working to ensure that the U.K. didn’t suffer so-called second-round effects from high inflation.“As long as things play out broadly as we expect, we would expect to see a further modest tightening of monetary policy which would embrace a rise in bank rate,” Pill said in an interview Friday with Bloomberg Television. “Given the nature of the shock we’re facing, real incomes in the U.K. will suffer to some extent. That’s unavoidable.”Some officials pushed for an even bigger move on Thursday, and markets responded by pricing in rises at three of the next four meetings. The degree of tightening priced in by markets, which would be the fastest since the BOE gained independence, comes as the central bank predicts inflation will hit 7.25% in April, and the U.K. faces a cost of living crisis that by one metric will leave incomes squeezed by the most in at least 30 years. Still, Pill cautioned that BOE forecasts showed inflation would drop below target in the future, and drew attention to Governor Andrew Bailey’s comments that markets shouldn’t get carried away.Pill added that monetary policy can’t fix inequalities in society and said that the BOE’s best contribution would be to limit inflation, and also declined to criticize a suggestion from Bailey that workers should show restraint in asking for pay increases.“Monetary policy can and should focus on ensuring that we don’t see a repeated attempt, which is inflation generating, by different groups, different,workers, firms etc to try and shift the burden of that shock onto others, like pushing up their wages, pushing up their margins,” he said. More

A surge in eurozone inflation transformed this week’s meeting of the European Central Bank’s governing council from what was widely expected to be an unremarkable event into a turning point for the bloc’s monetary policy.Theshift towards a more “hawkish” stance came on the back of January’s record eurozone inflation figure, released shortly before the start of a two-day virtual meeting on Wednesday, according to five people involved. The rise seemed to spook many of the ECB council members who had until recent days believed the surge in prices in the final six months of 2021 was “transitory” and would quickly fade this year, not least because the inflationary effects of Germany reversing its temporary sales tax cut would have dropped out of the data. Instead of falling, however, inflation rose further above the ECB’s 2 per cent target for the seventh consecutive month to set a new eurozone record of 5.1 per cent. While about half of this was down to double-digit rises in energy costs, price pressures were also broadening: the cost of six out of 10 items in the basket used to calculate inflation rose over the past year.This led ECB rate-setters to agree that their president Christine Lagarde should use the press conference after its Thursday meeting to signal a likely U-turn. The best way to do this, they decided, was for her to stop dismissing the idea of a rate rise this year.Lagarde’s subsequent comments, including her remarks that inflation risks were “tilted to the upside” and that it was “getting much closer to target”, sparked a sell-off in bond markets and a surge in the euro — emphasising the pivotal nature of the move.The second factor behind the central bank’s shift was the rapid rebound of the labour market from the pandemic. This was driven home for ECB policymakers on Tuesday when Eurostat said eurozone unemployment had fallen to a record low of 7 per cent, due in large part to a drop in joblessness among young people to an all-time low of 14.9 per cent.Further evidence of the labour market’s recovery came from the European Commission, which revealed a few days earlier that record numbers of both manufacturing and services companies were complaining of worker shortages. Wage growth in Europe remains below that of the US and UK, but council members seem increasingly convinced it will pick up this year.The ECB said on Friday that after surveying 74 non-financial companies in January it found “they expected average wage increases to move from around 2 per cent in the recent past to 3 per cent or possibly more this year”.The final factor convincing the remaining “doves” on the ECB council to rethink their position came when US Federal Reserve chair Jay Powell sparked a stock market sell-off last week by refusing to rule out more aggressive interest rate rises this year than markets had expected. Furthermore, all the signs pointed to the Bank of England raising rates for a second time in three months on Thursday — as it duly did.Lagarde was quick to point out that the eurozone is in a very different place to both the US, where a vast fiscal stimulus has driven demand well above pre-pandemic levels, and the UK, where Brexit has amplified pressure on the labour market and driven up wages.However, the “hawkish” shift in policy by both the Fed and the BoE risked leaving the ECB looking like “the last dove standing’‘ — as Allianz economist Katharina Utermöhl described it this week. One ECB council member said it risked tightening policy “for credibility reasons, not for fundamental reasons”. But others said there was a widely shared feeling that the Fed and BoE had found themselves behind the curve on inflation and the ECB did not want to end up in the same tricky position.So where does this leave the ECB? Several of the more conservative “hawks” on the council spoke out at Thursday’s meeting in favour of clearly communicating plans for an accelerated end to bond purchases, which are due for a “step-by-step” reduction this year but still have an open-ended timeline. However, the “hawks” eventually agreed to wait until the ECB’s next policy meeting in March, when it is likely to raise its inflation forecast above 2 per cent for the next two years — fulfilling a key condition for it to eventually raise rates.One of those calling for a change in policy to be announced more quickly was Joachim Nagel, the new Bundesbank president, though a spokesman for Germany’s central bank said he was “very happy” with the outcome of Thursday’s meeting.An extra factor complicating the ECB’s position is the rising tension between Russia and Ukraine. If Russia invades its neighbour energy costs are likely to rise further, but if tensions ease prices could fall. The issue was briefly discussed at this week’s meeting, but most ECB rate-setters feel powerless to either predict how the saga will end or to influence energy prices.

In response to Lagarde’s press conference, traders increased their bets on higher euro area interest rates, with markets pricing in several increases in the ECB deposit rate from minus 0.5 per cent to minus 0.1 per cent by December.However, most council members think this is too aggressive. Even more “hawkish” central bank officials dismiss the idea of a rate rise this summer as “ludicrous” and say the earliest it is likely to happen is the fourth quarter.This would mean the ECB continues to lag behind the Fed and BoE in tightening policy to combat high inflation. But given that the last time the ECB raised rates was on the eve of the eurozone’s sovereign debt crisis in 2011, most council members seem comfortable with it taking a more cautious approach this time. More

SEOUL (Reuters) – Seoul’s housing market, one of the most unaffordable in the world, has begun to show signs that its red-hot five-year boom could be running out of steam – just in time for the March presidential vote.Housing is one of the biggest issues in the neck-and-neck election, with prices in the capital having doubled since 2017 when President Moon Jae-in first took office, leaving many millennials facing a lifetime of financial insecurity. An average apartment in Seoul, for instance, is estimated to cost around 18 years of South Korea’s median annual household income, up from 11 years in 2017.Recent data, however, has lent weight to the view that restrictions on loans, hikes in interest rates and pledges to massively boost the supply of homes by both presidential candidates have begun to have an effect.South Korean residential property transactions plunged 62% in December to 53,774 from a year earlier – the smallest number for the month since 2008 when the market was battered by the global financial crisis.Additionally, a weekly index for Seoul’s apartment price growth edged 0.1% lower for the last week of January, the first decline in 20 months.Analysts also note that there’s been a natural lull in activity as people wait to see if the March 9 election will bring about changes to capital gains taxes and other levies.”Loan restrictions and higher borrowing costs began to really cool the market towards the end of last year and even serious buyers and sellers are waiting for policy changes so we’re in for a quiet market for months to come,” said Yeo Kyoung-hui, a property market analyst at Real Estate 114.”It’s possible that we will see supply outpace demand going forward.”A narrow majority, 51%, of some 500 property market experts expect South Korean home prices to decline this year, according to a survey by the Korea Development Institute in January. Around 30% see further price gains while the rest either expect no change or a year of both price increases and falls.”A sharp downturn is unlikely, but it does look like the market has turned a corner with interest rates set to rise further,” said Park Hab-soo, a professor of real estate studies at Konkuk University.The election will pit Lee Jae-myung, chosen by the Democrats to succeed Moon, against Yoon Suk-yeol from the conservative People Power Party. Recent polls show they both have 35% of voter support.Lee has sought to distance himself from Moon’s property market policy failures and has pledged to build about 2.5 million homes through public housing. Yoon has made a similar pledge and has also promised to loosen curbs for first-time buyers so they can borrow up to 80% of a home’s value. That compares with a current cap of 40% for those in the capital region. More

Biden administration officials have warned that US job growth likely slowed in January as a rise in Covid-19 cases tied to the more contagious Omicron variant sidelined workers and caused some businesses to temporarily shut.Employers are expected to have added just 150,000 new positions last month, according to a consensus forecast compiled by Bloomberg. Some economists even think that a contraction is possible. After several straight months of rapid declines, the unemployment rate is expected to have steadied at 3.9 per cent in January, the same level as in December when 199,000 jobs were added. The labour force participation rate, which tracks the share of people employed or looking for a job, is also forecast to have flatlined in January at 61.9 per cent, more than 1 percentage point below the pre-pandemic threshold.The data, which will be released by the Bureau of Labor Statistics at 8.30am US eastern time on Friday, were collected during the worst of the Omicron surge in the US, which fuelled a record-setting number of Covid cases, hospital admissions and fatalities.Top economic officials in the Biden administration have sought to get out ahead of Friday’s figures, with Brian Deese, director of the National Economic Council, saying this week that the January employment data “could look a little strange”.The White House has touted the robust labour market recovery as one of President Joe Biden’s most important accomplishments in his first year in office, which has otherwise been beset by legislative setbacks. Despite signing into law a bipartisan infrastructure bill, his landmark $1.75tn Build Back Better spending package has stalled in Congress.“It turns out that the peak of Omicron cases coincided with when the payroll data was being collected,” Jared Bernstein, a member of Biden’s Council of Economic Advisers, told CNN this week. “If you were not at work, if you were on unpaid leave, you’re not counted as being on payroll.”

Before the winter wave of coronavirus infections, employers were already struggling to fill their ranks, as concerns about catching Covid and childcare issues deterred many people from joining the workforce. The number of job openings has swelled as a result, with more than 10mn reported in the final month of 2021. That translates to 1.7 job openings for every unemployed worker, the highest since the US government began collecting the data two decades ago.Some workers have sought to capitalise on the demand for new hires and have left their jobs in search of higher-paying roles. A total of 4.3mn Americans quit in December, just shy of November’s 4.5mn record. US labour costs have, in turn, risen sharply, as employers raised wages and sweetened benefits to compete for talent. Average hourly earnings are forecast to have climbed another 0.5 per cent in January, or 5.2 per cent on an annual basis.The Federal Reserve is expected to look past January’s jobs slump as it charts a course towards its first interest rate increase since 2018 at its next policy meeting in March. Jay Powell, the Fed chair, has acknowledged there could be “softening” in the economy because of Omicron, but said any weakness should be “temporary”.“We think the underlying strength of the economy should show through fairly quickly after that,” he said at the press conference following January’s gathering of the Federal Open Market Committee.Elevated inflation has compelled the Fed to scale back its monetary policy support far more quickly than initially planned. Top officials have also left open the door to a more aggressive string of interest rate rises this year or even raising rates by half a percentage point, as opposed to the quarter-point increases that have become the norm.The central bank is also expected to begin reducing its nearly $9tn balance sheet soon after the first interest rate adjustment in a bid to further tighten the settings of its monetary policy. More

European government bonds were hit with a fresh wave of selling on Friday as traders ratcheted up their expectations that the European Central Bank will assume a far more aggressive tack in pushing back against record inflation. Short-term debt, which is particularly sensitive to monetary policy, came under strong pressure in morning dealings on Friday. Germany’s five-year government bond yield jumped 9 basis points (0.09 percentage points) to 0.03 per cent, leaving it on track to close above zero for the first time since 2018, according to Bloomberg data. Investors are now pricing in expectations that the ECB will raise its deposit rate from minus 0.5 per cent at present to almost zero by the end of the year, according to trading in money markets. A week ago, markets had signalled an increase to minus 0.38 per cent, Bloomberg data show. The marked shift in investor sentiment came after ECB president Christine Lagarde declined on Thursday to rule out rate rises this year to rein in inflation that is running at a historic high of 5.1 per cent. Only last month, Lagarde had dismissed such a move as “very unlikely”.“President Lagarde signalled a hawkish policy pivot at yesterday’s meeting and we now look for a substantially earlier policy exit,” said Sven Jari Stehn, chief European economist at Goldman Sachs. Goldman now expects the ECB to end its massive asset purchase programme in June, followed by 25bp rises in September and December, leaving the central bank’s main policy rate at zero by the end of this year. Just as ECB policymakers seemed to have been stunned by the persistence of inflation, their decision to signal a more aggressive tightening of policy unsettled veteran eurozone economists. “What a mess,” said Erik Nielsen, chief economics adviser at UniCredit, adding that Lagarde was “clearly shaken by the latest inflation number and wanted to buy insurance — but [caused] chaos in the process”.Lagarde said the ECB would not decide any changes in policy until it published new forecasts in March, which are widely expected to show inflation hitting its target over the next two years — a key condition for it to raise rates. She said there was consensus among ECB policymakers that it should first stop net asset purchases before raising rates.Giovanni Zanni, chief euro area economist at NatWest, said Lagarde now appeared to be “morphing into a hawk” as she took more seriously the risks that inflation continued to seriously overshoot the ECB’s target of close to, but less than, 2 per cent. “Inflation has been stickier than originally anticipated and risks are now tilted to the upside,” said Fabio Bassi, a rates strategist at JPMorgan. The ECB’s big pivot has also knocked the debt of other eurozone countries. Italy’s five-year bond yield rose 5bp on Friday to 0.85 per cent. It had traded at 0.47 per cent a week ago. Similar rises in borrowing costs also took place in other big eurozone economies such as Spain. The gap between Italy’s 10-year government bond and the equivalent German Bund hit 150bp on Thursday for the first time since September 2020, in a sign markets are growing more anxious that a sharp tightening in ECB policy could hurt the bloc’s most indebted members. Krishna Guha, vice-chair of Evercore ISI, said the ECB had “more cause than its peers to ensure” any phasing out of net asset purchases was done gradually “because it has to worry about spreads in the European periphery”. More

What colour is a rainbow? On average, white. And what is the current level of UK inflation? On average, 5.4 per cent. Both answers are true. Both are missing something important.The consumer price index, or CPI, aims to measure the average price paid by UK consumers. But when the latest CPI numbers came out, the food writer and poverty campaigner Jack Monroe took to Twitter with some examples from her local supermarket: 500g of cheap pasta up from 29p to 70p year on year; 1kg rice up from 45p to £2; baked beans up from 22p to 32p. As the examples piled up, Monroe concluded that the inflation rate faced by poor households was much higher than the CPI’s 5.4 per cent.“The system by which we measure the impact of inflation is fundamentally flawed,” she added — in a thread that has since been read by millions of people. I agree, for different reasons. Monroe is worried that prices are soaring for the poorest households. I’m worried that our current inflation-measuring process simply can’t tell us if she is right or wrong.Instead, we have to rely on clues. One clue comes from looking at a reweighted CPI. The FT’s Chris Giles did this. He pointed out that while energy prices were rising fast, so were the prices of treats such as restaurant meals. Reweight the CPI to reflect the spending of a poorer household (more food and heating) or a richer household (more eating out and flights) and the inflation rate is much the same for everyone.Another clue comes from industry watchers. Retail analyst Steve Dresser notes that Jack Monroe’s data came from Asda, but “Asda have been cutting value tier products for a while . . . it’s not indicative of the wider market.” A third clue comes from a large survey of consumer spending recently published by academic economists in the US. They conclude that the inflation spike in late 2020 was higher for “low income, low education and Black households”. However, the difference is half a percentage point or less.But we shouldn’t have to rely on clues. Reweighting the CPI cannot show us what is happening to the super-cheap food products that are so important to someone shopping on a tight budget. Indeed, the head of inflation at the Office for National Statistics, Mike Hardie, tells me that the ONS data gatherers target the most popular products, based on shelf space. Are these products the cheapest staples or not? “We haven’t done the analysis to know,” acknowledges Hardie.I have some sympathy. It makes sense to calculate inflation by looking at the same goods, month after month. But a savvy budget shopper might first head to the “reduced to clear” section. Then they might pick up some cheap carbohydrates. Rice one week, spaghetti the next — whatever was on special offer. What is the inflation rate for such a shopper? Even in theory, the answer is elusive.Nevertheless, the answer matters. It may not matter to the Bank of England as it tries to ensure price stability across the entire economy, but it should matter to the government as it sets the level of benefits and the state pension. And it certainly matters to a desperate parent at the checkout, trying to figure out if they can afford a jar of peanut butter or whether the toast will be dry this week.Jack Monroe — who tells me that her “key interests are maths and cheap pasta” — is now pulling together a voluntary effort to produce a price index of cheap food staples and other basics such as menstrual products, toothpaste and shampoo.But that cannot compete with the resources that the Office for National Statistics devotes to compiling the CPI, collecting 6,000 price quotations a day across the country. The ONS has just announced plans to beef up this effort with scanner data from supermarkets.Is this statistical firepower well aimed? Yes, if the aim is to measure inflation across the economy. No, if we want to understand what is happening to the poorest households. It is both expensive and invaluable to gather really good data. But it is often shocking to realise that there are certain questions that have slipped between the cracks. In 2007, we were stunned to realise how much we didn’t know about risk in the banking sector. In 2019, Caroline Criado Perez’s Invisible Women made a compelling case that data relevant to women were often neglected. In 2020, the ONS was quick to set up an infection survey representative of the population, but such a survey could have been established years before. Now Jack Monroe has pointed to another gap.Nerds and bean-counters everywhere — my kind of people — need to try to fill such gaps in our knowledge rather than stumble into them. There are white rainbows everywhere, and it is not always easy to pick out the colours. But we must try.Tim Harford’s new book is “How to Make the World Add Up”Follow @FTMag on Twitter to find out about our latest stories first More