Aurelia Butler

Inflation in the world’s rich economies has hit a 25-year high, fuelling concerns about the rising cost of living for households and increasing pressure on central banks to raise interest rates.The annual pace of consumer price growth in the OECD group of developed nations hit 5.8 per cent in November, according to data released on Tuesday, up from just 1.2 per cent in the same month the previous year and the highest rate since May 1996.The increase was driven by energy prices, which soared by 28 per cent, up more than 3 percentage points from the previous month to the highest rate since June 1980. Food price inflation also picked up strongly to 5.5 per cent, from 4.6 per cent in the previous month. The data came as the incoming governor of Germany’s central bank warned that inflation could remain high for longer than economists expect.In the US, the chair of the Federal Reserve warned that high inflation poses a “severe threat” to a recovery in the nation’s jobs market.Are you experiencing price inflation where you live? Tell us what you’re seeing at [email protected]. Thanks for reading FirstFT Asia. Here’s the rest of today’s news — EmilyFive more stories in the news1. Russian troops to withdraw, says Kazakhstan president Kazakhstan president Kassym-Jomart Tokayev, who requested help from Russia last week after claiming the protests were a “coup d’état”, said yesterday that the Moscow-led military mission was complete and the contingent would leave the country within 10 days.

Russia sent a peacekeeping mission last week to help quell the worst unrest in Kazakhstan’s modern history © Russian Defense Ministry Press Service/AP

2. Citadel Securities sells $1.2bn stake to Sequoia and Paradigm Hedge fund billionaire Ken Griffin has sold a $1.2bn stake in Citadel Securities to venture capitalists Sequoia and Paradigm, paving the way for an initial public offering of one of the world’s biggest market makers.3. Indian government to take stake in Vodafone Idea The company has approved a rescue plan to make India’s government its largest shareholder, nationalising an almost 36 per cent stake in the flailing telecoms operator to prevent its collapse.4. Chip crisis hits Volkswagen EV sales in China Volkswagen sold 10,000 fewer electric cars in China than expected last year, as deliveries to customers in its biggest market were hit by semiconductor shortages amid fierce competition from domestic brands.5. Yen at risk of further fall against dollar in 2022, say analysts The Japanese yen could fall further in the coming weeks after breaking through a crucial support level against the US dollar and hitting a 50-year low against the currencies of Japan’s most important trading partners, according to analysts.Coronavirus digestEnglish football’s Premier League has won a High Court payout of at least $212m from a Chinese broadcaster over a contract that collapsed during the pandemic.The World Health Organization said countries were “a way off” from treating coronavirus as endemic. A top official warned that more than half of Europe could be infected with Omicron within the next two months.Boris Johnson faces fresh questions about his government’s adherence to its own Covid rules after it emerged that the UK prime minister attended a “bring your own booze” event during lockdown.China has locked down another city. Residents of Anyang, a city of 5.5m, were ordered to stay home while mass Covid-19 testing takes place.As a solution to the anti-vaxxer problem, Andreas Utermann argues that those unvaccinated by choice should be required to pay for their Covid hospital care.The day aheadMonthly consumer price index data With global inflation ticking up, eyes will be on CPI data released from China, India, Russia and the US today. Nato meetings The Military Committee, the highest military authority of Nato, meets in Chiefs of Defence session at Nato headquarters in Brussels. Separately, the Nato-Russia Council will meet to discuss the build-up of Russian soldiers along Ukraine’s borderFederal Reserve Beige Book published The US central bank will release its first summary on economic conditions in 2022. What else we’re readingChina applies brakes to Africa lending From almost nothing, Chinese banks now make up about one-fifth of all lending to Africa. But Beijing has signalled a more cautious approach following a 20-year lending spree. What does that mean for the continent?

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How to ask for a pay rise — and get one! Claer Barrett, the FT’s moneymaking expert, pulls apart that big, scary box labelled “Asking for a pay rise” in this week’s episode of the Money Clinic. This is a repeat of an earlier episode. North Korea’s embrace of international climate goals North Korea’s reclusive regime typically eschews engagement with the international community. But having been devastated in recent decades by a series of extreme weather events, Pyongyang has proved itself willing to engage on a host of environmental issues.Indian bankers look to 2022 ‘feast’ in ebullient mood Since FT’s Chloe Cornish moved to India’s business capital Mumbai in late November, financiers have met her with an encouraging greeting: “You’ve arrived in India at a great time!” Fundraisings are surging as the subcontinent bounces back from the pandemic.Will the UK and EU agree a deal on Northern Ireland? Talks will resume this week on how to resolve the long-running dispute over trading arrangements. But officials remain far apart on the substance of how to manage the new trade border in the Irish Sea. The Financial Times looks at the prospects for a deal.Film Jessica Kingdon had remarkable access to a wide range of businesses in China for her Oscar-longlisted documentary Ascension. From sex dolls to MAGA hats, here’s what the film says about the Chinese dream.

A worker in Zhongshan inspects the head of a sex doll during assembly in the documentary © MTV Documentary Films More

PARIS (Reuters) – Fifteen years ago, Valerie Pecresse quelled a student uprising over her university reforms with the same blend of consensus-building politics and reformist mettle that she believes will now propel her to the French presidency.Chosen to run last month by rank-and-file members of the conservative Les Republicains party, voter surveys show Pecresse could beat President Emmanuel Macron in April’s election. If she succeeds, she would become France’s first woman head of state.In an office adorned with framed cinema posters, Pecresse, 54, reeled off a list of woes facing France that speak of her social and fiscal conservatism: poor control of national borders, violent city ghettos and a growing pile of debt.”We need to restore order, both on our streets and in our national accounts,” she told Reuters.A minister for higher education and then the budget during Nicolas Sarkozy’s presidency, Pecresse said last week she would bring out “the power hose” to clean up trouble neighbourhoods where the state had lost authority and lawlessness prevailed.Critical of Macron for “burning a hole in the state coffers” during the pandemic, Pecresse has promised to reform France’s generous pension system and cut a bloated public wage bill – both pledges she says Macron has failed to deliver on.Her style, she says, is “two-thirds (Angela) Merkel and one-third (Margaret) Thatcher”.”I am a woman who consults, decides and acts,” she said. “The one-part Thatcher is to say ‘I’m not for turning’,” referring to a phrase in a 1980 speech when the conservative British leader refused to back down on liberalising reforms.Pecresse pointed to the cutting of hundreds of jobs at her head office to make way for more high-school staff, reduced spending and higher investment as proof she gets things done. In 2020, she won a second mandate to run the greater Paris region. Opponents who had nicknamed her “the blond” had paid the price, she said. Asked if France was ready for a woman president, she replied: “Voters on the right have shown they’re ready, and they can be the most reticent to trust a woman.” ‘UNBENDING’Pecresse’s party, which traces its origins to Charles de Gaulle, dominated French politics for much of the post-war era. But after Macron redrew the landscape in 2017, it has struggled to unite its centre-right and staunchly conservative factions.The defection of a senior conservative lawmaker https://www.reuters.com/article/france-election-zemmour-idUKKBN2JJ073 to the campaign bid of far-right polemicist Eric Zemmour on Sunday underscored the challenge she faces keeping a feuding party together. Opinion polls show her in a close-fought race with Marine Le Pen, leader of the traditional far-right, for the second spot in the election’s run-off vote. Zemmour follows close behind. Should she make it, she would be the most dangerous opponent for Macron, the surveys suggest. Born in an upmarket Paris suburb and educated at France’s elite ENA school for politicians and civil servants, Pecresse is a moderate in a conservative party that has lurched rightwards as the far-right fuels anti-immigrant sentiment and a desire among many voters to get tough on law and order. Pecresse has toughened her language on immigration and identity, seeking to neutralise the threat from Le Pen and Zemmour, whose promise to “save France” https://www.reuters.com/business/media-telecom/french-far-right-commentator-zemmour-announces-presidential-run-2021-11-30 from Islam has polarised France.She says she would end the automatic right to French citizenship for people born in France and stiffen judicial sentences in places where police have lost control.On a table in Pecresse’s office sits a photograph of Samuel Paty, the teacher decapitated by a Chechen-born teenager in a suburb of Paris in 2020 because he used caricatures of the Prophet Mohammad in a lesson on free speech. Pecresse said the teacher’s portrait would follow her to the Elysee Palace if she won the election.”We have to be unbending in the respect of our values,” Pecresse said. “In the public space, the law comes before faith. It’s the same rights, the same duties for all.” More

BofA said it had set its Mexico growth forecast well below the 2.8% consensus due to a “conservative policy mix, high uncertainty and low growth expectations”, highlighting the COVID-19 situation in the country as well.”Low growth is taking place despite strong US growth, which is helping the Mexican economy through trade and remittances,” said Carlos Capistran, Canada and Mexico Economist at BofA Securities.The forecast compares with the 2.77% growth predicted by the Mexican central bank’s latest monthly poll of analysts.Battered by the coronavirus pandemic, Mexico’s economy shrank by some 8.5% in 2020, and the latest estimates suggest it fell well short of recovering all the lost ground last year.Separately, Mexico’s national statistics agency said Mexican industrial output fell 0.1% in November compared to the previous month and grew 1.6% in comparison with November 2020. More

(Reuters) – Federal Reserve Chair Jerome Powell said on Tuesday the Fed is looking to tweak a key leverage requirement and sees climate stress scenario analysis as a “key tool” for ensuring that the top U.S. banks are aware of climate change financial risks.Specifically, Powell said the Fed is sticking with its plan to review the “supplementary leverage ratio,” (SLR) a major constraint on bank activity, after banks complained it discouraged them from investing in the U.S. Treasury market. His comments came during his renomination hearing before the Senate Banking Committee.Concerns about the SLR’s impact on bank activity are becoming more acute, as the Fed looks to step back from its bond-buying habits as it reduces economic stimulus. Banks had griped that the SLR, which directs banks to hold capital against investments regardless of their risk, effectively discouraged them from buying traditional safe assets like Treasuries.The Fed was forced to temporarily waive the SLR after the Treasury market seized up in March 2020. The Fed let that relief expire a year later, but promised to review the SLR for potential improvement. Powell’s comments clarify that work is still on the Fed’s agenda.Separately, Powell said climate-specific analysis of potential bank risks will be a “key tool” for Fed bank supervisors in the future, as the central bank looks to catch up with global counterparts in assessing the financial risks posed by climate change.Reuters has the Fed has privately pressed banks on how they are internally gauging that risk, and banks believe the Fed could launch a “scenario analysis” of climate risks in 2023. More

Markets’ rocky start to the year owes more than a little to the expectation that the Federal Reserve might hike rates over the coming months. By the end of the year, it might also shrink its vast balance sheet. Given what happened to assets the last time the Fed engaged in monetary tightening, one can appreciate why investors are jittery. As this chart from the excellent Jim Reid of Deutsche Bank highlights, the last period of Fed tightening, in 2017/18, was followed by the highest ever proportion of asset classes recording negative total returns. Eeek:

As Reid puts it: Timing is near impossible to get right without a modicum of good luck but if the Fed do embark on as aggressive a series of rate hikes and QT, as is looking likely, then at some point the probability of major market corrections across the board are likely. There may be even more tumult this time around. Debt burdens are now substantially higher. The Institute of International Finance’s Global Debt Monitor measured global debt at just shy of $300tn, or 350 per cent of GDP, in the third quarter of 2021. Up from around $250tn, or about 320 per cent of global GDP in 2018.

Add to this the wave of activity in more shadowy sectors such as crypto, and it’s not hard to imagine that an awful lot of people, businesses and governments are leveraged to the hilt. Even relatively small changes in the price and quantity of credit could have a major impact on prices. As margin calls are made, a vicious circle of fire sales — and further calls — could ensue. On top of this, there’s another risk. If inflation endures, the size and pace of Fed tightening may exceed current expectations. The federal funds rate is now about eight percentage points lower than it was the last time inflation was north of 6 per cent:

That’s before we get to the rise in size of the balance sheet. Here’s how it’s ballooned since the Fed’s current time series began in 2002:

It might be well be the case that, with debt being as high as it is, credit might not need to be as costly as in the past in order to dent demand and tame inflation. But, as Edward Price warns here, the right federal funds rate for the real economy may still be far higher than markets can stomach. With the Greenspan put nearing its 35th birthday, the assumption that the US’s monetary policymakers will undo tightening if there’s market turmoil is baked into investors’ mindsets. But nothing lasts forever. Decades of low inflation have given the US’s central bankers room to soothe investors’ nerves. At some point, price pressures will become endemic. When they do, the Fed’s tune might change in a more radical way than markets expect. More

Developing countries will fall further behind the rich world as they struggle to recover from the economic impact of the pandemic owing to the spread of coronavirus variants and their limited capacity for stimulus efforts, the World Bank has warned.In new economic forecasts published on Tuesday the Washington-based institution said it expected the global economy to experience a two-speed recovery in 2022 that would fuel widening inequality. While output in rich countries will return to pre-pandemic levels by 2023, developing countries will still be an average of 4 per cent below their pre-pandemic level. The feeble rebound from the impact of coronavirus will be especially severe among the most vulnerable countries, the bank said; by next year, output among fragile, conflict-affected and small island states will still be 7.5 to 8.5 per cent below its pre-pandemic level.David Malpass, World Bank president, said there was a “canyon” between growth rates in rich and poor countries. While per capita incomes in advanced economies rose by 5 per cent last year, in low-income countries they rose just 0.5 per cent, he said.“We are going in the opposite direction of what you would want for good development,” he said. “We have a big problem ahead that may last for years.”Ayhan Kose, head of the bank’s economic forecasting unit, said that developing countries faced “a plethora of risks” that increased the likelihood of a hard landing, including outbreaks of new variants, rising inflation, financial market stress as interest rates rise, and climate-related disasters. He called for more aggressive action by the global community on vaccines, debt and climate change.“These problems are not going anywhere,” he said. “It’s not the case that we don’t know what the problems are or don’t have the frameworks to deal with them . . . The question is whether the global community and national policymakers can implement the prescriptions we have at the aggregate level.”Kose said emerging and developing economies had been unable to deliver the scale of fiscal and monetary response to the pandemic that had been enacted in advanced economies, and many were already being forced to withdraw stimulus by raising interest rates to tackle a surge in inflation.“[They] did as much as they could but it was nowhere near what advanced economies were able to do. Now they are withdrawing support faster,” he said. “This is a pandemic of inequality that will spill over across generations.”Kose called on the G20 group of large economies to move faster on debt relief and to do more to ensure participation by private sector lenders. In particular he flagged the need for more ambitious action to protect developing economies from the virus.“In the case of vaccines, the problem is very clear and not addressing it has consequences,” he said. “We are pretending we can overcome the pandemic without vaccinating large populations around the world. That is not true.”The bank’s warning echoed similar calls from other global institutions.Rebeca Grynspan, secretary-general of the UN Conference on Trade and Development, said the distribution of vaccines worldwide had been “lousy and irrational”, with advanced economies having secured supply agreements for 3bn more vaccine doses than they needed for their own populations, or almost enough to provide two doses to the whole of Africa.“The cost of the pandemic is escalating beyond anything we have seen before, and not only in terms of debt and the health of millions of citizens,” she said. She said the spread of new variants “is already affecting the recovery and eroding the legitimacy of governments and democratic institutions everywhere . . . If we don’t find the political will and space for negotiation, unfortunately reality will take us to very bad results”.Kristalina Georgieva, managing director of the IMF, warned last year that the world was “facing a worsening two-track recovery”, driven by differences in vaccine availability, infection rates and countries’ varying ability to provide policy support. She called it “a critical moment that calls for urgent action by the G20 and policymakers”. More

The start of this year is an eerie echo of 2021. A new variant of coronavirus has sent infections rocketing in all parts of the world, threatening economic prospects for the year ahead. But rather than a rerun of the severe downturns we saw in 2020, the outlook is one of high global inflation and rising interest rates, with severe risks for the more vulnerable emerging and developing economies. Last year showed that advanced economies were more resilient than expected to Covid-19 waves even without effective vaccines. The Alpha wave was appalling for people’s health, but hardly dented the global recovery. With more monetary and fiscal stimulus than proved necessary, the result was excess demand and inflation.Getting through Omicron should be easier. Global case numbers are at record levels, but numbers of deaths are still subdued. Vaccines have proved effective at preventing serious disease and the community also has greater immunity from prior infection, so advanced economies should be better able to adapt. Despite this good news, the forecasts from the IMF, OECD and World Bank — which suggest that advanced economies can return to the path of economic output forecast pre-pandemic without any long-term damage — are likely to be too optimistic.

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High inflation shows there were severe bottlenecks associated with running a hot economy last year, there are fewer workers seeking jobs, and two years of weak investment will hamper economies’ ability to deliver the productivity improvements that foster non-inflationary growth. The greatest danger for 2022 and 2023 therefore is still inflation from demand exceeding available supply. Headline inflation rates will fall in the second half of the year as some of last year’s big price rises fall out of the annual comparison, but the main risk to the global economy is that they stay too high for comfort. The Federal Reserve is belatedly responding to this threat in the US where it is greatest, noting that it may need to raise interest rates from the current zero per cent floor “sooner or at a faster pace” than officials initially thought. Many informed observers now expect four quarter-point interest rate rises this year along with the Fed selling some government bonds it owns. Tighter monetary policy should not be confused with a highly restrictive monetary policy stance, however. A nominal interest rate of 1 per cent would still stimulate demand, especially with inflation likely to be well above the Fed’s 2 per cent target by the end of the year. The problem for poorer countries is that tighter, but still stimulative, US policy might well spell trouble for them. As the World Bank notes in this week’s outlook for the global economy, tighter US monetary policy is likely to exacerbate an already difficult outlook for emerging and developing economies. Poorer economies have struggled to recover as quickly as advanced ones, lacking the same degree of trust and market access to borrow freely to protect their populations in the early stages of the pandemic. Without financial resilience and generous social security systems, the downturns in emerging economies have been more persistent and recoveries weaker. The perfect storm was completed by the difficulties these economies have faced in gaining access to vaccines and in delivering them to their populations. Two decades in which emerging economies’ living standards caught up with their richer cousins have now ended. The World Bank estimates that real incomes in 70 per cent of emerging and developing economies will grow slower than those in advanced economies between 2021 and 2023. Weakness during the pandemic is also likely to leave much larger and more persistent scars. Compared with an (albeit optimistic) assumption of no scars in rich countries, the World Bank estimates that recoveries in poorer countries will fall almost 6 per cent short of pre-pandemic expectations. This further limits their ability to service existing debts, which have risen by 10 percentage points of national income since the start of the pandemic, according to the IMF. This is likely to bring a hard landing, debt distress and social discontent in weaker countries.None of this is made any easier by the possibility that the Fed will press harder on the brakes than expected this year, rattling markets and tightening global monetary conditions. In what was something of an understatement, David Malpass, president of the World Bank, said the prospects in 2022 “are unlikely to be favourable for developing countries”. Emerging and developing economies are not all alike in the conditions they face. China has ample fiscal firepower to cushion its economy in the short-term even if this comes at the expense of long-needed rebalancing. Turkey is the prime example of a country vulnerable to a shock. High public and private debt alongside little credibility in its economic institutions is a toxic mix. Countries in similar positions have already seen capital flight and face the threat of a vicious circle of weakening prospects and increased vulnerabilities. The outlook is difficult. The World Bank expects 40 per cent of emerging and developing economies still to have national income below the 2019 level in 2023. Those are the conditions likely to prompt a reckoning this year rather than more muddling through. [email protected] More